-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OWenSeRKBuUYZlkm+PhDLI5rlcO+KhJ+AplA1YUOf6bwh7SuiIYmQecR2eI+OlLM qxgbt6OcA6HQNzQ1kiPaoQ== 0000950129-99-002755.txt : 19990623 0000950129-99-002755.hdr.sgml : 19990623 ACCESSION NUMBER: 0000950129-99-002755 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 26 FILED AS OF DATE: 19990621 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN PLUMBING & MECHANICAL INC CENTRAL INDEX KEY: 0001072258 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 760577628 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-81139 FILM NUMBER: 99649161 BUSINESS ADDRESS: STREET 1: 1502 AUGUSTA SUITE 425 CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: 7132437350 MAIL ADDRESS: STREET 1: 515 POST OAK BLVD STREET 2: SUITE 450 CITY: HOUSTON STATE: TX ZIP: 77027 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHRISTIANSON ENTERPRISES INC CENTRAL INDEX KEY: 0001088247 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 741588887 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-81139-01 FILM NUMBER: 99649162 BUSINESS ADDRESS: STREET 1: 1950 LOUIS HENNA BLVD CITY: ROUND ROCK STATE: TX ZIP: 78664 BUSINESS PHONE: 5122465235 MAIL ADDRESS: STREET 1: 1950 LOUIS HENNA BLVD CITY: ROUND ROCK STATE: TX ZIP: 78664 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHRISTIANSON SERVICE CO CENTRAL INDEX KEY: 0001088249 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 742810094 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-81139-02 FILM NUMBER: 99649163 BUSINESS ADDRESS: STREET 1: 1950 LOUIS HENNA BLVD CITY: ROUND ROCK STATE: TX ZIP: 78664 BUSINESS PHONE: 5122465235 MAIL ADDRESS: STREET 1: 1950 LOUIS HENNA BLVD CITY: ROUND ROCK STATE: TX ZIP: 78664 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GGR LEASING CORP CENTRAL INDEX KEY: 0001088250 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 742250428 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-81139-03 FILM NUMBER: 99649164 BUSINESS ADDRESS: STREET 1: 1950 LOUIS HENNA BLVD CITY: ROUND ROCK STATE: TX ZIP: 78664 BUSINESS PHONE: 5122465235 MAIL ADDRESS: STREET 1: 1950 LOUIS HENNA BLVD CITY: ROUND ROCK STATE: TX ZIP: 78664 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RCR PLUMBING INC CENTRAL INDEX KEY: 0001088252 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 953139393 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-81139-04 FILM NUMBER: 99649165 BUSINESS ADDRESS: STREET 1: 12620 MAGNOLLA AVENUE CITY: RIVERSIDE STATE: CA ZIP: 92503 BUSINESS PHONE: 9093715000 MAIL ADDRESS: STREET 1: 1950 LOUIS HENNA BLVD CITY: ROUND ROCK STATE: TX ZIP: 78664 FILER: COMPANY DATA: COMPANY CONFORMED NAME: J A CROSON CO CENTRAL INDEX KEY: 0001088254 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 310784594 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-81139-05 FILM NUMBER: 99649166 BUSINESS ADDRESS: STREET 1: 2130 FRANKLIN RD CITY: COLUMBUS STATE: OH ZIP: 43209 BUSINESS PHONE: 6142538556 MAIL ADDRESS: STREET 1: 1950 LOUIS HENNA BLVD CITY: ROUND ROCK STATE: TX ZIP: 78664 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN FIRE SPRINKLER CO CENTRAL INDEX KEY: 0001088256 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 311232113 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-81139-06 FILM NUMBER: 99649167 BUSINESS ADDRESS: STREET 1: 2130 FRANKLIN RD CITY: COLUMBUS STATE: OH ZIP: 43209 BUSINESS PHONE: 6142538556 MAIL ADDRESS: STREET 1: 1950 LOUIS HENNA BLVD CITY: ROUND ROCK STATE: TX ZIP: 78664 FILER: COMPANY DATA: COMPANY CONFORMED NAME: J A CROSON CO OF FLORIDA CENTRAL INDEX KEY: 0001088258 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 592944806 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-81139-07 FILM NUMBER: 99649168 BUSINESS ADDRESS: STREET 1: 2001 OLD HIGHWAY 441 SUITE 2 CITY: MT DORA STATE: FL ZIP: 32757 BUSINESS PHONE: 3523830741 MAIL ADDRESS: STREET 1: 1950 LOUIS HENNA BLVD CITY: ROUND ROCK STATE: TX ZIP: 78664 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEEPES RIVER CITY MECHANICAL INC CENTRAL INDEX KEY: 0001088259 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 311056529 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-81139-08 FILM NUMBER: 99649169 BUSINESS ADDRESS: STREET 1: 2105 SCHAPELLE CITY: CINCINNATI STATE: OH ZIP: 45240 BUSINESS PHONE: 5138518881 MAIL ADDRESS: STREET 1: 1950 LOUIS HENNA BLVD CITY: ROUND ROCK STATE: TX ZIP: 78664 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEITH RIGGS PLUMBING INC CENTRAL INDEX KEY: 0001088260 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 860265707 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-81139-09 FILM NUMBER: 99649170 BUSINESS ADDRESS: STREET 1: 422 SOUTH DREW CITY: MESA STATE: AZ ZIP: 85210 BUSINESS PHONE: 6028341488 MAIL ADDRESS: STREET 1: 1950 LOUIS HENNA BLVD CITY: ROUND ROCK STATE: TX ZIP: 78664 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POWER PLUMBING INC CENTRAL INDEX KEY: 0001088261 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 760255723 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-81139-10 FILM NUMBER: 99649171 BUSINESS ADDRESS: STREET 1: 6401 BINGLE SUITE 222 CITY: HOUSTON STATE: TX ZIP: 77092 BUSINESS PHONE: 7134600288 MAIL ADDRESS: STREET 1: 1950 LOUIS HENNA BLVD CITY: ROUND ROCK STATE: TX ZIP: 78664 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NELSON MECHANICAL CONTRACTORS INC CENTRAL INDEX KEY: 0001088268 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 591266315 STATE OF INCORPORATION: FL FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-81139-11 FILM NUMBER: 99649172 BUSINESS ADDRESS: STREET 1: 211 E BRENT CITY: PENSCOLE STATE: FL ZIP: 32503 BUSINESS PHONE: 8504769164 MAIL ADDRESS: STREET 1: 1950 LOUIS HENNA BLVD CITY: ROUND ROCK STATE: TX ZIP: 78664 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHERWOOD MECHANICAL INC CENTRAL INDEX KEY: 0001088269 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 330085731 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-81139-12 FILM NUMBER: 99649173 BUSINESS ADDRESS: STREET 1: 13630 DANIELSON ST CITY: POWAY STATE: CA ZIP: 92064 BUSINESS PHONE: 6198793000 MAIL ADDRESS: STREET 1: 1950 LOUIS HENNA BLVD CITY: ROUND ROCK STATE: TX ZIP: 78664 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MILLER MECHANICAL CONTRACTORS INC CENTRAL INDEX KEY: 0001088270 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 581303601 STATE OF INCORPORATION: GA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-81139-13 FILM NUMBER: 99649174 BUSINESS ADDRESS: STREET 1: 1976 AIRPORT INDUSTRIALPARK DR CITY: MARIETTA STATE: GA ZIP: 30062 BUSINESS PHONE: 7709523864 MAIL ADDRESS: STREET 1: 1950 LOUIS HENNA BLVD CITY: ROUND ROCK STATE: TX ZIP: 78664 S-4 1 AMERICAN PLUMBING & MECHANICAL, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 15, 1999 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- AMERICAN PLUMBING & MECHANICAL, INC.* (Exact name of Registrant as specified in its charter) DELAWARE 1711 76-0577626 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
--------------------- 1502 AUGUSTA, SUITE 425 HOUSTON, TEXAS 77057 (713) 243-7350 (Address, including zip code, and telephone number, including area code, of Registrant's Principal Executive Offices) --------------------- DAVID C. BAGGETT SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY 1502 AUGUSTA, SUITE 425 HOUSTON, TEXAS 77057 (713) 243-7350 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: DAVID P. OELMAN ANDREWS & KURTH L.L.P. 600 TRAVIS, SUITE 4200 HOUSTON, TEXAS 77002 (713) 220-4200 --------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective Amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] --------------------- CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE(1) - --------------------------------------------------------------------------------------------------------------------------------- 11 5/8% Series B Senior Subordinated Notes due 2008...................... $125,000,000 100% $125,000,000 $34,750 - --------------------------------------------------------------------------------------------------------------------------------- Guarantees of 11 5/8% Series B Senior Subordinated Notes due 2008......... -- -- -- (2) - --------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
(1) Calculated in accordance with Rule 457(f)(2). For purposes of this calculation, the Offering Price per Series B Note was assumed to be the stated principal amount of each Series A Note that may be received by the Registrant in the exchange transaction in which the Series B Notes will be offered. (2) Pursuant to Rule 457(n), no registration fee is required for the Guarantees of the Senior Exchange Notes registered hereby. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. * The subsidiaries of American Plumbing & Mechanical, Inc. will guarantee the securities being registered hereby and therefore are also registrants. Information about these additional registrants appears on the following pages. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 ADDITIONAL REGISTRANTS CHRISTIANSON ENTERPRISES, INC. (Exact name of registrant as specified in its charter) TEXAS 1711 74-1588887 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
--------------------- CHRISTIANSON SERVICE COMPANY (Exact name of registrant as specified in its charter) TEXAS 1711 74-2810094 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
--------------------- G.G.R. LEASING CORPORATION (Exact name of registrant as specified in its charter) TEXAS 1711 74-2250428 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
--------------------- R.C.R. PLUMBING, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 1711 95-3139393 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
--------------------- J.A. CROSON COMPANY (Exact name of registrant as specified in its charter) OHIO 1711 31-0784594 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
--------------------- 3 FRANKLIN FIRE SPRINKLER COMPANY (Exact name of registrant as specified in its charter) OHIO 1711 31-1232113 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
--------------------- J.A. CROSON COMPANY OF FLORIDA (Exact name of registrant as specified in its charter) FLORIDA 1711 59-2944806 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
--------------------- TEEPE'S RIVER CITY MECHANICAL, INC. (Exact name of registrant as specified in its charter) OHIO 1711 31-1056529 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
--------------------- KEITH RIGGS PLUMBING, INC. (Exact name of registrant as specified in its charter) ARIZONA 1711 86-0265707 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
--------------------- POWER PLUMBING, INC. (Exact name of registrant as specified in its charter) DELAWARE 1711 76-0255723 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
--------------------- 4 NELSON MECHANICAL CONTRACTORS, INC. (Exact name of registrant as specified in its charter) FLORIDA 1711 59-1266315 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
--------------------- SHERWOOD MECHANICAL, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 1711 33-0085731 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
--------------------- MILLER MECHANICAL CONTRACTORS, INC. (Exact name of registrant as specified in its charter) GEORGIA 1711 58-1303603 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
--------------------- 5 INFORMATION CONTAINED HEREIN is subject to completion or amendment. A registration statement relating to these securities has been filed with the SEC. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. SUBJECT TO COMPLETION, DATED JUNE 15, 1999 PROSPECTUS $125,000,000 [AMERICAN PLUMBING & MECHANICAL, INC. LOGO] AMERICAN PLUMBING & MECHANICAL, INC. OFFER TO EXCHANGE $1,000 PRINCIPAL AMOUNT OF 11 5/8% SERIES B NOTES DUE 2008 FOR EACH $1,000 PRINCIPAL AMOUNT OF EXISTING 11 5/8% SERIES A NOTES DUE 2008 ($125,000,000 IN PRINCIPAL AMOUNT OUTSTANDING) THE EXCHANGE OFFER - - Expires 5:00 p.m., New York City time, , 1999, unless extended. - - Subject to customary conditions, which we may waive, the exchange offer is not conditioned upon a minimum aggregate principal amount of existing notes being tendered. - - All existing notes tendered according to the procedures in this prospectus and not withdrawn will be exchanged. - - The exchange offer is not subject to any condition other than that it not violate applicable laws or any applicable interpretation of the staff of the SEC. THE EXCHANGE NOTES - - The terms of the exchange notes to be issued in the exchange offer are substantially identical to the existing notes, except that we have registered the exchange notes with the SEC. In addition, the exchange notes will not be subject to the transfer restrictions the existing notes are subject to, and provisions relating to an increase in the stated interest rate on the existing notes will be eliminated. - - The exchange notes will be senior subordinated obligations of American Plumbing & Mechanical, Inc. They are subordinate to our senior debt. As of , 1999, we had senior debt outstanding of approximately $ million. - - Interest on the exchange notes will accrue from , 1999 at the rate of 11 5/8% per year, payable semi-annually in arrears on each April 15 and October 15, beginning October 15, 1999. - - The exchange notes will be fully and unconditionally guaranteed by our guarantor subsidiaries. --------------------- YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 11 OF THIS PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER. --------------------- NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------------- THE DATE OF THIS PROSPECTUS IS , 1999. 6 TABLE OF CONTENTS
PAGE ---- Summary..................................................... 1 Risk Factors................................................ 11 Forward-Looking Statements.................................. 20 The Exchange Offer.......................................... 21 The Company................................................. 31 Use of Proceeds............................................. 34 Capitalization.............................................. 35 Selected Historical Financial Data.......................... 36 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 38 Business.................................................... 55 Management.................................................. 68 Certain Transactions........................................ 72 Principal Stockholders...................................... 80 Description of Other Indebtedness........................... 81 Description of The Notes.................................... 83 Registration Rights......................................... 118 Plan of Distribution........................................ 118 Legal Matters............................................... 119 Experts..................................................... 119 Where You Can Find More Information......................... 119 Index to Financial Statements............................... F-1
i 7 SUMMARY This summary highlights some information from this prospectus, but does not contain all material features of the exchange offer. Please read the detailed information appearing elsewhere in this prospectus. In this prospectus, the terms "we," "us," "our," "our company" and "AMPAM" refer to American Plumbing & Mechanical, Inc., including the founding companies unless the context otherwise requires. The term "founding companies" refers to Christianson Enterprises, Inc., G.G.R. Leasing Corporation and Christianson Service Company (collectively, "Christianson"), R.C.R. Plumbing, Inc. ("RCR"), Teepe's River City Mechanical, Inc. ("Teepe's"), Keith Riggs Plumbing, Inc. ("Keith Riggs"), J.A. Croson Company and Franklin Fire Sprinkler Company, (collectively, "Croson Ohio"), J.A. Croson Company of Florida ("Croson Florida"), Power Plumbing, Inc. and subsidiaries ("Power"), Nelson Mechanical Contractors, Inc. ("Nelson"), Sherwood Mechanical, Inc. ("Sherwood") and Miller Mechanical Contractors, Inc. ("Miller"). The following summary contains basic information about this exchange offer. It may not contain all the information that is important to you. For a more complete understanding of this exchange offer, we encourage you to read this entire document and to consult with your own legal and tax advisors. THE EXCHANGE OFFER On May 19, 1999, we completed a private offering of 11 5/8% Senior Subordinated Notes due 2008. The notes were sold for a total purchase price of $122,417,500. We entered into a registration rights agreement with the initial purchasers in the private offering in which we agreed to deliver to you this prospectus and to use our best efforts to complete the exchange offer by November 15, 1999. This exchange offer entitles you to exchange your notes for notes with identical terms that are registered with the SEC. If the exchange offer is not completed by November 15, 1999, the interest rate on the notes will be increased by 0.25% per year for each 90-day period during which the exchange offer is not completed. The maximum amount by which the interest rate will be increased is 0.5% in total. After the exchange offer is complete, you will no longer be entitled to any exchange or registration rights for your notes. You should read the discussion under the heading "The Exchange Offer" beginning on page and "Description of the Notes" beginning on page for further information about the exchange notes. The Exchange Offer......... We are offering to exchange up to $125,000,000 of the exchange notes for up to $125,000,000 of the existing notes. Existing notes may be exchanged only in $1,000 increments. The terms of the exchange notes are identical in all material respects to the existing notes except the exchange notes will not be subject to transfer restrictions and holders of exchange notes will have no registration rights. Also, the exchange notes will not contain provisions for an increase in their stated interest rate. Resale..................... We believe the notes issued in the exchange offer may be offered for resale, resold and otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act provided that: - the notes received in the exchange offer are acquired in the ordinary course of your business; - you are not participating and have no understanding with any person to participate in the distribution of the notes issued to you in the exchange offer; and - you are not an affiliate of ours. 1 8 Each broker-dealer issued notes in the exchange offer for its own account in exchange for notes acquired by the broker-dealer as a result of market-making or other trading activities must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the notes issued in the exchange offer. A broker-dealer may use this prospectus for an offer to resell, resale or other retransfer of the notes issued to it in the exchange offer. Expiration Date............ 5:00 p.m., New York City time, on , 1999, unless we extend the exchange offer. It is possible that we will extend the exchange offer until all existing notes are tendered. You may withdraw existing notes you tendered at any time before , 1999. See "The Exchange Offer -- Expiration Date; Extensions; Amendments." Accrued Interest on the Exchange Notes and the Existing Notes........... The exchange notes will bear interest at a rate of 11 5/8% per year, payable semi-annually on April 15 and October 15, commencing October 15, 1999. April 1 and October 1 are the record dates for determining holders entitled to interest payments. Conditions to the Exchange Offer...................... The exchange offer is subject only to the following conditions: - the compliance of the exchange offer with securities laws; - the tender of the existing notes; - the representation by the holders of the existing notes that the exchange notes they will receive are being acquired by them in the ordinary course of their business and that at the time the exchange offer is completed the holder had no plan to participate in the distribution of the exchange notes; and - No judicial or administrative proceeding shall have been threatened that would limit us from proceeding with the exchange offer. Procedures for Tendering Existing Notes Held in the Form of Book-Entry Interests................ The existing notes were issued as global securities and were deposited with State Street Bank and Trust Company when they were issued. State Street Bank and Trust Company issued a certificate-less depositary interest in each note, which represents a 100% interest in the note, to The Depository Trust Company. Beneficial interests in the notes held by participants in DTC, which we will refer to as notes held in book-entry form, are shown on, and transfers of the notes can be made only through, records maintained in book-entry form by DTC and its participants. If you are a holder of a note held in the form of a book-entry interest and you wish to tender your book-entry interest for exchange in the exchange offer, you must transmit to State Street Bank and Trust 2 9 Company, as exchange agent, before the expiration date of the exchange offer: EITHER - a properly completed and executed letter of transmittal, which accompanies this prospectus, or a facsimile of the letter of transmittal, including all other documents required by the letter of transmittal, to the exchange agent at the address on the cover page of the letter of transmittal; OR - a computer-generated message transmitted by means of DTC's Automated Tender Offer Program system and received by the exchange agent and forming a part of a confirmation of book entry transfer in which you acknowledge and agree to be bound by the terms of the letter of transmittal; AND, EITHER - a timely confirmation of book-entry transfer of your outstanding notes into the exchange agent's account at DTC, according to the procedure for book-entry transfers described in this prospectus under the heading "The Exchange Offer -- Book-Entry Transfer" beginning on page 25, must be received by the exchange agent on or prior to the expiration date; OR - the documents necessary for compliance with the guaranteed delivery procedures described below. Procedures for Tendering Existing Notes........... If you wish to accept the exchange offer, sign and date the letter of transmittal, and deliver the letter of transmittal, along with the existing notes and any other required documentation, to the exchange agent. By executing the letter of transmittal, you will represent to us that, among other things: - the exchange notes you receive will be acquired in the ordinary course of your business; - you have no arrangement with any person to participate in the distribution of the exchange notes; and - you are not an affiliate of AMPAM or, if you are an affiliate, you will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. Special Procedures for Beneficial Owners.......... If you are a beneficial owner whose existing notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and wish to tender those existing notes in the exchange offer, please contact the registered holder as soon as possible and instruct them to tender on your behalf and comply with the instructions in this prospectus. 3 10 Guaranteed Delivery Procedures................. If you wish to tender your existing notes, you may do so according to the guaranteed delivery procedures described in this prospectus under the heading "The Exchange Offer -- Guaranteed Delivery Procedures." Withdrawal Rights.......... You may withdraw existing notes you tender by furnishing a notice of withdrawal to the exchange agent containing the information described under the heading "The Exchange Offer -- Withdrawal of Tenders" at any time before 5:00 p.m. New York City time on , 1999. Acceptance of Existing Notes and Delivery of Exchange Notes........... We will accept for exchange any and all existing notes that are properly tendered before the expiration date. See "The Exchange Offer -- Procedures for Tendering." The same conditions described under the heading "The Exchange Offer -- Conditions" will apply. The exchange notes will be delivered promptly following the expiration date. Exchange Agent............. State Street Bank and Trust Company is serving as exchange agent for the exchange offer. See "The Exchange Offer" for more detailed information concerning the terms of the exchange offer. 4 11 SUMMARY OF TERMS OF EXCHANGE NOTES The form and terms of the notes to be issued in the exchange offer are the same as the form and terms of existing notes except that the notes to be issued in the exchange offer will be registered under the Securities Act and, accordingly, will not bear legends restricting their transfer. Also, the exchange notes will not contain the penalty interest provisions related to the registration of the existing notes that are in the existing notes. The notes issued in the exchange offer will evidence the same debt as the outstanding notes, and both the existing notes and the exchange notes are governed by the same indenture. Issuer..................... American Plumbing & Mechanical, Inc. 1502 Augusta, Suite 425 Houston, Texas 77057 (713) 243-7350 Total Amount............... $125,000,000 total principal amount of 11 5/8% Senior Subordinated Notes due 2008. Maturity................... October 15, 2008. Interest Payment Dates..... April 15 and October 15, beginning October 15, 1999. Guarantees................. Each of our direct subsidiaries will jointly and severally guarantee the exchange notes. Future subsidiaries also may be required to guarantee the exchange notes. The guarantees are full and unconditional. If we cannot make payments on the notes when they are due, our guarantor subsidiaries must make them. See "Description of the Notes -- The Guarantees." Ranking.................... The exchange notes and the subsidiary guarantees are referred to as senior subordinated debt because they are, by their terms, ranked behind our existing and future senior indebtedness and ranked ahead of our existing and future subordinated indebtedness in right of payment. Because the exchange notes are subordinated, in the event of bankruptcy, liquidation or dissolution, holders of the exchange notes will not receive any payment until holders of senior indebtedness and guarantor senior indebtedness have been paid in full. The exchange notes and the subsidiary guarantees: - rank equally with our other senior subordinated debt; - rank ahead of all of our subordinated debt; and - rank below our senior indebtedness. The terms "senior indebtedness" and "guarantor senior indebtedness" are defined in the "Description of the Notes -- Certain Definitions" section of this prospectus. As of March 31, 1999, we had $3.1 million of consolidated senior indebtedness outstanding. Optional Redemption........ We may redeem some or all of the exchange notes at any time on or after April 15, 2004 at the redemption prices listed under the heading "Description of the Notes -- Optional Redemption." Optional Redemption Following Sales of Equity................... Before April 15, 2002, we may redeem up to 35% of the total principal amount of the exchange notes with the net proceeds of sales of equity in AMPAM at the price listed in the section "Description of the 5 12 Notes" under the heading "Optional Redemption," if at least 65% of the total principal amount of the exchange notes originally issued remains outstanding after the redemption. Change of Control.......... If we sell assets or if a change of control occurs, we may be required to offer to repurchase the exchange notes at the prices listed in the section "Description of the Notes," under the heading "Change of Control." Basic Covenants of the Indenture.................. The indenture governing the exchange notes contains covenants that, among other things, restrict our ability and the ability of our restricted subsidiaries to: - borrow money; - pay dividends on stock or purchase stock; - make investments; - use our assets as security in other transactions; - sell material assets or merge with or into other companies; - sell stock in our subsidiaries; and - restrict the ability of our subsidiaries to pay dividends and make other payments. These covenants are subject to important exceptions and qualifications, which are described in the section "Description of the Notes" under the heading "Material Covenants" in this prospectus. Risk Factors............... See "Risk Factors" for a discussion of factors you should carefully consider before deciding to invest in the notes. OUR COMPANY We believe we are the largest company in the United States focused primarily on the plumbing and mechanical contracting services industry. On April 1, 1999, we combined the operations of the ten founding companies, which individually are leading regional providers of plumbing and mechanical contracting services, and commenced operations as one company. We believe that by combining these regional leaders into one professional organization, we have created a national provider which we expect to strengthen and broaden our relationships with our consolidating customer base and enhance our operating efficiency. The ten founding companies have been in business for an average of approximately 31 years and, in 1998, performed plumbing and mechanical contracting services in 24 states. On a pro forma basis for the fiscal year ended December 31, 1998, we generated revenues and EBITDA of $322.2 million and $39.6 million, respectively. Almost all construction and renovation in the United States creates demand for plumbing and mechanical contracting services. Depending upon the exact scope of the work, we estimate that the plumbing and mechanical contracting services work we perform generally accounts for approximately 8% to 12% of the total construction cost of a commercial and institutional project and approximately 5% to 10% of the total construction cost of a residential project. In 1992, the most recent year for which data are available from the United States Department of Commerce, the value of new construction and repair and maintenance work completed by plumbing and mechanical contractors totaled approximately $28 billion, including approximately $17 billion from plumbing services and $11 billion from mechanical services. 6 13 OUR COMPETITIVE STRENGTHS We believe several factors give us a competitive advantage in our industry, including our: - strong customer relationships and market leadership; - geographically diverse operations; - large and highly skilled work force; - diverse business mix; and - experienced management team. OUR BUSINESS STRATEGY Our goal is to build on our position as a leading provider of plumbing and mechanical contracting services in the residential and commercial/institutional markets by: - increasing our market share and the profitability of our operations; and - pursuing a selective acquisition strategy. OUR OPERATING STRATEGY We intend to leverage the geographical presence and competitive strengths of our founding and subsequently acquired companies with the objective of continuing strong internal growth. The key elements of our operating strategy are: - achieve purchasing savings and other economies of scale; - continue to attract, develop and retain qualified plumbers and management personnel; - increase off-site prefabrication of plumbing and mechanical systems and components; - emphasize "value engineering" and design-and-build capability; - increase use of technology; - leverage geographic presence to obtain and retain multi-location customers; and - broaden scope of specialty services. OUR ACQUISITION STRATEGY We believe that the highly fragmented nature of the plumbing and mechanical contracting services industry offers significant opportunities for us to pursue our acquisition strategy. Key elements of our acquisition strategy include: - increase geographic coverage; and - expand our service capabilities. 7 14 SUMMARY PRO FORMA COMBINED FINANCIAL DATA The following summary unaudited pro forma financial data for AMPAM, is adjusted for - the effects of the acquisition of the founding companies; - the effects of other pro forma adjustments to our historical financial statements; and - the original issuance of the notes and our use of the proceeds from that sale. For financial reporting purposes, Christianson is considered to be the accounting acquiror. This data includes our results of operations as if the acquisitions and related transactions were closed on January 1 of the respective period presented. This data does not necessarily indicate the results that we would have obtained had these events actually occurred on January 1 of the respective period presented, or our future results. During the periods presented below, our founding companies were not under common control or management and, therefore, the data presented may not be comparable to or indicative of future performance. The unaudited pro forma financial data is based on preliminary estimates, available information and some assumptions that our management deems appropriate. Since the information in this table is only a summary and does not provide all of the information contained in our financial statements, including the related notes, you should read "-- Selected Individual Founding Company Financial Data," "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and Unaudited Pro Forma Combined Financial Statements and related notes thereto included elsewhere in this prospectus.
YEAR ENDED THREE MONTHS ENDED DECEMBER 31, 1998(A) MARCH 31, 1999(A) -------------------- ------------------ ($ IN THOUSANDS) ($ IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenues.................................................. $322,203 $ 88,005 Cost of revenues (including depreciation)................. 255,461 66,732 -------- -------- Gross profit.............................................. 66,742 21,273 Selling, general and administrative expenses(b)........... 31,255 9,026 Goodwill amortization(c).................................. 2,696 674 -------- -------- Income from operations.................................... 32,791 11,573 Other income (expenses)(d)................................ (14,046) (3,178) -------- -------- Income before provision for income taxes.................. 18,745 8,395 Provision for income taxes(e)............................. 8,362 3,537 -------- -------- Net income................................................ $ 10,383 $ 4,858 ======== ======== OTHER FINANCIAL DATA AND RATIOS: EBITDA(f)................................................. $ 39,583 $ 13,611 EBITDA margin............................................. 12.3% 15.5% Total interest expense.................................... 15,453 3,863 Interest expense on net debt(g)........................... 14,701 3,675 Depreciation and amortization............................. 6,172 1,541 Capital expenditures...................................... 2,838 899 Ratio of EBITDA to total interest expense................. 2.6x 3.5x Ratio of EBITDA to interest expense on net debt(g)........ 2.7x 3.7x Ratio of earnings to fixed charges(h)..................... 2.1x 3.0x
AS OF MARCH 31, 1999(A) ------------------ BALANCE SHEET DATA: Cash and cash equivalents................................. $ 10,861 Working capital........................................... 30,919 Total assets.............................................. 210,060 Total debt (including current maturities)................. 125,486 Redeemable preferred stock(i)............................. 13,635 Total stockholders' equity................................ 17,683
Footnotes on following page 8 15 - --------------- (a) Gives effect to the acquisitions of the founding companies and other related pro forma adjustments, as if all of these transactions had occurred on January 1 of the respective periods presented and to the portion of the proceeds from the private placement of notes to be used to repay existing outstanding indebtedness, as if these transactions had occurred on January 1 of the respective period presented for purposes of the Statement of Operations Data and Other Financial Data and Ratios and on March 31, 1999 for purposes of Balance Sheet Data. (b) Reflects an aggregate of approximately $14.7 million and $0.3 million in pro forma reductions for the year ended December 31, 1998, and the three months ended March 31, 1999, respectively, in salary, bonus and benefits of the owners of the founding companies to which they have agreed prospectively and the effect of revisions to various lease agreements between the founding companies and stockholders of the founding companies. Also, for the three months ended March 31, 1999, reflects the reduction of other income to eliminate the gain on disposal of assets related to AMPAM's acquisition of the founding companies. Certain members of management and founders received stock and/or stock options in connection with the organization of our company. The applicable accounting rules require that the stock issued to some members of our management be treated as compensation expense. As a result of this treatment, we recorded a non-recurring non-cash charge on April 1, 1999 of approximately $7.7 million which will reduce our EBITDA and net income and will be reflected in our second quarter results. See "Unaudited Pro Forma Combined Financial Statements" and the Notes thereto. (c) Reflects amortization of the goodwill to be recorded as a result of the acquisitions over a 40-year period and computed on the basis described in the notes to the unaudited pro forma combined financial statements. (d) Reflects the reduction in historical interest expense related to historical debt of the founding companies which was transferred to stockholders of the founding companies, along with the related nonoperating assets of the founding companies, in connection with the acquisitions. Also reflects the interest cost on the debt incurred on April 1, 1999 to finance the acquisitions. (e) Assumes that all pre-tax income before non-deductible goodwill and other permanent items is subject to a 39% overall tax rate. (f) "EBITDA" means net income before interest expense, taxes, depreciation and amortization. EBITDA should not be considered in isolation from or as an alternative to net income as an indicator of our operating performance, or as an alternative to cash flow from operating activities and other consolidated income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. EBITDA measures presented may not be comparable to other similarly titled measures of other companies. We believe EBITDA is a widely accepted financial indicator of a company's ability to service debt. (g) For the purpose of this calculation "net debt" represents total debt (excluding redeemable preferred stock) less cash and cash equivalents. (h) For the purpose of this calculation, "earnings" represents income from operations before income tax expense, plus fixed charges. "Fixed charges" consist of interest, whether expensed or capitalized, amortization of debt expense and an estimated portion of rentals representing interest expense. Approximately $114.6 million of indebtedness assumed for pro forma purposes to be outstanding at March 31, 1999 was retired with a portion of the proceeds from the original issuance of notes. (i) The redeemable preferred stock has a $0.01 par value per share. Currently, there are 1,048,820 shares of Series A Preferred Stock issued and outstanding with a liquidation preference of $13.6 million. 9 16 SELECTED INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA The following table presents some summary historical statement of operations data of the founding companies for each of the three most recent fiscal years. The historical statement of operations data below have not been adjusted for the pro forma adjustments related to contractually agreed reductions in salaries, bonuses and benefits, or any other pro forma adjustments, reflected in the Unaudited Pro Forma Combined Financial Statements included elsewhere in this prospectus. The statement of operations data presented below have been audited for the periods reflected in their historical financial statements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
THREE MONTHS ENDED FISCAL YEAR ENDED(A) MARCH 31 ------------------------------ ------------------- 1996(B) 1997 1998 1998 1999 -------- -------- -------- ------- ------- ($ IN THOUSANDS) ($ IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Christianson: Revenues.................................................. $ 50,330 $ 50,909 $ 63,374 $12,744 $16,824 Gross profit.............................................. 12,127 13,405 17,670 3,720 5,434 RCR: Revenues.................................................. $ 40,430 $ 49,738 $ 63,293 $13,200 $19,441 Gross profit.............................................. 5,328 7,361 11,689 2,456 4,080 Teepe's: Revenues.................................................. $ 35,400 $ 42,687 $ 50,627 $11,449 $10,546 Gross profit.............................................. 4,990 5,517 6,579 1,383 1,259 Keith Riggs: Revenues.................................................. $ 27,080 $ 29,680 $ 34,464 $ 7,279 $ 8,917 Gross profit.............................................. 3,097 3,815 4,499 1,084 1,448 Croson Ohio: Revenues.................................................. $ 26,185 $ 27,029 $ 25,234 $ 5,927 $ 7,247 Gross profit.............................................. 3,880 4,059 4,796 827 1,166 Croson Florida: Revenues.................................................. $ 11,722 $ 18,095 $ 28,142 $ 6,148 $ 8,274 Gross profit.............................................. 2,422 4,179 7,659 1,490 2,792 Power: Revenues.................................................. $ 14,039 $ 17,010 $ 17,109 $ 3,501 $ 5,620 Gross profit.............................................. 1,853 2,330 2,738 327 1,598 Nelson: Revenues.................................................. $ 12,507 $ 12,844 $ 15,058 $ 4,110 $ 4,670 Gross profit.............................................. 3,397 3,960 4,951 1,641 2,160 Sherwood: Revenues.................................................. $ 8,261 $ 11,482 $ 13,556 $ 3,721 $ 3,969 Gross profit.............................................. 1,628 1,615 2,490 976 501 Miller: Revenues.................................................. $ 10,603 $ 8,042 $ 11,346 $ 2,791 $ 2,497 Gross profit.............................................. 1,845 2,236 3,671 822 835 COMBINED: Total revenues............................................ $236,557 $267,516 $322,203 $70,870 $88,005 Gross profit.............................................. 40,567 48,477 66,742 14,726 21,273
- --------------- (a) The fiscal years presented are the years ended December 31, 1996, 1997 and 1998 for all founding companies, except for Croson Ohio, Sherwood and Miller, for which the fiscal years presented are the years ended September 30, 1996, 1997 and 1998; Nelson, for which the fiscal years presented are the years ended April 30, 1997 and December 31, 1997 and 1998; and Christianson, for which the fiscal years presented are August 31, 1996 and December 31, 1997 and 1998. For the three months ended December 31, 1998, Croson Ohio, Sherwood, and Miller had combined revenues of $16,329 and gross profit of $3,341. (b) With respect to some of the founding companies, the statement of operations data for the 1996 fiscal year was derived from internal company financial records that have not been audited by any independent accountants. Accordingly, you are cautioned not to place undue reliance on this information. Nevertheless, management believes that the financial information shown in this table may be helpful in understanding the past operations of the founding companies. 10 17 RISK FACTORS You should carefully consider the following factors as well as the other information contained in this registration statement before deciding to invest in the notes. - -- WE RECENTLY ACQUIRED THE FOUNDING COMPANIES AND CONDUCTED NO BUSINESS UNTIL APRIL 1, 1999. IF TOO MUCH OF MANAGEMENT'S TIME IS SPENT ATTENDING TO INTEGRATING THE OPERATIONS, OUR OPERATIONS COULD SUFFER. Our company was founded in June 1998 but we had not conducted any operations or generated any revenues until April 1, 1999 when we acquired the founding companies. As a result, we have no combined historical financial results as one company for investors to evaluate. The unaudited pro forma combined financial results of the founding companies cover periods during which the founding companies and AMPAM were not under common control or management and, therefore, may not accurately depict our future financial or operating results. In addition, historical financial results for the individual founding companies do not necessarily indicate the future results of our combined company. - -- AS A RESULT OF OUR AGGRESSIVE ACQUISITION PROGRAM, WE HAVE GENERATED WHAT WE BELIEVE IS A SUBSTANTIAL AMOUNT OF DEBT. OUR CURRENT DEBT LEVEL COULD LIMIT OUR ABILITY TO FUND FUTURE WORKING CAPITAL NEEDS AND INCREASE OUR EXPOSURE DURING ADVERSE ECONOMIC CONDITIONS. ADDITIONALLY, OUR DEBT LEVEL COULD PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES. We have now and, after the offering, will continue to have a significant amount of debt. The following chart, with dollar amounts in thousands, shows some important credit statistics and is presented assuming we had completed the original issuance of the notes and applied the proceeds from such sale as of March 31, 1999: Total indebtedness.......................................... $125,486 Redeemable preferred stock.................................. $ 13,635 Stockholders' equity........................................ $ 17,683 Ratio of earnings to fixed charges.......................... 2.7x
Our substantial indebtedness could have important consequences to you. For example, it could: - make it more difficult for us to satisfy our obligations with respect to the notes; - increase our vulnerability to general adverse economic and industry conditions; - limit our ability to fund future working capital, capital expenditures and other general corporate requirements; - limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; - place us at a disadvantage compared to our competitors that have less debt; and - limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds. Additionally, failing to comply with those covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on us. See "Description of the Notes -- Optional Redemption" and "-- Change of Control" and "Description of Other Indebtedness." - -- YOUR RIGHT TO RECEIVE PAYMENTS ON THESE NOTES IS JUNIOR TO OUR EXISTING INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE BORROWINGS. FURTHER, THE GUARANTEES OF THESE NOTES ARE JUNIOR TO ALL OUR GUARANTORS' EXISTING INDEBTEDNESS AND POSSIBLY TO ALL THEIR FUTURE BORROWINGS. The notes and the subsidiary guarantees rank behind all of our and our subsidiary guarantors' existing indebtedness and all of our and their future borrowings, except any future indebtedness that expressly provides that it ranks equal with, or subordinated in right of payment to, the notes and the guarantees. As 11 18 a result, upon any distribution to our creditors or the creditors of the guarantors in a bankruptcy, liquidation or reorganization or similar proceeding relating to us or the guarantors or our or their property, the holders of senior indebtedness of our company and the subsidiary guarantors will be entitled to be paid in full in cash before any payment may be made with respect to the notes or the subsidiary guarantees. In addition, all payments on the notes and the subsidiary guarantees will be blocked in the event of a payment default on senior indebtedness and may be blocked for up to 179 consecutive days in the event of non-payment defaults on senior indebtedness. In the event of a bankruptcy, liquidation or reorganization or similar proceeding relating to our company or the guarantors, holders of the notes will participate with trade creditors and all other holders of subordinated indebtedness of our company and the guarantors in the assets remaining after we and the subsidiary guarantors have paid all of the senior indebtedness. However, because the indenture requires that amounts otherwise payable to holders of the notes in a bankruptcy or similar proceeding be paid to holders of senior indebtedness instead, holders of the notes may receive less, ratably, than holders of trade payables in any proceeding of this type. In any of these cases, we and the subsidiary guarantors may not have sufficient funds to pay all of our creditors and holders of notes may receive less, ratably, than the holders of senior indebtedness. Assuming we completed the original issuance of the notes and applied the proceeds on March 31, 1999, these notes and the subsidiary guarantees would have been subordinated to approximately $3.1 million of senior indebtedness and approximately $95 million would have been available for borrowing as senior indebtedness under our credit facility. We will be permitted to borrow substantial additional indebtedness, including senior indebtedness, in the future under the terms of the indenture. - -- TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL. Our ability to make payments on and to refinance our indebtedness, including the exchange notes, and to fund planned capital expenditures will depend on our ability to generate cash in the future. This, to an extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations, that currently anticipated cost savings and operating improvements will be realized on schedule or that future borrowings will be available to us under our credit facility in an amount sufficient to enable us to pay our indebtedness, including the exchange notes, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, including the notes, on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness, including our credit facility and the exchange notes, on commercially reasonable terms or at all. - -- DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND OUR SUBSIDIARIES MAY STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER EXACERBATE THE RISKS DESCRIBED ABOVE. We may be able to incur substantial additional indebtedness in the future. Although the indenture contains limitations on our ability to incur additional indebtedness, it does not prohibit us from doing so and any and all additional indebtedness could be senior indebtedness. In addition, we have a credit facility that provides for borrowings up to $95 million, all of which would constitute senior indebtedness. The senior status of this additional debt means that if we were to dissolve, all senior indebtedness would be repaid in full before any amount would be paid to the holders of the notes. If new debt is added to our current debt levels and the current debt levels of our subsidiaries, the related risks that we and they now face could intensify. See "Capitalization," "Selected Historical Financial Data," "Description of the Notes -- Optional Redemption" and "-- Change of Control" and "Description of Other Indebtedness." 12 19 - -- DOWNTURNS IN CONSTRUCTION COULD ADVERSELY AFFECT OUR BUSINESS BECAUSE A SIGNIFICANT PORTION OF OUR BUSINESS IS DEPENDENT ON LEVELS OF NEW CONSTRUCTION ACTIVITY. Our business primarily involves the installation of plumbing and mechanical systems in newly constructed and renovated residential, commercial, industrial and institutional structures. The level of new commercial and institutional installations is affected by fluctuations in the level of new construction of commercial and institutional buildings in the markets in which we operate. The commercial/institutional market is impacted by local economic conditions, changes in interest rates, changes in governmental and institutional appropriations for construction and other related factors. The residential market is similarly affected by changes in general and local economic conditions, such as the following: - employment and income levels; - interest rates and other factors affecting the availability and cost of financing; - tax implications for home buyers; - consumer confidence; and - housing demand. In addition, economic growth in our areas of operations has increased substantially in the last several years, enabling us to achieve historic levels of revenue and net income for the 1998 fiscal year. We can provide no assurances that these levels of growth can be sustained in the future. A material downturn in our areas of operations would result in a decline in the number of residential and commercial housing starts, which could negatively affect our business, financial condition and results of operations. - -- OUR PRO FORMA FINANCIAL STATEMENTS ASSUME A RATE AT WHICH WE WILL WRITE OFF THE SIGNIFICANT GOODWILL ON OUR BALANCE SHEET AND THIS MAY OVERSTATE OUR PRO FORMA EARNINGS. THIS AND OTHER ACQUISITION RELATED ACCOUNTING ISSUES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FUTURE FINANCIAL RESULTS. The acquisition of the founding companies has been accounted for using the purchase method of accounting, and the total purchase price has been allocated to the assets and liabilities of the companies acquired based upon the fair values of the assets and liabilities. As a result, we will have significant non- cash charges for depreciation and amortization expense related to the fixed assets and "goodwill" that were acquired in the acquisition. Our balance sheet includes an amount designated as "goodwill" that on a pro forma as adjusted basis at March 31, 1999 represented 51% of assets and 609% of stockholders' equity. In addition, we will pay additional consideration in the form of cash and stock in the event that adjusted net income of the founding companies for the year ended December 31, 1999 exceeds targeted levels. These payments, if any, would result in additional "goodwill." Goodwill arises when an acquiror pays more for a business than the fair value of the tangible and separately measurable intangible net assets. Generally accepted accounting principles require that this and all other intangible assets be amortized over the period benefited. AMPAM's management has determined that the period to be benefitted by the amounts designated as goodwill is 40 years and will write off that goodwill as a noncash operating expense over this period. On May 19, 1999, the Financial Accounting Standards Board tentatively decided to reduce the current maximum write-off period of 40 years for goodwill to 20 years for most companies. We understand the 20-year write-off period may apply only to acquisitions occurring after a future date the FASB will set. We understand the FASB will issue a formal proposal on this subject for public comment later in the year. If this FASB proposal results in a change in generally accepted accounting principles we may be required to accelerate the rate at which we recognize expense resulting from our goodwill. Any such acceleration would cause our reported earnings to decrease for some period of time. In addition to the goodwill amortization issue described above, some members of management and founders received stock in connection with the organization of our company. The applicable accounting rules require that the stock issued to some of these members of our management be treated as compensation expense. As a result of this treatment, we recorded a non-recurring non-cash charge on April 1, 1999 of approximately $7.7 million which will reduce our EBITDA and net income and is 13 20 reflected in our second quarter results. See "Unaudited Pro Forma Combined Financial Statements" and the Notes thereto. - -- A FAILURE ON OUR PART TO SUCCESSFULLY INTEGRATE THE FOUNDING COMPANIES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FUTURE FINANCIAL RESULTS. The founding companies have been operating and will continue to operate as separate independent entities, and we cannot guarantee that we will be able to integrate these businesses on an economic basis. In addition, we cannot guarantee that the recently assembled management group will be able to oversee the combined entity and effectively implement our operating or growth strategies. Until we establish centralized accounting and other administrative systems, we will rely on the systems used by the founding companies. If we are unable to successfully coordinate and integrate the founding companies and future acquisitions into AMPAM, including their accounting and administrative functions and other banking and insurance functions and computer systems, then our business, financial condition and results of operations may be materially and adversely affected. - -- OUR GROWTH COULD BE DIFFICULT TO MANAGE. AN ACTIVELY GROWING COMPANY LIKE OURS REQUIRES THE CONSTANT ATTENTION OF ITS MANAGEMENT. IF TOO MUCH OF OUR MANAGEMENT'S TIME IS SPENT ATTENDING TO THE GROWTH OF AMPAM, OUR OPERATIONS COULD SUFFER. If we are unable to manage our growth, or if we are unable to attract and retain additional qualified management, there could be a material adverse effect on our financial condition and results of operations. As we continue to grow, there can be no assurance that our management group will be able to oversee AMPAM and effectively implement our operating or growth strategies. We expect our management will expend time and effort in evaluating, completing and integrating acquisitions and opening new facilities. We cannot guarantee that our systems, procedures and controls will be adequate to support our expanding operations, including the timely receipt of financial information from acquired companies. A key point of our business strategy is to grow by acquiring other plumbing and mechanical contracting service companies. We cannot guarantee that we will be able to acquire additional businesses or integrate and manage them successfully. We cannot assure you that the businesses we acquire will achieve sales and profitability that justify our investment. Acquisitions we make may involve additional issues, including: - adverse short-term effects on our financial results; - diversion of our management's attention; - dependence on retention, hiring and training of key personnel; and - risks associated with unanticipated problems or legal liabilities. Although we believe we are the first company to focus primarily on consolidating the plumbing and mechanical contracting service industry, we also believe that the industry will continue to experience consolidation on both a national and a regional level as existing consolidators focusing on related industries pursue their acquisition strategies or as other companies develop acquisition objectives similar to those of our company. In addition, we cannot guarantee that other existing companies consolidating related industries or yet-to-be-formed companies will not also adopt a similar focus and compete with our company for acquisition candidates in plumbing and mechanical contracting services and related industries. These competitors may have greater financial resources than our company to finance acquisitions and internal growth opportunities and might be willing to pay higher prices for the same acquisition opportunities. This competition could have the effect of increasing the price for acquisitions or reducing the number of suitable acquisition candidates. If these types of acquisitions can be made, we cannot give any assurance that businesses acquired will achieve sales and profitability that justify the investment. 14 21 - -- IF WE ARE UNABLE TO OBTAIN A SIGNIFICANT AMOUNT OF ADDITIONAL CAPITAL, WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR GROWTH STRATEGY WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FUTURE FINANCIAL RESULTS. The expansion of our company through our acquisition program will require significant capital. The timing, size and success of our acquisition efforts and the associated capital commitments cannot be readily predicted. We currently intend to use common stock for a portion of the consideration used in future acquisitions. If potential acquisition candidates are unwilling to accept common stock as part of the consideration for the sale of their businesses, we may be required to use more of our cash resources, if available, to pursue our acquisition program. If we do not have enough cash resources, our growth could be limited unless we are able to obtain additional capital through future debt or equity financings, including borrowings under existing credit facilities. If incurred, this indebtedness would increase our leverage, may make us more vulnerable to economic downturns and may limit our ability to withstand competitive pressures. We have put into place a credit facility to be used for working capital, capital expenditures and other general corporate purposes. Although we believe this credit facility will be sufficient, we cannot guarantee that it will be able to entirely fund our acquisition program. Additionally, this credit facility includes financial covenants that limit our operations and financial flexibility. As a result, we might be limited in our ability to pursue our acquisition strategy successfully which could have a negative impact on our financial results. - -- FUTURE ACQUISITIONS COULD CHANGE OUR CAPITAL AND DEBT STRUCTURE AND COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS. Although AMPAM does not currently have any agreements or understandings with respect to the acquisition of any company or business, AMPAM may in the future enter into discussions or negotiations with potential acquisition candidates engaged in the plumbing, mechanical, utility installation or HVAC or related businesses. Negotiations may result in agreements to acquire one or more companies or businesses or their assets. In connection with any acquisition of this type, the consideration payable by AMPAM may consist of shares of common stock, cash, promissory notes or other securities of AMPAM or a combination of these types of consideration. Accordingly, if AMPAM enters into agreements to acquire one or more companies or businesses after the date of this prospectus, the capitalization of AMPAM is likely to differ, possibly significantly, from the capitalization reflected in this prospectus. In particular, the number of shares of common stock that would be issued and outstanding, the amount of indebtedness and the amount of working capital as of the date of the closing of any future acquisitions may be significantly different from the amounts reflected in this prospectus. In addition, if AMPAM enters into agreements to acquire one or more companies or businesses after the date of this prospectus, the pro forma financial statements of AMPAM are likely to differ from the pro forma financial statements included in this prospectus. - -- THERE IS CURRENTLY A SHORTAGE OF QUALIFIED PLUMBERS AND TECHNICIANS. SINCE THE MAJORITY OF OUR WORK IS PERFORMED BY PLUMBERS AND TECHNICIANS, THIS SHORTAGE COULD LIMIT OUR ABILITY TO GROW. We are dependent upon an adequate supply of skilled personnel to complete our plumbing and mechanical contracts on time. The supply of skilled personnel is sensitive to economic and competitive conditions and the level of demand for plumbing and mechanical contracting services. Many companies in the plumbing and mechanical contracting services industry are currently experiencing shortages of qualified personnel, and as a result there is significant competition for skilled labor. Accordingly, our ability to increase productivity and profitability may be limited by our ability to employ, train and retain the skilled personnel necessary to meet our service requirements. In addition, labor shortages could result in wage 15 22 increases, which could reduce our operating margins and have a negative effect on our financial condition and results of operations. We cannot guarantee that, among other things: - we will be able to maintain the skilled labor force necessary to operate efficiently; - our labor expenses will not increase as a result of a shortage in the skilled labor supply; or - we will not have to curtail internal growth as a result of labor shortages. - -- THE LOSS OF A GROUP OF KEY PERSONNEL, EITHER AT THE CORPORATE OR OPERATING LEVEL, COULD ADVERSELY AFFECT OUR BUSINESS. Because we intend to continue to operate on a decentralized basis, our operations will continue to depend on the efforts and experience of our executive officers and the senior management of the founding companies. Furthermore, we will depend on the senior management of companies that may be acquired in the future. Although we have entered into employment agreements with some of our executive officers, we cannot guarantee that any individual will continue in their capacity for any particular period of time. We have not entered into employment agreements with some of the members of management of the founding companies. Also, we may not enter into employment agreements with members of management of additional companies that we may acquire in the future. The loss of key personnel or the inability to hire and retain qualified employees could have a material adverse effect on our business, financial condition and results of operations. We do not maintain key man life insurance. - -- THE HIGHLY COMPETITIVE NATURE OF OUR INDUSTRY COULD AFFECT OUR PROFITABILITY BY REDUCING OUR PROFIT MARGINS. The plumbing and mechanical contracting services industry is highly fragmented and competitive. The industry is generally served by a large number of small, owner-operated private companies and by several large companies that provide plumbing and mechanical contracting services (often on an ancillary basis to an HVAC business) on a regional or national basis. We will compete with other consolidators, including those focused on the HVAC business, that also provide some plumbing and mechanical contracting services. We could also face competition in the future from other competitors entering the market. Some of our competitors may have greater financial resources or may achieve greater efficiencies which may allow these competitors the ability to provide a greater range of services, provide services in a larger number of locations or offer services at lower prices. In some geographic regions, we may not be eligible to compete for contracts because our employees are not subject to collective bargaining agreements. - -- THE ESTIMATES WE USE IN PLACING BIDS COULD BE MATERIALLY INCORRECT. THE USE OF INCORRECT ESTIMATES COULD RESULT IN LOSSES ON A FIXED PRICE CONTRACT. THESE LOSSES COULD BE MATERIAL TO OUR BUSINESS. Nearly all of our plumbing and mechanical contracting services are performed under fixed price contracts, so the risk of cost overruns on a given project is generally borne by our company. Our ability to remain profitable depends in part on our ability to accurately estimate the material and labor costs of completing plumbing and mechanical installation projects. From time to time, market conditions in a given geographic area can cause increases in skilled labor costs, and disruptions in the supply of plumbing and mechanical materials can cause cost increases, either directly or through delays in delivery of materials. Costs can also be affected by delays caused by weather, other contractors working on a given project or other factors beyond our control. Increases in costs caused by any of these factors could have material adverse effects on our business, financial condition and results of operation. - -- OUR INDUSTRY EXPERIENCES UPTURNS AND DOWNTURNS, DEPENDING ON THE SEASON OF THE YEAR AND THIS COULD HAVE AN ADVERSE EFFECT ON OUR QUARTERLY OPERATING RESULTS. The plumbing and mechanical contracting services industry is influenced by seasonal declines in operations and demand that affect the construction business. These declines can result in lower activity levels during the first and fourth quarters than in other periods. There can be no assurance that our combined geographic, service and product mix will be sufficient to overcome any declines that may occur 16 23 in the future or that seasonal patterns will not emerge. Quarterly results may also be materially affected by the timing of acquisitions, the timing and magnitude of costs relating to the assimilation of acquired companies and regional economic conditions. Accordingly, performance in any particular quarter may not indicate the results which can be expected for any other quarter or for the entire year. - -- THE FOUNDING COMPANIES HAVE SIGNIFICANT CUSTOMER CONCENTRATION AND IF A FOUNDING COMPANY WERE TO LOSE A SIGNIFICANT CUSTOMER, THIS COULD HAVE A MATERIAL ADVERSE EFFECT ON THE RESULTS OF OPERATIONS OF THAT PARTICULAR SUBSIDIARY. Although no individual customer of AMPAM accounts for more than 5% of our revenues, some founding companies have customers that account for up to 63% of their revenues. Although the loss of anyone of these customers would not have a material adverse affect on us, this type of loss could significantly and negatively affect the business, financial condition and results of operations of a founding company. - -- WE ARE REQUIRED TO COMPLY WITH A NUMBER OF OPERATIONAL AND LICENSING REQUIREMENTS. IF WE WERE TO LOSE A LICENSE OR WERE UNABLE TO OBTAIN A RENEWAL OF A LICENSE, OUR ABILITY TO OPERATE IN A PARTICULAR AREA MAY BE IMPAIRED Our business and the activities of our plumbing and mechanical contracting service providers are subject to various federal, state and local laws, regulations, ordinances and policies. Areas of governmental involvement include: - the licensing and certification of plumbers and technicians; - our advertising, warranties and disclosures to its customers; - the bidding process required to obtain plumbing and mechanical contracts; and - the applicable plumbing, mechanical and building codes with which we must comply. Most states require at least one of our employees to be a licensed master plumber, and many jurisdictions regulate the number and level of license holders who must be present on a construction site during the installation of plumbing and mechanical systems. Some jurisdictions require us to obtain a building permit for each plumbing or mechanical project. In addition, we must comply with labor laws and regulations, including those that relate to verification by employers of legal immigration or work permit status of employees. We believe that each of the founding companies holds all of the licenses and permits required to conduct business in the jurisdictions in which we operate, and our employees in each of these jurisdictions have knowledge of the specifications of the applicable construction codes. However, as a result of our expansion, in the future we may operate in jurisdictions where we will need to employ persons with the required licenses and knowledge and we cannot guarantee that we will be able to do so. Furthermore, applicable regulations may change and may increase expenses or cause project delays. We cannot guarantee that existing or new laws or regulations applicable to our business will not have a material adverse effect on our business, financial condition and results of operations. - -- COMPLIANCE WITH OR ENVIRONMENTAL, HEALTH AND SAFETY REGULATIONS COULD HAVE A SIGNIFICANT NEGATIVE EFFECT ON OUR FINANCIAL RESULTS. We are subject to safety standards established and enforced by the Occupational Safety and Health Administration and environmental laws and regulations relating to the use, storage, transportation and disposal of various materials. To the extent that we perform work involving air conditioning and refrigeration systems, we are subject to additional restrictions and regulations governing the availability, handling and recycling of refrigerants. While we believe that we are in substantial compliance with all applicable laws and regulations, these regulations may change and may increase expenses or cause project delays. We cannot guarantee that existing or new laws or regulations applicable to our business will not have a material adverse effect on our business, financial condition and results of operations. 17 24 Some of the founding companies utilize underground or aboveground storage tanks for motor fuels and other materials. Many of the founding companies' facilities are located in industrial sectors, where contamination may result from the activities of prior occupants or neighbors. Some environmental laws and regulations impose liability on the operator of a tank or a facility at which contamination is present, regardless of fault. While we know of no contamination affecting any of the tanks or facilities which it will operate, we cannot guarantee that undiscovered contamination does not exist, and that this contamination will not have a material adverse effect on our business, financial condition and results of operations. - -- OUR OPERATIONS ARE SUBJECT TO NUMEROUS PHYSICAL HAZARDS ASSOCIATED WITH THE CONSTRUCTION OF PLUMBING AND MECHANICAL SYSTEMS. IF AN ACCIDENT OCCURS, CLAIMS AGAINST US COULD EXCEED LEVELS COVERED BY OUR INSURANCE AND COULD SIGNIFICANTLY HARM OUR BUSINESS. The nature of our business exposes us to potential claims for personal injury or death resulting from injuries to our employees and other persons, property damage and negligence, intentional misconduct or defective materials or workmanship in connection with the installation, repair or maintenance of plumbing, mechanical and maintenance systems. Claims made by our customers may be based on the warranties we provide with respect to materials or workmanship or may be based on common law or state statutes relating to the conduct of contractors. Although each of the founding companies is covered by comprehensive insurance, subject to deductibles, various types of claims, such as claims for punitive damages or damages arising from intentional misconduct, are generally not covered by insurance. We cannot guarantee that existing or future claims would not exceed our level of insurance or the level of insurance of the founding companies, or that insurance will continue to be available on economically reasonable terms, if at all. - -- WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE AND TO SIMULTANEOUSLY REPAY THE CREDIT FACILITY. ADDITIONALLY, WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO REPAY THE NOTES AND THE CREDIT FACILITY SIMULTANEOUSLY IF PAYMENT UNDER THE CREDIT FACILITY IS ACCELERATED FOLLOWING AN EVENT OF DEFAULT THAT IN TURN CAUSES AN EVENT OF DEFAULT UNDER THE INDENTURE. On the occurrence of specific kinds of change of control events we will be required to offer to repurchase all outstanding notes and may also be required to repay all amounts outstanding under our credit facility. Similarly, if we are in default under our credit facility, it could trigger a default under the notes, requiring us to both repay all amounts outstanding under the credit facility as well as all of the outstanding notes. It is possible that we will not have sufficient funds at the time of the change of control to make the required repurchase of notes or that restrictions in our credit facility will not allow these repurchases. The same applies in the case of an event of default. In addition, important corporate events, like leveraged recapitalizations that would increase the level of our indebtedness, would not constitute a "Change of Control" under the indenture. See "Description of the Notes -- Change of Control" and "--Events of Default." - -- FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM GUARANTORS. THESE STATUTES COULD CAUSE THE GUARANTEES TO BE WORTHLESS TO YOU. ALSO, IF YOU HAVE RECEIVED PAYMENTS FROM OUR GUARANTORS, YOU COULD BE REQUIRED TO FORFEIT THOSE PAYMENTS. Under the federal bankruptcy laws and comparable provisions of state fraudulent transfer laws, a guarantee could be voided, or claims in respect of a guarantee could be subordinated to all other debts of that guarantor if, among other things, the guarantor, at the time it incurred the indebtedness evidenced by its guarantee received less than reasonably equivalent value or fair consideration for the incurrence of this guarantee, and; - was insolvent or rendered insolvent by reason of the incurrence; - or was engaged in a business or transaction for which the guarantor's remaining assets constituted unreasonably small capital; or 18 25 - intended to incur, or believed that it would incur, debts beyond its ability to pay these debts as they mature. In addition, any payment by that guarantor under the terms of its guarantee could be voided and required to be returned to the guarantor or to a fund for the benefit of the creditors of the guarantor. The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a guarantor would be considered insolvent if: - the sum of its debts, including contingent liabilities, were greater than the fair saleable value of all of its assets; or - if the present fair saleable value of its assets were less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or - it could not pay its debts as they become due. On the basis of historical financial information, recent operating history and other factors, we believe that each subsidiary guarantor, after giving effect to its guarantee of these notes, will not be insolvent, will not have unreasonably small capital for the business in which it is engaged and will not have incurred debts beyond its ability to pay these debts as they mature. There can be no assurance, however, as to what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard. - -- YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THESE NOTES. Prior to this offering, there was no public market for these notes. Firms making a market in these notes may cease their market-making at any time. In addition, the liquidity of the trading market in these notes, and the market price quoted for these notes, may be adversely affected by changes in the overall market for high yield securities and by changes in our financial performance or prospects or in the prospects for companies in our industry generally. As a result, you cannot be sure than an active trading market will develop for these notes. - -- COMPUTER SYSTEMS WE RELY ON MAY FAIL TO RECOGNIZE YEAR 2000. A FAILURE COULD RESULT IN DISRUPTIONS OF OUR OPERATIONS AND OUR ACCOUNTING SYSTEMS. We are in the process of identifying and evaluating potential issues for its information technology and third party relationships associated with the date change in the year 2000. We have not yet fully assessed any year 2000 remedial costs, but we are in the process of identifying and developing solutions to the year 2000 issues. Although we are not currently able to quantify the cost of corrective actions, we do not expect that these actions will materially exceed the cost of normal software upgrades and replacements expected to occur through the year 2000. We believe that all necessary work will be completed in a timely fashion, but we cannot guarantee that the systems of other companies on which we rely will be converted within the same time frame. We are attempting to obtain assurances from vendors, business partners, and others with which we conduct business that their systems will be year 2000 compliant. If as a result of foregoing process we determine that a material business interruption may occur due to the year 2000 issue, we will attempt to implement an appropriate contingency plan. Any material failure of our company or others to bring the computer systems on which we rely into compliance with year 2000 requirements could result in additional costs of corrective actions and delays in preparing contract bids, receiving payment on completed contracts, integrating the reporting systems of the founding companies and implementing our strategies. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Year 2000." 19 26 FORWARD-LOOKING STATEMENTS This prospectus includes forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties, and assumptions about our company, including, among other things: - Our anticipated growth strategies, - Our ability to make acquisitions, - Our ability to integrate acquired businesses, - Our ability to gain efficiencies through consolidation, - Anticipated trends in our businesses, - Future expenditures for capital projects, - Our ability to continue to control costs and maintain quality, and - Our ability to compete. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties, and assumptions, the forward-looking events discussed in this prospectus might not occur. 20 27 THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER We sold the existing notes on May 19, 1999, to Fleet Securities, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc One Capital Markets, Inc. and Credit Lyonnais Securities (USA), Inc. under a purchase agreement. These initial purchasers then sold the existing notes to qualified institutional buyers in reliance on Rule 144A under the Securities Act. As a condition to the purchase of the existing notes by the initial purchasers, AMPAM and the guarantors entered into a registration rights agreement with the initial purchasers, which requires, among other things, that promptly following the sale of the existing notes, AMPAM and the guarantors: - file with the Commission the registration statement related to the exchange notes; - use their reasonable best efforts to cause the registration statement to become effective under the Securities Act; and - offer to the holders of the existing notes the opportunity to exchange their existing notes for a like principal amount of exchange notes upon the effectiveness of the registration statement. The exchange notes will be issued without a restrictive legend and may be reoffered and resold without restrictions or limitations under the Securities Act. A copy of the registration rights agreement has been filed as an exhibit to the registration statement of which this prospectus is a part. The term "holder" means any person in whose name existing notes are registered on AMPAM's books. Based on existing interpretations of the Securities Act by the staff of the SEC described in several no-action letters to third parties, and subject to the following sentence, we believe that the exchange notes issued in the exchange offer may be offered for resale, resold and otherwise transferred by their holders, other than broker-dealers or "affiliates" of AMPAM, without further compliance with the registration and prospectus delivery provisions of the Securities Act. However, any purchaser of notes who is an affiliate of AMPAM or who intends to participate in the exchange offer for the purpose of distributing the exchange notes, or any broker-dealer who purchased the notes from AMPAM to resell under Rule 144A or any other available exemption under the Securities Act: - will not be able to rely on the interpretations by the staff of the Commission described in the above-mentioned no-action letters; - will not be able to tender its notes in the exchange offer; and - must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the notes unless the sale or transfer is made under an exemption from these requirements. We do not intend to seek our own no-action letter, and there is no assurance that the staff of the Commission would make a similar determination regarding the exchange notes as it has in these no-action letters to third parties. See "Plan of Distribution." As a result of the filing and effectiveness of the registration statement of which this prospectus is a part, AMPAM and the guarantors will not be required to pay an increased interest rate on the existing notes. Following the closing of the exchange offer, holders of existing notes not tendered will not have any further registration rights except in limited circumstances requiring the filing of a shelf registration statement, and the existing notes will continue to be subject to restrictions on transfer. Accordingly, the liquidity of the market for the existing notes could be adversely affected. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions stated in this prospectus and in the letter of transmittal, we will accept all existing notes properly tendered and not withdrawn prior to 5:00 p.m. New York City 21 28 time, on the expiration date. After authentication of the exchange notes by the trustee or an authenticating agent, we will issue $1,000 principal amount of exchange notes in exchange for each $1,000 principal amount of outstanding existing notes accepted in the exchange offer. Holders may tender some or all of their existing notes in denominations of $1,000 or any integral multiple of $1,000. Each holder of the notes who wishes to exchange notes in the exchange offer will be required to represent that: - it is not an affiliate of AMPAM or any guarantor; - any exchange notes to be received by it were acquired in the ordinary course of its business; and - it has no arrangement with any person to participate in the distribution of the exchange notes. Each broker-dealer that receives exchange notes for its own account under the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be judged to have admitted that it is an "underwriter" within the meaning of the Securities Act. The SEC has taken the position that participating broker-dealers may fulfill their prospectus delivery requirements related to the exchange notes with the prospectus contained in the exchange offer registration statement, other than a resale of an unsold allotment from the original sale of the notes. AMPAM will be required to allow participating broker-dealers to use the prospectus contained in the exchange offer registration statement following the exchange offer, in connection with the resale of exchange notes received in exchange for notes acquired by participating broker-dealers for their own account as a result of market-making or other trading activities. We will not be required to allow participating broker-dealers to use this prospectus if we determine, after being advised by our attorneys, that the continued use of the prospectus would (1) require us to disclose material information that we have a legitimate business reason for keeping confidential or (2) interfere with a material transaction in which AMPAM or our subsidiaries is involved. See "Plan of Distribution." The form and terms of the exchange notes are identical in all material respects to the form and terms of the existing notes except that: - the exchange notes will be issued in a transaction registered under the Securities Act; - the exchange notes will not be subject to transfer restrictions; and - provisions relating to an increase in the stated interest rate on the existing notes provided for in some circumstances will be eliminated. The exchange notes will evidence the same debt as the existing notes. The exchange notes will be issued under and entitled to the benefits of the indenture. As of the date of this prospectus, $125,000,000 aggregate principal amount of the existing notes was outstanding. In connection with the issuance of the existing notes, we arranged for the existing notes, which were initially purchased by qualified institutional buyers as defined under Rule 144A under the Securities Act, to be issued and transferable in book-entry form through the facilities of the depositary, acting as depositary. The exchange notes will also be issuable and transferable in book-entry form through the depositary. This prospectus, together with the accompanying letter of transmittal, is initially being sent to all registered holders as of the close of business on , 1999. We intend to conduct the exchange offer as required by the Exchange Act, and the rules and regulations of the Commission under the Exchange Act, including Rule 14e-1, to the extent applicable. Rule 14e-1 describes unlawful tender practices under the Exchange Act. This section requires us, among other things: - to hold our exchange offer open for twenty business days; 22 29 - to give ten days notice of any change in the terms of this offer; and - to issue a press release in the event of an extension of the exchange offer. The exchange offer is not conditioned upon any minimum aggregate principal amount of existing notes being tendered, and holders of the existing notes do not have any appraisal or dissenters' rights under the General Corporation Law of the State of Delaware or under the indenture in connection with the exchange offer. We shall be considered to have accepted existing notes tendered according to the procedures in this prospectus when, as and if we have given oral or written notice of acceptance to the exchange agent. See "-- Exchange Agent." The exchange agent will act as agent for the tendering holders for the purpose of receiving exchange notes from us and delivering exchange notes to those holders. If any tendered existing notes are not accepted for exchange because of an invalid tender or the occurrence of other events described in this prospectus, certificates for these unaccepted existing notes will be returned, at our cost, to the tendering holder of the existing notes as promptly as practicable after the expiration date. Holders who tender existing notes in the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes related to the exchange of existing notes in the exchange offer. We will pay all charges and expenses, other than applicable taxes, in connection with the exchange offer. See "-- Solicitation of Tenders; Fees and Expenses." NEITHER THE BOARD OF DIRECTORS OF AMPAM NOR AMPAM MAKES ANY RECOMMENDATION TO HOLDERS OF EXISTING NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR EXISTING NOTES UNDER TO THE EXCHANGE OFFER. MOREOVER, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION. HOLDERS OF EXISTING NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER IN THE EXCHANGE OFFER AND, IF SO, THE AMOUNT OF EXISTING NOTES TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR ADVISORS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS. EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "expiration date" shall mean 5:00 p.m., New York City time, on , 1999, unless we, in our sole discretion, extend the exchange offer, in which case the term "expiration date" shall mean the latest date to which the exchange offer is extended. We expressly reserve the right, in our sole discretion: (1) to delay acceptance of any existing notes, to extend the exchange offer or to terminate the exchange offer and to refuse to accept existing notes not previously accepted, if any of the conditions described in this prospectus under "-- Conditions" shall have occurred and shall not have been waived by us (if permitted to be waived by us), by giving oral or written notice of the delay, extension or termination to the exchange agent; and (2) to amend the terms of the exchange offer in any manner. Any delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice of the delay in acceptance by us to the registered holders of the existing notes. If the exchange offer is amended in a manner determined by us to constitute a material change, we will promptly disclose the amendment in a manner reasonably calculated to inform the holders of the amendment. Without limiting the manner in which we may choose to make public announcements of any delay in acceptance, extension, termination or amendment of the exchange offer, we shall have no obligation to publish, advise, or otherwise communicate any public announcement, other than by making a timely release to the Dow Jones News Service. 23 30 You are advised that AMPAM may extend the exchange offer because some portion of the notes may not tender on a timely basis. In order to give these noteholders the ability to participate in the exchange and to avoid the significant reduction in liquidity associated with holding an unexchanged note, AMPAM may elect to extend the exchange offer. INTEREST ON THE EXCHANGE NOTES The exchange notes will bear interest from the date of issuance of the existing notes that are tendered in exchange for the exchange notes (or the most recent date on which interest was paid or provided for on the existing notes surrendered for the exchange notes). Accordingly, holders of existing notes that are accepted for exchange will not receive interest that is accrued but unpaid on the existing notes at the time of tender. Interest on the exchange notes will be payable semi-annually on each April 15 and October 15, commencing on October 15, 1999. PROCEDURES FOR TENDERING Only a holder may tender its existing notes in the exchange offer. To tender in the exchange offer, a holder must complete, sign and date the letter of transmittal or a facsimile of the letter of transmittal, have the signatures guaranteed if required by the letter of transmittal, and mail or otherwise deliver the letter of transmittal or the facsimile, together with the existing notes (unless the tender is being effected under the procedure for book-entry transfer described below) and any other required documents, to the exchange agent, prior to 5:00 p.m. New York City time, on the expiration date. Any financial institution that is a participant in the depositary's book-entry transfer facility system may make book-entry delivery of the existing notes by causing the depositary to transfer the existing notes into the exchange agent's account using the depositary's procedure for the transfer. Although delivery of existing notes may be effected through book-entry transfer into the exchange agent's account at the depositary, the letter of transmittal (or facsimile), with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the exchange agent at its address listed in this prospectus under "-- Exchange Agent" prior to 5:00 p.m., New York City time, on the expiration date. DELIVERY OF DOCUMENTS TO THE DEPOSITARY USING ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. The tender by a holder will constitute an agreement between the holder, AMPAM and the exchange agent according to the terms and subject to the conditions described in this prospectus and in the letter of transmittal. In the case of a broker-dealer that receives exchange notes for its own account in exchange for existing notes which were acquired by it as a result of market-making or other trading activities, the letter of transmittal will also include an acknowledgment that the broker-dealer will deliver a copy of this prospectus in connection with the resale by it of exchange notes received in the exchange offer. See "Plan of Distribution." THE METHOD OF DELIVERY OF EXISTING NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDERS. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR EXISTING NOTES SHOULD BE SENT TO US. HOLDERS MAY ALSO REQUEST THAT THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES EFFECT THE TENDER FOR HOLDERS IN EACH CASE AS DESCRIBED IN THIS PROSPECTUS AND IN THE LETTER OF TRANSMITTAL. Any beneficial owner whose existing notes are registered in the name of his broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct the registered holder to tender on his behalf. If the beneficial owner wishes to tender on his own behalf, the beneficial owner must, prior to completing and executing the letter of transmittal and delivering his existing notes, either make appropriate arrangements to register ownership of 24 31 the existing notes in the owner's name or obtain a properly completed bond power from the registered holder. The transfer of record ownership may take considerable time. Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act unless the existing notes tendered with the letter of transmittal are tendered (1) by a registered holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" of the letter of transmittal or (2) for the account of an eligible institution. If the letter of transmittal is signed by a person other than the registered holder, the existing notes must be endorsed or accompanied by appropriate bond powers which authorize the person to tender the existing notes on behalf of the registered holder, in either case signed as the name of the registered holder or holders appears on the existing notes. If the letter of transmittal or any existing notes or bond powers are signed or endorsed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, those persons should so indicate when signing, and unless waived by us, evidence satisfactory to us of their authority to so act must be submitted with the letter of transmittal. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of the tendered existing notes will be determined by us in our sole discretion. This determination will be final and binding. We reserve the absolute right to reject any and all existing notes not properly tendered or any existing notes our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the absolute right to waive any irregularities or conditions of tender as to particular existing notes. Our interpretation of the terms and conditions of the exchange offer (including the instructions in the letter of transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of existing notes must be cured within the time as we shall determine. Although we intend to notify holders of defects or irregularities related to tenders of existing notes, neither we, the exchange agent nor any other person shall be under any duty to give notification of defects or irregularities related to tenders of existing notes nor shall any of them incur liability for failure to give notification. Tenders of existing notes will not be considered to have been made until the irregularities have been cured or waived. Any existing notes received by the exchange agent that we determine are not properly tendered or the tender of which is otherwise rejected by us and as to which the defects or irregularities have not been cured or waived by us will be returned by the exchange agent to the tendering holder unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date. In addition, we reserve the right in our sole discretion to (1) purchase or make offers for any existing notes that remain outstanding subsequent to the expiration date, or, as described under "-- Termination," to terminate the exchange offer and (2) to the extent permitted by applicable law, purchase existing notes in the open market, in privately negotiated transactions or otherwise. The terms of these purchases or offers may differ from the terms of the exchange offer. BOOK-ENTRY TRANSFER We understand that the exchange agent will make a request promptly after the date of this prospectus to establish accounts for the existing notes at the DTC for the purpose of facilitating the exchange offer, and subject to their establishment, any financial institution that is a participant in the book-entry transfer facility's system may make book-entry delivery of existing notes by causing the book-entry transfer facility to transfer the existing notes into the exchange agent's account for the existing notes using the book-entry transfer facility's procedures for transfer. Although delivery of existing notes may be effected through book-entry transfer into the exchange agent's account at the book-entry transfer facility, an appropriate letter of transmittal properly completed and duly executed with any required signature guarantee and all other required documents must in each case be transmitted to and received or confirmed by the exchange agent at its address listed below on or prior to the expiration date, or, if the guaranteed delivery procedures 25 32 described below are complied with, with the time period provided under the procedures. Delivery of documents to the book-entry transfer facility does not constitute delivery to the exchange agent. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their existing notes and (1) whose existing notes are not immediately available, or (2) who cannot deliver their existing notes, the letter of transmittal or any other required documents to the exchange agent prior to the expiration date, or if the holder cannot complete the procedure for book-entry transfer on a timely basis, may effect a tender if: - the tender is made through an eligible institution; - prior to the expiration date, the exchange agent receives from an eligible institution a properly completed and duly executed notice of guaranteed delivery (by facsimile transmittal, mail or hand delivery) setting forth the name and address of the holder, the certificate number or numbers of the holder's existing notes and the principal amount of the existing notes tendered, stating that the tender is being made, and guaranteeing that, within five business days after the expiration date, the letter of transmittal (or facsimile), together with the certificate(s) representing the existing notes to be tendered in proper form for transfer and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and - the properly completed and executed letter of transmittal (or a facsimile), together with the certificate(s) representing all tendered existing notes in proper form for transfer (or confirmation of a book-entry transfer into the exchange agent's account at the depositary of existing notes delivered electronically) and all other documents required by the letter of transmittal are received by the exchange agent within three business days after the expiration date. Upon request to the exchange agent, a notice of guaranteed delivery will be sent to holders who wish to tender their existing notes according to the guaranteed delivery procedures described above. WITHDRAWAL OF TENDERS Except as otherwise provided in this prospectus, tenders of existing notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration date. To withdraw a tender of existing notes in the exchange offer, a written or facsimile transmission notice of withdrawal must be received by the exchange agent at its address listed below prior to 5:00 p.m., New York City time, on the expiration date. Any notice of withdrawal must: - specify the name of the person having deposited the existing notes to be withdrawn (the "depositor"); - identify the existing notes to be withdrawn (including the certificate number or numbers and principal amount of the existing notes or, in the case of existing notes transferred by book-entry transfer, the name and number of the account at the depositary to be credited); - be signed by the depositor in the same manner as the original signature on the letter of transmittal by which the existing notes were tendered (including any required signature guarantee) or be accompanied by documents of transfer sufficient to permit the trustee for the existing notes to register the transfer of the existing notes into the name of the depositor withdrawing the tender; and - specify the name in which any of these existing notes are to be registered, if different from that of the depositor. All questions as to the validity, form and eligibility (including time of receipt) of the withdrawal notices will be determined by us, whose determination shall be final and binding on all parties. Any existing notes so withdrawn will be judged not to have been tendered according to the procedures in this prospectus for purposes of the exchange offer, and no exchange notes will be issued in exchange for those 26 33 existing notes unless the existing notes so withdrawn are validly retendered. Any existing notes that have been tendered but are not accepted for exchange will be returned to the holder of the existing notes without cost to the holder as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn existing notes may be retendered by following one of the procedures described above under "-- Procedures for Tendering" at any time prior to the Expiration Date. CONDITIONS The exchange offer is subject only to the following conditions: - the compliance of the exchange offer with securities laws; - the tender of the existing notes; - the representation by the holders of the existing notes that the exchange notes they will receive are being acquired by them in the ordinary course of their business and that at the time the exchange offer is completed the holder had no plan to participate in the distribution of the exchange notes; and - no judicial or administrative proceeding shall have been threatened that would limit us from proceeding with the exchange offer. EXCHANGE AGENT State Street Bank and Trust Company, the trustee under the indenture, has been appointed as exchange agent for the exchange offer. In this capacity, the exchange agent has no fiduciary duties and will be acting solely on the basis of our directions. Requests for assistance and requests for additional copies of this prospectus or of the letter of transmittal should be directed to the exchange agent addressed as follows: By Mail: State Street Bank and Trust Company Corporate Trust Department P.O. Box 778 Boston, Massachusetts 02102-0778 By Hand Delivery or Overnight Courier: State Street Bank and Trust Company Corporate Trust Window, Fifth Floor 2 Avenue DeLafayette Boston, Massachusetts 02111-1724 Facsimile Transmission: (617) 664-5395 Confirm by Telephone: (617) 664-5587
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS LISTED ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS DESCRIBED ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL. SOLICITATION OF TENDERS; FEES AND EXPENSES We will bear the expenses of requesting that holders of existing notes tender those notes for exchange notes. The principal solicitation under the exchange offer is being made by mail. Additional solicitations may be made by our officers and regular employees and our affiliates in person, by telegraph, telephone or telecopier. We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to brokers, dealers or other persons soliciting acceptances of the exchange offer. We, however, will pay the exchange agent reasonable and customary fees for its services and will reimburse the exchange agent for its reasonable out-of-pocket costs and expenses in connection with the exchange offer and will indemnify the exchange agent for all losses and claims incurred by it as a result of the exchange 27 34 offer. We may also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this prospectus, letters of transmittal and related documents to the beneficial owners of the existing notes and in handling or forwarding tenders for exchange. We will pay the expenses to be incurred in connection with the exchange offer, including fees and expenses of the exchange agent and trustee and accounting and legal fees and printing costs. You will not be obligated to pay any transfer tax in connection with the exchange, except if you instruct us to register new notes in the name of, or request that notes not tendered or not accepted in the exchange offer be returned to, a person other than you, you will be responsible for the payment of any applicable transfer tax. ACCOUNTING TREATMENT The exchange notes will be recorded at the same carrying value as the existing notes, as reflected in our accounting records on the date of the exchange. Accordingly, no gain or loss for accounting purposes will be recognized by us upon the closing of the exchange offer. We will amortize the expenses of the exchange offer over the term of the exchange notes. FEDERAL INCOME TAX CONSEQUENCES This general discussion of United States federal income tax consequences applies to you if you are a United States holder, you acquired existing notes at original issue for cash and you exchange those existing notes for exchange notes in the exchange offer. This discussion only applies to you if you purchased existing notes in the exchange offer for an amount equal to the "issue price" of the notes and hold the exchange notes as a "capital asset," generally, for investment, under Section 1221 of the Internal Revenue Code. This summary, however, does not consider state, local or foreign tax laws. In addition, it does not include all of the rules which may affect the United States tax treatment of your investment in the exchange notes. For example, special rules not discussed here may apply to you if you are, including without limitation: - a broker-dealer, a dealer in securities or a financial institution; - an insurance company; - a tax-exempt organization; - holding the exchange notes through partnerships or other pass-through entities; or - holding the exchange notes as part of a hedge, straddle or other risk reduction or constructive sale transaction. This discussion only represents our best attempt to describe some federal income tax consequences that may apply to you based on current United States federal tax law. This discussion may in the end inaccurately describe the federal income tax consequences which are applicable to you because the law may change, possibly retroactively, and because the IRS or any court may disagree with this discussion. This summary may not cover your particular circumstances because it does not consider foreign, state or local tax rules, disregards federal tax rules, and does not describe future changes in federal tax rules. Please consult your tax advisor concerning the application of United States federal income tax laws, as well as the laws of any state, local or foreign taxing jurisdiction, to your particular situation rather than relying on this general description. 28 35 UNITED STATES HOLDER You are a United States holder if you hold notes and you are: - a citizen or resident of the United States; - a corporation or partnership created or organized in the United States or under the laws of the United States or of any political subdivision; - an estate the income of which is subject to United States federal income tax regardless of its source; or - a trust, if (1) a United States court can exercise primary supervision over the administration of the trust and one or more United States persons can control all substantial decisions of the trust, or (2) the trust was in existence on August 20, 1996 and has properly elected to continue to be treated as a United States person. RECEIPT OF EXCHANGE NOTES Because the economic terms of the exchange notes and the existing notes are identical, your exchange of existing notes for exchange notes under the exchange offer will not constitute a taxable exchange of the existing notes. As a result: - you will not recognize taxable gain or loss when you receive exchange notes in exchange for existing notes; - your holding period in the exchange notes will include your holding period in the existing notes; and - your basis in the exchange notes will equal your basis in the existing notes. SALE OR OTHER TAXABLE DISPOSITION OF EXCHANGE NOTES You must recognize taxable gain or loss on the sale, exchange, redemption, retirement or other taxable disposition of an exchange note. The amount of your gain or loss equals the difference between the amount you receive for the exchange note in cash or other property, valued at fair market value, minus the amount attributable to accrued qualified stated interest on the exchange note, minus your adjusted tax basis in the exchange note. Your initial tax basis in an exchange note equals the price you paid for the existing note which you exchanged for the exchange note increased by amounts previously includable in income as original issue discount and reduced by any payments other than payments of qualified stated interest made on the notes. Your gain or loss will generally be a long-term capital gain or loss if your holding period in the exchange note is more than one year. Otherwise, it will be a short-term capital gain or loss. Payments attributable to accrued qualified stated interest which you have not yet included in income will be taxed as ordinary interest income. BACKUP WITHHOLDING You may be subject to a 31% backup withholding tax on payments of interest, principal and premium on, and any proceeds upon the sale or disposition of, an exchange note. Some holders, including, among others, corporations and some tax-exempt organizations, are generally not subject to backup withholding. In addition, the 31% backup withholding tax will not apply to you if you provide your taxpayer identification number in the prescribed manner unless: - the IRS notifies us or our agent that the taxpayer identification number you provided is incorrect; - you fail to report interest and dividend payments that you receive on your tax return and the IRS notifies us or our agent that withholding is required; or - you fail to certify under penalties of perjury that you are not subject to backup withholding. 29 36 You should consult your tax advisor as to your qualification for exemption from backup withholding and the procedure for obtaining an exemption. If the 31% backup withholding tax does apply to you, you may use the amounts withheld as a refund or credit against your federal income tax liability as long as you provide necessary information to the IRS. PARTICIPATION IN THE EXCHANGE OFFER; UNTENDERED NOTES Participation in the exchange offer is voluntary. Holders of the existing notes are urged to consult their financial and tax advisors in making their own decisions on what action to take. As a result of the making of, and upon acceptance for exchange of all existing notes tendered under the terms of, this exchange offer, we will have fulfilled a covenant contained in the terms of the registration rights agreement. Holders of the existing notes who do not tender their certificates in the exchange offer will continue to hold the certificates and will be entitled to all the rights, and subject to the limitations applicable to the existing notes, under the indenture, except for any rights under the registration rights agreement that by their term terminate or cease to have further effect as a result of the making of this exchange offer. See "Description of the Notes." All untendered existing notes will continue to be subject to the restrictions on transfer described in the indenture. To the extent that existing notes are tendered and accepted in the exchange offer, the trading market for untendered existing notes could be adversely affected. This is because there will probably be many fewer remaining existing notes outstanding following the exchange, significantly reducing the liquidity of the untendered notes. We may in the future seek to acquire untendered existing notes in the open market or through privately negotiated transactions, through subsequent exchange offers or otherwise. We intend to make any acquisitions of existing notes following the applicable requirements of the Exchange Act, and the rules and regulations of the Commission under the Exchange Act, including Rule 14e-1, to the extent applicable. We have no present plan to acquire any existing notes that are not tendered in the exchange offer or to file a registration statement to permit resales of any existing notes that are not tendered in the exchange offer. 30 37 THE COMPANY We believe we are the largest company in the United States focused primarily on the plumbing and mechanical contracting services industry. On April 1, 1999, we combined the operations of the ten founding companies, which individually are leading regional providers of plumbing and mechanical contracting services, and commenced operations as one company. We believe that by combining these regional leaders into one professional organization, we have created a national provider which we expect to strengthen and broaden our relationships with our consolidating customer base and enhance our operating efficiency. The ten founding companies have been in business for an average of approximately 31 years and, in 1998 performed plumbing and mechanical contracting services in 24 states. On a pro forma basis for the fiscal year ended December 31, 1998, we generated revenues and EBITDA of $322.2 million and $39.6 million, respectively. A brief description of each of the founding companies is set forth below. CHRISTIANSON ENTERPRISES, INC., G.G.R. LEASING CORPORATION AND CHRISTIANSON SERVICE COMPANY. Christianson Enterprises was founded as a sole proprietorship in 1950, was originally incorporated as W. G. Christianson Co. in 1968 and was reorganized as Christianson Enterprises, Inc. in 1988. G.G.R. Leasing Corporation was founded in 1982 and does business as "Professional Services, Inc." Christianson Service Company was founded in 1997. Christianson is headquartered outside Austin, Texas, with additional facilities in San Antonio and San Marcos, Texas, and operates principally in central Texas. For the 1998 fiscal year, Christianson had revenues of approximately $63.4 million, principally from the residential market, with projects including new home and apartment complex work. Christianson also has specialized expertise in providing maintenance and repair services. At December 31, 1998, Christianson had approximately 461 employees. Robert A. Christianson, the Chief Executive Officer of Christianson, is expected to sign a five-year employment contract with AMPAM to act as its Chief Executive Officer and became a director of AMPAM following the acquisitions. R.C.R. PLUMBING, INC. RCR was founded in 1977 and is headquartered in Riverside, California, east of Los Angeles, with additional facilities in Las Vegas, Nevada and in Canoga Park, California in the San Fernando Valley. RCR operates principally in southern California and southern Nevada. For the 1998 fiscal year, RCR had revenues of approximately $63.3 million from both the commercial/institutional and residential markets, with projects including new home and apartment complex construction. In addition to plumbing contracting services, RCR has specialized expertise in residential and commercial HVAC systems installation, fire sprinkler installation and various other mechanical contracting services. At December 31, 1998, RCR had approximately 770 employees. Robert C. Richey the Chief Executive Officer of RCR, is expected to sign a five-year employment agreement with AMPAM to act as its Chief Operating Officer and became a director of AMPAM following the acquisitions. TEEPE'S RIVER CITY MECHANICAL, INC. Teepe's was founded in 1953 and is headquartered in Cincinnati, Ohio, with an additional facility in Columbus, Ohio. Teepe's operates principally in the Cincinnati, Columbus and Dayton, Ohio metropolitan areas and in northern Kentucky and southeastern Indiana. For the 1998 fiscal year, Teepe's had revenues of approximately $50.6 million, principally from the commercial/institutional new construction market, with projects including schools, dormitories, hotels, prisons and office buildings. At March 31, 1999, Teepe's had approximately 200 employees. Steven M. Teepe, the Chief Executive Officer of Teepe's and Scott W. Teepe, Sr., the President of Teepe's, each signed a five-year employment agreement with AMPAM to continue in their present positions with Teepe's and Scott W. Teepe, Sr. also became a director of AMPAM following the acquisitions. Since the date of their acquisition by AMPAM, Teepe's and Croson Ohio have combined their businesses and operations. KEITH RIGGS PLUMBING, INC. Keith Riggs was founded in 1948 and is headquartered outside Phoenix, Arizona with an additional facility also outside Phoenix. Keith Riggs operates throughout the Phoenix metropolitan area. For the 1998 fiscal year, Keith Riggs had revenues of approximately $34.5 million, principally from the residential market. Keith Riggs also has specialized expertise in providing maintenance and repair services. At December 31, 1998, Keith Riggs had approximately 350 employees. Gerald M. Riggs, the President, Sam Sherwood, the Vice President and Gary N. Goodman, the Assistant Secretary 31 38 and Assistant Treasurer of Keith Riggs each signed a five-year employment agreement with AMPAM to continue in their present positions with Keith Riggs and Sam Sherwood also became a director of AMPAM following the acquisitions. J. A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY. J. A. Croson Company was founded in 1959, and Franklin Fire Sprinkler Company was founded in 1988. Croson Ohio is headquartered in Columbus, Ohio and operates principally in the Columbus metropolitan area and central and southern Ohio. For the 1998 fiscal year, Croson Ohio had revenues of approximately $25.2 million, principally from plumbing and mechanical contracting services provided to commercial/institutional market with contracting projects including office buildings, penal facilities, schools, university buildings, hospitals and waste water and water purification projects. Croson Ohio also has specialized expertise in designing and building fire protection systems in the institutional and commercial/institutional markets. At March 31, 1999, Croson Ohio had approximately 165 employees. David Croson, the President of Croson Ohio, signed a five-year employment agreement with AMPAM to continue in his present position with Croson Ohio and became a director or AMPAM following the acquisitions. Since the date of their acquisition by AMPAM, Croson Ohio and Teepe's have combined their business and operations. J. A. CROSON COMPANY OF FLORIDA. Croson Florida was founded in 1989, is headquartered in Orlando, Florida, with additional offices in Mount Dora and Tampa, Florida, and operates principally in Orlando, Tampa, Naples/Ft. Myers and other areas of southern and central Florida. For the 1998 fiscal year, Croson Florida had revenues of approximately $28.1 million, principally from plumbing and mechanical contracting services provided to the commercial/institutional market, with projects including time-share condominiums, apartment complexes, hotels and assisted-living facilities. At December 31, 1998, Croson Florida had 280 employees. James A. Croson, the Chief Executive Officer of Croson Florida, and Mark F. LaTourelle, the President of Croson Florida, each signed a five-year employment agreement with AMPAM to continue in their present positions with Croson Florida, and James A. Croson became a director of AMPAM following the acquisitions. James A. Croson is the father of David A. Croson, the President of Croson Ohio. POWER PLUMBING INC. Power was founded in 1988 and is headquartered in Houston, Texas. It operates principally in Houston, Dallas and Austin, Texas, but also performs services in the area outside Washington, D.C. on a project-by-project basis. For the 1998 fiscal year, Power had revenues of approximately $17.1 million, principally from plumbing and mechanical contracting services provided to the residential and commercial/institutional markets, with projects including apartment complexes and assisted-living facilities. In addition, Power offers on-site utility services for private developers. At December 31, 1998, Power had approximately 72 employees. James N. Power, the President of Power, and Guy N. Mathieu, the Vice President of Power, each signed a five-year employment agreement with AMPAM to continue in their present positions with Power following the acquisitions. NELSON MECHANICAL CONTRACTORS, INC. Nelson was founded in 1964 and is headquartered in Pensacola, Florida, with a branch office in northern Virginia outside Washington D.C. Nelson operates principally along the Florida and Alabama Gulf Coast, but also performs services in other parts of the southeastern United States on a project-by-project basis. For the 1998 calendar year, Nelson had revenues of approximately $15.1 million, principally from plumbing and mechanical contracting services provided to the commercial/institutional market, with projects including apartment complexes, motels, hotels, nursing homes, office buildings, highrise condominiums, dental and medical clinics, shopping centers and various buildings at the U.S. Naval Air Station in Pensacola, Florida and Elgin Air Force Base in Ft. Walton Beach, Florida. In addition, Nelson offers on-site utility services for private developers including underground work on water and sewer systems, well pumping stations, natural gas distribution systems, and communication and power conduits. At December 31, 1998, Nelson had approximately 180 employees. Gilbert Nelson, the President of Nelson, signed a five-year employment agreement with AMPAM to continue in his present position with Nelson following the acquisitions. SHERWOOD MECHANICAL, INC. Sherwood was founded in 1976, is headquartered outside San Diego, California, and operates principally in southern California, but also performs services in other parts of the 32 39 southwestern United States on a project-by-project basis. For the 1998 fiscal year, Sherwood had revenues of approximately $13.6 million, principally from the commercial/institutional market, with projects including hotels, apartment complexes, hospitals, medical laboratories, prisons and waste water and water purification plants. In addition to plumbing contracting services, Sherwood offers on-site utility services for private developers. At December 31, 1998, Sherwood had approximately 170 employees. Robert W. Sherwood, the President of Sherwood, signed a five-year employment agreement with AMPAM to continue in his present position with Sherwood and became a director of AMPAM following the acquisitions. MILLER MECHANICAL CONTRACTORS, INC. Miller was founded in 1977, is headquartered in Marietta, Georgia, and operates principally in the Atlanta, Georgia metropolitan area, but also performs services in other parts of the southeastern United States on a project-by-project basis. For the 1998 fiscal year, Miller had revenues of approximately $11.3 million, principally from the multifamily residential and commercial/institutional markets, with specialized expertise in apartment complexes and extended-stay motels. At December 31, 1998, Miller had approximately 80 employees. Joseph E. Miller, Vice President of Miller, signed a five-year employment agreement with AMPAM to continue his employment with Miller and became a director of AMPAM following the acquisitions. ------------------------ Sterling City Capital, LLC is a private investment firm that focuses on selective investments in companies which plan to execute consolidation strategies within fragmented industries. Sterling City Capital, LLC and its principal, C. Byron Snyder, have founded or invested in numerous public and private companies, including Carriage Services, Inc., a publicly traded death care company, and Integrated Electrical Services, Inc., a publicly traded electrical service company. C. Byron Snyder is also an active member on boards of directors for several private companies as well as Carriage Services, Inc. and Integrated Electrical Services, Inc. ------------------------ American Plumbing & Mechanical, Inc. was incorporated in Delaware in June 1998. Its executive offices are located at 1502 Augusta, Suite 425, Houston, Texas 77057, and its telephone number is (713) 243-7350. 33 40 USE OF PROCEEDS We will not receive any cash proceeds from the issuance of the exchange notes. In consideration for issuing the exchange notes as contemplated in this prospectus, we will receive in exchange existing notes in like principal amount. The existing notes surrendered in exchange for exchange notes will be retired and canceled and cannot be reissued. Issuance of the exchange notes will not result in a change in our amount of outstanding debt. 34 41 CAPITALIZATION The following table sets forth the capitalization of AMPAM as of March 31, 1999 on a pro forma combined basis after giving effect to the acquisitions and related transactions and giving effect to the original issuance of the notes and the application of the proceeds therefrom. This table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Combined Liquidity and Capital Resources" and the Unaudited Pro Forma Financial Statements of AMPAM and the notes thereto, included elsewhere in this prospectus.
AS OF MARCH 31, 1999 -------------- PRO FORMA(a) -------------- (IN THOUSANDS) Cash........................................................ $ 10,861 ======== Long-term obligations (including current maturities): Credit facility........................................... $ -- Senior Notes.............................................. 122,418(b) Other debt................................................ 3,068(c) -------- Total debt.................................................. 125,486 -------- Redeemable preferred stock(d)............................... 13,635 -------- Stockholders' equity(e)..................................... 17,683 -------- Total capitalization.............................. $156,804 ========
- --------------- (a) Gives effect to the acquisition of the founding companies and other related pro forma adjustments, as if all of these transactions had occurred on March 31, 1999 and to the private placement of the notes and the application of the net proceeds to repay outstanding indebtedness, as if these transactions had occurred on March 31, 1999. (b) Net of unamortized discount of $2,582,000. (c) Consists of capital lease obligations. (d) The redeemable preferred stock has a $0.01 par value per share. Currently, there are 1,048,820 shares of Series A Preferred Stock issued and outstanding with a liquidation preference of $13.6 million. (e) Consists of common stock with a $0.01 par value per share. There are 105,000,000 shares authorized and 12,182,207 shares issued and outstanding. This includes 2,423,517 issued and outstanding shares of restricted common stock (5,000,000 authorized). All of these shares of restricted common stock have been issued to Sterling City Capital, LLC, the management of AMPAM and other individuals. See "Certain Transactions -- Organization of AMPAM." Excludes (i) any additional shares that may be issued as additional consideration to the former stockholders of the founding companies and (ii) 2,142,115 shares which may be issued upon exercise of stock options which were granted upon consummation of the acquisitions. See "Certain Transactions -- Acquisition of Founding Companies." Also includes common stock and additional paid-in capital of $22.6 million and a retained deficit of $4.9 million. Pro forma adjusted amount of stockholders equity reflects the write-off of deferred loan costs and the extinguishment of recorded warrant value associated with the repayment of the subordinated loan. 35 42 SELECTED HISTORICAL FINANCIAL DATA AMPAM acquired the founding companies simultaneously on April 1, 1999. For financial statement presentation purposes, Christianson has been identified as the "accounting acquirer." As the accounting acquiror, for accounting purposes under SEC SAB No. 97, Christianson is treated as - having acquired all the other founding companies (even though AMPAM legally made these acquisitions), - having merged with AMPAM (with purchase accounting reflected for AMPAM's non-management stock ownership) and - representing the financial history of AMPAM prior to April 1, 1999. The following selected historical financial data for Christianson (not combined or pro forma for the acquisition of the founding companies) as of December 31, 1997 and 1998 and August 31, 1996, and for the years ended August 31, 1995 and 1996, the four-month period ended December 31, 1996 and the years ended December 31, 1997 and 1998 and for the three months ended March 31, 1999, have been derived from the audited financial statements of Christianson included elsewhere in this Prospectus and reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of such data. The selected historical financial data as of March 31, 1999 and for the three months ended March 31, 1998, and as of August 31, 1993, 1994 and 1995 and for the years ended August 31, 1993 and 1994, have been derived from the unaudited financial statements of Christianson and, in the opinion of the Company management, reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of such data. The results of operations for the three months ended March 31, 1999 should not be regarded as indicative of the results that may be expected for the full year. THREE MONTHS ENDED FOUR MONTHS FOUR MONTHS YEAR ENDED MARCH YEARS ENDED AUGUST 31, ENDED ENDED DECEMBER 31, 31, --------------------------- DECEMBER 31, DECEMBER 31, ----------------- ------- 1994 1995 1996 1995 1996 1997 1998 1998 ------- ------- ------- ------------ ------------- ------- ------- ------- ($ IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA (CHRISTIANSON): Revenues....................... $43,284 $39,449 $50,330 $14,619 $15,576 $50,909 $63,374 $12,744 Cost of revenues (including depreciation)................ 31,327 29,805 38,203 11,044 11,868 37,504 45,704 9,024 ------- ------- ------- ------- ------- ------- ------- ------- Gross profit................... 11,957 9,644 12,127 3,575 3,708 13,405 17,670 3,720 Selling, general and administrative expenses...... 11,834 8,977 11,051 3,430 5,142 11,497 17,078 3,253 ------- ------- ------- ------- ------- ------- ------- ------- Income (loss) from operations(a)................ 123 667 1,076 145 (1,434) 1,908 592 467 Interest and other income, net.......................... 133 171 267 225 32 59 56 (18) ------- ------- ------- ------- ------- ------- ------- ------- Income (loss) before provision for income taxes............. 256 838 1,343 370 (1,402) 1,967 648 449 Provision (benefit) for income taxes........................ 67 258 345 74 (56) 77 32 20 ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss)(a)........... $ 189 $ 580 $ 998 $ 296 $(1,346) $ 1,890 $ 616 $ 429 ======= ======= ======= ======= ======= ======= ======= ======= OTHER FINANCIAL DATA AND RATIOS (CHRISTIANSON): Ratio of earnings to fixed charges(b)................... 3.7x 7.3x 9.9x 8.6x -- 8.8x 3.4x 3.7x Income (loss) from operations per common share............. $ 2.39 $ 7.32 $ 13.59 $ 3.74 $(18.11) $ 23.21 $ 7.20 $ 5.22
1999 ------- STATEMENT OF OPERATIONS DATA (CHRISTIANSON): Revenues....................... $16,824 Cost of revenues (including depreciation)................ 11,390 ------- Gross profit................... 5,434 Selling, general and administrative expenses...... 1,863 ------- Income (loss) from operations(a)................ 3,571 Interest and other income, net.......................... (7) ------- Income (loss) before provision for income taxes............. 3,564 Provision (benefit) for income taxes........................ 162 ------- Net income (loss)(a)........... $ 3,402 ======= OTHER FINANCIAL DATA AND RATIOS (CHRISTIANSON): Ratio of earnings to fixed charges(b)................... 19.1x Income (loss) from operations per common share............. $ 41.39
36 43
AS OF AUGUST 31, AS OF DECEMBER 31, AS OF ------------------------- ------------------ MARCH 31, 1994 1995 1996 1997 1998 1999 ------ ------ ------- ------- -------- --------- BALANCE SHEET DATA (AT END OF PERIOD) (CHRISTIANSON): Working capital........................................... $2,967 $3,343 $ 9,891 $4,279 $ 4,792 $ 8,256 Total assets.............................................. 6,718 5,822 11,607 7,634 11,210 15,876 Long-term obligations, net of current maturities.......... 699 584 425 329 349 532 Total stockholders' equity................................ $3,560 $4,140 $ 3,792 $5,685 $ 6,301 $ 9,703
- --------------- (a) The loss from operations and the level of net income in historical periods is primarily attributable to the level of owner's compensation paid during those periods. (b) For the purpose of this calculation "earnings" represents income from operations before income tax expense, plus fixed charges. "Fixed charges" consist of interest, whether expensed or capitalized, amortization of debt expense and an estimated portion of rentals representing interest expense. As a result of the loss incurred for the four months ended December 31, 1996, earnings were insufficient to cover fixed charges by $1.4 million in that period. 37 44 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following discussion should be read in conjunction with the Unaudited Pro Forma Combined Financial Statements and the founding companies' Financial Statements and related notes thereto and "Selected Historical Financial Data" appearing elsewhere in this prospectus. We believe we are the largest company in the United States focused primarily on the plumbing and mechanical contracting services industry. On April 1, 1999, we combined the operations of the ten founding companies, which individually are leading regional providers of plumbing and mechanical contracting services, and commenced operations as one company. AMPAM's revenues are derived primarily from plumbing and mechanical contracting services provided to residential, commercial and institutional customers. Revenues from construction contracts are generally accounted for on a percentage- of-completion basis. Maintenance and repair revenues are recognized as the services are performed. Of AMPAM's 1998 pro forma revenues, approximately 54% were derived from residential services and approximately 46% were derived from commercial and institutional services. Costs and estimated earnings in excess of billings on uncompleted contracts are recorded as an asset and billings in excess of costs and estimated earnings on uncompleted contracts are recorded as a liability on the balance sheet. Provisions for estimated losses on uncompleted contracts are made in the period in which the losses are determined. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to costs and income, and their effects are recognized in the period in which the revisions are determined. Cost of revenues consists primarily of salaries and benefits of employees and materials, which represented approximately 28% and 51% of pro forma cost of revenues in 1998 respectively, as well as, subcontracted services, depreciation, fuel and other vehicle expenses and equipment rentals. A number of the founding companies also include salaries of estimators, insurance and other indirect costs in the cost of revenues. AMPAM's gross margin, which is gross profit expressed as a percentage of revenues, depends on the relative proportions of costs related to labor and materials. On projects in which a higher percentage of the cost of revenues consists of labor costs, AMPAM typically achieves higher gross margins than on projects in which materials represent more of the cost of revenues. Selling, general and administrative expenses consist primarily of compensation and related benefits for owners, management and administrative salaries and benefits, insurance, advertising, office rent and utilities, communications and professional fees. In connection with the acquisitions, some owners and some key employees of the founding companies agreed to reductions in their compensation and related benefits that would have totaled $14.7 million for the 1998 fiscal year. Such reductions in salaries, bonuses and benefits have been reflected as a pro forma adjustment in the Unaudited Pro Forma Combined Statement of Operations and are reflected in the terms of employment agreements with AMPAM. See "Unaudited Pro Forma Combined Financial Statements" and the Notes thereto. AMPAM believes that it will realize savings from: - greater volume discounts from suppliers of materials, parts and supplies; - lower labor costs resulting from scheduling efficiencies and reduced down time; - increased use of off-site prefabricated components; and - increased use of technology. Offsetting these savings will be costs related to AMPAM's new corporate management, costs of being a reporting company and costs of integrating the companies acquired in the acquisitions. See "Business -- Operating Strategy." The plumbing and mechanical contracting services industry is influenced by seasonal factors, which generally result in lower activity levels during colder winter months than other periods. As a result, 38 45 AMPAM expects that its revenues and results of operations will generally be lower in the first and fourth quarters of each fiscal year, and higher in the second and third quarters. See "Risk Factors -- Our industry experiences upturns and downturns, depending on the season of the year and this could have an adverse effect on our quarterly operating results." The acquisition of the founding companies has been accounted for using the purchase method of accounting, and the total purchase price has been allocated to the assets and liabilities of the companies acquired based upon the fair values of the assets and liabilities. As a result, we will have significant non- cash charges for depreciation and amortization expense related to the fixed assets and "goodwill" that were acquired in the acquisition. Our balance sheet includes an amount designated as "goodwill" that on a pro forma basis at March 31, 1999 was $107.8 million, representing 51% of assets and 609% of stockholders' equity. In addition, we may pay additional consideration in the form of cash and stock in the event that adjusted net income of the founding companies for the year ended December 31, 1999 exceeds targeted levels. Any payments of this type would result in additional "goodwill." Our balance sheet and earnings will be similarly impacted by future acquisitions. In addition to the goodwill amortization issue described above, members of management and founders received stock and/or stock options in connection with the organization of AMPAM. The applicable accounting rules require that the stock issued to some members of our management be treated as compensation expense. As a result of this treatment, we recorded a non-recurring, non-cash charge on April 1, 1999 of approximately $7.7 million which will reduce our EBITDA and net income and will be reflected in our second quarter results. See "Unaudited Pro Forma Combined Financial Statements" and the Notes thereto. SUPPLEMENTAL UNAUDITED COMBINED FINANCIAL INFORMATION To facilitate a meaningful comparison, the following discussion and analysis is based on the combined historical results of the founding companies. The following supplemental unaudited combined financial information for the periods presented do not purport to present those of the combined founding companies in accordance with generally accepted accounting principles, which do not allow for the aggregating of financial data for entities that are not under common ownership. The following discussion represents merely a summation of the revenues, cost of revenues (including depreciation), gross profit, selling, general and administrative expenses and income from operations of the individual founding companies on a historical basis and excludes the effects of the pro forma adjustments that are included in the Unaudited Pro Forma Combined Statements appearing elsewhere in this prospectus. Selling, general and administrative expenses for periods prior to the acquisitions reflect the effects of historical salary and distributions to the owners of the founding companies. The data will not be comparable to, and may not be indicative of, AMPAM's post-combination results of operations because: - the founding companies were not under common control or management and some founding companies had different tax structures (generally, S corporations) during the periods presented; - AMPAM will use the purchase method to establish a new basis of accounting to record the acquisitions; - AMPAM will incur incremental costs for its corporate management and the costs of being a public company; - the combined data do not reflect reductions in salary, bonus and benefits of the owners of the founding companies occurring in connection with the acquisitions; and - the combined data do not reflect the potential benefits and cost savings AMPAM expects to realize when operating as a combined entity. Nevertheless, management believes that the aggregate financial information shown below is helpful in understanding the past operations of the founding companies. 39 46 The following table sets forth supplemental unaudited combined financial information of the founding companies on a historical basis and as a percentage of total revenue for the periods indicated (dollars in thousands):
FISCAL YEAR ENDED(A) THREE MONTHS ENDED MARCH 31, -------------------------------------------------- ------------------------------- 1996(B) 1997 1998 1998 1999 -------------- -------------- -------------- -------------- ------------- Revenues.............. $236,557 100% $267,516 100% $322,203 100% $ 70,870 100% $88,005 100% Cost of revenues...... 195,990 83 219,039 82 255,461 79 56,144 79 66,732 76% -------- --- -------- --- -------- --- -------- --- ------- --- Gross profit........ 40,567 17 48,477 18 66,742 21 14,726 21 21,273 24 Selling, general and administrative expenses............ 29,659 13 35,568 13 45,909 14 10,186 14 10,185 11 -------- --- -------- --- -------- --- -------- --- ------- --- Income from operations........ $ 10,908 4% $ 12,909 5% $ 20,833 7% $ 4,540 7% $11,088 13% ======== === ======== === ======== === ======== === ======= ===
- --------------- (a) The fiscal years presented are the years ended December 31, 1996, 1997 and 1998, for all founding companies, except for Croson Ohio, Sherwood and Miller, for which the fiscal years presented are the years ended September 30, 1996, 1997 and 1998 Nelson, for which the fiscal years presented are April 30, 1997, December 31, 1997 and 1998 and Christianson for which the fiscal years presented are August 31, 1996, December 31, 1997 and 1998. For the three months ended December 31, 1998, Croson Ohio, Sherwood and Miller had combined revenues of $16,329 and income from operations of $2,146. (b) Because the 1996 information includes some unaudited 1996 data you are cautioned not to place undue reliance on this information. Nevertheless, management believes that this information may be helpful in understanding the past operations of the founding companies. Three months ended March 31, 1999 compared to the three months ended March 31, 1998 Revenues increased approximately $17.1 million, or 24%, from $70.9 million for the three months ended March 31, 1998 to $88.0 million for the three months ended March 31, 1999. The increase in combined revenues occurred primarily at RCR, Croson Ohio and Christianson. RCR's revenues increased $6.2 million, or 47%, from the three months ended March 31, 1998 to the three months ended March 31, 1999, primarily as a result of continued growth at the Canoga Park, California and Las Vegas, Nevada locations. Croson Ohio's revenues increased $4.9 million, or 39%, from the three months ended March 31, 1998 to the three months ended March 31, 1999, primarily as a result of an increase in projects. Christianson's revenues increased $4.1 million, or 32%, from the three months ended March 31, 1998 to the three months ended March 31, 1999, primarily as a result of the favorable housing market in Austin and the surrounding areas. Gross profit increased $6.6 million, or 44%, from $14.7 million for the three months ended March 31, 1998 to $21.3 for the three months ended March 31, 1999. The increase in combined gross profit occurred primarily due to increases in gross profit of $1.7 million, or 46%, at Christianson, $1.6 million, or 66%, at RCR, $1.3 million, or 87%, at Croson Florida, and $1.3 million, or 389%, at Power. The increase is primarily a result of the increased revenues and increased gross margins of each of these companies. Combined gross margin increased from 21% in the first three months of 1998 to 24% in the first three months of 1999. Power's gross margin increased to 28% for the first three months of 1999 from 9% for the first three months of 1998, primarily as a result of improvements in the bidding environment. Croson Florida's, Christianson's, and RCR's gross margins increased from 24%, 29%, and 19%, respectively, in the first three months of 1998 to 34%, 32%, and 21%, respectively, in the first three months of 1999, primarily due to increased prices resulting from the increased demand for the companies' services. 40 47 Combined selling, general and administrative expenses remained constant at $10.2 million for the three months ended March 31, 1998 and 1999. Fiscal year ended December 31, 1998 compared to fiscal year ended December 31, 1997 Combined revenues increased approximately $54.7 million, or 20%, from $267.5 million for the 1997 fiscal year to $322.2 million for the 1998 fiscal year. The increase in combined revenues occurred primarily at RCR, Christianson, Croson Florida and Teepe's. RCR's revenues increased $13.6 million, or 27%, from $49.7 million for the 1997 fiscal year to $63.3 million for the 1998 fiscal year, primarily as a result of an increase in the number and size of projects and contracts, reflecting the growth from two new facilities in Canoga Park, California and Las Vegas, Nevada. Christianson's revenues increased $12.5 million, or 24.5%, from $50.9 million for the 1997 fiscal year to $63.4 million for the 1998 fiscal year, primarily as a result of increased market share, more favorable contract pricing and increased construction activity in the Austin and central Texas housing market. Croson Florida's revenues increased $10.0 million, or 56%, from $18.1 million for the 1997 fiscal year to $28.1 million for the 1998 fiscal year, primarily due to expanded operations and contract volumes at Croson Florida's facility in the Tampa/Fort Meyers, Florida area. Teepe's revenues increased $7.9 million, or 19%, from $42.7 million for the 1997 fiscal year to $50.6 million for the 1998 fiscal year, primarily as a result of an increase in large commercial construction contracts in the Columbus, Ohio area as well as continued growth in governmental and institutional projects. The most significant increase in revenues among the other founding companies was an increase of $4.8 million, or 16%, which occurred at Keith Riggs, primarily as a result of increased demand for services due to increased housing starts and also due to increased maintenance revenues. Combined gross profit increased $18.2 million, or 38%, from $48.5 million for the 1997 fiscal year to $66.7 million for the 1998 fiscal year, generally as a result of increased market share, more favorable pricing and increased construction activity in AMPAM's markets. The increase in combined gross profit occurred primarily due to increases in gross profit of $4.3 million, or 32%, at Christianson, $4.3 million, or 59%, at RCR, and $3.5 million, or 83%, at Croson Florida. The increase in combined gross profit is primarily attributable to increased revenues and increased margins of each of these companies. Combined gross margin increased to 21% for the 1998 fiscal year from 18% for the 1997 fiscal year. Christianson's gross margin increased to 28% for the 1998 fiscal year from 26% for the 1997 fiscal year, primarily as a result of small price increases for new home construction and increased maintenance revenues. RCR's gross margin increased to 18% for the 1998 fiscal year from 15% for the 1997 fiscal year, primarily due to improved pricing on many contracts as a result of increased demand for RCR's services as well as due to efficiencies gained through additional experience in the Canoga Park, California and Las Vegas, Nevada markets. Croson Florida's gross margin increased to 27% for the 1998 fiscal year from 23% for the 1997 fiscal year, primarily as a result of favorable pricing of its contracts in the Tampa/Fort Meyers, Florida area. Selling, general and administrative expenses increased $10.4 million, or 29%, from $35.6 million for the 1997 fiscal year to $46.0 million for the 1998 fiscal year. This increase occurred primarily due to an increase in selling, general and administrative expenses of $5.6 million at Christianson and $2.7 million at RCR. The increase in Christianson's selling, general and administrative expenses was primarily attributable to an increase in officer compensation and to increases in administrative costs due to the increased volume of contracts. RCR's increase was primarily attributable to an increase in administrative support required by the increased revenues. Fiscal year ended December 31, 1997 compared to fiscal year ended December 31, 1996 Revenues increased approximately $30.9 million, or 13%, from $236.6 million for the 1996 fiscal year to $267.5 million for the 1997 fiscal year. The increase in combined revenues occurred primarily at RCR, Teepe's and Croson Florida. RCR's revenues increased $9.3 million, or 23%, from 1996 to 1997, primarily as a result of the opening of two new facilities in early 1997. Teepe's revenues increased $7.3 million, or 21%, from 1996 to 1997, primarily as a result of an increase in large commercial construction contracts serviced from Teepe's new facility in Columbus, Ohio which opened in August of 1997. Croson Florida's 41 48 revenues increased $6.4 million, or 54%, from 1996 to 1997, primarily as a result of an increase in the number and size of contracts and revenues from a new facility in Tampa/Fort Meyers, Florida. All of the remaining seven founding companies reported an increase between the 1997 and 1996 fiscal year, except for Miller, which reported a decrease of $2.6 million, due to the fact that in 1997 Miller ceased to provide HVAC services which it had begun providing to a major customer in 1996. Gross profit increased $7.9 million, or 19%, from $40.6 million for the 1996 fiscal year, to $48.5 million for the 1997 fiscal year. The increase in combined gross profit occurred primarily due to increases in gross profit of $2.0 million, or 38%, at RCR, $1.8 million, or 73%, at Croson Florida and $1.3 million, or 11%, at Christianson. The increase in combined gross profit is primarily attributable to increased revenues and increased gross margins of each of these companies. Combined gross margin increased slightly from 17% during the 1996 fiscal year to 18% during the 1997 fiscal year. RCR's gross margin increased to 15% for the 1997 fiscal year from 13% for the 1996 fiscal year. Croson Florida's gross margin increased to 23% during the 1997 fiscal year from 21% during the 1996 fiscal year, primarily as a result of Croson Florida's new facility in the Tampa/Fort Meyers, Florida market and favorable overall pricing of contracts. Christianson's gross margin increased to 26% for the 1997 fiscal year from 24% for the 1996 fiscal year, primarily due to continued discounts on materials purchases and incentive compensation programs. Selling, general and administrative expenses increased $5.9 million, or 20%, from $29.7 million in the 1996 fiscal year to $35.6 million in the 1997 fiscal year, generally from increased contract volumes and opening of new facilities. This increase occurred primarily due to an increase in selling, general and administrative expenses of $1.7 million at RCR, $1.1 million at Croson Florida and $0.7 million at Teepe's. The increase in RCR's selling, general and administrative expenses was primarily attributable to an increase in administrative support required by the increased contract volume and costs related to two start-up divisions. Croson Florida's increase was attributable to the opening of a new facility in Tampa/ Fort Meyers, Florida, which includes increases in administrative salaries and additional rent and travel expenses. Teepe's increase was primarily attributable to an increase in administrative support required by the increased revenues and one-time start-up costs associated with the opening of Teepe's facility in Columbus, Ohio. LIQUIDITY AND CAPITAL RESOURCES On a pro forma basis as adjusted for the original issuance of the notes, as of March 31, 1999, AMPAM would have had approximately $30.9 million of working capital, and $125.5 million of outstanding indebtedness including capital lease obligations totaling $3.1 million. On a historical combined basis, the founding companies generated $8.3 million of cash from operating activities for the three months ended March 31, 1999, which includes owners compensation payments of $0.5 million in excess of the payments to be made to the owners in accordance with their respective employment agreements. Net cash provided by investing activities for the three months ended March 31, 1999, was $2.2 million on a combined basis and was primarily proceeds from sales of property and equipment. Net cash used in financing activities for the three months ended March 31, 1999, was $6.6 million on a combined basis and was primarily used for debt repayment and capital distributions. On April 1, 1999, AMPAM entered into a credit facility with The First National Bank of Chicago. The total commitment under the credit facility is $95 million, of which AMPAM drew approximately $70.3 million at the closing of the acquisitions to fund a portion of the cash portion of acquisition consideration. All of these amounts were repaid with proceeds of the original issuance of the notes, leaving the full commitment of the credit facility available for borrowings after closing subject to the borrowing conditions set forth in the credit facility. See "Description of Other Indebtedness." On April 1, 1999, AMPAM also entered into a subordinated loan with Fleet Corporate Finance, Inc. The total commitment under the subordinated loan is approximately $30 million, all of which was drawn at closing. AMPAM used all of this amount to fund a part of the cash portion of the acquisition 42 49 consideration. The entire amount of the subordinated loan was repaid with the proceeds of the original issuance of the notes. AMPAM anticipates that its cash flow from operations will provide sufficient cash to enable AMPAM to meet its working capital needs, debt service requirements and planned capital expenditures for property and equipment through the foreseeable future. Combined capital expenditures for the founding companies for the 1998 fiscal year were $2.8 million. AMPAM intends to continue pursuing attractive acquisition opportunities. We currently intend to acquire companies for a mix of stock and cash. The timing, size or success of any acquisition effort and the associated potential capital commitments cannot be predicted. AMPAM expects to fund future acquisitions primarily with working capital, cash flow from operations and borrowings, including any unborrowed portion of the credit facility, as well as issuances of additional equity. Due to the relatively low levels of inflation experienced in the 1996, 1997 and 1998 fiscal years, inflation did not have a significant effect on the results of the combined founding companies in those fiscal years, or on any of the founding companies, individually. CHRISTIANSON RESULTS OF OPERATIONS Christianson is headquartered outside Austin, Texas, with an additional office in San Antonio, Texas, and operates principally in central Texas. The following table sets forth selected statement of operations data and data as a percentage of revenues for the periods indicated (dollars in thousands):
YEAR ENDED THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, AUGUST 31, ------------------------------ ------------------------------ 1996 1997 1998 1998 1999 ------------- ------------- ------------- ------------- ------------- (UNAUDITED) Revenues.................. $50,330 100% $50,909 100% $63,374 100% $12,744 100% $16,824 100% Cost of revenues.......... 38,203 76 37,504 74 45,704 72 9,024 71 11,390 68 ------- --- ------- --- ------- --- ------- --- ------- --- Gross profit............ 12,127 24 13,405 26 17,670 28 3,720 29 5,434 32 Selling, general and administrative expenses................ 11,051 22 11,497 23 17,078 27 3,253 26 1,863 11 ------- --- ------- --- ------- --- ------- --- ------- --- Income from operations............ $ 1,076 2% $ 1,908 3% $ 592 1% $ 467 3% $ 3,571 21% ======= === ======= === ======= === ======= === ======= ===
Three months ended March 31, 1999 compared to the three months ended March 31, 1998 Revenues increased $4.1 million, or 32%, from $12.7 million for the three months ended March 31, 1998 to $16.8 million for the three months ended March 31, 1999, primarily due to price increases for new home construction contracts and increases in the number of construction contracts resulting from the favorable housing market in Austin and surrounding areas. Gross profit increased $1.7 million, or 46%, during the three months ended March 31, 1999 to $5.4 million, and gross margin increased to 32% in the first three months of 1999 from 29% in the first three months of 1998 as a result of price increases for new home construction contracts and increased maintenance and service revenues. Selling, general and administrative expenses decreased $1.4 million, or 43%, from $3.3 million for the three months ended March 31, 1998 to $1.9 million for the three months ended March 31, 1999. The decrease was a result of a decrease in officer compensation, offset by an increase in overhead related to the overall growth in the business. The total officers' compensation for the three months ended March 31, 1999 was $0.4 million compared to $2.1 million for the three months ended March 31, 1998 due to agreed upon compensation reductions. 43 50 Year ended December 31, 1998 compared to the year ended December 31, 1997 Revenues increased $12.5 million, or 25%, from $50.9 million for the year ended December 31, 1997 to $63.4 million for the year ended December 31, 1998, primarily due to increased market share as a result of contracts with new builder customers, small increases in contract pricing and increased construction activity in the Austin and central Texas housing market. Gross profit increased $4.3 million, or 32%, during the year ended December 31, 1998 to $17.7 million, and gross margin increased to 28% in 1998 from 26% in 1997 as a result of small increases in contract pricing and increased maintenance and service revenues. Selling, general and administrative expenses increased $5.6 million, or 49%, from $11.5 million for the year ended December 31, 1997 to $17.1 million for the year ended December 31, 1998. The increase was attributable to an increase in officer compensation and increases in administrative costs due to the increased volume of contracts. The total officers' compensation for the year ended December 31, 1998 was $10.7 million. Year ended December 31, 1997 compared to the year ended August 31, 1996 Revenues increased $0.6 million, or 1%, from $50.3 million for the year ended August 31, 1996 to $50.9 million for the 1997 fiscal year, primarily as a result of increased construction activity in Christianson's areas of operations. Gross profit increased $1.3 million, or 11%, during the 1997 fiscal year to $13.4 million, and gross margin increased to 26% during the 1997 fiscal year from 24% during the 1996 fiscal year as a result of continued discounts on materials purchases and incentive compensation programs. Selling, general and administrative expenses increased $0.4 million, or 4%, from $11.1 million for the 1996 fiscal year to $11.5 million for the 1997 fiscal year. The increase was attributable to an increase in rent expenses and real property taxes after Christianson's relocation to a new headquarters facility in November 1997 offset by a $0.3 million reduction in total officers' compensation for the year ended December 31, 1997 which was $6.6 million. LIQUIDITY AND CAPITAL RESOURCES Christianson generated approximately $3.7 million of net cash from operating activities for the three months ended March 31, 1999 primarily due to net income before depreciation and deferred income taxes of $3.5 million and a decrease in working capital of $0.2 million. Net cash used in investing activities was approximately $0.1 million related to the purchase of property and equipment. Net cash used in financing activities was approximately $0.1 million, primarily related to the repayment of long-term debt. At March 31, 1999, Christianson had working capital of $8.3 million and total debt of $1.0 million. Christianson generated approximately $2.5 million of net cash from operating activities for year ended December 31, 1998 primarily due to net income before depreciation and deferred income taxes of $1.3 million and a decrease in working capital of $1.2 million. Net cash used in investing activities was approximately $0.2 million related to the purchase of property and equipment. Net cash used in financing activities was approximately $0.5 million, primarily related to the repayment of long-term debt. At December 31, 1998, Christianson had working capital of $4.8 million and total debt of $0.8 million. RCR RESULTS OF OPERATIONS RCR is headquartered in Riverside, California, east of Los Angeles, with additional facilities in Las Vegas, Nevada and Canoga Park, California in the San Fernando Valley. The following table sets forth 44 51 selected statement of operations data and data as a percentage of revenues for the periods indicated (dollars in thousands):
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, ----------------------------------------------- ------------------------------ 1996 1997 1998 1998 1999 ------------- ------------- ------------- ------------- ------------- (UNAUDITED) Revenues.................. $40,430 100% $49,738 100% $63,293 100% $13,200 100% $19,441 100% Cost of revenues.......... 35,102 87 42,377 85 51,604 82 10,744 81 15,361 79 ------- --- ------- --- ------- --- ------- --- ------- --- Gross profit............ 5,328 13 7,361 15 11,689 18 2,456 19 4,080 21 Selling, general and administrative expenses................ 3,979 10 5,712 12 8,370 13 1,724 13 2,452 13 ------- --- ------- --- ------- --- ------- --- ------- --- Income from operations............ $ 1,349 3% $ 1,649 3% $ 3,319 5% $ 732 6% $ 1,628 8% ======= === ======= === ======= === ======= === ======= ===
Three months ended March 31, 1999 compared to the three months ended March 31, 1998 Revenues increased $6.2 million, or 47%, from $13.2 million for the three months ended March 31, 1998 to $19.4 million for the three months ended March 31, 1999, primarily as a result of continued growth generated by the two newer facilities in Canoga Park, California and Las Vegas, Nevada. Gross profit increased $1.6 million, or 66%, during the three months ended March 31, 1999 to $4.0 million, and gross margin increased to 21% in the first three months of 1999 from 19% in the first three months of 1998 as a result of increases in pricing on many contracts reflecting increased demand for RCR's services and cost efficiencies achieved in the additional markets serviced by the two newer facilities. Selling, general and administrative expenses increased $0.8 million, or 42%, from $1.7 million for the three months ended March 31, 1998 to $2.5 million for the three months ended March 31, 1999. The increase was attributable to an increase in administrative support related to the continued growth generated by the newer facilities. Year ended December 31, 1998 compared to the year end December 31, 1997 Revenues increased $13.6 million, or 27%, from $49.7 million for the year ended December 31, 1997 to $63.3 million for the year ended December 31, 1998, primarily as a result of an increase in the number and size of projects and contracts, reflecting the growth from two new facilities in Canoga Park, California and Las Vegas, Nevada. Gross profit increased $4.3 million, or 59%, during the year ended December 31, 1998 to $11.7 million, and gross margin increased to 18% in 1998 from 15% in 1997 as a result of improved pricing on many contracts as well as due to efficiencies gained through additional experience in the Canoga Park and Las Vegas markets. Selling, general and administrative expenses increased $2.7 million, or 47%, from $5.7 million for the December 31, 1997 to $8.4 million for the December 31, 1998. The increase was attributable to an increase in administrative support required by the increased contract volumes. Year ended December 31, 1997 compared to the year ended December 31, 1996 Revenues increased $9.3 million, or 23%, from $40.4 million for the 1996 fiscal year to $49.7 million for the 1997 fiscal year, primarily as a result of the opening of two new operating divisions in early 1997 in Canoga Park, California and Las Vegas, Nevada. Gross profit increased $2.0 million, or 38%, during the 1997 fiscal year to $7.4 million as a result of an increase in revenues for two new facilities in Canoga Park, California and Las Vegas, Nevada and improvements in gross margin. Gross margin increased slightly to 15% during the year ended December 31, 1997 from 13% during the 1996 fiscal year. 45 52 Selling, general and administrative expenses increased $1.7 million, or 44%, from $4.0 million for the 1996 fiscal year to $5.7 million for the 1997 fiscal year. The increase was attributable to an increase in administrative support required by the increased contract volumes and costs related to two start-up divisions. TEEPE'S RESULTS OF OPERATIONS Teepe's is headquartered in Cincinnati, Ohio, with an additional facility added in August of 1997 in Columbus, Ohio. The following table sets forth selected statement of operations data as a percentage of revenues for the periods indicated (dollars in thousands):
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, ----------------------------------------------- ------------------------------ 1996 1997 1998 1998 1999 ------------- ------------- ------------- ------------- ------------- (UNAUDITED) Revenues.................. $35,400 100% $42,687 100% $50,627 100% $11,449 100% $10,546 100% Cost of revenues.......... 30,410 86 37,170 87 44,048 87 10,066 88 9,287 88 ------- --- ------- --- ------- --- ------- --- ------- --- Gross profit............ 4,990 14 5,517 13 6,579 13 1,383 12 1,259 12 Selling, general and administrative expenses................ 3,414 10 4,158 10 4,779 9 1,205 10 1,126 11 ------- --- ------- --- ------- --- ------- --- ------- --- Income from operations............ $ 1,576 4% $ 1,359 3% $ 1,800 4% $ 178 2% $ 133 1% ======= === ======= === ======= === ======= === ======= ===
Three months ended March 31, 1999 compared to the three months ended March 31, 1998 Revenues decreased $0.9 million, or 8%, from $11.4 million for the three months ended March 31, 1998 to $10.5 million for the three months ended March 31, 1999, primarily due to the fact that the majority of the projects in progress during the first three months of 1999 were in the beginning stages, the phase in which less revenues are earned. Gross profit decreased $0.1 million, or 9%, from $1.4 million during the three months ended March 31, 1998 to $1.3 million during the three months ended March 31, 1998, as a result of the decrease in revenues discussed above. Gross margin remained constant for the three months ended March 31, 1998 and 1999 at 12%. Selling, general and administrative expenses decreased $0.1 million, or 7%, from $1.2 million for the three months ended March 31, 1998 to $1.1 million for the three months ended March 31, 1999. The decrease is a result of certain cost reduction measures implemented by management coupled with the voluntary termination of certain members of the office staff who have not been replaced. Year ended December 31, 1998 compared to the year ended December 31, 1997 Revenues increased $7.9 million, or 19%, from $42.7 million for the year ended December 31, 1997 to $50.6 million for the year ended December 31, 1998, primarily as a result of an increase in large commercial construction contracts in the Columbus, Ohio area as well as continued growth in governmental and institutional projects. Gross profit increased $1.1 million, or 19%, from $5.5 million during the year ended December 31, 1997 to $6.6 million during the year ended December 31, 1998, as a result of an increased number of successful bids with higher gross margins and further expansion in the Columbus, Ohio market. Gross margin remained constant for 1997 and 1998 at 13%. Selling, general and administrative expenses increased $0.6 million, or 15%, from $4.2 million for the year ended December 31, 1997 to $4.8 million for the year ended December 31, 1998. The increase was attributable to an increase in administrative support required by the higher level of revenues and due to additional overhead associated with the opening of a new facility in the Columbus, Ohio area. 46 53 Year ended December 31, 1997 compared to the year ended December 31, 1996 Revenues increased $7.3 million, or 21%, from $35.4 million for the 1996 fiscal year to $42.7 million for the 1997 fiscal year, primarily as a result of an increase in large commercial construction contracts performed from a new facility in Columbus, Ohio which opened in August of 1997. Gross profit increased $0.5 million, or 11%, from $5.0 million during the 1996 fiscal year to $5.5 million during the 1997 fiscal year, and gross margin decreased to 13% during the 1997 fiscal year from 14% during the 1996 fiscal year as a result of further efforts to expand into the Columbus, Ohio market. Selling, general and administrative expenses increased $0.7 million, or 22%, from $3.4 million for the 1996 fiscal year to $4.2 million for the 1997 fiscal year. The increase was attributable to an increase in administrative support required by the increased contract volumes and one-time start-up costs associated with the opening of a new facility in Columbus, Ohio. KEITH RIGGS RESULTS OF OPERATIONS Keith Riggs is headquartered in Phoenix, Arizona. The following table sets forth selected statement of operations data and data as a percentage of revenues for the periods indicated (dollars in thousands):
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, ------------------------------ ------------------------------ 1997 1998 1998 1999 ------------- ------------- ------------- ------------- (UNAUDITED) Revenues.................................. $29,680 100% $34,464 100% $ 7,279 100% $ 8,917 100% Cost of revenues.......................... 25,865 87 29,965 87 6,190 85 7,469 84 ------- --- ------- --- ------- --- ------- Gross profit............................ 3,815 13 4,499 13 1,089 15 1,448 16 Selling, general and administrative expenses................................ 2,583 9 2,943 9 655 9 706 8 ------- --- ------- --- ------- --- ------- Income from operations.................. $ 1,232 4% $ 1,556 4% $ 434 6% $ 742 8% ======= === ======= === ======= === ======= ===
Three months ended March 31, 1999 compared to the three months ended March 31, 1998 Revenues increased $1.6 million, or 23%, from $7.3 million for the three months ended March 31, 1998 to $8.9 million for the three months ended March 31, 1999, primarily due to an increase in average billing rates and demand for Keith Riggs' services as a result of the increased construction activity in the Phoenix metropolitan area. Gross profit increased $0.3 million, or 33%, from $1.1 million during the three months ended March 31, 1998 to $1.4 million during the three months ended March 31, 1999, and gross margin increased to 16% during the first three months of 1999 from 15% during the first three months of 1998, as a result of price increases offset by increased labor and other cost efficiencies associated with additional contract volumes. Selling, general and administrative expenses remained relatively constant at $0.7 million for the three months ended March 31, 1998 and 1999. Year ended December 31, 1998 compared to the year ended December 31, 1997 Revenues increased $4.8 million, or 16%, from $29.7 million for the year ended December 31,1997 to $34.5 million for the year ended December 31, 1998, primarily as a result of increased demand for Keith Riggs' services due to increased housing starts. Gross profit increased $0.7 million, or 18%, from $3.8 million during the year ended December 31, 1997 to $4.5 million during the year ended December 31, 1998, as a result of increased revenues from new housing starts. Selling, general and administrative expenses increased $0.4 million, or 14%, from $2.6 million for the year ended December 31,1997 to $2.9 million for the year ended December 31, 1998. The increase was attributable to an increase in administrative support required by the increased contract volumes. 47 54 CROSON OHIO RESULTS OF OPERATIONS Croson Ohio is headquartered in Columbus, Ohio. The following table sets forth selected statement of operations data and data as a percentage of revenues for the periods indicated (dollars in thousands):
YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31, ----------------------------------------------- ------------------------------ 1996 1997 1998 1998 1999 ------------- ------------- ------------- ------------- ------------- (UNAUDITED) Revenues.................. $26,185 100% $27,029 100% $25,234 100% $12,330 100% $17,194 100% Cost of revenues.......... 22,305 85 22,970 85 20,438 81 10,500 85 14,407 84 ------- --- ------- --- ------- --- ------- --- ------- --- Gross profit............ 3,880 15 4,059 15 4,796 19 1,830 15 2,787 16 Selling, general and administrative expenses................ 2,263 9 2,217 8 2,032 8 894 7 1,232 7 ------- --- ------- --- ------- --- ------- --- ------- --- Income from operations............ $ 1,617 6% $ 1,842 7% $ 2,764 11% $ 936 8% $ 1,555 9% ======= === ======= === ======= === ======= === ======= ===
Six months ended March 31, 1999 compared to the six months ended March 31, 1998 Revenues increased $4.9 million or 39%, from $12.3 million for the six months ended March 31, 1998 to $17.2 million for the six months ended March 31, 1999, primarily as a result of additional HVAC and plumbing projects. Gross profit increased $1.0 million, or 52%, from $1.8 million during the six months ended March 31, 1998 to $2.8 million during the six months ended March 31, 1999, and gross margin increased nominally to 16% in 1999 from 15% in 1998 as a result of increased prices, as well as cost efficiencies, for wastewater treatment plant projects. Selling, general and administrative expenses increased $0.3 million, or 38% from $0.9 million for the six months ended March 31, 1998 to $1.2 million for the six months ended March 31, 1999, primarily as a result of an increase in advertising and supply expense related to the combination of Croson Ohio's and Teepe's operations as well as an increase in administrative salaries. Year ended September 30, 1998 compared to the year ended September 30, 1997 Revenues decreased $1.8 million or 7%, from $27.0 million for the year ended September 30, 1997 to $25.2 million for the year ended September 30, 1998, primarily as a result of a decrease in new starts due to strong competition in Ohio. Gross profit increased $0.7 million, or 18%, from $4.1 million during the year ended September 30, 1997 to $4.8 million during the year ended September 30, 1998, and gross margin increased to 19% in 1998 from 15% in 1997 as a result of increased revenues and prices on wastewater treatment plant projects, as well as improved margins for specific jobs. Selling, general and administrative expenses decreased $0.2 or 8% from $2.2 million for the year ended September 30, 1997 to $2.0 million for the year ended September 30, 1998, primarily as a result of a decrease in administrative salaries due to the retirement of a key employee. In addition, Croson Ohio replaced the profit sharing plan with a discretionary bonus plan, which resulted in less expense. Year ended September 30, 1997 compared to the year ended September 30, 1996 Revenues increased $0.8 million, or 3%, from $26.2 million for the 1996 fiscal year to $27.0 million for the 1997 fiscal year, primarily as a result of larger contracts for mechanical contracting services for wastewater and purification projects, offset by smaller plumbing contracting services contracts due to increased competition in the Columbus, Ohio area. Gross profit increased $0.2 million, or 5%, from $3.9 million during the 1996 fiscal year to $4.1 million during the 1997 fiscal year, as a result of increased revenues. Gross margin remained relatively constant at 15% for the 1996 and 1997 fiscal years. 48 55 Selling, general and administrative expenses remained relatively constant at approximately $2.2 million in 1996 and 1997. CROSON FLORIDA RESULTS OF OPERATIONS Croson Florida is headquartered in Orlando, Florida, with additional facilities in Sorrento and Tampa, Florida. The following table sets forth selected statement of operations data and data as a percentage of revenues for the periods indicated (dollars in thousands):
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, ----------------------------------------------- ---------------------------- 1996 1997 1998 1998 1999 ------------- ------------- ------------- ------------ ------------ (UNAUDITED) Revenues.................... $11,722 100% $18,095 100% $28,142 100% $6,148 100% $8,274 100% Cost of revenues............ 9,300 79 13,916 77 20,483 73 4,658 76 5,482 66 ------- --- ------- --- ------- --- ------ --- ------ --- Gross profit.............. 2,422 21 4,179 23 7,659 27 1,490 24 2,792 34 Selling, general and administrative expenses... 1,050 9 2,213 12 2,960 10 718 12 869 11 ------- --- ------- --- ------- --- ------ --- ------ --- Income from operations.... $ 1,372 12% $ 1,966 11% $ 4,699 17% $ 772 12% $1,923 23% ======= === ======= === ======= === ====== === ====== ===
Three months ended March 31, 1999 compared to the three months ended March 31, 1998 Revenues increased $2.2 million, or 35%, from $6.1 million for the three months ended March 31, 1998 to $8.3 million for the three months ended March 31, 1999, primarily due to continued growth and contract volumes in the newer Tampa/Fort Meyer, Florida operation. Gross profit increased $1.3 million or, 87%, from $1.5 million during the three months ended March 31, 1998 to $2.8 million during the three months ended March 31, 1999, and gross margin increased to 34% in the first three months of 1999 from 24% in the first three months of 1998 as a result of price increases reflecting the demand for Croson Florida's services and costs efficiencies obtained from additional experience in the newer operation. Selling, general and administrative expenses increased $0.2 million, or 21%, from $0.7 million for the three months ended March 31, 1998 to $0.9 million for the three months ended March 31, 1999. The increase was due to an increase in compensation and an increase in the number of employees needed at the newer Tampa/Fort Meyer facility. Year ended December 31, 1998 compared to the year ended December 31, 1997 Revenues increased $10.0 million, or 56%, from $18.1 million for the year ended December 31, 1997 to $28.1 million for the year ended December 31, 1998, primarily due to expanded operations and contract volumes at Croson Florida's facility in the Tampa/Fort Meyers, Florida area. Gross profit increased $3.5 million or, 83%, during the year ended December 31, 1998 to $7.7 million, and gross margin increased to 27% in 1998 from 23% in 1997 as a result of favorable pricing of contracts in the Tampa/Fort Meyers, Florida area. Selling, general and administrative expenses increased $0.8 million, or 34%, from $2.2 million for the year ended December 31, 1997 to $3.0 million for the year ended December 31, 1998. The increase was attributable to an increase in workforce and salaries after the opening of the Tampa/Fort Meyers, Florida facility, as well as increases in bonus and incentive pay. Year ended December 31, 1997 compared to the year ended December 31, 1996 Revenues increased $6.4 million, or 54%, from $11.7 million for the 1996 fiscal year to $18.1 million for the 1997 fiscal year, primarily as a result of an increase in the number and size of contracts and revenues from Croson Florida's new facility in Tampa/Fort Meyers, Florida. 49 56 Gross profit increased $1.8 million, or 73%, during the 1997 fiscal year to $4.2 million, and gross margin increased to 23% during the 1997 fiscal year from 21% during the 1996 fiscal year as a result of the new facility in the Tampa/Fort Meyers, Florida market and favorable overall pricing of contracts. Selling, general and administrative expenses increased $1.1 million, or 111%, from $1.1 million for the 1996 fiscal year to $2.2 million for the 1997 fiscal year. The increase was attributable to the opening of the new facility in Tampa/Fort Meyers, Florida, which included increases in administrative salaries and additional rent and travel expenses. POWER RESULTS OF OPERATIONS Power is headquartered in Houston, Texas. The following table sets forth selected statement of operations data and this data as a percentage of revenues for the periods indicated (dollars in thousands):
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, ------------------------------ ---------------------------- 1997 1998 1998 1999 ------------- ------------- ------------ ------------ (UNAUDITED) Revenues.................................... $17,010 100% $17,109 100% $3,501 100% $5,620 100% Cost of revenues............................ 14,680 86 14,371 84 3,174 91 4,022 72 ------- --- ------- --- ------ --- ------ --- Gross profit.............................. 2,330 14 2,738 16 327 9 1,598 28 Selling, general and administrative expenses.................................. 1,128 7 1,268 7 217 6 346 6 ------- --- ------- --- ------ --- ------ --- Income from operations.................... $ 1,202 7% $ 1,470 9% $ 110 3% $1,252 22% ======= === ======= === ====== === ====== ===
Three months ended March 31, 1999 compared to the three months ended March 31, 1998 Revenues increased $2.1 million, or 61%, from $3.5 million for the three months ended March 31, 1998 to $5.6 million for the three months ended March 31, 1999, primarily as a result of an increase in the demand for Power's services, which has increased the volume of projects. Gross profit increased $1.3 million, or 389%, during the three months ended March 31, 1999 to $1.6 million, and gross margin increased to 28% in the three months ended March 31, 1999 from 9% in the three months ended March 31, 1998 as a result of an improved bidding environment resulting from the increase in demand and slightly lower materials costs. In addition, Power began achieving cost efficiencies associated with gaining experience working with certain builders with whom recurring work was performed and further cost reductions were achieved as a result of Power's business being provided primarily in the Houston area versus areas outside Houston. Selling, general and administrative expenses increased $0.1 million, or 59%, from $0.2 million for the three months ended March 31, 1998 to $0.3 million for the three months ended March 31, 1999. The increase was attributable to a slight increase in administrative payroll and payroll related costs as well as an increase in communication costs and in travel and entertainment expenses. Year ended December 31, 1998 compared to the year ended December 31, 1997 Revenues increased slightly by $0.1 million, or 1%, from $17.0 million for the year ended December 31, 1997 to $17.1 million for the year ended December 31, 1998, primarily as a result of favorable market conditions in Houston, offset by the limited capacity to accept additional work. Gross profit increased $0.4 million, or 18%, during the year ended December 31, 1998 to $2.7 million, and gross margin increased to 16% in the year ended December 31, 1998 from 14% in the year ended December 31, 1997 as a result of a decrease in material prices, partially offset by an increase in labor rates. Selling, general and administrative expenses increased $0.2 million, or 12%, from $1.1 million for the year ended December 31, 1997 to $1.3 million for the year ended December 31, 1998. The increase was attributable to an increase in administrative salary expense and increased employee benefits. 50 57 NELSON RESULTS OF OPERATIONS Nelson is headquartered in Pensacola, Florida. The following table sets forth selected statement of operations data and data as a percentage of revenues for the periods indicated (dollars in thousands):
ELEVEN YEAR ENDED APRIL 30, MONTHS ENDED ------------------------------ MARCH 31, 1997 1998 1999 ------------- ------------- ------------- Revenues................................................. $12,507 100% $14,240 100% $14,039 100% Cost of revenues......................................... 9,110 73 9,641 68 9,349 67 ------- --- ------- --- ------- --- Gross profit........................................... 3,397 27 4,599 32 4,690 33 Selling, general and administrative expenses............. 2,408 19 2,458 17 1,914 13 ------- --- ------- --- ------- --- Income from operations................................. $ 989 8% $ 2,141 15% $ 2,776 20% ======= === ======= === ======= ===
Eleven months ended March 31, 1999 compared to the year ended April 30, 1998 Revenues of $14.0 million were earned during the eleven months ended March 31, 1999 compared to $14.2 million earned during the year ended April 30, 1998. Fiscal year 1999 revenues are on pace to exceed fiscal year 1998 revenues as a result of the continued growth in underground utility installation and building pipe replacement projects. Gross profit of $4.7 million was earned for the eleven months ended March 31, 1999 compared to $4.6 million earned during the year ended April 30, 1998. Fiscal year 1999 gross profit is on pace to exceed fiscal year 1998 gross profit as a result of material and labor cost efficiencies associated with building pipe replacement contracts. Gross margin increased nominally to 33% in 1999 from 32%. Selling, general and administrative expenses were $1.9 million for the eleven months ended March 31, 1999 compared to $2.5 million for the year ended April 30, 1998, which would result in a decrease for the fiscal year. The decrease is due to a reduction in officer compensation. Year ended April 30, 1998 compared to the year ended April 30, 1997 Revenues increased $1.7 million, or 14%, from $12.5 million for the 1997 fiscal year to $14.2 million for the 1998 fiscal year, primarily as a result of an increase in contracts for underground utility installation and existing building pipe replacement, partially offset by the effects of the wet winter season in the panhandle region of Florida. Gross profit increased $1.2 million, or 35%, during the year ended April 30, 1998 to $4.6 million, and gross margin increased to 32% during the 1998 fiscal year from 27%, during the 1997 fiscal year as a result of increased margins on materials required for some building pipe replacement contracts, and reduced labor costs associated with Nelson's underground utility contracts. Selling, general and administrative expenses increased $0.1 million, or 2%, from $2.4 million for the 1997 fiscal year to $2.5 million for the 1998 fiscal year. The increase was attributable to an increase in office labor expense. SHERWOOD RESULTS OF OPERATIONS Sherwood is headquartered in San Diego, California. The following table sets forth selected statement of operations data and data as a percentage of revenues for the periods indicated (dollars in thousands):
YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31, ------------------------------ ---------------------------- 1997 1998 1998 1999 ------------- ------------- ------------ ------------ (UNAUDITED) Revenues.................................... $11,482 100% $13,556 100% $6,607 100% $7,690 100% Cost of revenues............................ 9,867 86 11,066 82 5,372 81 6,446 84 ------- --- ------- --- ------ --- ------ --- Gross profit.............................. 1,615 14 2,490 18 1,235 19 1,244 16 Selling, general and administrative expenses.................................. 1,505 13 2,189 16 850 13 1,198 15 ------- --- ------- --- ------ --- ------ --- Income from operations.................... $ 110 1% $ 301 2% $ 385 6% $ 46 1% ======= === ======= === ====== === ====== ===
51 58 Six months ended March 31, 1999 compared to the six months ended March 31, 1998 Revenues increased $1.1 million, or 16%, from $6.6 million for the six months ended March 31, 1998 to $7.7 million for the six months ended March 31, 1999, primarily as a result of an increase in private projects, principally hotels. Gross profit remained constant at $1.2 million for the three months ended March 31, 1998 and 1999; however gross margin decreased to 16% in the six months 1999 from 19% in 1998 as a result of inefficiency for two specific projects due to contract period extension. Selling, general and administrative expenses increased $0.3 million, or 40%, from $0.9 million for the six months ended March 31, 1998 to $1.2 million for the six months ended March 31, 1999. The increase was attributable to continued development of the pre-fab department, creation of a Special Projects division, and expansion of the Design department. Year ended September 30, 1998 compared to the year ended September 30, 1997 Revenues increased $2.1 million, or 18%, from $11.5 million for the year ended September 30, 1997 to $13.6 million for the year ended September 30, 1998, primarily as a result of the expansion into more on-site utility services, and an increase in public works projects and private projects, principally hotels. Gross profit increased $0.9 million, or 54%, during 1998 to $2.5 million, and gross margin increased to 18% in 1998 from 14% in 1997 as a result of Sherwood's new prefabrication process and improved market conditions as well as an increase in the number of private sector projects. Selling, general and administrative expenses increased $0.7 million, or 45%, from $1.5 million for the year ended September 30, 1997 to $2.2 million for the year ended September 30, 1998. The increase was attributable to an increase in costs related to the relocation to a new facility and an increase in staffing necessary to manage growing operations. In addition, Sherwood incurred a one time charge related to a litigation settlement of approximately $0.3 million. MILLER RESULTS OF OPERATIONS Miller is headquartered in Marietta, Georgia. The following table sets forth selected statement of operations data and data as a percentage of revenues for the periods indicated (dollars in thousands):
YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31, ----------------------------- ---------------------------- 1997 1998 1998 1999 ------------ ------------- ------------ ------------ (UNAUDITED) Revenues..................................... $8,042 100% $11,346 100% $5,369 100% $5,158 100% Cost of revenues............................. 5,806 72 7,675 68 3,713 69 3,346 65 ------ --- ------- --- ------ --- ------ --- Gross profit............................... 2,236 28 3,671 32 1,656 31 1,812 35 Selling, general and administrative expenses................................... 2,023 25 2,531 22 1,224 21 892 17 ------ --- ------- --- ------ --- ------ --- Income (loss) from operations.............. $ 213 3% $ 1,140 10% $ 432 8% $ 920 18% ====== === ======= === ====== === ====== ===
Six months ended March 31, 1999 compared to the six months ended March 31, 1998 Revenues decreased $0.2 million, or 4%, from $5.4 million for the six months ended March 31, 1998 to $5.2 million for the six months ended March 31, 1999, primarily as a result of a reduction in projects with a significant customer. Gross profit increased $0.1 million, or 9%, from $1.7 million during the six months ended March 31, 1998 to $1.8 million during the six months ended March 31, 1999, and gross margin increased to 35% in the six months ended March 31, 1999 from 31% in the six months ended March 31, 1998 as a result of favorable pricing and improved efficiencies resulting from experience obtained in performing similar projects. Selling, general and administrative expenses decreased $0.3 million, or 27%, from $1.2 million for the six months ended March 31, 1998 to $0.9 million for the six months ended March 31, 1999. The decrease was attributable to a reduction in officer compensation. 52 59 Year ended September 30, 1998 compared to the year ended September 30, 1997 Revenues increased $3.3 million, or 41%, from $8.0 million for the year ended September 30, 1997 to $11.3 million for the year ended September 30, 1998, primarily as a result of an increase in multifamily housing starts and increased contract volumes in Miller's areas of operations. Gross profit increased $1.4 million, or 64%, from $2.2 million during the year ended September 30, 1997 to $3.7 million for the year ended September 30, 1998 as a result of the increase in revenues and gross margins. Gross margin increased to 32% in 1998 from 28% in 1997 as a result of small increases in contract pricing and increased productivity. Selling, general and administrative expenses increased $0.5 million, or 25%, from $2.0 million for the year ended September 30, 1997 to $2.5 million for the year ended September 30, 1998. The increase was attributable to an increase in officer and employee bonus compensation. YEAR 2000 Year 2000 Issue. Many software applications, hardware and equipment and embedded chip systems identify dates using only the last two digits of the year. These products may be unable to distinguish between dates in the year 2000 and dates in the year 1900. That inability (referred to as the "Year 2000" issue), if not addressed, could cause applications, equipment or systems to fail or provide incorrect information after December 31, 1999, or when using dates after December 31, 1999. This in turn could have an adverse effect on AMPAM due to AMPAM's direct dependence on its own applications, equipment and systems and indirect dependence on those of other entities with which AMPAM must interact. Risk of Non-Compliance and Contingency Plans. The major applications which pose the greatest Year 2000 risks for AMPAM if implementation of the Year 2000 compliance program is not successful are AMPAM's project estimating and management systems, and its financial systems applications, including related third-party software. Potential problems if the Year 2000 compliance program is not successful could include disruptions of AMPAM's revenue generation and collection from its customers and purchasing and payments to its vendors and the inability to perform its other financial and accounting functions. AMPAM operates on a decentralized basis with each individual reporting unit having independent information technology (IT) and non-IT systems. AMPAM's Year 2000 compliance program is focused on the systems which could materially affect its business. AMPAM has completed a preliminary assessment of its significant operating units and believes that the systems at these companies are or will shortly be Year 2000 compliant. AMPAM currently has assessed its remaining Year 2000 risk as low because: - AMPAM is not dependent on any key customers or suppliers (none represent as much as 5% of AMPAM's sales or purchases, respectfully), - AMPAM has many separate PC based systems and is not dependent on any one system, - many of AMPAM's processes are performed using spreadsheets and/or other manual processes which are not technologically dependent, - AMPAM performs construction and service maintenance on site for its customers, the work performed is manual in nature and not dependent on automated information technology systems to be completed, and - AMPAM currently believes that most of its systems that have Year 2000 compliance issues are based on prepackaged third-party software that can be upgraded at nominal costs through vendor supported upgrades. As a result, AMPAM believes that its reasonably likely worst case Year 2000 scenario is a temporary inability for it to process the accounting transactions representing its business activity using automated information systems at some of its operating units. 53 60 The goal of AMPAM's year 2000 project is to ensure that all of the critical systems and processes which are under the direct control of AMPAM remain functional. However, because some systems and processes may be interrelated with systems outside of the control of AMPAM, there can be no assurance that all implementations will be successful. Accordingly, as part of the Year 2000 project, contingency and business plans are in the process of being developed to respond to potential failures that may occur. Such contingency and business plans are scheduled to be completed by the fourth quarter of fiscal 1999. To the extent appropriate, these plans will include emergency back up and recovery procedures, remediation of existing systems with system upgrades or installation of new systems and replacing electronic applications with manual processes. Due to the uncertain nature of contingency planning, there can be no assurances that these plans actually will be sufficient to reduce the risk of material impacts on AMPAM's operations due to Year 2000 issues. AMPAM has ongoing information systems development and implementation projects, none of which have experienced delays due to its Year 2000 compliance program. Compliance Program. In order to address the Year 2000 issue, AMPAM has established a project team to assure that key automated systems and related processes will remain functional through year 2000. The team is addressing the project in the following stages: (1) awareness, (2) assessment, (3) remediation, (4) testing and (5) implementation of the necessary modifications. The key automated systems consist of (a) project estimating, management and financial systems applications, (b) hardware and equipment, (c) embedded chip systems and (d) third-party developed software. The evaluation of the Year 2000 issue includes the evaluation of the Year 2000 exposure of third parties material to the operations of AMPAM. AMPAM State of Readiness. The awareness phase of the Year 2000 project has begun with a corporate-wide awareness program which will continue to be updated throughout the life of the project. AMPAM believes that there is not a material risk related to its non-IT systems because AMPAM is primarily a manual service provider and does not rely on these types of systems. The assessment phase of the project involves for both IT and non-IT systems, among other things, efforts to obtain representations and assurances from third parties, including third party vendors, that their hardware and equipment, embedded chip systems and software being used by or impacting AMPAM or any of its business units are or will be modified to by Year 2000 compliant. To date, AMPAM does not expect that responses from third parties will be conclusive. However, because AMPAM is not dependent on any key customers or suppliers, AMPAM does not believe that a disruption in service with any third party would have a material adverse effect on its business, results of operations or financial condition. The remediation phase involves identifying the changes which are required to be implemented by system for them to be Year 2000 compliant. The testing and implementation phases involve verifying that the identified changes address the Year 2000 problems identified through testing the system as part of implementing SUCH changes. Management expects that the remediation, testing and implementation phases will be substantially completed during the third and fourth quarters of fiscal 1999. Costs to Address Year 2000 Compliance Issues. While the total cost to AMPAM of the Year 2000 project is still being evaluated, AMPAM's management currently estimates that the costs to be incurred by AMPAM in 1999 associated with the assessing and testing applications, hardware and equipment, embedded chip systems, and third party developed software will be less than $500,000, which will be funded with existing operating cash flows and AMPAM will deduct from income as incurred. AMPAM believes that software vendor Year 2000 releases should address the majority of AMPAM's Year 2000 issues. These costs were primarily related to the assessment phase of the project. AMPAM expects that the majority of its costs related to the Year 2000 project to be incurred in the third and fourth quarters of its 1999 fiscal year. Because AMPAM's internal systems are PC-based, management does not expect the costs to AMPAM of the Year 2000 project to have a material adverse effect on AMPAM's financial position, results of operations or cash flows. 54 61 BUSINESS We believe AMPAM is the largest company in the United States focused primarily on the plumbing and mechanical contracting services industry. On April 1, 1999, AMPAM combined the operations of the ten founding companies, which individually are leading regional providers of plumbing and mechanical contracting services, and commenced operations as one company. AMPAM believes that by combining these regional leaders into one professional organization, AMPAM has created a national provider which it expects to strengthen and broaden AMPAM's relationships with its consolidating customer base and enhance its operating efficiency. The ten founding companies have been in business for an average of approximately 31 years and, in 1998 performed plumbing and mechanical contracting services in 24 states. On a pro forma basis for the fiscal year ended December 31, 1998, AMPAM generated revenue and EBITDA of $322.2 million and $39.6 million, respectively. Plumbing contracting includes the installation of integrated domestic water systems, sanitary waste and vent systems, irrigation systems, fire protection systems and natural gas piping systems. Mechanical contracting includes the installation of mechanical and process piping and tubing systems that convey hot and chilled water, steam, medical gases, fuels and other liquid and gaseous substances. Both plumbing and mechanical systems include related equipment (water heaters, boilers, chillers, pumps, sprinklers and drains) and fixtures (basins, toilets, sinks, tubs, faucets, spigots and valves). AMPAM also provides renovation/retrofitting and maintenance and repair services for plumbing and mechanical systems on a per-visit basis and under short-term and long-term maintenance contracts. AMPAM provides plumbing and mechanical contracting services in the residential and commercial/ institutional markets. The residential market includes single family and multifamily homes and low-rise apartments. The commercial/institutional market includes retail establishments, office buildings, high-rise apartments and condominiums, theaters and restaurants, hotels and casinos, waste water and water purification plants, manufacturing plants and other industrial complexes, and public and private institutional buildings, including schools, hospitals, dormitories, assisted-living centers, military and other governmental facilities, stadiums, arenas, convention centers, airports and prisons. During fiscal 1998, approximately 54%, and 46% of AMPAM's pro forma revenues were derived from the residential, and commercial/institutional markets, respectively. Of AMPAM's commercial/institutional revenue, approximately 43% was derived from institutional customers. AMPAM's strategy is to conduct its operations on a decentralized basis, including among other things, retaining the operating names of its founding companies in their respective regions. Senior management at the founding companies will retain primary responsibility for operations, profitability and growth of their respective business units. AMPAM believes that a decentralized operating strategy, balanced by centralized financial and accounting controls, will retain the entrepreneurial approach of the founding companies and preserve AMPAM's knowledge of its individual markets, its extensive brand name recognition and strong customer relationships. In addition, AMPAM believes that this decentralized operating strategy will enable it to better respond to future customer demand and changing market conditions. 55 62 The following table contains information for each founding company as well as our combined operations:
Revenues --------------------------- YEARS IN PRIMARY TARGET MARKET FISCAL 1996-1998 FOUNDING COMPANY OPERATION MARKET(S) SERVED SEGMENT(S)(1) 1998 CAGR(2) - ---------------- --------- ------------------- ------------- ------ --------- ($ in millions) Christianson............................. 49 Central Texas Residential $ 63.4 12.2% RCR...................................... 22 Southern California Residential 63.3 25.1% and Nevada and CI Croson Ohio/Teepe's(3)................... 43 Ohio Valley, CI 75.8 11.0% Southwestern Indiana, Northern Kentucky Keith Riggs.............................. 51 Greater Phoenix Residential 34.5 12.8% Croson Florida........................... 10 Southern and Residential 28.1 54.9% Central Florida and CI Power.................................... 11 Greater Houston, Residential 17.1 10.4% Dallas and Austin and CI Nelson................................... 35 Florida and CI 15.1 9.7% Alabama Gulf Coast Sherwood................................. 23 Southern California CI 13.6 28.1% Miller................................... 22 Greater Atlanta Residential 11.3 3.4% and CI ------ ----- COMBINED.... $322.2 16.7% ====== =====
- --------------- (1) "CI" means a commercial/institutional market segment. (2) "CAGR" means compound annual growth rate. With respect to some of the founding companies, the statement of operations data for the 1996 fiscal year was derived from internal financial company records that have not been audited by any independent accountants. Because the 1996-1998 CAGR of these companies, and of AMPAM on a combined basis, includes some unaudited 1996 data you are cautioned not to place undue reliance on this information. Nevertheless, management believes that the financial information shown above may be helpful in understanding the past operations of the founding companies. (3) Immediately following their acquisition, we combined the business and operations of Croson Ohio and Teepe's. Croson Ohio's fiscal 1998 revenues were $25.2 million and Teepe's fiscal 1998 revenues were $50.6 million. INDUSTRY OVERVIEW General. Virtually all construction and renovation in the United States generates demand for plumbing and mechanical contracting services. Depending upon the exact scope of work, AMPAM estimates that the plumbing and mechanical contracting work it performs generally accounts for approximately 8% to 12% of the total construction cost of the related commercial and institutional projects and approximately 5% to 10% of the total construction cost of the related residential projects. In 1992, the most recent year for which data are available from the United States Department of Commerce, the total value of new construction and repair and maintenance work completed by plumbing and mechanical contractors totaled approximately $28 billion, including approximately $17 billion from plumbing services and $11 billion from mechanical services. The plumbing and mechanical contracting service industry is highly fragmented and we estimate it to include at least 40,000 companies. These companies are generally small, owner-operated, independent contractors who serve customers in a local market and therefore have limited access to capital for investment in infrastructure, technology and expansion. According to our estimates, approximately 200, or 0.5% of all industry participants, had annual sales greater than $20 million, and no single company accounted for more than 1.0% of total expenditures for plumbing and mechanical contracting services in the United States. 56 63 Residential Market. Residential customers include regional and national homebuilders and apartment and condominium developers. Typical residential plumbing projects include the installation, maintenance and repair of domestic water systems, sanitary waste and vent systems, lawn and garden irrigation systems, fire protection systems and natural gas piping systems. The residential construction market has increasingly become dominated by large regional and national homebuilders, who have been rapidly consolidating or merging, and national apartment or multifamily residential developers. AMPAM believes that these large customers generally select plumbing and mechanical contractors with a large, trained workforce that is able to meet the customer's location and scheduling requirements and to provide reliable, high-quality services. Substantially all of AMPAM's residential contracts are obtained on negotiated terms through ongoing customer relationships versus through a competitive bid process. The residential market has repetitive floor plans which enables AMPAM to utilize its prefabrication techniques. In this way, AMPAM can increase productivity and profitability by reducing construction time, labor costs and skill requirements. In addition to installation, the residential market includes substantial demand for maintenance and repair services, which are provided both on a per visit basis and under short-term and long-term contracts. The residential market depends primarily on the number of single family and multifamily home starts, which are in turn affected by interest rates, tax considerations and general economic conditions. The founding companies serve many of the more rapidly growing metropolitan areas, including Houston, San Antonio, and Austin, Texas, Phoenix, Arizona, Las Vegas, Nevada, Atlanta, Georgia, Orlando, Florida and Riverside and the San Fernando Valley, California. These metropolitan areas have experienced significant new construction activity for single family homes and low-rise multifamily residences over the last several years and demographic trends indicate continued growth in these areas. In 1998, AMPAM installed plumbing systems in over 20,000 new or renovated homes. AMPAM's residential plumbing and mechanical contracting service revenues have grown at an average compound annual rate of approximately 16% from the 1996 fiscal year through the 1998 fiscal year. Commercial/Institutional Market. Commercial and institutional customers include general contractors, commercial developers, consulting engineers, architects, owners and managers of retail establishments, office buildings, apartments and condominiums, theaters and restaurants, hotels and casinos, operators of waste water and water purification plants, manufacturing and other industrial corporations, schools, hospitals, military and other governmental agencies, stadiums, arenas and convention centers, airports and prisons. High-rise residential projects are viewed as commercial rather than residential projects because of the nature of the installation techniques and plumbing codes involved. Because of the long-term nature of the budgetary processes involved, government and institutional construction projects tend to be less affected by economic downturns. In 1998, approximately 43% of AMPAM's revenues from the commercial/institutional market were attributable to governmental and institutional projects. Typically, plumbing and mechanical contracting services for the commercial/institutional market involve the installation, maintenance and repair of integrated systems that transport hot and chilled water, domestic water, steam, medical gas, fuels and other liquid and gaseous substances and the related equipment, such as water heaters, boilers, chillers, and pumps. Commercial and institutional plumbing and mechanical construction is most often performed by a subcontractor for a general contractor, although a plumbing and mechanical contractor may also perform services directly as a prime contractor. Commercial/institutional contracts are obtained through a competitive bid process or on negotiated terms through ongoing customer relationships. Many larger projects have substantial bonding requirements that eliminate smaller contractors from the bidding process because of inadequate financial resources or capacity. As with the residential market, AMPAM is increasingly able in the commercial and institutional markets to prefabricate system components off-site, and these items are transported to the job site ready to be installed. The commercial/institutional market also involves maintenance and repair of plumbing and mechanical systems. AMPAM provides plumbing and mechanical contracting services for the commercial/ institutional market in several of the country's growth areas, including the southeastern, southwestern and western United States. From the 1996 fiscal year through the 1998 fiscal year, AMPAM's revenues from plumbing and mechanical contracting services for commercial and institutional customers have grown at an average compound annual rate of approximately 18% per year. 57 64 Industry Trends. Significant consolidation has occurred among a number of the industry's principal customers, such as homebuilders, apartment and condominium developers and other commercial developers, REITs and other real estate concerns and national contractors and construction managers. Additionally, we believe the privitization of, or outsourcing by, water utilities in many areas of the country may provide us with additional customer opportunities. AMPAM has also witnessed significant consolidation within its supply channels. We believe these consolidations present an opportunity for a large, more proficient and professional company, like us, to consolidate and provide plumbing and mechanical contracting services on a regional and national basis. AMPAM believes that smaller, traditional plumbing and mechanical contractors may find it increasingly difficult to compete for plumbing and mechanical contracting projects due to scarcity of qualified manpower, customer demand for broader geographic coverage and the associated licensing requirements, costs associated with automating project bidding and estimating, bonding and insurance requirements (including workers' compensation and liability insurance) and manufacturers' discounts available to volume purchasers. In the residential sector, AMPAM believes homebuilders will be increasingly searching for contractors they can use in multiple capacities, a "preferred provider," and that AMPAM will be able to take advantage of this opportunity because of its size and diversity of operations. COMPETITIVE STRENGTHS We believe several factors give us a competitive advantage in our industry, including our: - Strong Customer Relationships and Market Leadership. We believe that our strong customer relationships and market reputation allows us the ability to obtain a high percentage of negotiated contracts, which are economically more favorable for us than competitive bid situations. Currently, approximately 75% of our business has been obtained through negotiated contracts. Our long-standing relationships also result in a significant amount of repeat business as well as the opportunity for cross-selling our services; - Geographically Diverse Operations. In 1998, we provided plumbing and mechanical contracting services in 24 states. We have operations in the higher growth southwest, southeast and western regions of the United States. We believe our broad geographic coverage will allow us to build and strengthen our relationships with large regional and national customers and will reduce the impact of local and regional economic downturns as well as minimize seasonal variations in activity; - Large Highly Skilled Work Force. We believe our size, national scope, stable and recurring project base, and comprehensive benefits packages and training programs allow us to attract and retain the most highly qualified personnel in the industry. We currently employee over 2,100 technicians which enables us to deliver quality service with greater reliability than many of our competitors. This is particularly important given a current industry shortage of qualified plumbers; - Diverse Business Mix. We believe that our balanced customer base of residential, commercial, governmental and institutional work and our ability to offer both plumbing and mechanical contracting services provide us with greater stability both in revenues and cash flow. On a pro forma basis, no single customer represented more than 5% of our total 1998 revenues; and - Experienced Management Team. Our chief executive and chief operating officer combined have over 65 years of experience in plumbing and mechanical contracting services and have developed extensive industry relationships. In addition, the presidents of our operating companies have an average of over 28 years in the industry and have established reputations in their local markets. The combined management team of AMPAM holds more than 76% of our company's outstanding common stock. 58 65 OUR BUSINESS STRATEGY Our goal is to build on our position as a leading provider of plumbing and mechanical contracting services in the residential and commercial/institutional markets by (1) increasing our market share and the profitability of our operations; and (2) pursuing a selective acquisition strategy. OPERATING STRATEGY We intend to leverage the geographical presence and competitive strengths of our founding and subsequently acquired companies with the objective of continuing strong internal growth. We also believe that there are significant opportunities to increase the profitability of our business through the implementation of various best practices used by some of the founding companies throughout our operations. AMPAM has formed a Best Practices Committee consisting of various members of the management of the founding companies and smaller forum groups composed of representatives of similarly situated companies, all of which will meet regularly to facilitate communication and sharing of best practices. The key elements of our operating strategy are: - Achieve Purchasing Savings and Other Economies of Scale. As a result of AMPAM's size, it believes it will achieve substantial cost savings by purchasing copper, steel, cast iron, PVC and ABS pipe, plumbing fixtures, boilers, chillers and air handling equipment, pumps, drains, sprinkler systems and other materials. Our size will also enable us to purchase and negotiate rebates directly from manufacturers for high volume items. In 1998, AMPAM's materials purchases were 51% of its total combined cost of revenues. In addition, AMPAM believes it can reduce costs associated with: (1) purchasing or leasing and routine maintenance of vehicles, cranes, backhoes, loaders, highlifts and other heavy equipment; (2) bonding, casualty and liability insurance; (3) health insurance and related benefits; (4) retirement benefits administration; (5) marketing and advertising; and (6) accounting, financial management and legal services; - Continue to Attract, Develop and Retain Qualified Plumbers and Management Personnel. AMPAM intends to provide: (1) stock-based compensation for a large portion of its employees; (2) progressive performance-based compensation for management; (3) recruitment and training programs to provide a steady labor supply, including state-registered apprenticeship programs; (4) advancement opportunities for talented employees within the larger public company; and (5) a broad-based health, disability and life insurance and retirement benefits program which is often not available from smaller plumbing and mechanical contracting services businesses; - Increase Off-site Prefabrication of Plumbing and Mechanical Systems and Components. AMPAM intends to increase the use of prefabricated components in the installation of plumbing and mechanical systems. Prefabrication generally involves measuring, cutting and assembling pipe segments and attaching various fittings and valves, which is particularly useful in the residential market where standard floor plans are often repeated. These fabricated segments are then numerically ordered and packaged together for installation at the job site. Prefabrication increases consistency and quality of work products and allows AMPAM to reduce on-site labor costs, materials costs and accelerate its on-site production schedule. In some of our regions, we have 59 66 experienced a high degree of success in lowering labor costs, reducing materials usage and increasing standardization by fabricating portions of the plumbing and mechanical systems prior to installation at the job site. By sharing the most sophisticated and efficient prefabrication techniques currently utilized in some of our operating regions, AMPAM believes that it can increase the use of prefabrication to achieve meaningful cost reductions for AMPAM as a whole; - Emphasize "Value Engineering" and Design-and-Build Capability. In addition to the traditional installation of plumbing systems to the specifications set forth in architectural or engineering plans, AMPAM also provides "value engineering" and design-and-build capability. "Value engineering" involves the modification or enhancement of existing plans for plumbing and mechanical systems to improve efficiency and cost-effectiveness. AMPAM also provides full design-and-build services using its technical expertise to create designs for plumbing and mechanical systems. By providing this more sophisticated level of service, AMPAM is able to integrate itself with the customer earlier in the design process, thereby generating higher margins and differentiating itself from the competition; - Increase Use of Technology. AMPAM intends to take advantage of new and innovative technology currently utilized in some of our operating regions. AMPAM will use computer-assisted contract bid preparation and historical cost analysis in order to reduce the variances between the estimates used in the contract bidding process and the actual costs incurred. Additionally, AMPAM will expand its use of technology, including computer-aided design or "CAD" display stations used for project design and engineering; - Leverage Geographic Presence to Obtain and Retain Multi-Location Customers. AMPAM intends to enhance the sales and marketing programs of the founding companies to target large regional and national homebuilders, apartment and condominium developers and other commercial developers, REITs and other real estate concerns and national contractors and construction managers. AMPAM believes that significant demand exists from these companies to utilize the services of a single plumbing and mechanical contractor that has demonstrated consistent quality, dependability, bonding pre-qualification and financial stability; and - Broaden Scope of Specialty Services. AMPAM intends to broaden its service capabilities within its existing operating areas to provide an expanded range of plumbing and mechanical services without any significant incremental investment in infrastructure. Such complementary services include installation and maintenance of on-site and off-site utility systems, fire protection systems and HVAC systems. ACQUISITION STRATEGY We believe that the highly fragmented nature of the plumbing and mechanical contracting services industry offers significant opportunities for us to pursue our acquisition strategy. We have an acquisition team focused on identifying profitable acquisition candidates with leading market positions, stable operating histories, prospects for growth, strong management and entrepreneurial skills. We currently intend to acquire companies for a mix of common stock and cash. We are evaluating and have entered into confidentiality agreements with several acquisition candidates. Key elements of our acquisition strategy include: - Increase Geographic Coverage. We believe that increasing our geographical presence will allow us to build and strengthen our relationships with large, regional and national customers and will reduce the impact of local and regional economic downturns as well as minimize seasonal variations in activity. We intend to pursue acquisition candidates that serve geographic markets that we do not currently serve and have an appropriate customer base to integrate with or complement our existing business; and 60 67 - Expand Our Service Capabilities. We will seek to acquire companies that offer diverse services which broaden our service capabilities within existing operational areas. We intend to pursue acquisition candidates who: - serve the commercial/institutional market in locations where we currently focus on the residential market, or vice versa; - offer expertise in higher margin complex installation projects, like waste water and water purification plants; and - focus on maintenance and repair services. SERVICES Plumbing. Plumbing services provided by AMPAM consist primarily of the installation of systems that convey domestic water throughout a building, systems that transport sanitary waste out of a building to a sewer connection and systems that transport natural gas to various equipment or appliances such as heaters, boilers, ovens and stoves. A domestic water system typically includes separate piping for hot and chilled water as well as a number of fixtures such as sinks, bathtubs and showers and may also include the installation of interior or exterior sprinkler systems and other specialty purpose fixtures. A sanitary waste and vent system includes toilets, urinals and piping to transport sanitary waste. A natural gas system typically includes piping and connections to transport natural gas, including valves and other equipment to regulate the natural gas flow. AMPAM also provides repair and maintenance services for plumbing systems, primarily for systems which AMPAM initially installed. For both residential and commercial/institutional customers, plumbing contracting projects begin with project design and engineering in which the locations, configuration and specifications for the plumbing systems to be installed are determined. Whether the design is provided by the customer or produced by AMPAM utilizing CAD technology, the type, size and design of piping, fittings, valves, fixtures and other equipment is typically input into AMPAM's computer systems which handle estimation, materials ordering and job scheduling functions. Where appropriate, AMPAM plans to integrate its most advanced systems into additional locations and areas of its operations to increase automation and efficiency. Substantially all of the equipment and component parts AMPAM installs are purchased from third-party wholesale suppliers or directly from the manufacturers and resold to the customer as part of the contracted installation. Orders and deliveries are coordinated to match the project schedule. Whenever possible, a significant portion of the plumbing and piping assembly will be prefabricated at AMPAM facilities in order to reduce on-site installation time, increase quality control and reduce material costs. Such prefabrication generally involves measuring, cutting and assembling pipe segments and attaching various fittings and valves. These prefabricated segments are then numerically ordered and packaged together for installation at the job site. Once the job moves onto the construction site, connections are made to the municipal sewage system and supply and drainage piping is installed within the construction "footings" along the building's perimeter. Risers are installed which extend this piping above the level of the foundation. These risers are designed either to be contained within the walls for extension into upper floors or to connect with fixtures to be installed in specified locations on ground level floors. After the foundation is poured and as framing for the walls and floors of the upper levels of the building are constructed, piping systems are extended to supply the fixtures and systems throughout the building. Simultaneously, venting systems are installed which ultimately extend through the roof of the structure. Once the walls have been covered and flooring, ceilings and roofing completed, fixtures (including sinks, hot water heaters, toilets, baths, faucets and spigots) are installed and the system is connected to the water main and gas supply. Typically, plumbing personnel are on-site during all phases of construction, as AMPAM assigns separate, specialized plumbing crews to each specific required task (water and gas connections and pressure testing, sewage connections, ground level piping, wall and ceiling extensions and fixture installation). AMPAM believes that it increases its efficiency and labor productivity by training crews to perform specialized tasks. Municipal inspectors 61 68 also generally tour a job site several times during the construction process to assure compliance with the applicable plumbing codes. Mechanical. Mechanical contracting services provided by AMPAM consist primarily of the installation of mechanical and process piping and tubing, including systems which convey hot and chilled water, steam, medical gas, fuels and other liquid and gaseous substances, as well as the installation of related equipment and fixtures which store, pump, regulate and measure the distribution of these substances. In some cases, these mechanical systems installed by AMPAM are critical to the underlying business of the future tenant, as in the case of water treatment plants, chemical plants and medical laboratories. Mechanical contracting services provided by AMPAM also include the installation of the piping portion of HVAC systems, including the piping and tubing used to convey hot and chilled water to the heating or cooling systems and the related boilers, chillers, cooling towers, pumps, valves and control devices. See "-- HVAC" below. AMPAM also provides repair and maintenance services for mechanical systems on a per visit and short-term and long-term contract basis, primarily for systems which AMPAM initially installed. Mechanical contracting projects begin with project design and engineering which may be produced by AMPAM or specified by the customer. In response to customer demand, AMPAM may develop some or all of the design parameters using its CAD programs or may "value engineer" customer supplied specifications in order to suggest more efficient installation configurations or lower cost components. Prefabrication at AMPAM facilities may also be employed to efficiently pre-assemble various piping and mechanical configurations prior to deployment at the construction site. Most mechanical projects begin after the foundation has been poured with the installation of distribution piping and duct systems within the walls and between the floor and ceilings in accordance with technical design specifications. Once the distribution and main service lines have been installed, service branches to various equipment are completed, and the equipment and controls are then balanced and commissioned. HVAC. In some regions, we also offer HVAC contracting services as a complement to our plumbing and mechanical businesses. HVAC systems typically involve piping and air-handling components. The piping component, as described above, often is classified as a mechanical contracting service. The air- handling component of an HVAC system includes the ductwork and ventilation systems that carry air as opposed to hot or chilled water or other liquids or gaseous substances. Equipment and fixtures related to the air-handling component of an HVAC system include heaters, compressors, air handlers and air conditioning units. Typically, HVAC installation projects begin with the customer providing the architectural plans and mechanical drawings for the building to be constructed. The process of on-site installation is similar to that required for mechanical systems, with the installation of distribution ductwork followed by the connection of service branches and the installation of the appropriate HVAC equipment. Maintenance and Repair. Maintenance and repair contracting services are generally provided on a per visit basis and through short-term and long-term maintenance contracts. Revenue from repair and maintenance contracting services has historically fluctuated, representing a larger portion of the overall revenue of the founding companies when existing manpower capacity is not already implemented on installation projects. AMPAM plans to expand its maintenance and repair business through greater focus on promoting these services. OPERATIONS Contracting. Residential work is generally obtained by relationships and referrals, with pricing being negotiated between the homebuilder and the plumbing subcontractor. Commercial and institutional work is typically awarded through a competitive bid process, which is often limited to approved bidders who meet bonding and other requirements. Often large projects attract fewer bidders because smaller contractors are unable to meet the bonding and manpower capacity requirements. Contracts may provide precise specifications for the work to be completed, require the contractor to design and build the plumbing system or may permit the contractor to provide revised specifications for the project. AMPAM's plumbing contracts are generally structured on a fixed cost basis, although repair and maintenance contracting 62 69 services are generally provided for on a fixed periodic fee or an hourly fee. Revenues from a single residential plumbing contracting service project range from approximately $350,000 to $550,000 for installation in a typical low-rise apartment complex to approximately $1.5 million for installation in a typical 300-residence subdivision of new homes or approximately $5,000 per home. Revenues from a single commercial or institutional mechanical contracting project generally ranges from approximately $500,000 to $10 million, depending upon the size of the building involved, the nature of the plumbing and mechanical contracting services involved and the specific equipment and fixtures to be installed. For example, revenue from a plumbing and mechanical project involving a ten-floor high-rise apartment building may range from approximately $650,000 to $1,000,000, whereas the revenues from a large plumbing and mechanical contracting service project such as a stadium or industrial complex may range from $5 million to $10 million. Engineering and Design. We have engineering and design capabilities which enable us to offer a higher level of service to our customers. These capabilities may be offered in-house or obtained from third parties, as appropriate. CAD systems may be used to "value engineer" the project by providing cost saving alternatives to the specifications and designs provided by the customer or to actually design and build the plumbing and mechanical systems to be installed. CAD systems can be used to automate the production of blueprints, specifications and a schedule of required assemblies and to assist in selecting the materials and equipment to be used. AMPAM plans to further develop its "value engineering" and design-and-build capabilities to capture the higher margins justifiable on account of the cost savings passed on to the customer. Purchasing. AMPAM purchases copper, steel, cast iron, PVC and ABS pipe, valves, hangers, fire protection and sprinkler systems and plumbing fixtures, drains, water heaters, boilers, chillers, air handling units and pumps and other materials from a number of manufacturers. AMPAM purchases these materials directly from the manufacturer or through wholesalers and other distributors. In some instances, AMPAM receives discounts from wholesalers in return for prompt payment, and AMPAM plans to negotiate with wholesalers to receive discounts whenever possible. AMPAM estimates that its cost of materials purchased represents approximately 51% of AMPAM's costs of revenues. As a result of its size following the acquisitions, AMPAM also plans to negotiate directly with the national manufacturers to participate in rebate programs offered by these manufacturers. AMPAM also believes it will be able to lower its costs for - the purchase or lease and maintenance of vehicles; - bonding, casualty and liability insurance; - health insurance and related benefits; - retirement benefits administration; - marketing and advertising; and - a variety of accounting, information, financial management and legal services. Management Information Systems and Controls. AMPAM intends to centralize consolidated accounting and financial reporting activities at its corporate headquarters while basic accounting activities will continue to be conducted at the operating level. In addition, where an operating unit has a system in place that is inadequate for its existing or near-term needs, AMPAM will implement standards that will allow for greater consistency. In addition, several of the founding companies, serving both the residential and commercial/institutional markets, possess sophisticated (and in several cases proprietary) software systems which handle estimation, materials ordering and job scheduling functions. Where appropriate, AMPAM plans to integrate these advanced systems into additional areas of its operations. Recruiting and Training. Recruiting and training will primarily occur at the local level for each operating unit of AMPAM, but will also be supplemented by national programs. AMPAM will share best practices in recruiting, selection and training, to take advantage of the successful human resources, training and apprenticeship programs developed by some of the founding companies. AMPAM plans to offer state- 63 70 registered apprenticeship programs which use local inspectors and AMPAM supervisory personnel as instructors. Upon completion of the program, each apprentice will be a licensed plumber and placed on a AMPAM project where needed. AMPAM believes it will be able to attract highly qualified candidates as a result of its national size, potential for growth and advancement as well as its health, disability and life insurance and retirement benefits packages and stock-based compensation plans. Advertising and Marketing. AMPAM uses both local advertising and local direct sales forces to market its commercial and residential services in its geographic markets. AMPAM intends to preserve the value of the long-standing trade names and customer identification enjoyed by the individual operating units. CUSTOMERS AMPAM has a diverse customer base with no one customer accounting for more than 5% of AMPAM's pro forma combined revenues for the year ended December 31, 1998. As a result of an emphasis on quality and reliability, the founding companies have been responsible for developing and maintaining successful relationships with key customers. AMPAM intends to continue this emphasis on superior quality and customer service in order to maintain these relationships. We have provided plumbing and mechanical contracting services to numerous customers in the residential and commercial/institutional markets and for a wide variety of intended tenants and owners, some of which are listed below:
COMMERCIAL/ INSTITUTIONAL TENANTS/ OWNERS RESIDENTIAL ------------------------- --------------- ----------- Ashland Chemical Company AMC Theatre Beazer Homes USA, Inc. Barton Mallow Bank One Corporation Centex Corporation Camden Development Company Callaway Golf Company Del Webb Corporation Clark Construction Company Citibank D. R. Horton, Inc. Finger Construction Company Doubletree Corporation The Fortress Group, Inc. Fluor Daniel, Inc. Embassy Suites Hotels Kaufman and Broad Home Greenbelt Construction Company Fidelity Investments Corporation Hamilton County, Ohio Marriott Hotels Lennar Corporation Hubert, Hunt & Nichols Nordstrom, Inc. Newmark Home Corporation JPI Construction The Proctor & Gamble Company Pulte Corporation Lincoln Property Trust Samsung Electronics Co., Ltd. The Ryland Group, Inc. Ohio State University Sears, Roebuck and Co. Toll Brothers, Inc. Post Properties, Inc. Sony Corporation Trammel Crow Residential A. G. Spanos Construction, United Airlines, Inc. Construction Inc. USAA Insurance Company UDC Homes, Inc. Spaw Glass Corporation Walmart Stores State of Florida State of Ohio Trammel Crow Company Turner Construction Company Winegardner & Hammonds
PROPERTY AND EQUIPMENT AMPAM operates a fleet of approximately 1,500 owned and leased service trucks, vans and support vehicles, as well as heavy machinery including cranes, backhoes, dump trucks and high-lifts. It believes these vehicles generally are adequate for AMPAM's current operations. 64 71 At March 31, 1999, AMPAM maintained 31 facilities in eight states. All of these facilities are leased by AMPAM. AMPAM's current warehouses, shops, and administrative offices are currently as follows:
LOCATION SQUARE FEET USE - -------- ----------- --- Glendale, Arizona................................. 6,588 Office/Warehouse Mesa, Arizona..................................... 7,648 Office/Warehouse/Shop Mesa, Arizona..................................... 5,675 Office/Warehouse/Shop Mesa, Arizona..................................... 8,550 Office/Warehouse/Shop Adelanto, California.............................. 10,000 Office/Warehouse Canoga Park, California........................... 15,900 Office/Warehouse Poway, California................................. 14,500 Office/Warehouse Riverside, California............................. 35,000 Office/Warehouse San Diego, California............................. 13,000 Office/Warehouse Tustin, California................................ 1,500 Office Mount Dora, Florida............................... 1,700 Office Orlando, Florida.................................. 21,000 Office/Warehouse Orlando, Florida.................................. 6,000 Shop Pensacola, Florida................................ 20,000 Office/Warehouse Tampa Bay, Florida................................ 7,000 Warehouse Marietta, Georgia................................. 24,000 Office/Warehouse Marietta, Georgia................................. 10,000 Warehouse Las Vegas, Nevada................................. 19,000 Office/Warehouse Cincinnati, Ohio.................................. 24,000 Office Cincinnati, Ohio.................................. 5,700 Office/Warehouse Columbus, Ohio.................................... 9,550 Office/Warehouse Columbus, Ohio.................................... 20,100 Office/Warehouse Houston, Texas.................................... 4,200 Office Houston, Texas.................................... 1,250 Warehouse Round Rock, Texas................................. 7,800 Office Round Rock, Texas................................. 900 Office Round Rock, Texas................................. 34,900 Office/Warehouse Round Rock, Texas................................. 4,000 Office Round Rock, Texas................................. 30,900 Office/Warehouse San Antonio, Texas................................ 14,500 Office/Warehouse Woodbridge, Virginia.............................. 1,500 Office
In addition to the facilities listed above, AMPAM may operate on a short-term basis in other locations as may be required from time to time to perform its contracts. AMPAM leases its principal and administrative offices in Houston, Texas. AMPAM believes that its properties are generally adequate for its present needs. Furthermore, AMPAM believes that suitable additional or replacement space will be available as required. COMPETITION The plumbing and mechanical contracting services industry is highly fragmented and competitive and is generally served by a large number of small, owner-operated private companies as well as several companies that provide some of our plumbing and mechanical contracting services(often ancillary to a HVAC focus) on a regional or national basis. Additionally, AMPAM could face competition in the future from other competitors entering the market. Certain of AMPAM's competitors may have greater financial and other resources than AMPAM and may have lower overhead cost structures that may enable them to provide services at lower prices than AMPAM. AMPAM believes that the primary competitive factors in 65 72 the plumbing and mechanical contracting services industry are high quality service, reliability and price. Other competitive factors in the plumbing and mechanical contracting services industry include: - the availability of qualified and licensed plumbers and mechanics; - safety record; - cost structure; - relationships with customers; - relationships with plumbing component manufacturers; - geographic diversity; - ability to reduce project costs; - access to technology; - experience in specialized plumbing applications; and - ability to obtain bonding. Although AMPAM believes it is the first company to focus primarily on consolidating the plumbing and mechanical contracting services industry, it will compete with other existing companies for acquisitions and there can be no assurance that other existing companies consolidating related industries or yet-to-be-formed companies will not also adopt a similar focus. In particular, other existing companies which are consolidating various aspects of the residential and commercial contracting industry have focused on acquiring companies that provide residential and commercial plumbing repair services and residential and commercial HVAC installation and repair services. Some of these existing companies have acquired companies engaged in the plumbing and mechanical contracting services business with respect to new installations; however, these companies have not represented a significant portion of the overall revenues of the acquiring companies. Competition from existing companies or yet-to-be-formed companies could have the effect of increasing the price for acquisitions or reducing the number of suitable acquisition candidates. See "Risk Factors -- The highly competitive nature of our industry could affect our profitability by reducing our profit margins." REGULATION Operations and Licensing. AMPAM's business and the activities are subject to various federal, state and local laws, regulations, ordinances and policies relating to, among other things: - the licensing and certification of plumbers and technicians; - AMPAM's advertising, warranties and disclosures to its customers; - the bidding process required to obtain plumbing and mechanical contracts; and - the applicable plumbing, mechanical and building codes with which AMPAM must comply. Most states require at least one of AMPAM's employees to be a licensed master plumber, and many jurisdictions regulate the number and level of license holders who must be present on a construction site during the installation of plumbing and mechanical systems. Some jurisdictions require AMPAM to obtain a building permit for each plumbing or mechanical project. In addition, AMPAM must comply with labor laws and regulations, including those that relate to verification by employers of legal immigration or work permit status of employees. Environment, Health and Safety. AMPAM is subject to safety standards established and enforced by the Occupational Safety and Health Administration and environmental laws and regulations relating to the use, storage, transportation and disposal of various materials. To the extent that AMPAM performs work involving air conditioning and refrigeration systems, it is subject to additional restrictions and regulations 66 73 governing the availability, handling and recycling of various refrigerants, due to the phase-out of ozone-depleting substances under the Montreal Protocol and the Clean Air Act. LEGAL PROCEEDINGS Each of the founding companies has, from time to time, been a party to litigation arising in the normal course of its business, most of which involves claims for personal injury or property damage incurred in connection with its operations. Management believes that none of these actions will have a material adverse effect on the financial condition or results of operations of AMPAM. EMPLOYEES At April 1, 1999, AMPAM had approximately 2,700 employees. Currently, none of AMPAM's employees are members of unions or work under a collective bargaining agreement. AMPAM believes that its relationship with its employees is satisfactory. 67 74 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth information as of April 1, 1999 concerning AMPAM's directors and executive officers:
NAME AGE POSITION ---- ---- -------- C. Byron Snyder....................... 50 Chairman of the Board of Directors Robert A. Christianson................ 53 President, Chief Executive Officer and Director Robert C. Richey...................... 48 Senior Vice President, Chief Operating Officer and Director David C. Baggett...................... 37 Senior Vice President, Chief Financial Officer, Secretary and Director David A. Croson....................... 44 Director James A. Croson....................... 67 Director Joseph E. Miller...................... 46 Director Albert W. Niemi, Jr. ................. 56 Director Susan O. Rheney....................... 39 Director Robert W. Sherwood.................... 48 Director Sam B. Sherwood....................... 43 Director Scott W. Teepe, Sr. .................. 41 Director
All officers serve at the discretion of the Board of Directors and are expected to enter into employment agreements with AMPAM. See "-- Employment Agreements." C. Byron Snyder. Mr. Snyder has been Chairman of the Board of AMPAM since its inception. Mr. Snyder is the President of Sterling City Capital, LLC, a Houston-based private investment company that focuses on selective investments in companies which plan to execute consolidation strategies within fragmented industries. He was the owner and President of Relco Refrigeration Co., a distributor of refrigerator equipment which he acquired in 1992 and which was merged in February 1998 into Hospitality Companies, Inc. Mr. Snyder is a director of Hospitality Companies, Inc., a supplier of food equipment and heating/air conditioning products to the hospitality industry. Prior to 1992, Mr. Snyder was the owner and Chief Executive Officer of Southwestern Graphics International, Inc., a diversified holding company which owned Brandt & Lawson Printing Co., a Houston-based general printing business, and Acco Waste Paper Company, an independent recycling business. Mr. Snyder is a director of Carriage Services, Inc., a publicly held death care company and Chairman of the Board of Directors of Integrated Electrical Services, Inc., a publicly held electrical contracting and maintenance services consolidator. Robert A. Christianson. Mr. Christianson became Chief Executive Officer and a director of AMPAM following the acquisitions. Mr. Christianson has been Chief Executive Officer of Christianson Enterprises, Inc., since it was founded in 1980. He also served in management positions with its predecessor company. He has over 35 years experience in the plumbing and mechanical contracting services industry. He is a past president of the Austin Association of Plumbing, Heating and Cooling Contractors and a past secretary of the Plumbing, Heating and Cooling Contractors of Texas. Robert C. Richey. Mr. Richey became Chief Operating Officer and a director of AMPAM following the acquisitions. Mr. Richey has been Chief Executive Officer of R.C.R. Plumbing, Inc. since it was founded in 1977. He has over 30 years experience in the plumbing and mechanical contracting services industry. David C. Baggett. Mr. Baggett has been the Senior Vice President and Chief Financial Officer of AMPAM since August 1998 and became a director of AMPAM following the acquisitions. Prior to that, he served as the Senior Vice President and Chief Financial Officer of Kelley Oil & Gas Corporation from 68 75 March 1997 until August 1998. Before joining Kelley Oil & Gas Corporation, Mr. Baggett was the partner in charge of energy and corporate finance for the Houston office of the accounting and consulting firm of Deloitte & Touche LLP. David A. Croson. Mr. David Croson became a director of AMPAM following the acquisitions. Mr. David Croson was President and Chief Executive officer of J. A. Croson Company and Franklin Fire Sprinkler Company. Mr. David Croson is the son of Mr. James Croson. James A. Croson. Mr. James Croson became a director of AMPAM following the acquisitions. Mr. Croson was President of Croson Florida from 1989 until 1997 and Chief Executive Officer from 1998 to present. Mr. James Croson is the father of Mr. David Croson. Joseph E. Miller. Mr. Miller became a director of AMPAM following the acquisitions. Mr. Miller has been Vice President of Miller Mechanical Contractors, Inc. since that company was formed in 1977 and acts as the Chief Operating Officer. Mr. Miller is past-President of the Georgia Association of Plumbing, Heating and Cooling Contractors. Albert W. Niemi, Jr. Dr. Niemi is the John and Debbie Tolleson Dean of the Edwin L. Cox School of Business at Southern Methodist University where his areas of expertise include economic growth, economic forecasting and American business history. Before Dr. Niemi's arrival at Southern Methodist University, he served as dean of the Terry College of Business from 1982 through 1996. He also served as dean of the School of Business at the University of Alabama at Birmingham for the 1996-1997 academic year. Susan O. Rheney. Ms. Rheney has been a director of AMPAM since April, 1999. Ms. Rheney is a principal of The Sterling Group, Inc., a private financial organization engaged in the acquisition and ownership of operating businesses, where she has served as Vice President since 1992. Ms. Rheney is also a director of Texas Petrochemical Holdings, Inc. and AXIA Group, Inc. Robert W. Sherwood. Mr. Robert Sherwood became a director of AMPAM following the acquisitions. Mr. Robert Sherwood has been President and Chief Executive Officer of Sherwood Mechanical, Inc. since he founded that company in 1976. Mr. Robert Sherwood is the current President of the San Diego chapter of Associated Builders and Contractors and is the current Chairman of the Plumbing Industry Committee of the California Contractors Alliance. Robert W. Sherwood and Sam B. Sherwood are not related to each other. Sam B. Sherwood. Mr. Sam Sherwood became a director of AMPAM following the acquisitions. Mr. Sam Sherwood has been Vice President of Keith Riggs Plumbing, Inc. since 1989. Robert W. Sherwood and Sam B. Sherwood are not related to each other. Scott W. Teepe, Sr. Mr. Teepe became a director of AMPAM following the acquisitions. Mr. Teepe was Vice President of Teepe's River City Mechanical, Inc. from 1984 until 1998 and has been President since 1998. COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors established an Audit Committee and a Compensation Committee. The Audit Committee recommends the appointment of auditors and oversees the accounting and audit functions of AMPAM. The Compensation Committee determines the salaries and bonuses of executive officers and administers the 1999 Stock Plan. Messrs. J. Croson, Miller and Niemi serve as members of AMPAM's Audit Committee and Messrs. R. Sherwood, Christianson and Ms. Rheney serve as members of AMPAM's Compensation Committee. Any future material transactions between AMPAM and its management and affiliates, including approval of executive employment agreements and the issuance of securities other than through the 1999 Stock Plan and the 1999 Directors Stock Plan, will be subject to prior review and approval by the members of the Board of Directors without an interest in the transaction. The Board of Directors is divided into three classes of directors, with directors serving staggered three-year terms, expiring at the annual meeting of stockholders following the 1999 fiscal year (Class I), 69 76 2000 fiscal year (Class II) and 2001 fiscal year (Class III), respectively. At each annual meeting of stockholders, one class of directors is elected for a full term of three years to succeed that class of directors whose terms are expiring. The Board of Directors is classified as follows: Messrs. J. Croson, S. Sherwood, Snyder and Miller are Class I directors, Messrs. R. Sherwood, D. Croson, Christianson and Niemi are Class II directors and Messrs. Teepe, Baggett, Richey and Ms. Rheney are Class III directors. DIRECTOR COMPENSATION Directors who are employees of AMPAM or a subsidiary do not receive additional compensation for serving as directors. Each director who is not an employee of AMPAM or a subsidiary will receive a fee of $2,000 for attendance at each Board of Directors meeting and $1,000 for each committee meeting (unless held on the same day as a Board of Directors meeting). Directors of AMPAM will be reimbursed for any reasonable out-of-pocket expenses incurred in attending meetings of the Board of Directors or committees THEREOF, and for other expenses reasonably incurred in their capacity as directors of AMPAM. Each non-employee director receives stock options to purchase 5,000 shares of common stock upon initial election to the Board of Directors and thereafter an annual grant of 5,000 options at each annual meeting on which the non-employee director continues to serve. See "-- 1999 Stock Plan." EXECUTIVE COMPENSATION The annualized base salaries of AMPAM's most highly compensated executive officers are as follows: Robert A. Christianson -- $220,000; Robert C. Richey -- $220,000 and David C. Baggett -- $190,000. EMPLOYMENT AGREEMENTS AMPAM is currently negotiating and expects to enter into an employment agreement with each executive officer of AMPAM on substantially the same terms and conditions as described in this and the following paragraphs. These agreements will prohibit the officer from disclosing AMPAM's confidential information and trade secrets and will generally restricts these individuals from competing with AMPAM for a period of two years after the date of the termination of employment with AMPAM. Each of the agreements will have an initial term of five years and will provide for an annual extension at the end of its initial term, unless either party timely notifies the other that the term will not be extended, and will be terminable by AMPAM or by the officer upon thirty days' written notice. The employment agreements will provide that AMPAM will pay each officer the annual salary set forth above under "-- Executive Compensation," which may be increased by the Board of Directors. Such agreements will also provide that each officer will be reimbursed for out-of-pocket business expenses and will be eligible to participate in all benefit plans and programs as are maintained from time to time by AMPAM. All employment agreements will provide that if the officer's employment is terminated by AMPAM without "cause" or is terminated by the officer for "good reason," the officer will be entitled to receive a lump sum severance payment at the effective time of termination equal to the base salary (at the rate then in effect) for some period of time. In this type of an event, the time period during which the officer is restricted from competing with AMPAM will be shortened. The employment agreements will contain provisions concerning a change-in-control of AMPAM, including the following: - in the event the officer's employment is terminated within two years following the change in control by AMPAM other than for "cause" or by the officer for "good reason," or the officer is terminated by AMPAM within three months prior to the change in control at the request of the acquiror in anticipation of the change in control, the officer will be entitled to receive a lump sum severance amount equal to the greater of (a) three years' base salary (at the rate then in effect) or (b) the base salary for whatever period is then remaining on the initial term, and the provisions which restrict competition with AMPAM will not apply; - in any change-of-control situation, the officer may elect to terminate his employment by giving five business days' written notice prior to the closing of the transaction giving rise to the change-in- 70 77 control, which will be considered to be a termination of employment by the officer for "good reason," and the provisions of the employment agreement governing the same will apply, except that the severance amount otherwise payable will be doubled (but not to exceed six times the officer's base pay) (if the successor does not give written notice of its acceptance of AMPAM's obligations under the employment agreement at least ten business days prior to the anticipated closing date, the severance amount will be tripled, but not to exceed nine times base salary), and the provisions which restrict competition with AMPAM will not apply; and - if any payment to the officer is subject to the 20% excise tax on excess parachute payments, the officer will be made "whole" on a net after-tax basis. A change in control is generally defined to occur upon: - the acquisition by any person of 20% or more of the total voting power of the outstanding securities of AMPAM; - the first purchase pursuant to a tender or exchange offer for common stock; - the approval of some types of mergers, sale of substantially all the assets, or dissolution of AMPAM; or - a change in a majority of the members of AMPAM's Board of Directors. In general, a "parachute payment" is any "payment" made by AMPAM in the nature of compensation that is contingent on a change in control of AMPAM and includes the present value of the accelerations of vesting and the payment of options and other deferred compensation amounts upon a change in control. If the aggregate, present value of the parachute payments to individuals, including officers, equals or exceeds three times that individual's "base amount" (generally, the individual's average annual compensation from AMPAM for the five calendar years ending before the date of the change in control), then all parachute amounts in excess of the base amount are "excess" parachute payments. An individual will be subject to a 20% excise tax on excess parachute amounts and AMPAM will not be entitled to a tax deduction for these payments. 1999 STOCK PLAN The Board of Directors of AMPAM adopted the 1999 Stock Plan. The purpose of the 1999 Stock Plan is to provide officers, employees, directors and consultants with additional incentives by increasing their ownership interests in AMPAM. Individual awards under the Plan may take the form of one or more of: - non-qualified stock options ("NQSOs"); - stock appreciation rights ("SARs"); - restricted stock; - phantom stock; - performance awards; - bonus stock awards; - other stock-based awards, i.e., awards not otherwise provided for, the value of which are based in whole or in part upon the value of the common stock; and - cash awards that may or may not be based on the achievement of performance goals (collectively, "Awards"). The performance goals for Awards, until changed, include target levels of net income, cash flows, return on equity, profit margins, sales, stock price, reductions in cost of goods sold and earnings per share. 71 78 'The Compensation Committee or AMPAM's Chief Executive Officer, to the extent duties are delegated to the Chief Executive by the Compensation Committee, administers the 1999 Stock Plan and selects the individuals who will receive awards and establish the terms and conditions of those awards. The maximum number of shares of common stock that may be subject to outstanding awards, determined immediately prior to the grant of any award, may not exceed the greater of 3,700,000 shares of common stock or 15% of the aggregate number of shares of common stock then outstanding. Shares of common stock which are attributable to awards which have expired, terminated or been canceled or forfeited are available for issuance or use in connection with future awards. The maximum number of shares of common stock with respect to which any person may receive options and SARs in any calendar year is 200,000 shares. With respect to other forms of awards, the maximum award that may be granted to any individual in any calendar year cannot exceed $5.0 million (determined as of the date of the grant of the award). Options and SARs may have exercise prices as the Compensation Committee, in its discretion, determines. The 1999 Stock Plan will remain in effect for 10 years, unless earlier terminated by the Board of Directors. The 1999 Stock Plan may be amended by the Board of Directors or the Compensation Committee without the consent of the stockholders of AMPAM, except that any amendment will be subject to stockholder approval if required by any federal or state law or regulation or by the rules of any stock exchange or automated quotation system on which the common stock may then be listed or quoted. NQSOs to purchase 200,000 shares of common stock have been granted to David C. Baggett, Chief Financial Officer and NQSOs to purchase 1,942,115 shares of common stock have been granted to other members of management of AMPAM, employees of the founding companies and holders of the preferred stock. Each of the foregoing options have an exercise price of $7.00. These options will vest at the rate of 20% per year, commencing on the first anniversary of grant and will expire at the earliest of: - ten years from the date of grant; - three months following termination of employment or service, other than due to death or disability; or - one year following a termination of employment or service due to death or disability. CERTAIN TRANSACTIONS ORGANIZATION OF AMPAM AMPAM (1) issued 3,392,517 shares of common stock and restricted common stock, to Sterling City Capital, LLC, the management of AMPAM and other individuals and (2) granted options to purchase 2,142,115 shares of common stock to various officers and employees of AMPAM, holders of the preferred stock and other persons. The following executive officers and directors of AMPAM have been issued the following number of shares of common stock and restricted common stock, respectively: Mr. Snyder -- 0 and 1,598,901 (these shares are held in the name of Sterling City Capital, LLC), Mr. Christianson -- 300,000 and 108,372, respectively, Mr. Richey -- 150,000 and 54,186, respectively, Mr. Baggett -- 300,000 and 108,372, respectively. Sterling City Capital, LLC advanced funds to AMPAM to pay for the expenses related to the acquisitions. The advances totaled approximately $3.5 million through the closing of the acquisitions and were repaid concurrently with closing of the acquisitions in the form of a sponsor note. This note was repaid with the proceeds of the original issuance of the notes. ACQUISITION OF FOUNDING COMPANIES At the closing of the acquisitions, AMPAM purchased all the issued and outstanding capital stock of the founding companies, at which time each founding company became a wholly-owned subsidiary of AMPAM. The acquisition consideration was negotiated by the parties and was based primarily upon the pro forma adjusted net income of each founding company for prior historical periods, the amounts of 72 79 indebtedness and working capital of each of the founding companies as well as the future prospects of the businesses of each of the founding companies. The acquisition consideration delivered upon the closing of the acquisitions consisted of: - $99.9 million in cash (which represents a portion of the $106.3 million total cash consideration, subject to adjustment as discussed below, to be paid to the stockholders of the founding companies); - $5.8 million of seller notes; - 8,898,618 shares of common stock; and - 1,048,820 shares of preferred stock. Only some of the stockholders of Christianson received shares of preferred stock, and these stockholders did not receive any seller notes or shares of common stock. Included in the $99.9 million cash acquisition consideration paid upon closing was a portion of the cash payments to be made to the stockholders of the founding companies based upon the level of working capital of that founding company as of the closing date. In the event that the adjusted level of working capital as of the closing date is more or less than the unadjusted level, the cash portion of the acquisition consideration payable to that stockholder will be adjusted accordingly. The stockholders of each founding company were also entitled to distributions of nonoperating assets of the founding company (subject to assumption of related liabilities), retained earnings of the founding company (if a C corporation) or the positive amount of the accumulated adjustment account (if an S corporation). In addition to the acquisition consideration and other payments and distributions described above, the stockholders of each founding company (including some of the former stockholders of Christianson) may receive additional consideration in the event the founding company generates actual adjusted net income for the year ending December 31, 1999, in excess of a designated target level of net income for that period. ACQUISITION CONSIDERATION In addition to the $99.9 million in cash consideration and 8,898,618 shares of common stock issued to stockholders of the companies, AMPAM issued approximately $5.8 million in seller notes and 1,048,820 shares of preferred stock. The principal features of the seller notes and preferred stock are set forth below. Seller Notes Principal Amount and Interest Rate. Concurrently with the closing of the acquisitions, AMPAM issued $5.8 million principal amount of seller notes due three years from the date of issuance. The seller notes bore interest at the rate of 10% per annum, and any overdue payments also bore interest at a rate of 10%. Interest Payment Dates. Interest on the seller notes was payable quarterly, commencing 90 days from the date of issuance. Ranking. The seller notes were unsecured obligations of AMPAM, subordinated in right of payment to any and all existing and future senior indebtedness of AMPAM, including the credit facility. Redemption at the Option of AMPAM. The seller notes were redeemable at any time, at the option of AMPAM, in whole or from time to time in part, at a price equal to 100% of the principal amount plus accrued and unpaid interest, if any, to the date of redemption. Redemption at the Option of Holders. In the event AMPAM completed a qualified financing each of the holders of the seller notes would have had a one-time "put right," but not an obligation, to require AMPAM to repurchase the seller notes held by any holder, together with any accrued and unpaid interest, if any, to the date of redemption, subject to some limitations. A "qualified financing" meant the completion by AMPAM of (i) an initial public offering of common stock or (ii) a private placement or 73 80 public offering of unsecured, senior subordinated or subordinated notes from which AMPAM would have received at least $75 million in gross proceeds. The consummation of the original issuance of the notes was a "qualified financing" and all of the seller notes have been repaid in full. Series A Redeemable Preferred Stock Shares and Liquidation Value. An aggregate of 1,048,820 shares of preferred stock were issued to some of the stockholders of Christianson at the closing of the acquisitions. These Christianson stockholders received their acquisition consideration solely in the form of cash and shares of preferred stock. The preferred stock is cumulative, redeemable and convertible. The aggregate liquidation value of the preferred stock is $13,634,660, plus accrued and unpaid dividends, as adjusted proportionately for any stock dividends, combinations, splits or other similar events with respect to those shares. Dividends. The holders of the preferred stock are entitled to receive dividends at an annual rate of 10% based on the "liquidation value" of the preferred stock. The dividends are payable in cash semiannually in arrears. The dividend payment dates are June 30 and December 31, beginning on June 30, 1999. Ranking. The preferred stock ranks senior to all other classes of AMPAM's capital stock, including the common stock, in right of liquidation, dividends and distributions. Voting Rights. Except as set forth below, the preferred stock is not entitled to vote as a separate class, but votes together with the holders of shares of all other classes of capital stock of AMPAM as one class on all matters submitted to a vote of AMPAM's stockholders. Each holder of shares of preferred stock is entitled to the number of votes equal to the largest number of full shares of common stock into which all shares of preferred stock held by a holder could be converted at the record date for the determination of the stockholders entitled to vote on those matters. In all cases where the holders of shares of preferred stock are required by law to vote separately as a class, the holders are entitled to one vote for each share. Without the affirmative vote of the holders of not less than a majority of the shares of preferred stock, voting together as a single class, AMPAM may not issue preferred stock having equal or superior rights to the preferred stock, repurchase common stock or amend its charter documents in a manner which is adverse to the holders of preferred stock. Additionally, at any time and for so long as either (i) AMPAM has failed to punctually pay when due any redemption payment or (ii) dividends payable on the preferred stock have been in arrears and unpaid for a period of forty days, AMPAM shall not, without the affirmative vote of the holders of not less than a majority of the shares of preferred stock, voting together as a single class: - incur any additional indebtedness for borrowed money other than borrowings under any credit facility to which AMPAM is a party at that time and as then in effect; - effect any (a) sale, lease, assignment, transfer or other conveyance of the assets of AMPAM or its subsidiaries which individually or in the aggregate would constitute a significant subsidiary, (b) consolidation or merger involving AMPAM or any of its subsidiaries, or (c) dissolution, liquidation or winding-up of AMPAM or any of its subsidiaries; - make (or permit any subsidiary to make) any loan or advance to, or own any stock or other securities of, any subsidiary or other corporation, partnership, or other entity unless it is wholly owned by AMPAM and except for any loans and advances which do not in the aggregate exceed $250,000; - make any loan or advance to any person, including, without limitation, any employee or director of AMPAM or any subsidiary, except advances and similar expenditures in the ordinary course of business; or 74 81 - acquire, by purchase, exchange, merger or otherwise, all or substantially all of the properties or assets of any other corporation or entity. Redemption. The preferred stock is redeemable at AMPAM's option, at any time and from time to time, in whole or in part, prior to an initial public offering of common stock for the greater of (i) the fair market value of the preferred stock and (ii) $13.00 per share of preferred stock, plus, in each case, accrued and unpaid dividends thereon. After an initial public offering of common stock, AMPAM has the right to redeem the preferred stock at any time and from time to time, in whole or in part, at a price equal to the trading price of the common stock at the time of redemption but in no event for less than $13.00 per share of preferred stock, plus accrued and unpaid dividends. After the third anniversary of the date of issuance, the holders of the preferred stock may require AMPAM to redeem the preferred stock. In each case, the redemption price per share will be equal to the liquidation value plus accrued and unpaid dividends through the date of redemption. Convertibility. Prior to the filing of a registration statement by AMPAM with the Securities and Exchange Commission with respect to an initial public offering of common stock, the holders of preferred stock may convert the preferred stock into common stock on a share-for-share basis. AMPAM may convert the preferred stock following the completion of an initial public offering of common stock on a share-for-share basis, unless this conversion would result in the holder of preferred stock receiving common stock having a value of less than $13.00 per share, in which case the conversion would be made at a conversion ratio equal to the liquidation value (without inclusion of accrued but unpaid dividends) divided by the price per share to the public in the initial public offering of common stock. ADDITIONAL CONSIDERATION In addition to the acquisition consideration and the other payments and distributions described above, the stockholders of each founding company, other than Christianson, are entitled to receive additional consideration in the event that founding company generates actual adjusted net income for the year ended December 31, 1999 in excess of a designated target level of net income for that period. This target net income for each founding company is generally an amount equal to 107.5% of the founding company's pro forma adjusted net income for the 12-month period ended June 30, 1998. In the event that the adjusted net income for a founding company for the year ending December 31, 1999 exceeds the target net income for that period, the stockholders of that founding company will be entitled to receive additional consideration, subject to a maximum amount of additional consideration as described below, having a value equal to the product obtained by multiplying (1) 50% of the difference between adjusted net income of the founding company for that period and the target net income by (2) ten. The amount of additional consideration payable to the stockholders of a founding company eligible for additional consideration is subject to a maximum limitation of 15% of the total value of acquisition consideration paid to that stockholder upon the closing of the acquisitions. Any additional consideration payable to stockholders of a founding company will be paid 50% in cash and 50% in shares of common stock of AMPAM. AMPAM's obligation to pay the cash portion of the additional consideration is subject to the covenants, limitations and restrictions contained in AMPAM's outstanding debt and equity instruments then in existence. Additionally, seven of the previous stockholders of Christianson, including Robert A. Christianson, entered into employment agreements with Christianson and/or AMPAM, effective upon the closing of the acquisitions. As part of the compensation to be received by these individuals through their employment agreements, they are entitled to receive additional consideration based on the adjusted net income for Christianson for the year ending December 31, 1999 in the same manner, subject to the same restrictions and determined by the same methodology as described above for the stockholders of the other founding companies. 75 82 COVENANT NOT TO COMPETE Pursuant to the agreements relating to the acquisitions, all of the former stockholders of each of the founding companies have agreed not to compete with AMPAM in the plumbing and mechanical contracting services business for a period of two years after the closing of the acquisitions. In addition, some of the management personnel of each of the founding companies will enter into employment agreements through which these persons will agree not to compete with AMPAM in the plumbing and mechanical contracting services business for a period of two years after the termination of their affiliation with AMPAM. In connection with the acquisitions, AMPAM and the owners of the founding companies have agreed to indemnify each other for breaches of representations and warranties and other matters, subject to limitations. COMMON STOCK REDEMPTION RIGHTS Redemption Trigger. In the event that within three years of the closing of the acquisitions, (1) AMPAM has not consummated an initial public offering of common stock and (2) any stockholder of any founding company has not received cash (including the proceeds from the public or private sale of common stock and the receipt of principal payments, if any, on the seller notes held by that stockholder) equal to or exceeding 50% of the aggregate value of the acquisition consideration received by each stockholder through his or her respective acquisition agreement, each stockholder will have a "put right," to require AMPAM to purchase a number of shares of common stock representing 10% of the total number of shares of common stock then owned by that stockholder, subject to the limitations described below. The purchase price for this redemption will be $13.00 per share of common stock. Minimum Redemption; Limitations. If the events specified in clauses (1) and (2) above, have not occurred within the time specified, AMPAM will be obligated to purchase annually from each eligible stockholder no less than 10% of the common stock held by that stockholder; provided, however, that an eligible stockholder will not be entitled to exercise his or her put right if and to the extent that the stockholder's founding company has not achieved the target net income for that founding company for the year preceding the year the stockholder seeks to exercise his put right. AMPAM's obligation to effect these redemptions will be subject to the covenants, limitations and restrictions contained in AMPAM's outstanding private or public debt and equity instruments then in existence. Additional Redemptions. In the event an initial public offering of common stock has not been consummated, to the extent the stockholders who have received greater than 50% of their acquisition consideration in cash wish to tender common stock to AMPAM for purchase, AMPAM will use its commercially reasonable efforts to continue to repurchase annually up to 10% of the common stock held by those stockholders. AMPAM's obligation to make any additional redemptions will also be subject to any covenants, limitations or restrictions contained in AMPAM's outstanding private or public debt and equity instruments then in existence. Termination of Redemption Obligation. The put rights with respect to any individual stockholder will terminate upon receipt by a stockholder of 50% of his acquisition consideration in cash. This termination will not, however, limit the stockholder's ability to participate in the additional redemptions described above. Notwithstanding the foregoing, all of AMPAM's redemption obligations under the acquisition agreements will terminate on the earlier to occur of (1) an initial public offering of common stock, (2) any sale of all or substantially all of AMPAM's assets in one transaction or series of transactions, (3) any merger or consolidation which involves AMPAM and in which AMPAM is not the surviving entity or (4) any transaction after which the shares of common stock, if any, which are then held by persons other than the holders of common stock as of the closing date of the acquisitions constitute 50% or more of the shares of common stock outstanding as of the date of the closing of the transaction. 76 83 ACQUISITION CONSIDERATION PAID TO OFFICERS AND DIRECTORS Individuals who are executive officers or directors of AMPAM received the following portions of the acquisition consideration for their interests in the founding companies.
SHARES OF SELLER COMMON OWNER FOUNDING COMPANY CASH(1) NOTES(1) STOCK(1) AMOUNTS(1) ---------------- ------- --------- ----------- ---------- (dollars in thousands) Christianson Robert A. Christianson.................................... $ 3,706 -- 665,166 $ 35 RCR Robert C. Richey(2)....................................... 8,473 $1,412 1,412,230 193 Teepe's Scott W. Teepe, Sr........................................ 2,052 990 532,760(3) 159 Keith Riggs Sam B. Sherwood(4)........................................ 921 -- 169,451 12 Croson Florida James A. Croson........................................... 1,906 -- 463,225 92 Croson Ohio David A. Croson........................................... 4,066 -- 720,334(5) 648 Sherwood Robert W. Sherwood........................................ 1,765 294 294,120 450 Miller Joseph E. Miller.......................................... 1,838 306 300,461(6) 47 ------- ------ --------- ------ Total............................................... $24,727 $3,002 4,557,747 $1,636 ======= ====== ========= ======
- --------------- (1) Does not include any additional consideration that may be payable to the stockholders of the founding companies. Owner amounts are estimates and assume the transactions were consummated on December 31, 1998. (2) The acquisition consideration was paid to the Robert C. Richey Family Trust. (3) Excludes 9,000 of the 18,000 shares of common stock that AMPAM has agreed to contribute to a deferred compensation plan for the benefit of some of the employees of Teepe's. (4) The acquisition consideration was paid to the Sam B. Sherwood and Vicki S. Sherwood Trust. (5) Excludes 76,928 shares of common stock that AMPAM has agreed to contribute to deferred compensation plans for the benefit of some of the employees of Croson Ohio. (6) Excludes 5,880 shares of common stock that AMPAM has agreed to contribute to a deferred compensation plan for the benefit of some of the employees of Miller. OTHER TRANSACTIONS INVOLVING CERTAIN OFFICERS, DIRECTORS AND SHAREHOLDERS Christianson leases some facilities from the Glen T. Christianson Family Trusts, W. George Christianson, Jr. Family Trusts, Robert A. Christianson Family Trusts, and Wilburn G. Christianson Family Trusts. Amounts paid through these leases were $156,000 for the 1996 fiscal year, $466,000 for the 1997 fiscal year and $492,000 for the 1998 fiscal year. Future minimum lease payments under these noncancelable operating leases are $495,000 for 1999, $554,000 for 2000, $559,000 for 2001, $69,000 for 2002 and $24,000 for 2003. AMPAM believes that these rents are not in excess of the fair rental value for these facilities. Glen Christianson and George Christianson are brothers of and Wilburn Christianson is the father of Robert Christianson who is the Chief Executive Officer and a director of AMPAM. Through December 31, 1995, Christianson subcontracted its construction labor to Contractor Resources, Inc., a company which is wholly-owned by Robert Christianson. Christianson was charged for this labor based on Contractor Resources' actual costs. For the 1996 fiscal year, and the four months ended December 31, 1995, subcontractor labor costs reflected within cost of revenues in the accompanying statements of operations were $2,663,000 and $2,663,000, respectively. This relationship was terminated effective December 31, 1995. Also through December 31, 1995, Contractor Resources provided workers' compensation insurance to Christianson's employees through a self-insurance program. Contractor Resources charged Christianson an agreed-upon rate for this insurance based on an estimate of the cost of workers' compensation insurance as 77 84 a subscriber under the Texas risk pool. Claims were administered and paid by Contractor Resources. For the 1996 fiscal year, and the four months ended December 31, 1995, workers' compensation insurance costs reflected within cost of revenues in the accompanying statements of operations were $268,000 and $268,000, respectively. This relationship was terminated effective December 31, 1995. Effective January 1, 1999, Christianson entered into a 7 year operating agreement with Contractor Resources to lease some furniture for an annual lease payment of $63,000. Also, Robert Christianson's employment agreement with AMPAM contains a provision whereby Robert Christianson may earn additional consideration. See "Certain Transactions -- Acquisition of Founding Companies -- Additional Consideration." G.G.R. Leasing Corporation, d.b.a. Professional Services, Inc. ("Professional Services"), a company in which Robert Christianson had a one-third ownership interest prior to the closing of the acquisitions, provided various administrative and management services to Christianson Enterprises, Inc. In connection with these services, Professional Services charged a fee to Christianson. For the 1996 fiscal year, and the four months ended December 31, 1995, Professional Services charged Christianson $225,000 and $225,000, respectively. These amounts are included within other income in the accompanying statements of operations. As discussed above, the relationship was terminated December 31, 1995; therefore, no fees were charged subsequent to this date. Mr. Richey was a part owner in a partnership which leased vehicles to RCR at rates approximating market. During 1996, the partnership contributed these leased vehicles to RCR, at their historical cost, less accumulated depreciation. Upon the contribution of these assets, the net book value approximated zero. Mr. Richey is the Chief Operating Officer and a director of AMPAM. A partnership owned by Mr. Richey leased steel storage containers to RCR at rates approximating market rates. During 1996, the partnership contributed all of RCR's leased steel storage containers. These assets were contributed at the approximate historical cost, less accumulated depreciation, of approximately $37,000. A partnership owned by Mr. Richey leased some equipment to RCR, at rates approximating market rates. RCR incurred lease expense under this arrangement of approximately $87,000, $52,000 and $77,000 for the 1996, 1997 and 1998 fiscal years, respectively. RCR funds three life insurance policies for Mr. Richey and some other parties affiliated with RCR. Two of the policies name RCR as the beneficiary. Total payments for these policies approximated $41,000, $29,000 and $12,000 for the 1996, 1997 and 1998 fiscal years. RCR leases some facilities from Mr. Richey. Lease expense related to these buildings totaled approximately $220,000, $220,000 and $220,000 for the 1996, 1997 and 1998 fiscal years, respectively. Future minimum lease payments under this lease are approximately $233,400 for 1999, $240,400 for 2000, and $123,500 for 2001. AMPAM believes that this rent is not in excess of the fair rental value for this property. In 1997, Teepe's entered into an operating lease for some facilities with Teepe, Ltd., of which Scott W. Teepe, Sr. and Steven M. Teepe each own 50%. The lease expires in August 2003 with an option to renew for two five-year terms. The lease calls for monthly lease payments of approximately $5,000. Total rent paid under this lease was $18,000 and $55,000 in 1997 and 1998, respectively. Future minimum yearly lease payments under this lease are $60,000 for 1999 through 2003. AMPAM believes that this rent is not in excess of the fair rental value for this property. Steven M. Teepe's brother, Scott W. Teepe, Sr., is a director of AMPAM. As of December 31, 1997 and 1998, Teepe's has an outstanding loan to Steven M. Teepe. The loan is classified as other receivables for balance sheet presentation. The loan to Steven M. Teepe had an outstanding balance of $114,000 and $122,940 at December 31, 1997 and 1998, respectively. The loan bears interest at the blended federal rate (5.9% at December 31, 1997 and 1998). Total interest income related to this loan was $7,000 for the 1997 and 1998 fiscal years. 78 85 In July 1998, Teepe's sold some property to an entity controlled by Scott W. Teepe, Sr. Concurrent with the sale, Teepe's entered into a lease with the entity for the same property. The lease calls for monthly lease payments of approximately $12,000. On March 1, 1995, Croson Ohio sold some facilities to David Croson for $500,000. Croson Ohio now leases these facilities from David Croson. David Croson's mortgage on these facilities is guaranteed by Croson Ohio. In 1996, 1997 and 1998, Croson Ohio made yearly lease obligation payments to David Croson in the amount of $99,600. As of September 30, 1997 and 1998, Croson Ohio owed David Croson $537,743 and $484,155, respectively. Future minimum lease payments are $213,000 for 1999, $159,000 for 2000, $106,000 for 2001, $100,000 for 2002, and $241,000 for each year thereafter. David Croson and his father, James Croson, are both directors of AMPAM. Croson Florida leases some property and facilities from James Croson under a noncancelable operating lease expiring in September 2002. Rent expense under this Lease was approximately $32,000 for each of the 1996 and 1997 fiscal years, and $24,000 for the 1998 fiscal year. Future minimum yearly lease payments under this lease are approximately $22,000. AMPAM believes that these rents are not in excess of the fair rental value for these properties. Croson Florida has a Subordinated Note Agreement with James Croson, with a balance of $434,000 at December 31, 1997 and $0 at December 31, 1998. Interest is due quarterly at the rate of prime plus 2% (9.75% at December 31, 1998). Principal is due in full on December 15, 2002. During the 1996 and 1997 fiscal years, Croson Florida purchased supplies from Eastway Supplies, Inc., a company in which James Croson had a 35% ownership interest. Croson Florida's purchases totaled approximately $81,000, $48,000 and $0 for the 1996, 1997 and 1998 fiscal year, respectively. No amounts were owed to Croson Florida at December 31, 1997 and 1998. James Croson was also a director of Eastway Supplies, Inc., until 1996. At December 31, 1997, James Croson no longer owned any interest in Eastway Supplies, Inc. Sherwood entered into a construction contract with Poway Land Associates, LLC, which is 90% owned by Mr. Sherwood. The total contract receivable balance as of September 30, 1997 and 1998 was approximately $302,000 and $88,000, respectively. Sherwood recorded construction revenue and gross margin for this contract of approximately $457,000 and $23,000 for 1997, and approximately $475,000 and $(112,000) for 1998, respectively. Mr. Sherwood is a director of AMPAM. Poway Land Associates, LLC, leases some facilities to Sherwood. Amounts paid through this lease were $78,000 for the 1997 fiscal year and $97,000 for the 1998 fiscal year. Future minimum lease payments under the lease, which expire in May 2003 are $126,000 for 1999, $129,000 for 2000, $133,000 for 2001, $137,000 for 2002, and $129,000 for 2003. AMPAM believes that the leases are not in excess of fair rental value for these facilities. As of September 30, 1998 and 1997, Mr. Sherwood had an outstanding loan to Sherwood with a balance of $63,000 and $83,000, respectively. The indebtedness was originally incurred in June 1997. Miller purchased various materials and supplies from North Georgia Supply and Appliance Company, a company in which Joseph H. Miller is a part owner. Miller also bills salaries, insurance, and office supplies to North Georgia Supply and Appliance Company. Miller purchased approximately $1,940,000 of material and supplies from North Georgia Supply and Appliance Company in 1997, and $3,048,000 in 1998. Miller had receivables of $195,334 due from North Georgia Supply and Appliance Company at September 30, 1997 and $8,241 at September 30, 1998. Miller leases some facilities from Joseph H. Miller under a lease agreement that expires on September 30, 2005. Rent expense for the years ended September 30, 1997 and 1998 was $90,000. Future yearly lease payments for fiscal years 1999 through 2005 are $90,000. AMPAM believes that this rent is not in excess of the fair rental value for this property. Joseph E. Miller, a director of AMPAM, is the son of Joseph H. Miller. 79 86 PRINCIPAL STOCKHOLDERS The following table sets forth information with respect to beneficial ownership of AMPAM's common stock, by (i) all persons known to AMPAM to be the beneficial owner of 5% or more of the common stock, (ii) each director and nominee for director, (iii) each executive officer and (iv) all executive officers and directors as a group. Unless otherwise indicated, the address of each person is c/o American Plumbing & Mechanical, Inc., 1502 Augusta, Suite 425, Houston, Texas 77057. All persons listed have sole voting and investment power with respect to their shares unless otherwise indicated.
BENEFICIAL OWNERSHIP(1) ------------------------ SHARES PERCENT ----------- -------- Sterling City Capital, LLC.................................. --(2) -- C. Byron Snyder............................................. --(2) -- Robert A. Christianson...................................... 965,166(3) 8.9 Robert C. Richey............................................ 1,562,230(4) 14.5 David C. Baggett............................................ 300,000(5) 2.8 David A. Croson(6).......................................... 720,334 6.7 James A. Croson............................................. 463,225 4.3 Joseph E. Miller(7)......................................... 300,461 2.8 Albert W. Niemi, Jr.(8)..................................... -- -- Susan O. Rheney(9).......................................... -- -- Robert W. Sherwood.......................................... 294,120 2.7 Sam B. Sherwood............................................. 169,451(10) 1.6 Scott W. Teepe, Sr.(11)..................................... 532,760 4.9 ---------- ---- All executive officers and directors as a group (10 persons).................................................. 5,307,747 49.1
- --------------- (1) Assumes conversion of the 1,048,820 shares of preferred stock into the same number of shares of common stock. Does not assume the conversion of 2,423,517 shares of restricted common stock which converts on a one-for-one basis into common stock upon the occurrence of an initial public offering or significant corporate event. (2) Excludes 1,598,901 shares of restricted common stock owned by Sterling City Capital, LLC. (3) Excludes 108,372 shares of restricted common stock. (4) Of these shares, 1,412,230 are held by the Robert C. Richey Trust and 150,000 shares are held by Robert C. Richey. Excludes 54,186 shares of restricted common stock held by Robert C. Richey. (5) Excludes 108,372 shares of restricted common stock. (6) Excludes 76,928 shares of common stock that AMPAM has agreed to contribute to deferred compensation plans for the benefit of some of the employees of Croson Ohio. (7) Excludes 5,880 shares of common stock that AMPAM has agreed to contribute to a deferred compensation plan for the benefit of some of the employees of Miller. (8) Southern Methodist University, 6212 Bishop Blvd., Room 200A, Dallas, TX 75275. (9) The Sterling Group, 8 Greenway Plaza, Suite 702, Houston, TX 77046. (10) All of these shares are held by the Sam B. Sherwood and Vicki S. Sherwood Trust. (11) Excludes 10,000 of the 20,000 shares of common stock that AMPAM has agreed to contribute to a deferred compensation plan for the benefit of some of the employees of Teepe's. 80 87 DESCRIPTION OF OTHER INDEBTEDNESS Assuming the original issuance of the notes had occurred on March 31, 1999, AMPAM's indebtedness would have consisted of approximately $3.1 million of capital lease obligations. In addition AMPAM will be able to borrow up to $95.0 million under its credit facility, subject to the conditions set forth in the credit facility. The terms of our credit facility are substantially as follows: Commitment; Interest Rates. The credit facility is a senior secured revolving credit facility in an aggregate principal amount of $95 million which includes a sublimit for the issuance of standby letters of credit. Amounts borrowed under the credit facility were used to fund a part of the cash portion of the acquisition consideration and will be used to fund future acquisitions and to provide financing for general corporate purposes. The credit facility bears interest, at the option of AMPAM, at the base rate of the arranging bank plus an applicable margin or at LIBOR plus an applicable margin. The applicable margin will fluctuate based on AMPAM's ratio of funded debt to EBITDA. The applicable margin will be between 1.50% and 2.50% above LIBOR or 0.00% and 1.00% above the arranging banks base rate. Repayment; Maturity. Interest will be payable no less frequently than quarterly in arrears. The term of the credit facility will be three years from the date of the closing of the acquisitions (April 1, 1999), and all principal amounts borrowed thereunder will be payable in full at maturity. Security and Guarantees. The obligations of AMPAM under the credit facility are secured by a first priority perfected security interest in (1) all the accounts receivable, inventory, equipment and other personal property of AMPAM and (2) all of the capital stock owned by AMPAM of its existing or later-formed domestic subsidiaries. Also, the obligations of AMPAM are guaranteed by the founding companies. Prepayments. AMPAM is required to make prepayments or commitment reductions on the credit facility in an amount equal to: - 100% of the cash proceeds from any property insurance recoveries not promptly applied toward the repair or replacement of the damaged property; - 100% of the net proceeds of the sale of any equity securities; and - 100% of the net proceeds of any public or private debt financing. Conditions and Covenants. The obligations of the lenders under the credit facility are subject to the satisfaction of conditions precedent customary under similar credit facilities or otherwise appropriate under the circumstances. AMPAM is subject to customary negative covenants contained in the credit facility, including without limitation covenants that restrict, subject to specified exceptions: - the incurrence of additional indebtedness; - asset sales; - capital expenditures; - mergers, acquisitions, consolidations and liquidations; - transactions with affiliates; - permitted investments; and - the ability of AMPAM to make various payments (including payments of the cash portion of the additional consideration and for redemption of common stock), to incur guaranty obligations and to incur additional liens. The credit facility also contains customary affirmative covenants, including: - the delivery of financial statements, reports, accountants' letters, projections, officers' certificates and other information requested by the lenders; - the continuation of business and maintenance of material rights and privileges; - the payment of other obligations; - maintenance of property and insurance; - maintenance of books and records; - compliance with environmental laws; 81 88 - the right of the lenders to inspect AMPAM's property and books; and - notice of defaults, litigation and other material events. In addition, the credit facility requires AMPAM to maintain compliance with a number of specified financial covenants including: - a maximum ratio of funded total debt to EBITDA of no more than 4.0 to 1.0 calculated on a rolling four quarter basis; - a maximum ratio of funded senior debt to EBITDA of no more than 2.5 to 1.0 calculated on a rolling four quarter basis; - a minimum fixed charge coverage ratio of at least 1.0x to 1.25x calculated on a rolling four quarter basis; and - a minimum net worth with quarterly step-ups equal to 75% of positive net income and 100% of net proceeds from equity issuances. Events of Default. The credit facility includes events of default that are usual and customary under similar credit facilities, including without limitation, failure to pay principal, failure to pay interest or fees, cross default on other indebtedness: - change of control of AMPAM; - breach of covenants; - material judgments rendered against AMPAM; - ERISA events; and - a material inaccuracy in any representation or warranty. The occurrence of any of these events of default could result in the acceleration of AMPAM's obligations under the credit facility which, in turn, could have a material adverse effect on AMPAM's operations. 82 89 DESCRIPTION OF THE NOTES You can find the definitions of capitalized terms used in the following description under the subheading "-- Certain Definitions." In this description, the words "AMPAM," "we," "our," "ours," and "us" refers only to American Plumbing & Mechanical, Inc. and not to any of its subsidiaries. We will issue the exchange notes under an indenture among AMPAM, the guarantors and State Street Bank and Trust Company, as trustee. The terms of the notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939. The following description is a summary of the material provisions of the indenture. It does not restate the indenture in its entirety. We urge you to read the indenture because it, and not this description, defines your rights as holders of these notes. We have filed a copy of the indenture as an exhibit to the registration statement which includes this prospectus. BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES THE NOTES These notes: - are general obligations of AMPAM; - are subordinated in right of payment to all existing and future Senior Indebtedness of AMPAM; - are senior in right of payment to any future Subordinated Indebtedness of AMPAM; and - are fully and unconditionally guaranteed by the guarantors. THE GUARANTEES These notes are guaranteed by all of the current direct subsidiaries of AMPAM. The guarantees of these notes: - are general obligations of each guarantor; - are subordinated in right of payment to all existing and future Guarantor Senior Indebtedness; and - are senior in right of payment to any future Subordinated Indebtedness of each guarantor. As of the date of the indenture, all of our subsidiaries were Restricted Subsidiaries. However, under the circumstances described below, we will be permitted to designate some of our subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the indenture. Unrestricted Subsidiaries will not guarantee these notes. As of the date of this prospectus, all of our subsidiaries were guarantors of these notes. It is possible that in the future not all of our Restricted Subsidiaries will guarantee these notes. In the event of a bankruptcy, liquidation or reorganization of any of these non-guarantor subsidiaries, these non-guarantor subsidiaries will pay the holders of their debt and their trade creditors before they will be able to distribute any of their assets to us. MATURITY, INTEREST AND PRINCIPAL We will issue exchange notes with a maximum aggregate principal amount of $125 million. We will issue exchange notes in denominations of $1,000 and integral multiples of $1,000. The exchange notes will mature on October 15, 2008. Interest on these notes will accrue at the rate of 11 5/8% per year and will be payable semi-annually in arrears on April 15 and October 15, commencing on October 15, 1999. We will make each interest 83 90 payment to the holders of record of these notes on the April 1 and October 1 immediately before each payment date. Interest on these notes will accrue from the date the existing notes were issued or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. OPTIONAL REDEMPTION After April 15, 2004, we may redeem all or a part of these notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, to the redemption date, if redeemed during the 12-month period beginning April 15 of the years indicated below:
REDEMPTION YEAR PRICE - ---- ---------- 2004........................................................ 106.000% 2005........................................................ 104.000% 2006........................................................ 102.000% 2007 and thereafter......................................... 100.000%
In addition, at any time, or from time to time, on or prior to April 15, 2002, AMPAM may, at its option, use the net cash proceeds of one or more Public Equity Offerings to redeem up to an aggregate of 35% of the principal amount of the notes originally issued, at a redemption price equal to 111.625% of the principal amount of the notes plus accrued and unpaid interest, if any, thereon to the redemption date; if that at least 65% of the originally issued principal amount of notes remains outstanding immediately after the occurrence of this redemption. In order to effect this redemption with the proceeds of any Public Equity Offering, AMPAM must consummate this redemption not later than 60 days after the closing of any Public Equity Offering. SELECTION AND NOTICE If less than all of the notes are to be redeemed at any time, the trustee will select notes for redemption as follows: - if the notes are listed, in compliance with the requirements of the principal national securities exchange on which the notes are listed; or - if the notes are not listed, on a pro rata basis, by lot or by any method the trustee shall determine to be fair and appropriate. No notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of notes to be redeemed at its registered address. If any note is to be redeemed in part only, the notice of redemption that relates to that note shall state the portion of the principal amount to be redeemed. A new note in principal amount equal to the unredeemed portion of the original note will be issued in the name of the holder of the original note upon cancellation of the original note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on notes or portions of them called for redemption, unless AMPAM defaults in the payment of the redemption price. CHANGE OF CONTROL Upon the occurrence of a Change of Control, AMPAM shall be obligated to make an offer to purchase all of the outstanding notes at a purchase price equal to 101% of the principal amount of the 84 91 notes plus accrued and unpaid interest, if any, on the notes to the date the offer is completed. AMPAM shall be required to purchase all notes properly tendered and not withdrawn. In order to effect a Change of Control offer, AMPAM must mail to each holder of notes notice of the Change of Control offer no later than 30 days after the Change of Control takes place. We must complete the offer on a business day not less than 30 days nor more than 60 days after the mailing of the notice of the Change of Control. We are required to keep the offer open for at least 20 business days. The notice governs the terms of the offer and states the procedures that holders of notes must follow to accept the offer. If a Change of Control offer is made, AMPAM cannot give any assurance that it will have available funds sufficient to pay the purchase price for all of the notes that might be delivered by holders of notes seeking to accept the Change of Control offer. In addition, AMPAM cannot give any assurance that its debt instruments will permit an offer to be made. AMPAM's credit facility does not permit AMPAM to make a Change of Control offer. In order to make this type of offer, AMPAM would be required to pay off the credit facility in full or seek a waiver from the lenders under the credit facility to allow AMPAM to make the Change of Control offer. The occurrence of a Change of Control is also an event of default under the credit facility and would entitle the lenders under the credit facility to accelerate all amounts owing under the credit facility. Any future credit agreements or other agreements relating to Senior Indebtedness to which AMPAM becomes a party may contain similar restrictions and provisions. Moreover, the exercise by the holders of their rights to require AMPAM to repurchase the notes could cause a default under indebtedness of the type described, even if the Change of Control itself does not, due to the financial effect of this type of repurchase on AMPAM. AMPAM's failure to make a Change of Control offer, even if prohibited by AMPAM's debt instruments, would constitute a default under the indenture. See "Risk Factors." AMPAM shall not be required to make a Change of Control offer upon a Change of Control if a third party makes the Change of Control offer at the same purchase price, at the same time and otherwise in compliance with the requirements applicable to a Change of Control offer made by AMPAM and purchases all notes validly tendered and not withdrawn under a Change of Control offer. In addition, AMPAM shall not be required to make a Change of Control offer, as provided above, if, in connection with or in contemplation of any Change of Control, it has made an offer to purchase any and all notes validly tendered at a cash price equal to or higher than the Change of Control purchase price and has purchased all notes properly tendered in accordance with the terms of this alternate offer. The provisions of the indenture may not afford Note holders protection in the event of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction involving AMPAM if the transaction is not a transaction defined as a "Change of Control." The existence of a holder's right to require AMPAM to repurchase the notes upon a Change of Control may deter a third party from acquiring AMPAM in a transaction that constitutes, or results in, a Change of Control. The definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the assets of AMPAM and its Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of notes to require AMPAM to repurchase their notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of AMPAM and its Subsidiaries taken as a whole may be uncertain. AMPAM will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations, to the extent these laws or regulations are applicable, in connection with a repurchase of notes resulting from a Change of Control. Any violation of the provisions of the indenture relating to this type of offer shall not be considered to be a default or an event of default. 85 92 SUBORDINATION The payment of principal, premium and interest, if any, on these notes will be subordinated to the prior payment in full of all Senior Indebtedness of AMPAM. The credit facility provides that the subordination provisions of the notes may not be modified or amended without the prior written consent of the lenders under the credit facility. The holders of Senior Indebtedness (including, in the case of Designated Senior Indebtedness, any interest accruing subsequent to the filing of a petition for bankruptcy regardless of whether interest is an allowed claim in the bankruptcy proceeding) will be entitled to receive payment in full before the holders of notes will be entitled to receive any payment related to the notes (except that holders of notes may receive and retain Permitted Junior Securities and payments made from the trust described under "-- Legal Defeasance or Covenant Defeasance of Indenture"), in the event of any distribution to creditors of AMPAM: - in a liquidation, dissolution or winding up of AMPAM; - in any insolvency or bankruptcy case or proceeding or any receivership, liquidation, reorganization or other similar case or proceeding relating to AMPAM or its assets; - in an assignment for the benefit of creditors; or - in any marshalling of our assets and liabilities. We also may not make any payment in respect of the notes (except in Permitted Junior Securities or from the trust described under "-- Legal Defeasance or Covenant Defeasance of Indenture") if: - a payment default on Senior Indebtedness occurs and is continuing and the trustee and AMPAM receive a notice from representatives of the holders of the Senior Indebtedness; or - any other default occurs and is continuing on Designated Senior Indebtedness that permits holders of the Designated Senior Indebtedness to accelerate its maturity and the earlier of either of the following; (a) the trustee and AMPAM receive a notice of the default from representatives of the holders of the Designated Senior Indebtedness or (b) if the default is the result of the acceleration of the maturity of the notes, the date of the acceleration. Payments on the notes may and shall be resumed: - in the case of a payment default, upon the date on which the default is cured, waived or ceases to exist or the Senior Indebtedness is paid in full or indefeasibly discharged; and - in case of a nonpayment default, the earlier of (a) the date on which the nonpayment default is cured, waived or ceases to exist or the Senior Indebtedness is paid in full or indefeasibly discharged; (b) 179 days after the date on which the notice of default is received or the date of acceleration, unless the maturity of any Designated Senior Indebtedness has been accelerated; or (c) the receipt of notice from those representatives of the holders of Designated Senior Indebtedness who gave the original notice of default stating that payments may be resumed. No new notice of default may be delivered unless and until 360 days have elapsed since the effectiveness of the immediately prior notice of default. No nonpayment default shall be the basis for a subsequent notice of default unless that default will have been cured or waived for a period of not less than 90 days. As a result of the subordination provisions described above, in the event of a bankruptcy, liquidation or reorganization of AMPAM, holders of these notes may recover less ratably than creditors of AMPAM who are holders of Senior Indebtedness. 86 93 On a pro forma basis after giving effect to the sale of the notes and the application of the estimated net proceeds therefrom, AMPAM and the guarantors would have had, without duplication, approximately $3.5 million of Senior Indebtedness and guarantor Senior Indebtedness outstanding as of December 31, 1998. The indenture will limit, but not prohibit, the incurrence by AMPAM of additional Indebtedness which is senior to the notes and will prohibit the incurrence by AMPAM of Indebtedness which is subordinated in right of payment to any other indebtedness of AMPAM and senior in right of payment to the notes. GUARANTEES The guarantors will jointly and severally guarantee our obligations under these notes. The guarantees are full and unconditional. Each guarantee will be subordinated to the prior payment in full of all guarantor Senior Indebtedness. The obligations of each guarantor under its guarantee will be limited as necessary to prevent that guarantee from constituting a fraudulent conveyance under applicable law. Each guarantor may consolidate with or merge into or sell its assets to us or another guarantor without limitation, or with other persons upon the terms and conditions described in the indenture. See "-- Consolidation, Merger, Sale of Assets, Etc." In the event all or substantially all of the assets or the capital stock of a guarantor is sold or the guarantor is designated an Unrestricted Subsidiary as allowed by the terms of the indenture, then the guarantors guarantee will be automatically and unconditionally discharged and released. Separate financial statements of the guarantors are not included in this prospectus because the guarantors are jointly and severally liable with respect to AMPAM's obligations under the notes, and the aggregate net assets, earnings and equity of the guarantors and AMPAM are substantially equivalent to the net assets, earnings and equity of AMPAM on a consolidated basis. MATERIAL COVENANTS LIMITATION ON INDEBTEDNESS. AMPAM will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or in any manner become directly or indirectly liable, contingently or otherwise for the payment of any Indebtedness (including any Acquired Indebtedness) other than Permitted Indebtedness; provided, however, that AMPAM and any guarantor will be permitted to incur Indebtedness (including Acquired Indebtedness), if: - the Consolidated Fixed Charge Coverage Ratio of AMPAM is at least 2.0 to 1; and - no default or event of default would occur or be continuing. LIMITATION ON RESTRICTED PAYMENTS. AMPAM will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (a) declare or pay any dividend or make any other distribution or payment on or in respect of capital stock of AMPAM or any of its Restricted Subsidiaries or make any payment to the direct or indirect holders of capital stock of AMPAM or any of its Restricted Subsidiaries (other than dividends or distributions payable solely in capital stock of AMPAM (other than Redeemable capital stock or in options, warrants or other rights to purchase capital stock of AMPAM (other than Redeemable capital stock)) (other than the declaration or payment of dividends or other distributions to the extent declared or paid to AMPAM or any guarantor); (b) purchase, redeem or otherwise acquire or retire for value any capital stock of AMPAM or any of its Restricted Subsidiaries or any options, warrants or other rights to purchase any capital stock (other than any securities owned by AMPAM or a Restricted Subsidiary); (c) make any principal payment on, or purchase, defease, redeem or otherwise acquire or retire for value, prior to any scheduled maturity, scheduled repayment, scheduled sinking fund payment or other Stated Maturity, any Subordinated Indebtedness (other than any Subordinated Indebtedness owed to AMPAM or a guarantor); or 87 94 (d) make any Investment (other than any Permitted Investment) in any person (payments or Investments described in the preceding clauses (a), (b), (c) and (d) are collectively referred to as "Restricted Payments"), unless, after giving effect to the proposed Restricted Payment (the amount of any Restricted Payment, if other than cash, shall be the fair market value of the asset(s) proposed to be transferred by AMPAM or the Restricted Subsidiary, as the case may be, under the Restricted Payment): (A) no default or event of default shall have occurred and be continuing; (B) after giving pro forma effect to the Restricted Payment, AMPAM would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) in accordance with the "Limitation on Indebtedness" covenant described above; and (C) the aggregate amount of all Restricted Payments declared or made from and after the Issue Date would not exceed the sum of: (1) 50% of the aggregate Consolidated Net Income of AMPAM accrued on a cumulative basis during the period beginning on April 1, 1999 and ending on the last day of the fiscal quarter ending immediately prior to the date of the proposed Restricted Payment for which consolidated financial statements are available (or, if the aggregate cumulative Consolidated Net Income of AMPAM for the period shall be a loss, minus 100% of the loss); (2) the aggregate net cash proceeds received by AMPAM as capital contributions to AMPAM after the Issue Date and which constitute shareholders' equity of AMPAM in accordance with GAAP; (3) the aggregate net cash proceeds received by AMPAM from the issuance or sale of capital stock, excluding redeemable capital stock, of AMPAM to any person other than to a Subsidiary of AMPAM after the Issue Date; (4) the aggregate net cash proceeds received by AMPAM from any person, other than a Subsidiary of AMPAM, upon the exercise of any options, warrants or rights to purchase shares of capital stock (other than redeemable capital stock) of AMPAM after the Issue Date; (5) the aggregate net cash proceeds received after the Issue Date by AMPAM from any person, other than a subsidiary of AMPAM, from the issuance and sale of debt securities that have been converted into or exchanged for capital stock of AMPAM (other than Redeemable capital stock) to the extent the debt securities were originally sold for cash, plus the aggregate amount of cash received by AMPAM, other than from a subsidiary of AMPAM, at the time of the conversion or exchange; (6) to the extent not otherwise included in AMPAM's Consolidated Net Income, in the case of the disposition or repayment of any Investment constituting a Restricted Payment after the Issue Date, an amount equal to the lesser of the return of capital with respect to the Investment and the initial amount of the Investment, in either case, less the cost of the disposition of the Investment; (7) so long as the Designation was treated as a Restricted Payment made after the Issue Date, with respect to any Unrestricted Subsidiary that has been redesignated as a Restricted Subsidiary after the Issue Date in accordance with "-- Limitation on Designations of Unrestricted Subsidiaries" below, the fair market value of AMPAM's interest in the Subsidiary at the time of the redesignation. However, this amount shall not in any case exceed the Designation Amount with respect to the Restricted Subsidiary upon its Designation; and (8) $4.0 million. 88 95 For purposes of the preceding clause (C)(4), the value of the aggregate net proceeds received by AMPAM upon the issuance of capital stock upon the exercise of options, warrants or rights will be the net cash proceeds received upon the issuance of the options, warrants or rights plus the incremental amount received by AMPAM upon the exercise of the options, warrants or rights. None of the foregoing provisions will prohibit, so long as, in the case of clauses (5) and (6) below, there is no default or event of default continuing: (1) the payment of any dividend or distribution within 60 days after the date of its declaration, if at the date of declaration this payment would be permitted by the first paragraph of this covenant; (2) the redemption, repurchase or other acquisition or retirement of any shares of any class of capital stock of AMPAM in exchange for, or out of the net cash proceeds of a substantially concurrent issue and sale of, other shares of capital stock of AMPAM (other than Redeemable capital stock) to any person (other than to a Subsidiary of AMPAM); provided, however, that the net cash proceeds are excluded from clause (C) above; (3) any redemption, repurchase or other acquisition or retirement of Subordinated Indebtedness of AMPAM in exchange for, or out of the net cash proceeds of a substantially concurrent issue and sale of, (A) capital stock (other than redeemable capital stock) of AMPAM to any person (other than to a Subsidiary of AMPAM); provided, however, that any net cash proceeds of this type are excluded from clause (C) of the first paragraph of this covenant; or (B) other Subordinated Indebtedness of AMPAM which: - has no scheduled principal payment prior to the 91st day after the Maturity Date; - has an Average Life to Stated Maturity greater than the remaining Average Life to Stated Maturity of the notes; and - is subordinated to the notes to at least the same extent as the Subordinated Indebtedness so purchased, exchanged, redeemed, acquired or retired; (4) payments to purchase capital stock of AMPAM from management or employees of AMPAM or any of its Subsidiaries or their authorized representatives, upon the death, disability or termination of employment of these employees, in aggregate amounts under this clause (4) not to exceed $1.0 million in any fiscal year of AMPAM; (5) the payment of regularly scheduled semi-annual dividends in respect of the Seller Preferred Stock in an aggregate amount not to exceed $1.4 million in any one year; (6) the payment of the aggregate liquidation preference of the Seller Preferred Stock at final maturity in an aggregate amount not to exceed $14.0 million; (7) the application of the net proceeds of the private placement of notes to which this registration statement relates; (8) cash payments in lieu of fractional shares issuable as dividends on preferred securities of AMPAM or any of its Restricted Subsidiaries, in aggregate amounts under this clause (8) not to exceed $20,000 in any fiscal year of AMPAM; (9) repurchases of capital stock considered to have occurred upon exercise of stock options if that capital stock represents a portion of the exercise price of options previously described; (10) the payment of the redemption price of rights issued through any shareholders, rights plan not in excess of $0.05 per right and not in excess of $1.0 million in the aggregate; (11) the payment of "Additional Consideration" (as defined in the Acquisition Agreements) in the manner and in the amounts as provided in the Acquisition Agreements as in effect on the Issue Date and described in the Offering Memorandum, in an aggregate amount not to exceed 89 96 $16.2 million; provided, however, that AMPAM's Consolidated Fixed Charge Coverage Ratio at that time is at least 3.25 to 1; and (12) the payment of amounts constituting post-closing adjustments to the former stockholders of the founding companies in respect of (A) working capital adjustments for which AMPAM received assets of comparable value and (B) unpaid cash consideration reflected in the pro forma financial statements of AMPAM on the Issue Date, in each case, in accordance with the Acquisition Agreements as in effect on the Issue Date. Any payments made pursuant to clauses (1), (4), (6), (10) and (11) of this paragraph shall be taken into account in calculating the amount of Restricted Payments made from and after the Issue Date. In computing Consolidated Net Income of AMPAM under clause (C)(1) of the first paragraph of this covenant: - AMPAM shall use audited financial statements for the portions of the relevant period for which audited financial statements are available on the date of determination and unaudited financial statements and other current financial data based on the books and records of AMPAM for the remaining portion of that period; and - AMPAM shall be permitted to rely in good faith on the financial statements and other financial data derived from the books and records of AMPAM that are available on the date of determination. If AMPAM makes a Restricted Payment which, at the time the Restricted Payment is made would in the good faith determination of AMPAM be permitted under the requirements of the indenture, that Restricted Payment shall be considered to have been made in compliance with the indenture notwithstanding any subsequent adjustments made in good faith to AMPAM's financial statements affecting Consolidated Net Income of AMPAM for any period. LIMITATION ON LIENS. AMPAM will not, and will not permit any of its Restricted Subsidiaries to, directly and indirectly, create, incur, assume or suffer to exist any Liens of any kind securing Indebtedness upon any of its property or assets, or any proceeds therefrom, unless the notes are equally and ratably secured (except that Liens securing Subordinated Indebtedness shall be expressly subordinate to Liens securing the notes to the same extent that Subordinated Indebtedness is subordinate to the notes), except for: - Liens securing Senior Indebtedness and guarantor Senior Indebtedness; - Liens securing the notes; - Liens securing Indebtedness which is incurred to refinance Indebtedness which has been secured by a Lien (other than a Lien in favor of AMPAM or a Restricted Subsidiary) permitted under the indenture and which has been incurred in accordance with the provisions of the indenture; provided, however, that these Liens do not extend to or cover any property or assets of AMPAM or any of its Restricted Subsidiaries not securing the Indebtedness so refinanced; and - Permitted Liens. DISPOSITION OF PROCEEDS OF ASSET SALES. AMPAM will not, and will not permit any of its Restricted Subsidiaries to, make any Asset Sale unless: - AMPAM or a Restricted Subsidiary, as the case may be, receives consideration at the time of the Asset Sale at least equal to the fair market value of the shares or assets sold or otherwise disposed of; and - at least 75% of the consideration in the Asset Sale, plus all other Asset Sales since the Issue Date on a cumulative basis, consists of cash or Cash Equivalents; 90 97 For purposes of this provision, the following shall be regarded as cash: - the amount of any Indebtedness (as shown on the most recent balance sheet of AMPAM or the Restricted Subsidiary) of AMPAM or a Restricted Subsidiary that is assumed by the transferee of the assets as a result of which AMPAM and its Restricted Subsidiaries are no longer liable thereon; and - any securities, notes or other obligations received by AMPAM or a Restricted Subsidiary from a transferee that are converted within 60 days into cash or Cash Equivalents (to the extent of the cash or Cash Equivalents received). Within 360 days after the receipt of any Net Cash Proceeds from an Asset Sale, AMPAM or the Restricted Subsidiary may apply the Net Cash Proceeds at its option: - to repay, and permanently reduce the commitments under Senior Indebtedness or Guarantor Senior Indebtedness; - to an investment in properties and assets that replace the properties and assets that were the subject of an Asset Sale; - to an investment in properties and assets that are used or useful in the business of AMPAM and its Restricted Subsidiaries conducted at that time; or - to an investment in capital stock of a person, the principal portion of whose assets qualify under either of the previous two points in businesses reasonably related thereto or in capital stock of a person, the principal portion of whose assets consist of these types property or assets. Any Net Cash Proceeds from any Asset Sale that are neither used to repay, and permanently reduce the commitments under, Senior Indebtedness or Guarantor Senior Indebtedness in accordance with their terms nor invested in replacement assets within this 360-day period will constitute "Excess Proceeds" subject to disposition as provided below. However, that any Net Cash Proceeds from any Asset Sale which are used to repay Senior Indebtedness or Guarantor Senior Indebtedness but are subsequently invested in replacement assets within this 360-day period will not constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds equals or exceeds $10 million, AMPAM shall make an offer to purchase, from all holders of the notes and any then outstanding Pari Passu Indebtedness required to be repurchased or repaid on a permanent basis in connection with an Asset Sale, an aggregate principal amount of notes and any then outstanding Pari Passu Indebtedness equal to the Excess Proceeds as follows: - (A) AMPAM shall make an offer to purchase from all holders of the notes in accordance with the procedures set forth in the indenture the maximum principal amount (expressed as a multiple of $1,000) of notes that may be purchased out of an amount equal to the product of the Excess Proceeds, multiplied by a fraction, the numerator of which is the outstanding principal amount of the notes and the denominator of which is the sum of the outstanding principal amount of the notes and Pari Passu Indebtedness, if any of all notes tendered, and (B) to the extent required by the Pari Passu Indebtedness and provided there is a permanent reduction in the principal amount of the Pari Passu Indebtedness, AMPAM shall make an offer to purchase Pari Passu Indebtedness in an amount equal to the excess of the Excess Proceeds over the Asset Sale offer amount; - The offer price for the notes shall be payable in cash in an amount equal to 100% of the principal amount of the notes tendered in connection with an Asset Sale Offer, plus accrued and unpaid interest, if any, to the date the Asset Sale Offer is consummated, in accordance with the procedures set forth in the indenture. To the extent that the aggregate Offered Price of the notes tendered in connection with an Asset Sale Offer is less than the Asset Sale Offer Amount relating thereto or the aggregate amount of the Pari Passu Indebtedness that is purchased or repaid in connection with the Pari Passu Offer is less than the Pari Passu Indebtedness Amount, AMPAM may use the Asset 91 98 Sale Deficiency for general corporate purposes, subject to the limitations contained in the indenture; and - If the aggregate total price of notes validly tendered and not withdrawn by holders exceeds the amount offered, notes to be purchased will be selected on a pro rata basis. Upon completion of the offers described above, the amount of Excess Proceeds shall be reset to zero. AMPAM will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations, to the extent these laws and regulations are applicable, in the event that an Asset Sale occurs and AMPAM is required to purchase notes as described above, and any violation of the provisions of the indenture relating to the offer described above occurring as a result of this compliance shall not be considered a default or an event of default. LIMITATION ON ISSUANCES AND SALES OF RESTRICTED SUBSIDIARY STOCK. AMPAM will not - permit any Restricted Subsidiary to issue any capital stock (other than to AMPAM or a Restricted Subsidiary); and - permit any Person (other than AMPAM and/or one or more Restricted Subsidiaries) to own any capital stock of any Restricted Subsidiary. This covenant shall not prohibit: - the issuance and sale of all, but not less than all, of the issued and outstanding capital stock of any Restricted Subsidiary owned by AMPAM or any of its Restricted Subsidiaries in compliance with the other provisions of the indenture; or - the ownership by directors of directors' qualifying shares or the ownership by foreign nationals of capital stock of any Restricted Subsidiary, to the extent mandated by applicable law. LIMITATION ON TRANSACTIONS WITH AFFILIATES. AMPAM will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into any transaction or series of related transactions (including, without limitation, the sale, transfer, disposition, purchase, exchange or lease of assets, property or services) with, or for the benefit of, any of its Affiliates, except: (a) on terms that are no less favorable to AMPAM or the Restricted Subsidiary, as the case may be, than those which could have been obtained at the time in a comparable transaction or series of related transactions from persons who are not Affiliates of AMPAM, (b) with respect to a transaction or series of related transactions involving aggregate payments or value equal to or greater than $5 million, AMPAM shall have delivered an officers' certificate to the trustee certifying that this transaction or transactions comply with the preceding clause (a) and have been approved by the Disinterested Members of the Board of Directors of AMPAM; provided, however that AMPAM may, if there are no Disinterested Members of the Board of Directors or at its option, obtain and deliver to the trustee the written opinion referred to in clause (c) below in lieu of an officers' certificate and (c) with respect to a transaction or series of related transactions involving aggregate payments or value equal to or greater than $10 million, AMPAM shall have delivered to the trustee the officers' certificate referred to in clause (b) which includes a certification that this transaction or transactions have been approved by a majority of the Disinterested Members of the Board of Directors of AMPAM or, in the event there are no Disinterested Members of the Board of Directors, that AMPAM has obtained a written opinion from an independent nationally recognized investment banking firm, accounting firm or appraisal firm, in each case specializing or having a specialty in the type and subject matter of the transaction or series of transactions at issue, which opinion shall be to the effect set forth in clause (a) above or shall state that SUCH transaction or series of related transactions is fair from a financial point of view to AMPAM or the Restricted Subsidiary. 92 99 Notwithstanding the foregoing, the restrictions set forth in this covenant shall not apply to - transactions between or among AMPAM and its Restricted Subsidiaries; - customary directors' fees, indemnification and similar arrangements, consulting fees, employee salaries, bonuses or employment agreements, compensation or employee benefit arrangements and incentive arrangements with any officer, director or employee of AMPAM or any Restricted Subsidiaries entered into in the ordinary course of business; - any dividends made in compliance with "-- Limitation on Restricted Payments" above; - loans and advances to officers, directors and employees of AMPAM or any Restricted Subsidiary made in the ordinary course of business in an aggregate amount not to exceed $1,000,000 outstanding at any one time; - transactions in connection with agreements in effect on the Issue Date; - written agreements assumed in connection with Asset Acquisitions with persons who were not Affiliates prior to the transactions; provided, however, that these agreements were not entered into in connection with or in contemplation of an Asset Acquisition; - leases of property or equipment entered into in the ordinary course of business on terms that are substantially similar to those which could have been obtained at the time in a comparable transaction with non-Affiliates; or - any sale or other issuance for cash of capital stock (other than Redeemable capital stock) of AMPAM. LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES. AMPAM will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: - pay dividends, in cash or otherwise, or make any other distributions on or in respect of its capital stock to AMPAM or any other Restricted Subsidiary, - pay any Indebtedness owed to AMPAM or any other Restricted Subsidiary, - make loans or advances to AMPAM or any other Restricted Subsidiary, - transfer any of its properties or assets to AMPAM or any other Restricted Subsidiary or - guarantee any Indebtedness of AMPAM or any other Restricted Subsidiary. However, the following encumbrances or restrictions are allowed: - those existing under or by reason of applicable law or any applicable rule, regulation or order; - customary nonassignment provisions of any contract or any lease governing a leasehold interest of AMPAM or any Restricted Subsidiary; - customary restrictions on transfers of property subject to a Lien permitted under the indenture (including purchase money Liens permitted under the indenture); - any agreement or other instrument of a person acquired by AMPAM or any Restricted Subsidiary in existence at the time of the acquisition (but not created in contemplation of such an acquisition), which encumbrance or restriction is not applicable to any person, or the properties or assets of any person, other than the person, or the property or assets of the person, so acquired; - an agreement entered into for the sale or disposition of capital stock or assets of a Restricted Subsidiary or an agreement entered into for the sale of specified assets (in either case, so long as the encumbrance or restriction, by its terms, terminates on the earlier of the termination of the agreement or the consummation of the agreement and so long as the restriction applies only to the capital stock or assets to be sold); 93 100 - any agreement in effect on the Issue Date (including, without limitation, the credit facility); - those existing under or by reason of the indenture and the guarantees; and - any agreement that amends, extends, refinances, renews or replaces any agreement described in the foregoing clauses; provided, however, that the terms and conditions of any agreement of this type are not materially less favorable to the holders of the notes with respect to these encumbrances or restrictions than those under the agreement amended, extended, refinanced, renewed or replaced. LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES. AMPAM may designate after the Issue Date any Restricted Subsidiary as an "Unrestricted Subsidiary" under the indenture (a "Designation") only if: - no default shall have occurred and be continuing at the time of or after giving effect to a Designation; - AMPAM would be permitted to make an Investment (other than a Permitted Investment covered by clause (x) of that definition) at the time of the Designation pursuant to the first paragraph of "-- Limitation on Restricted Payments" above in an amount (the "Designation Amount") equal to the fair market value of AMPAM's interest in the Subsidiary on that date; and - AMPAM would be permitted under the indenture to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "-- Limitation on Indebtedness" at the time of the Designation (assuming the effectiveness of the Designation). In the event of any Designation of this type, AMPAM shall be regarded as having made an Investment constituting a Restricted Payment under the covenant "-- Limitation on Restricted Payments" for all purposes of the indenture in the Designation Amount. AMPAM shall not, and shall not cause or permit any Restricted Subsidiary to, at any time: - provide credit support for or subject any of its property or assets (other than the capital stock of any Unrestricted Subsidiary) to the satisfaction of, any Indebtedness of any Unrestricted Subsidiary; - be directly or indirectly liable for any Indebtedness of any Unrestricted Subsidiary; or - be directly or indirectly liable for any Indebtedness which provides that the holder of that Indebtedness may (upon notice, lapse of time or both) declare a default thereon or cause payment to be accelerated or payable prior to its final Stated Maturity upon the occurrence of a default with respect to any Indebtedness of any Unrestricted Subsidiary. The Designation of any Subsidiary as an Unrestricted Subsidiary shall automatically include the Designation of all Subsidiaries of that Subsidiary as Unrestricted Subsidiaries. AMPAM may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation") if: - no default shall have occurred and be continuing at the time of and after giving effect to the Revocation; and - all Liens and Indebtedness of the Unrestricted Subsidiary outstanding immediately following the Revocation would, if incurred at that time, have been permitted to be incurred under the indenture. All Designations and Revocations must be evidenced by Board Resolutions of AMPAM delivered to the trustee certifying compliance with the foregoing provisions. LIMITATION ON THE ISSUANCE OF SUBORDINATED INDEBTEDNESS. AMPAM will not, and will not permit any guarantor to, directly or indirectly, incur any Indebtedness (including Acquired Indebtedness) that is expressly subordinate or junior in right of payment to any other Indebtedness of AMPAM or that 94 101 guarantor and senior in right of payment to the notes or the guarantee of that guarantor, as the case may be. ADDITIONAL SUBSIDIARY GUARANTEES. If AMPAM or any of its Restricted Subsidiaries acquires, creates or designates another Restricted Subsidiary organized under the laws of the United States or any of its possessions or territories, any State of the United States or the District of Columbia, then this newly acquired, created or designated Restricted Subsidiary shall, within 30 days after the date of its acquisition, creation or designation, whichever is later, execute and deliver to the trustee a supplemental indenture in form reasonably satisfactory to the trustee through which that Subsidiary shall unconditionally guarantee (on a senior subordinated basis) all of AMPAM's obligations under the notes and the indenture on the terms set forth in the indenture; provided, however, that this Restricted Subsidiary shall not be obligated to become a guarantor in the manner set forth above if this Restricted Subsidiary is not, either individually or when considered in the aggregate with all other Restricted Subsidiaries that are not guarantors, a Significant Subsidiary. Thereafter, this Restricted Subsidiary shall be a guarantor for all purposes of the indenture. Any Restricted Subsidiary that is not a guarantor shall become a guarantor in the manner provided above within 30 days of that time as it becomes, either individually or when considered in the aggregate with all other Restricted Subsidiaries that are not guarantors, a Significant Subsidiary. AMPAM at its option may also cause any other Restricted Subsidiary to so become a guarantor. REPORTING REQUIREMENTS. For so long as the notes are outstanding, whether or not AMPAM is subject to Section 13(a) or 15(d) of the Exchange Act, or any successor provisions, AMPAM shall file with the SEC the annual reports, quarterly reports and other documents which AMPAM would have been required to file with the SEC under Section 13(a) or 15(d) or any successor provisions if AMPAM were so subject, these documents to be filed with the SEC on or prior to the respective dates by which AMPAM would have been required so to file these documents if AMPAM were so subject. AMPAM shall also in any event within 15 days after each required filing date file with the trustee, copies of the annual reports, quarterly reports and other documents which AMPAM would be required to file with the SEC if the notes were then registered under the Exchange Act and to make this information available to holders of notes upon request. In addition, if AMPAM is not subject to the reporting requirements of the Exchange Act, for so long as any notes remain outstanding, AMPAM will furnish to the holders of notes and prospective investors, upon their request, the information required to be delivered under Rule 144A(d)(4) under the Securities Act. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. AMPAM will not, in any transaction or series of transactions, merge or consolidate with or into, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets to, any person or persons, and AMPAM will not permit any of its Restricted Subsidiaries to enter into any transaction of this type or series of transactions if that transaction or series of transactions, in the aggregate, would result in a sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of AMPAM and its Restricted Subsidiaries, on a consolidated basis, to any other person or persons, unless: - either (1) if the transaction or series of transactions is a merger or consolidation, AMPAM or the Restricted Subsidiary, as the case may be, shall be the surviving person of the merger or consolidation, or (2) the person formed by the consolidation or into which AMPAM or the Restricted Subsidiary, as the case may be, is merged or to which the properties and assets of AMPAM or the Restricted Subsidiary, as the case may be, are disposed of shall be a corporation organized and existing under the laws of the United States of America, any state or the District of Columbia and shall expressly assume by a supplemental indenture executed and delivered to the trustee, in form satisfactory to the trustee, all the obligations of AMPAM under the notes, the indenture and the registration rights agreement, and in each case, the indenture shall remain in full force and effect; 95 102 - immediately after giving effect to the transaction or series of transactions on a pro forma basis, no default or event of default shall have occurred and be continuing; and - except in the case of any merger of AMPAM with any Restricted Subsidiary or any merger of guarantors, AMPAM or the surviving entity, as the case may be, after giving effect to the transaction or series of transactions on a pro forma basis on the assumption that the transaction or transactions had occurred on the first day of the period of four fiscal quarters ending immediately prior to the consummation of the transaction or transactions, with the appropriate adjustments with respect to the transaction or transactions being included in the pro forma calculation, could incur $1.00 of additional Indebtedness in accordance with the "Limitation on Indebtedness" covenant described above. Upon any consolidation, merger or any sale, assignment, conveyance, transfer, lease or other disposition in accordance with the immediately preceding paragraphs, the successor person formed by the consolidation or into which AMPAM or a Restricted Subsidiary, as the case may be, is merged or the successor person to which the sale, assignment, conveyance, transfer, lease or other disposition is made shall succeed to, and be substituted for, and may exercise every right and power of AMPAM under the notes, the indenture and/or the registration rights agreement, as the case may be, with the same effect as if the successor had been named as AMPAM in the notes, the indenture and/or the registration rights agreement, as the case may be, and, except in the case of a lease, AMPAM or the Restricted Subsidiary shall be released and discharged from its obligations under the notes and the indenture. For all purposes of the indenture and the notes (including, without limitation, the provision of this covenant and the covenants described in "-- Material Covenants -- Limitation on Indebtedness," "-- Limitation on Restricted Payments," and "-- Limitation on Liens"), Subsidiaries of any surviving person shall, upon the transaction or series of related transactions, become Restricted Subsidiaries unless and until designated Unrestricted Subsidiaries under and in accordance with "-- Limitation on Designations of Unrestricted Subsidiaries" and all Indebtedness, and all Liens on property or assets, of AMPAM and the Restricted Subsidiaries in existence immediately after the transaction or series of related transactions will be considered to have been incurred upon the transaction or series of related transactions. EVENTS OF DEFAULT The following are "events of default" under the indenture: (1) default in the payment of the principal of or premium, if any, when due and payable, on any of the notes (at Stated Maturity, upon optional redemption, required purchase or otherwise) (whether or not prohibited by the subordination provisions of the indenture); or (2) default in the payment of an installment of interest on any of the notes, when due and payable, for 30 days (whether or not prohibited by the subordination provisions of the indenture); or (3) default in the performance or breach of any covenant or agreement of AMPAM under the indenture (other than a default in the performance or breach of a covenant or agreement which is specifically dealt with in clause (1), (2) or (4)) and this default or breach shall continue for a period of 30 days after written notice has been given, by certified mail, - to AMPAM by the trustee or - to AMPAM and the trustee by the holders of at least 25% in aggregate principal amount of the outstanding notes; or (4) failure by AMPAM to comply with the provisions described under the captions "Consolidation, Merger and Sale of Assets, Etc.," "-- Material Covenants -- Disposition of Proceeds of Asset Sales" or "Change of Control"; or 96 103 (5) default or defaults under one or more agreements, instruments, mortgages, bonds, debentures or other evidences of Indebtedness under which AMPAM or any Restricted Subsidiary then has outstanding Indebtedness in excess of $10 million, individually or in the aggregate, and - the default or defaults include a failure to make a payment of principal, - the Indebtedness is already due and payable in full or - the default or defaults have resulted in the acceleration of the maturity of this Indebtedness; provided, that if any default described above is cured or waived or any acceleration rescinded, or the Indebtedness is repaid, within a period of 10 days from the continuation of the default beyond the applicable grace period or the occurrence of the acceleration, as the case may be, the event of default under the indenture and any consequential acceleration of the notes shall be automatically rescinded, so long as the rescission does not conflict with any judgment or decree; or (6) one or more judgments, orders or decrees of any court or regulatory or administrative agency of competent jurisdiction for the payment of money in excess of $10 million, either individually or in the aggregate (net of applicable insurance coverage which is acknowledged in writing by the insurer or which has been determined to be applicable by a final nonappealable determination by a court of competent jurisdiction), shall be entered against AMPAM or any Restricted Subsidiary or any of their respective properties and shall not be discharged and there shall have been a period of 60 days after the date on which any period for appeal has expired and during which a stay of enforcement of this judgment, order or decree shall not be in effect; or (7) the entry of a decree or order by a court having jurisdiction in the premises (A) for relief in respect of AMPAM or any Significant Subsidiary or one or more Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, in an involuntary case or proceeding under the Federal Bankruptcy Code or any other federal, state or foreign bankruptcy, insolvency, reorganization or similar law or (B) adjudging AMPAM or any Significant Subsidiary or one or more Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, bankrupt or insolvent, or approving a petition seeking reorganization, arrangement, adjustment or composition of or in respect of AMPAM or any Significant Subsidiary or one or more Restricted Subsidiaries that taken together, would constitute a Significant Subsidiary, under the Federal Bankruptcy Code or any other similar federal, state or foreign law, or appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of AMPAM or any Significant Subsidiary or one or more Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary or of any substantial part of any of their properties, or ordering the winding up or liquidation of any of their affairs, and the continuance of any decree or order unstayed and in effect for a period of 60 consecutive days; or (8) the institution by AMPAM or any Significant Subsidiary or one or more Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary of a voluntary case or proceeding under the Federal Bankruptcy Code or any other similar federal, state or foreign law or any other case or proceedings to be adjudicated a bankrupt or insolvent, or the consent by AMPAM or any Significant Subsidiary or one or more Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary to the entry of a decree or order for relief in respect of AMPAM or a Significant Subsidiary or group of Restricted Subsidiaries in any involuntary case or proceeding under the Federal Bankruptcy Code or any other similar federal, state or foreign law or to the institution of bankruptcy or insolvency proceedings against AMPAM or a Significant Subsidiary or group of Restricted Subsidiaries, or the filing by AMPAM or any Significant Subsidiary or one or more Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary of a petition or answer or consent seeking reorganization or relief under the Federal Bankruptcy Code or any other similar federal, state or foreign law, or the consent by it to the filing of any petition of this type or to the appointment of 97 104 or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of any of AMPAM or any Significant Subsidiary or one or more Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due or the taking of corporate action by AMPAM or any Significant Subsidiary or one or more Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary in furtherance of any action of this type; or (9) any of the Guarantees of any Significant Subsidiary or one or more Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary ceases to be in full force and effect or any of these Guarantees is declared to be null and void and unenforceable or any of these Guarantees is found to be invalid or any guarantors denies its liability under its Guarantee, other than by reason of release of the guarantor in accordance with the terms of the indenture. If an event of default (other than those covered by clause (7) or (8) above) shall occur and be continuing, the trustee, by notice to AMPAM, or the holders of at least 25% in aggregate principal amount of the notes then outstanding, by notice to the trustee and AMPAM, may declare the principal of, premium, if any, and accrued and unpaid interest, if any, on all of the outstanding notes due and payable immediately on which declaration, all amounts payable in respect of the notes shall be due and payable. If an event of default specified in clause (7) or (8) above occurs and is continuing, then the principal of, premium, if any, and accrued and unpaid interest, if any, on all the outstanding notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the trustee or any holder of notes. After a declaration of acceleration under the indenture, but before a judgment or decree for payment of the money due has been obtained by the trustee, the holders of a majority in aggregate principal amount of the outstanding notes, by written notice to AMPAM and the trustee, may rescind the declaration if: - AMPAM or any guarantor has paid or deposited with the trustee a sum sufficient to pay (a) all sums paid or advanced by the trustee under the indenture and the reasonable compensation, expenses, disbursements and advances of the trustee, its agents and counsel, (b) all overdue interest on all notes, (c) the principal of and premium, if any, on any notes which have become due otherwise than by the declaration of acceleration and interest thereon at the rate borne by the notes, and (d) to the extent that payment of interest is lawful, interest upon overdue interest and overdue principal at the rate borne by the notes which has become due otherwise than by a declaration of acceleration; - the rescission would not conflict with any judgment or decree of a court of competent jurisdiction; and - all events of default, other than the non-payment of principal of, premium, if any, and interest on the notes that has become due solely by a declaration of acceleration, have been cured or waived. No holder of any of the notes will have any right to institute any proceeding with respect to the indenture or any remedy thereunder, unless the holders of at least 25% in aggregate principal amount of the outstanding notes have made written request, and offered reasonable indemnity, to the trustee to institute a proceeding of this type as trustee under the notes and the indenture, the trustee has failed to institute a proceeding of this type within 45 days after receipt of notice and the trustee, within the 45-day period, has not received directions inconsistent with the written request by holders of a majority in aggregate principal amount of the outstanding notes. Such limitations will not apply, however, to a suit 98 105 instituted by a holder of a note for the enforcement of the payment of the principal of, premium, if any, or interest on the note on or after the respective due dates expressed in the note. During the existence of an event of default, the trustee will be required to exercise the rights and powers vested in it under the indenture and use the same degree of care and skill in its exercise of these rights as a prudent person would exercise under the circumstances in the conduct of that person's own affairs. Subject to the provisions of the indenture relating to the duties of the trustee, in case an event of default shall occur and be continuing, the trustee under the indenture will not be under any obligation to exercise any of its rights or powers under the indenture at the request or direction of any of the holder unless the holders shall have offered to the trustee reasonable security or indemnity. Subject to provisions concerning the rights of the trustee, the holders of a majority in aggregate principal amount of the outstanding notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee, or exercising any trust or power conferred on the trustee under the indenture. If a default or an event of default occurs and is continuing and is known to the trustee, the trustee shall mail to each holder of the notes notice of the default or event of default within 30 days after obtaining knowledge of the default or event of default. Except in the case of a default or an event of default in payment of principal of premium, if any, or interest on any notes, the trustee may withhold the notice to the holders of these notes if a committee of its trust officers in good faith determines that withholding the notice is in the interest of the Noteholders. AMPAM must furnish to the trustee annual and quarterly statements as to the performance by AMPAM of its obligations under the indenture and as to any default in this performance. AMPAM also will be required to notify the trustee within five business days of any event which is, or after notice or lapse of time or both would become, an event of default. NO LIABILITY FOR CERTAIN PERSONS No director, officer, employee or stockholder of AMPAM, nor any director, officer or employee of any guarantor, as such, will have any liability for any obligations of AMPAM or any guarantor under the notes, the guarantees or the indenture based on, in respect of, or by reason of the obligations described or their creation. Each holder by accepting a Note waives and releases all liability of this type. The foregoing waiver and release are an integral part of the consideration or the issuance of the notes. Such waiver may not be effective to waive liabilities under the federal securities laws. LEGAL DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE AMPAM may, at its option and at any time, terminate the obligations of AMPAM and the guarantors with respect to the outstanding notes ("Legal Defeasance") to the extent set forth below. Such Legal Defeasance means that AMPAM shall be considered to have paid and discharged the entire Indebtedness represented by the outstanding notes, except for: - the rights of holders of outstanding notes to receive payment in respect of the principal of, premium, if any, and interest on these notes when payments are due; - AMPAM's obligations to issue temporary notes, register the transfer or exchange of any notes, replace mutilated, destroyed, lost or stolen notes and maintain an office or agency for payments in respect of the notes; - the rights, powers, trusts, duties and immunities of the trustee; and - the Legal Defeasance provisions of the indenture. In addition, AMPAM may, at its option and at any time, elect to terminate the obligations of AMPAM and the guarantors with respect to covenants in the indenture, some of which are described under "-- Material Covenants" above, and any subsequent failure to comply with these obligations shall not constitute a default or an event of default with respect to the notes. 99 106 In order to exercise either Legal Defeasance or Covenant Defeasance: - AMPAM or any guarantor must irrevocably deposit with the trustee, in trust, for the benefit of the holders of the notes, cash in United States dollars, U.S. Government Obligations (as defined in the indenture), or any combination, in amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding notes to redemption or maturity (except lost, stolen or destroyed notes which have been replaced or paid); - AMPAM shall have delivered to the trustee an opinion of counsel to the effect that the holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of this Legal Defeasance or Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if this Legal Defeasance or Covenant Defeasance had not occurred (in the case of Legal Defeasance, this opinion must refer to and be based upon a ruling of the Internal Revenue Service or a change in applicable federal income tax laws); - no default or event of default shall have occurred and be continuing on the date of this deposit (other than a default or event of default relating to the borrowing of funds to be applied to this deposit); - the Legal Defeasance or Covenant Defeasance shall not cause the trustee to have a conflicting interest with respect to any securities of AMPAM; - the Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any agreement or instrument to which AMPAM is a party or by which it is bound; - AMPAM shall have delivered to the trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; - AMPAM shall have delivered to the trustee an officers' certificate stating that the deposit was not made by AMPAM with the intent of preferring the holders of the notes over the other creditors of AMPAM with the intent of hindering, delaying or defrauding creditors of AMPAM or others; - no event or condition shall exist that would prevent AMPAM from making payments of the principal of, premium, if any, and interest on the notes on the date of the deposit or at any time ending on the 91st day after the date of the deposit; and - AMPAM shall have delivered to the trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent under the indenture to either Legal Defeasance or Covenant Defeasance, as the case may be, have been complied with. AMPAM may exercise its Legal Defeasance option notwithstanding its prior exercise of its Covenant Defeasance option. SATISFACTION AND DISCHARGE The indenture will be discharged and will cease to be of further effect as to all outstanding notes when: - either (a) all the notes theretofore authenticated and delivered (except lost, stolen or destroyed notes which have been replaced or repaid and notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by AMPAM and thereafter repaid to AMPAM or discharged from the trust) have been delivered to the trustee for cancellation or 100 107 (b) all notes not theretofore delivered to the trustee for cancellation have become due and payable or will become due and payable at their Stated Maturity within one year, or are to be called for redemption within one year under arrangements satisfactory to the trustee for the serving of notice of redemption by the trustee in the name, and at the expense, of AMPAM, and AMPAM or any guarantor has irrevocably deposited or caused to be deposited with the trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the notes not theretofore delivered to the trustee for cancellation, for principal of, premium, if any, and interest on the notes to the date of deposit or to the Stated Maturity or date for redemption, as the case may be, together with irrevocable instructions from AMPAM directing the trustee to apply these funds to the payment of the notes at Stated Maturity or redemption, as the case may be; - AMPAM or the guarantors have paid all other sums payable under the indenture by AMPAM or the guarantors; and - AMPAM has delivered to the trustee an officers' certificate and an opinion of counsel which, taken together, state that all conditions precedent under the indenture relating to the satisfaction and discharge of the indenture have been complied with. AMENDMENTS AND WAIVERS From time to time, AMPAM and the guarantors, when authorized by a resolution of its Board of Directors, and the trustee may, without the consent of the holders of any outstanding notes, amend or modify the indenture or the notes for specified purposes, including, among other things, curing ambiguities, defects or inconsistencies, qualifying, or maintaining the qualification of, the indenture under the Trust Indenture Act, to provide for the assumption of AMPAM's or any guarantor's obligations in the case of a merger or consolidation or sale of all or substantially all of AMPAM's assets, or to make any change that would provide any additional rights or benefits to the holders of the notes, in each case, as long as any change of this type does not adversely affect the rights of any holder of notes. Other amendments and modifications of the indenture or the notes may be made by AMPAM, the guarantors and the trustee with the consent of the holders of not less than a majority of the aggregate principal amount of the outstanding notes; provided, however, that no modification of this type or amendment may, without the consent of the holder of each outstanding Note affected thereby: - change the Stated Maturity of the principal of, or any installment of interest on, any Note or alter the redemption provisions of the notes; - reduce the principal amount of (or the premium, if any, on), or interest on, any notes; - change the currency in which any notes or any premium or the interest thereon is payable; - reduce the above-stated percentage in principal amount of outstanding notes that must consent to an amendment or modification of the indenture or the notes; - impair the right to institute suit for the enforcement of any payment on or with respect to the notes or the guarantees; - reduce the percentage in aggregate principal amount of outstanding notes necessary to waive compliance with provisions of the indenture or to waive various defaults under the indenture; - amend or modify the obligation of AMPAM to make and consummate a Change of Control Offer after the occurrence of a Change of Control or make and consummate the Asset Sale Offer with respect to any Asset Sale that has been consummated or modify any of the provisions or definitions with respect thereto; - release any guarantor from its obligations under its guarantee or the Indenture otherwise than in accordance with the terms of the Indenture; or - modify or change any provision of the indenture or the related definitions affecting the subordination or ranking of the notes or any guarantee in a manner which adversely affects the Noteholders. 101 108 The holders of not less than a majority in aggregate principal amount of the outstanding notes may on behalf of the holders of all the notes waive (1) compliance by AMPAM with restrictive provisions of the indenture and (2) any past defaults under the indenture, except a default in the payment of the principal of, premium, if any, or interest on any Note, or in respect of a covenant or provision which under the indenture cannot be modified or amended without the consent of the holder of each Note outstanding. THE TRUSTEE The indenture provides that, except during the continuance of an event of default, the trustee thereunder will perform only those duties as are specifically set forth in the indenture. If an event of default has occurred and is continuing, the trustee will exercise the rights and powers vested in the trustee under the indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of a person's own affairs. The indenture and provisions of the Trust Indenture Act incorporated by reference therein contain limitations on the rights of the trustee thereunder, should it become a creditor of AMPAM, to obtain payment of claims in cases or to realize on property received by it in respect of any claims of the type previously described, as security or otherwise. The trustee may engage in other transactions; provided, however, that if it acquires any conflicting interest (as defined in the Trust Indenture Act), it must eliminate this conflict or resign. State Street Bank and Trust Company, is the trustee under the indenture. GOVERNING LAW The indenture and the notes are governed by the laws of the State of New York. CERTAIN DEFINITIONS "Acquired Indebtedness" means Indebtedness of a person (a) assumed in connection with an Asset Acquisition from that person or (b) existing at the time this person becomes or is merged into a Subsidiary of any other person. "Acquisition Agreements" means, collectively, the acquisition agreements dated February 11, 1999 between AMPAM and each of the stockholders of the founding companies through which AMPAM acquired the founding companies. "Affiliate" means, with respect to any specified person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with that specified person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of this person, whether through the ownership of Voting Stock, by agreement or otherwise; provided, however, that beneficial ownership of 10% or more of the Voting Stock of a person shall be considered to be control. "Asset Acquisition" means (a) an Investment by AMPAM or any Restricted Subsidiary in any other person through which this person shall become a Restricted Subsidiary, or shall be merged with or into AMPAM or any Restricted Subsidiary, or (b) the acquisition by AMPAM or any Restricted Subsidiary of the assets of any person which constitute all or substantially all of the assets of this person, any division or line of business of this person or, other than in the ordinary course of business, any other properties or assets of this person. 102 109 "Asset Sale" means any sale, issuance, conveyance, transfer, lease or other disposition by AMPAM or any Restricted Subsidiary to any person other than AMPAM or a Restricted Subsidiary, of: - any capital stock of any Restricted Subsidiary; - all or substantially all of the properties and assets of any division or line of business of AMPAM or any Restricted Subsidiary; or - any other properties or assets of AMPAM or any Restricted Subsidiary outside of the ordinary course of business, other than sales of obsolete, damaged or used equipment or other equipment or inventory sales in the ordinary course of business, sales of assets in one or a series of related transactions for an aggregate consideration of less than $2.0 million and sales of accounts receivable for financing purposes. For the purposes of this definition the term "Asset Sale" shall not include: - any sale, issuance, conveyance, transfer, lease or other disposition of properties or assets that is governed by the provisions described under "-- Consolidation, Merger, Sale of Assets, Etc."; or - a Restricted Payment that is permitted by the covenant described under "-- Material Covenants -- Limitation on Restricted Payments", or the trade or exchange by AMPAM or any Restricted Subsidiary of any property or assets owned or held by AMPAM or the Restricted Subsidiary for any property or assets owned or held by another person, provided that the fair market value of the properties traded or exchanged by AMPAM or the Restricted Subsidiary (including any cash or Cash Equivalents to be delivered by AMPAM or the Restricted Subsidiary) is reasonably equivalent to the fair market value of the properties (together with any cash or Cash Equivalents) to be received by AMPAM or the Restricted Subsidiary, and provided further that any cash or Cash Equivalents of this type shall be considered to constitute Net Cash Proceeds of an Asset Sale for purposes of the covenant described under "Material Covenants -- Disposition of Proceeds of Asset Sales." "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in the sale and leaseback transaction including any period for which the lease has been extended or may, at the option of lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in this transaction, determined in accordance with GAAP. "Average Life to Stated Maturity" means, with respect to any Indebtedness, as at any date of determination, the quotient obtained by dividing: the sum of the products of (a) the number of years (and any portion of years) from the date of the determination to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund or mandatory redemption payment requirements) of this Indebtedness, and (b) the amount of each principal payment by the sum of all principal payments. "Board of Directors" means the board of directors of a company or its equivalent, including managers of a limited liability company, general partners of a partnership or trustees of a business trust, or any duly authorized committee of the board. "capital stock" means, with respect to any person, any and all shares, interests, participations, rights in or other equivalents of this person's capital stock or equity participations, and any rights, warrants or options exchangeable for or convertible into capital stock and including, without limitation, with respect to partnerships, limited liability companies or business trusts, ownership interests and any other interest or participation that confers on a person the right to receive a share of the profits and losses of, or distributions of assets of, partnerships, limited liability companies or business trusts of this type. 103 110 "Capitalized Lease Obligation" means any obligation to pay rent or other amounts under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP, and, for the purpose of the indenture, the amount of an obligation at any date shall be the capitalized amount of this lease at that date, determined in accordance with GAAP. "Cash Equivalents" means, at any time, (a) any evidence of Indebtedness, maturing not more than two years after that time, issued or guaranteed by the United States Government or any of its agencies (provided that the full faith and credit of the United States of America is pledged in support of this Indebtedness); (b) commercial paper, maturing not more than 270 days from the date of issue, rated at least A-2 by Standard & Poor's Ratings Group or P-2 by Moody's Investors Service, Inc.; (c) any certificate of deposit or bankers acceptance, maturing not more than one year after that time, or overnight Federal Funds transactions that are issued or sold by a banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500 million; (d) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (a) above entered into with any bank meeting the specifications of clause (c) above; and (e) investments in funds investing primarily in investments of the types described in clauses (a) through (d) above. "Change of Control" means the occurrence of any of the following events: - any "Person" or "group" (as these terms are used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be considered to have "beneficial ownership" of all securities that the person has the right to acquire, whether this right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total Voting Stock of AMPAM; - AMPAM consolidates with, or merges with or into, another person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any person, or any person consolidates with, or merges with or into, AMPAM in any event through a transaction in which the outstanding Voting Stock of AMPAM is converted into or exchanged for cash, securities or other property, other than any transaction where: - the outstanding Voting Stock of AMPAM is converted into or exchanged for Voting Stock (other than Redeemable capital stock) of the surviving or transferee corporation; and - immediately after the transaction no "person" or "group" (as these terms are used in Sections 13 (d) and 14(d) of the Exchange Act) is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be considered to have "beneficial ownership" of any securities that this person has the right to acquire, whether this right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total Voting Stock of the surviving or transferee corporation; - during any consecutive two-year period, individuals who at the beginning of this period constituted the Board of Directors of AMPAM (together with any new directors whose election by the Board of Directors or whose nomination for election by the stockholders of AMPAM was approved by a vote of 66 2/3% of the directors then still in office who were either directors at the beginning of this period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of AMPAM then in office; or 104 111 - AMPAM is liquidated or dissolved or adopts a plan of liquidation. "common stock" means the common stock of AMPAM, par value $0.01 per share. "Consolidated Cash Flow Available for Fixed Charges" as of any date of determination means, with respect to any person for any period, the Consolidated Net Income of a person for a period plus, to the extent deducted from Consolidated Net Income during this period, the sum of, without duplication, the amounts for this period, taken as a single accounting period, of (a) Consolidated Non-cash Charges, (b) Consolidated Interest Expense and (c) Consolidated Income Tax Expense (other than income tax expense (either positive or negative) attributable to extraordinary gains or losses) less all cash payments during this period relating to non-cash charges that were added back in determining Consolidated Cash Flow Available for Fixed Charges in any prior period. "Consolidated Fixed Charge Coverage Ratio" as of any date of determination means, with respect to any person, the ratio of the aggregate amount of Consolidated Cash Flow Available for Fixed Charges of this person for the four full fiscal quarters, treated as one period, for which financial information in respect of which is available immediately preceding the date of the transaction (the "Transaction Date") giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (this four full fiscal quarter period referred to as the "Four Quarter Period") to the aggregate amount of Consolidated Fixed Charges of this person for this Four Quarter Period. For purposes of making the computation referred to above, Consolidated Cash Flow Average for Fixed Charges and Consolidated Fixed Charges shall be calculated giving pro forma effect (in a manner consistent with Rule 11-02 of Regulation S-X to the following events (without duplication): - any Asset Sale or Asset Acquisition occurring since the first day of the Four Quarter Period (including to the date of calculation) as if the acquisition or disposition occurred at the beginning of the Four Quarter Period (including giving effect to (A) the amount of any reduction in expenses related to any compensation, remuneration or other benefit paid or provided to any employee, consultant, Affiliate or equity owner of the entity involved in any Asset Sale or Asset Acquisition to the extent the costs are eliminated or reduced (or public announcement has been made of the intent to eliminate or reduce these costs) prior to the date of this calculation and not replaced and (B) the amount of any reduction in general, administrative or overhead costs of the entity involved in any Asset Sale or Asset Acquisition of this type); - the incurrence of Indebtedness giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio and (if applicable) the application of the net proceeds therefrom, including to refinance other indebtedness, as if the Indebtedness were incurred at the beginning of the Four Quarter Period; - the incurrence, repayment or retirement of any other Indebtedness by AMPAM and its Restricted Subsidiaries since the first day of the Four Quarter Period and prior to the date of making this calculation as if the Indebtedness or obligations were incurred, prepaid or retired at the beginning of the Four Quarter Period (except that in making this computation, the amount of Indebtedness under any revolving credit facility shall be computed based upon the average daily balance of the Indebtedness during the Four Quarter Period); and - elimination of Consolidated Cash Flow Available for Fixed Charges and Consolidated Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, but, with respect to Consolidated Fixed Charges, only to the extent that the obligations giving rise to Consolidated Fixed Charges will not be obligations of the referent person or any of its Restricted Subsidiaries following the Transaction Date. In calculating Consolidated Fixed Charges for purposes of determining the denominator (but not the numerator) of the Consolidated Fixed Charge Coverage Ratio, - interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be considered to have accrued at a 105 112 fixed rate per annum equal to the rate of interest on this Indebtedness in effect on the Transaction Date; and - if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a Eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be considered to have been in effect during the Four Quarter Period. If this person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third person, the above provisions shall give effect to the incurrence of this guaranteed Indebtedness as if the person or the Subsidiary had directly incurred or otherwise assumed this guaranteed Indebtedness. "Consolidated Fixed Charges" means, with respect to any person for any period, the sum of, without duplication, the amounts for this period of: - Consolidated Interest Expense; and - the product of (a) the aggregate amount of dividends and other distributions paid, accrued or scheduled to be paid during this period in respect of Redeemable capital stock or Preferred Stock of that person and its Restricted Subsidiaries on a consolidated basis (other than dividends or distributions paid solely in shares of capital stock (other than Redeemable capital stock)) times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local tax rate of the person, expressed as a decimal. "Consolidated Income Tax Expense" means, with respect to any person for any period, the provision for federal, state, local and foreign income taxes of this person and its Restricted Subsidiaries for that period as determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, with respect to any person for any period, without duplication, the sum of: - the interest expense of a person and its Restricted Subsidiaries for a period as determined on a consolidated basis in accordance with GAAP, including, without limitation; (a) an amortization of debt discount, capitalized debt issuance costs and original issue discount, (b) the net cost under Interest Rate Protection Obligations (including any amortization of discounts); (c) the interest portion of any deferred payment obligation; (d) all commissions, discounts and other fees and charges owed with respect to letters of credit, bankers' acceptance financing or similar facilities; (e) all accrued interest; and (f) imputed interest with respect to Attributable Debt; and - the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by this person and its Restricted Subsidiaries during the period as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any person, for any period, the consolidated net income (or loss) of that person and its Restricted Subsidiaries for the period as determined in accordance with GAAP, adjusted, to the extent included in calculating the net income, by excluding, without duplication: - all items classified as extraordinary gains or losses (net of fees and expenses relating to the transaction giving rise thereto) on an after-tax basis; - net income (or loss) of any person combined with the person or one of its Restricted Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination; 106 113 - gains or losses in respect of any Asset Sales by the person or one of its Restricted Subsidiaries (net of fees and expenses relating to the transaction giving rise thereto), on an after-tax basis; - the net income of any Restricted Subsidiary of the person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; - any gain or loss realized as a result of the cumulative effect of a change in accounting principles; - the net income of any person, other than a Restricted Subsidiary of the referent person, except to the extent of cash dividends or distributions paid to the referent person or to a Restricted Subsidiary of the referent person by the person; - any restoration to income of any contingency reserve in excess of $100,000 in the aggregate for any one fiscal quarter, except to the extent that provision for this reserve was made out of Consolidated Net Income accrued at any time following the Issue Date and reflected on the financial statements of the person; - in the case of a successor to the referent person by consolidation or merger or as a transferee of the referent person's assets, any earnings of the successor corporation prior to the consolidation, merger or transfer of assets; and - one-time non-cash charges reducing net income resulting from stock issued to management of AMPAM in connection with AMPAM's organization. "Consolidated Non-cash Charges" means, with respect to any person for any period, the aggregate depreciation, amortization (including amortization of goodwill and other intangibles) and other non-cash charges of that person and its Restricted Subsidiaries to the extent that reducing Consolidated Net Income of that person and its Restricted Subsidiaries for that period, determined on a consolidated basis in accordance with GAAP excluding non-cash charges (other than any non-cash charge reflected on the financial statements of that person on the Issue Date) which require an accrual of or a reserve for cash charges for any future period. "credit facility" means the Credit Agreement dated as of March 31, 1999 among AMPAM, the First National Bank of Chicago, as Agent, LC Issuer and lender, Credit Lyonnais, New York Branch, as Documentation Agent, and the Lenders named in the agreement, including any notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended (including any amendment and restatement of it), modified, extended, renewed, refunded, substituted or replaced or refinanced from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder or adding Subsidiaries of AMPAM as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under the agreement or any successor or replacement agreement and whether by the same or any other agents, creditor, lender or group of creditors or lenders. "default" means any event that is, or after notice or passage of time or both would be, an event of default. "Designated Senior Indebtedness" means (i) all Senior Indebtedness under the credit facility and (ii) any other Senior Indebtedness which (a) at the time of the determination is equal to or greater than $25 million in aggregate principal amount and (b) is specifically designated by AMPAM in the instrument evidencing the Senior Indebtedness as "Designated Senior Indebtedness." "Disinterested Member of the Board of Directors of AMPAM" means, with respect to any transaction or series of related transactions, a member of the Board of Directors of AMPAM other than a member who has any material direct or indirect financial interest in or with respect to that transaction or series of related transactions or is an Affiliate, or an officer, director or an employee of any person (other 107 114 than AMPAM) who has any direct or indirect financial interest in or with respect to that transaction or series of related transactions (in each case other than an interest arising solely from the beneficial ownership of capital stock of AMPAM). "event of default" has the meaning set forth under "-- Events of Default". "Exchange Act" means the Securities Exchange Act of 1934. "fair market value" means, with respect to any asset, the price (after taking into account any liabilities relating to these assets) which could be negotiated in an arm's length free market transaction between a willing seller and a willing buyer, neither of which is under pressure or compulsion to complete the transaction. Fair market value shall be determined by the Disinterested Members of the Board of Directors of AMPAM in good faith. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in other statements by an other entity as may be approved by a significant segment of the accounting profession of the United States of America, which are in effect from time to time. "guarantee" means, as applied to any obligation: - a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of the obligation; and - an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of nonperformance) of all or any part of this obligation, including, without limiting the foregoing, the payment of amounts available to be drawn down under letters of credit of another person. When used as a verb, "guarantee" shall have a corresponding meaning. "Guarantor Senior Indebtedness" of a guarantor means the principal of, premium, if any, and interest on any Indebtedness of this guarantor, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or under which the same is outstanding expressly provides that the Indebtedness shall not be senior in right of payment to the guarantor's guarantee. Without limiting the generality of the foregoing, (x) "Guarantor Senior Indebtedness" shall include all monetary obligations of every nature under the credit facility, including the principal of, premium, if any, and interest on all obligations of every nature of the guarantor from time to time owed to the lenders under the credit facility, including, without limitation, principal of and interest on, reimbursement obligations under letters of credit and all fees, indemnities and expenses payable under, the credit facility, and (y) in the case of amounts owing under the credit facility and Guarantees of Designated Senior Indebtedness, "Guarantor Senior Indebtedness" shall include interest accruing thereon subsequent to the occurrence of an event of default specified in clause (7) or (8) under "-- Events of Default" relating to the guarantor, whether or not the claim for the interest is allowed under any applicable Bankruptcy Code. Notwithstanding the foregoing, "Guarantor Senior Indebtedness" shall not include: - Indebtedness evidenced by the notes or the guarantees; - Indebtedness that is expressly subordinate or Junior in right of payment to any other Indebtedness of the guarantor; - Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is by its terms without recourse to the guarantor; - Indebtedness which is represented by Redeemable capital stock; - to the extent it constitutes Indebtedness, any liability for federal, state, local or other taxes owed or owing by the guarantor; 108 115 - Indebtedness of the guarantor to AMPAM or a Subsidiary of AMPAM or any other Affiliate of AMPAM or any of the Affiliate's Subsidiaries; - that portion of any Indebtedness which is incurred by the guarantor in violation of the indenture; and - trade payables. "Indebtedness" means, with respect to any person, without duplication: - all liabilities of a person for borrowed money or for the deferred purchase price of property or services, excluding any trade payables and other accrued current liabilities incurred in the ordinary course of business, but including, without limitation, all obligations, contingent or otherwise, of a person in connection with any letters of credit, bankers' acceptance or other similar credit transaction, if, and to the extent, any of the foregoing would appear as a liability on a balance sheet of a person prepared in accordance with GAAP; - all obligations of a person evidenced by bonds, notes, debentures or other similar instruments, if, and to the extent, any of the foregoing would appear as a liability on a balance sheet of a person prepared in accordance with GAAP; - all indebtedness of a person created or arising under any conditional sale or other title retention agreement with respect to property acquired by a person (even if the rights and remedies of the seller or lender under an agreement in the event of a default are limited to repossession or sale of property), but excluding consignments and trade accounts payable arising in the ordinary course of business that are not overdue by 90 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted; - all Capitalized Lease Obligations of a person; - all Indebtedness referred to in the preceding clauses of other persons and all dividends of other persons, the payment of which is secured by (or for which the holder of Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon property (including, without limitation, accounts and contract rights) owned by a person, even though that person has not assumed or become liable for the payment of the Indebtedness (the amount of this obligation being considered to be the lesser of the fair market value of that property or asset or the amount of the obligation so secured); - all guarantees of Indebtedness referred to in this definition by a person; - all Redeemable capital stock of a person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued dividends; - all Interest Rate Protection Obligations of a person; and - all Attributable Debt in respect of sale and leaseback transactions of a person; provided, that the term "Indebtedness" shall not include: - Indebtedness arising from agreements of AMPAM or any Restricted Subsidiary providing for indemnification, adjustment or holdback of purchase price or similar obligations, in each case, incurred or assumed in connection with the acquisition or disposition of any business, assets or a Subsidiary, other than guarantees of Indebtedness incurred by any person acquiring all or any portion of this business, assets or Subsidiary for the purpose of financing this acquisition; or - obligations under performance bonds, performance guarantees, surety bonds, appeal bonds or similar obligations incurred in the ordinary course of business and consistent with past practices. For purposes hereof, the "maximum fixed repurchase price" of any Redeemable capital stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of this Redeemable capital stock as if this Redeemable capital stock were purchased on any date on which 109 116 Indebtedness shall be required to be determined under the indenture, and if the price is based upon, or measured by, the fair market value of the Redeemable capital stock, the fair market value shall be approved in good faith by the board of directors of the issuer of the Redeemable capital stock; provided, however, that if the Redeemable capital stock is not at the date of determination permitted or required to be repurchased, the "maximum fixed repurchase price" shall be the book value of the Redeemable capital stock. In the case of Indebtedness issued with original issue discount, the amount of the Indebtedness shall be the accreted value of the Indebtedness as of that date. "Interest Rate Protection Agreement" means, with respect to any person, any arrangement with any other person whereby, directly or indirectly a person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by a person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements or arrangements designed to protect against or manage a person's exposure to fluctuations in interest rates. "Interest Rate Protection Obligations" means the net obligations of any person under any Interest Rate Protection Agreements. "Investment" means, with respect to any person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by a person of any capital stock bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other person; provided, however, that the term "Investment" shall not include: - extensions of trade credit on commercially reasonable terms in accordance with normal trade practices; and - Interest Rate Protection Obligations entered into in the ordinary course of business. "Lien" means any mortgage, charge, pledge, lien (statutory or other), security interest, hypothecation, assignment for security, claim or other encumbrance upon or with respect to any property of any kind. A person shall be considered to own subject to a Lien any property which that person has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. "Maturity Date" means October 15, 2008. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of the sale received by AMPAM or any Restricted Subsidiary in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (except to the extent that these obligations are financed or sold with recourse to AMPAM or any Restricted Subsidiary) net of: - brokerage commissions and other fees and expenses (including, without limitation, fees and expenses of legal counsel and investment bankers, recording fees, transfer fees and appraisers' fees) related to this Asset Sale; - provisions for all taxes payable as a result of this Asset Sale; - amounts required to be paid to an person (other than AMPAM or any Restricted Subsidiary) owning a beneficial interest in the assets subject to the Asset Sale; - payments made to permanently retire Indebtedness where payment of this Indebtedness is secured by the assets or properties the subject of this Asset Sale; and - appropriate amounts to be provided by AMPAM or any Restricted Subsidiary, as the case may be, as a reserve required in accordance with GAAP against any liabilities associated with this Asset 110 117 Sale and retained by AMPAM or any Restricted Subsidiary, as the case may be, after this Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with this Asset Sale; provided, that any amounts remaining after adjustments, revaluations or liquidations of reserves shall constitute Net Cash Proceeds. "Pari Passu Indebtedness" means any Indebtedness of AMPAM that is pari passu in right of payment to the notes. "Permitted Indebtedness" means, without duplication: (a) Indebtedness of AMPAM and the guarantors evidenced by the notes issued on the date of the Indenture, the Exchange notes and the guarantees; (b) Indebtedness of AMPAM and any guarantor under the credit facility in an aggregate principal amount at any one time outstanding not to exceed $125 million, less any amounts permanently repaid in accordance with the covenant described under "-- Material Covenants -- Disposition of Proceeds of Asset Sales"; (c) Indebtedness of AMPAM or any guarantor outstanding on the Issue Date; (d) Indebtedness of AMPAM or any Restricted Subsidiary incurred in respect of bankers' acceptances and letters of credit in the ordinary course of business, including Indebtedness evidenced by letters of credit issued in the ordinary course of business to support the insurance or self-insurance obligations of AMPAM or any of its Restricted Subsidiaries (including to secure workers' compensation and other similar insurance coverages), in an aggregate amount not to exceed $5.0 million at any time, but excluding letters of credit issued in respect of or to secure money borrowed; (e) (1) Interest Rate Protection Obligations of AMPAM or a guarantor covering Indebtedness of AMPAM or a guarantor and (2) Interest Rate Protection Obligations of any Restricted Subsidiary covering Permitted Indebtedness or Acquired Indebtedness of the Restricted Subsidiary; provided, however, that, in the case of either clause (1) or (2), (x) any Indebtedness to which any Interest Rate Protection Obligations correspond bears interest at fluctuating interest rates and is otherwise permitted to be incurred under the "Limitation on Indebtedness" covenant and (y) the notional principal amount of any Interest Rate Protection Obligations that exceeds 105% of the principal amount of the Indebtedness to which Interest Rate Protection Obligations relate shall not constitute Permitted Indebtedness; (f) Indebtedness of a Restricted Subsidiary owed to and held by AMPAM or another Restricted Subsidiary, except that: - any transfer of Indebtedness by AMPAM or a Restricted Subsidiary (other than to AMPAM or another Restricted Subsidiary); - the sale, transfer or other disposition by AMPAM or any Restricted Subsidiary of capital stock of a Restricted Subsidiary which is owed Indebtedness of another Restricted Subsidiary so that it shall no longer be a Restricted Subsidiary; and - the Designation of a Restricted Subsidiary which is owed Indebtedness of another Restricted Subsidiary as an Unrestricted Subsidiary shall, in each case, be an incurrence of Indebtedness by a Restricted Subsidiary subject to the other provisions of the indenture; (g) Indebtedness of AMPAM owed to and held by a Restricted Subsidiary which is unsecured and expressly subordinated in right of payment to the payment and performance of the obligations of AMPAM under the indenture and the notes, except that: 111 118 - any transfer of Indebtedness by a Restricted Subsidiary (other than to another Restricted Subsidiary); - the sale, transfer or other disposition by AMPAM or any Restricted Subsidiary of capital stock of a Restricted Subsidiary which is owed Indebtedness of AMPAM so that it shall no longer be a Restricted Subsidiary; and - the Designation of a Restricted Subsidiary which is owed Indebtedness of AMPAM shall, in each case, be an incurrence of Indebtedness by AMPAM, subject to the other provisions of the indenture; (h) Indebtedness of AMPAM or any guarantor represented by Capitalized Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of AMPAM or a guarantor, in an aggregate principal amount not to exceed $15 million at any time outstanding; (i) Subordinated Indebtedness of AMPAM, in an aggregate principal amount not to exceed $10 million at any time outstanding, that is convertible into common stock and issued in connection with an Asset Acquisition of a business engaged in the plumbing and mechanical contracting and maintenance services businesses and any other businesses reasonably related thereto; (j) Indebtedness of AMPAM, in addition to that described in clauses (a) through (i) of this definition, in an aggregate principal amount not to exceed $15 million at any time outstanding; (k) (1) Indebtedness of AMPAM, the proceeds of which are used solely to refinance (whether by amendment, renewal, extension or refunding) Indebtedness of AMPAM or any of the guarantors incurred under the Consolidated Fixed Charge Coverage Ratio test of the proviso of the "Limitation on Indebtedness" covenant or clause (a) or (c) of this definition and (2) Indebtedness of any guarantor the proceeds of which are used solely to refinance (whether by amendment, renewal, extension or refunding) Indebtedness of this guarantor incurred under the Consolidated Fixed Charge Coverage Ratio test of the proviso of the "Limitation on Indebtedness" covenant or clause (c) or (k) of this definition; provided, that (x) the principal amount of Indebtedness incurred under this clause (k) (or if the Indebtedness provides for an amount less than the principal amount of this Indebtedness to be due and payable upon a declaration of acceleration of maturity of this Indebtedness, the original issue price of this Indebtedness) shall not exceed the sum of the principal amount of Indebtedness so refinanced, plus the amount of any premiums and fees required to be paid in connection with this refinancing under the terms of this Indebtedness, and (y) any Indebtedness incurred under this clause (k) (A) has an Average Life to Stated Maturity greater than the remaining Average Life to Stated Maturity of the notes and (B) is subordinated to the notes or the guarantees, as the case may be, at least to the same extent that the Indebtedness being refinanced is subordinated to the notes or the guarantees, as the case may be; (l) Indebtedness of any Restricted Subsidiary that constitutes Acquired Indebtedness not incurred in contemplation of the acquisition of a Restricted Subsidiary; provided, however, that this Indebtedness is repaid within 90 days following the consummation of the Asset Acquisition in which AMPAM acquired this Restricted Subsidiary; and (m) guarantees by AMPAM or guarantees by a guarantor of Indebtedness that was permitted to be incurred under the indenture. For purposes of determining compliance with the "Limitation on Indebtedness" covenant, (A) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described in the clauses of the preceding paragraph, or is entitled to be incurred under the proviso of the "Limitation on Indebtedness" covenant, AMPAM, in its sole discretion, shall classify the item of 112 119 Indebtedness and only be required to include the amount and type of this Indebtedness in one clause of this type and (B) the amount of Indebtedness issued at a price that is either less or greater than the principal amount of the Indebtedness shall be equal to the amount of the liability in respect of the Indebtedness determined in conformity with GAAP. "Permitted Investments" means any of the following: - Investments in AMPAM or in a Restricted Subsidiary; - Investments in another person, if as a result of the Investment (A) the other person becomes a Restricted Subsidiary or (B) the other person is merged or consolidated with or into, or transfers or conveys all or substantially all of its assets to AMPAM or a Restricted Subsidiary; - Investments representing capital stock or obligations issued to AMPAM or any of its Restricted Subsidiaries in settlement of debts created in the ordinary course of business or claims against any other person by reason of a composition or readjustment of debt or a reorganization of any debtor of AMPAM or the Restricted Subsidiary or in satisfaction of judgments; - Investments in Interest Rate Protection Agreements on commercially reasonable terms entered into by AMPAM or any of its Restricted Subsidiaries in the ordinary course of business in connection with the operations of the business of AMPAM or its Restricted Subsidiaries to hedge against fluctuations in interest rates on its outstanding Indebtedness; - Investments in the notes; - Investments in Cash Equivalents; - Investments acquired by AMPAM or any Restricted Subsidiary in connection with an Asset Sale permitted under "-- Material Covenants -- Disposition of Proceeds of Asset Sales" to the extent these Investments are non-cash proceeds as permitted under the covenant; - any Investment to the extent that the consideration therefor is capital stock (other than Redeemable capital stock) of AMPAM; - any loans or other advances made under any employee benefit plans (including plans for the benefit of directors) or employment agreements or other compensation arrangements (including for the purchase of capital stock by these employees), in each case as approved by the Board of Directors of AMPAM in its good faith judgment, not to exceed $1 million at any one time outstanding; and - other Investments not to exceed $2 million at any time outstanding. "Permitted Junior Securities" means capital stock of AMPAM or debt securities that are subordinated to all Senior Indebtedness (and any debt securities issued in exchange for Senior Indebtedness) to at least the same extent as the notes are subordinated to Senior Indebtedness. "Permitted Liens" means the following types of Liens: (a) any Lien existing as of the date of the indenture; (b) any Lien securing Acquired Indebtedness created prior to (and not created in connection with, or in contemplation of) the incurrence of the Indebtedness by AMPAM or any Restricted Subsidiary, if this Lien does not attach to any property or assets of AMPAM or any Restricted Subsidiary other than the property or assets subject to the Lien prior to this incurrence; (c) Liens in favor of AMPAM or a guarantor; (d) Liens on and pledges of the capital stock of any Unrestricted Subsidiary securing any Indebtedness of this Unrestricted Subsidiary; (e) Liens for taxes, assessments or governmental charges or claims, to the extent any changes or claims of this type constitute Indebtedness, either (1) not delinquent or (2) contested in good 113 120 faith by appropriate proceedings and as to which AMPAM or its Restricted Subsidiaries shall have set aside on its books these reserves as may be required under GAAP; (f) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance or other kinds of social security, old age pension or public liability obligations; (g) Liens to secure Indebtedness (including Capitalized Lease Obligations) permitted by clause (h) under the definition of "Permitted Indebtedness" covering only the assets acquired with this indebtedness; (h) Liens securing Interest Rate Protection Obligations permitted to be entered into under "-- Limitation on Indebtedness"; (i) judgment and attachment Liens not giving rise to an event of default or Liens created by or existing from any litigation or legal proceeding that are currently being contested in good faith by appropriate proceedings and for which adequate reserves have been made; (j) Liens in favor of collecting or payor banks having a right of setoff, revocation, refund or chargeback with respect to money or instruments of AMPAM or any Subsidiary on deposit with or in possession of this bank; and (k) Liens not otherwise permitted by clauses (a) through (j) that are incurred in the ordinary course of business of AMPAM or any Restricted Subsidiary with respect to Indebtedness that does not exceed $5 million at any one time outstanding. "person" means any individual, corporation, partnership (general or limited), limited liability company, joint venture, association, joint-stock Company, trust, unincorporated organization or government or any agency or political subdivision of the entities previously described. "Preferred Stock," as applied to any person, means capital stock of any class or series (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of this person, over shares of capital stock of any other class or series of this person. "Public Equity Offering" means any public sale of common stock of AMPAM in connection with a registration statement filed with the SEC in accordance with the Securities Act (other than any public offerings with respect to AMPAM's common stock registered on Form S-8 or Form S4). "Redeemable capital stock" means any class or series of capital stock that, either by its terms, by the terms of any security into which it is convertible or exchangeable or by contract or otherwise, is or upon the happening of an event or passage of time would be required to be redeemed prior to the 91st day after the Maturity Date or is redeemable at the option of the holder of the Redeemable capital stock at any time prior to the 91st day after the Maturity Date, or is convertible into or exchangeable for debt securities at any time prior to the 91st day after the Maturity Date; provided, however, that (i) capital stock will not constitute Redeemable capital stock solely because the holders of the Redeemable capital stock have the right to require AMPAM to repurchase or redeem this capital stock upon the occurrence of a Change of Control or an Asset Sale and (ii) the common stock of AMPAM will not constitute Redeemable capital stock solely because of the redemption trigger features described under "Certain Transactions--Acquisition of Founding Companies--Common Stock Redemption Rights." "Restricted Subsidiary" means any Subsidiary of AMPAM that is not an Unrestricted Subsidiary. "Seller Preferred Stock" means the 10% Cumulative Redeemable Convertible Preferred Stock, Series A of AMPAM. "Senior Indebtedness" means the principal of, premium, if any, and interest on any Indebtedness of AMPAM, whether outstanding on the Issue Date or created afterwards, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or in connection 114 121 with which the same is outstanding expressly provides that this Indebtedness shall not be senior in right of payment to the notes. Without limiting the generality of the foregoing, (x) "Senior Indebtedness" shall include all monetary obligations of every nature under the credit facility, including the principal of, premium, if any, and interest on all obligations of every nature of AMPAM from time to time owed to the lenders under the credit facility, including, without limitation, principal of and interest on, reimbursement obligations under letters of credit, and all fees, indemnities and expenses payable under, the credit facility and (y) in the case of Designated Senior Indebtedness, "Senior Indebtedness" shall include interest accruing thereon subsequent to the occurrence of any event of default specified in clause (vii) or (viii) under "-- Events of Default" relating to AMPAM, whether or not the claim for this interest is allowed under any applicable Bankruptcy Code. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a) Indebtedness evidenced by the notes, (b) Indebtedness that is expressly subordinate or junior in right of payment to any other Indebtedness of AMPAM, (c) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is by its terms without recourse to AMPAM, (d) Indebtedness which is represented by Redeemable capital stock, (e) to the extent it constitutes Indebtedness, any liability for federal, state, local or other taxes owed or owing by AMPAM, (f) Indebtedness of AMPAM to a Subsidiary of AMPAM or any other Affiliate of AMPAM or any of this Affiliate's Subsidiaries, (g) that portion of any Indebtedness which is incurred by AMPAM in violation of the indenture and (h) trade payables. "Significant Subsidiary" means any Restricted Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated under the Securities Act, as this Regulation is in effect on the date of the indenture. "Stated Maturity" means, when used with respect to any note or any installment of interest on that note, the date specified in this note as the fixed date on which the principal of this note or the installment of interest is due and payable, and when used with respect to any other Indebtedness, means the date specified in the instrument governing that Indebtedness as the fixed date on which the principal of that Indebtedness, or any installment of interest thereon, is due and payable. "Subordinated Indebtedness" means, with respect to AMPAM, Indebtedness of AMPAM which is expressly subordinated in right of payment to the notes. "Subsidiary" means, with respect to any person, (1) a corporation a majority of whose Voting Stock is at the time, directly or indirectly, owned by that person, by one or more Subsidiaries of that person or by that person and one or more Subsidiaries of that person and (2) any other person (other than a corporation), including, without limitation, a partnership, limited liability company, business trust or joint venture, in which that person, one or more of its Subsidiaries of that person or that person and one or more of its Subsidiaries, directly or indirectly, at the date of determination of that person, have at least majority ownership interest entitled to vote in the election of directors, managers or trustees of that person (or other person performing similar functions). For purposes of this definition, any directors' qualifying shares or investments by foreign nationals mandated by applicable law shall be disregarded in determining the ownership of a Subsidiary. "Unrestricted Subsidiary" means (1) each Subsidiary of AMPAM designated as a Subsidiary of AMPAM under and in compliance with the covenant described under "-- Material Covenants -- Limitation on Designations of Unrestricted Subsidiaries" and (2) each Subsidiary of any Subsidiary described in clause (1) of this definition. "Voting Stock" means any class or classes of capital stock through which the holders of the capital stock have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of any person. BOOK-ENTRY; DELIVERY AND FORM Notes offered and sold to QIBs in reliance on Rule 144A under the Securities Act will be represented by a single, permanent global note in definitive, fully registered book-entry form (the "Global Security") 115 122 which will be registered in the name of a nominee of DTC and deposited on behalf of purchasers of the notes represented thereby with a custodian for DTC for credit to the respective accounts of the purchasers (or to such other accounts as they may direct) at DTC. THE GLOBAL SECURITY. AMPAM expects that, under procedures established by DTC, ownership of the notes will be shown on, and the transfer of ownership of the notes will be effected only through, records maintained by DTC or its nominee (with respect to interests of Participants (as defined below)) and the records of Participants (with respect to interests of persons other than Participants). Such accounts initially will be designated by or on behalf of the Initial Purchasers and ownership of beneficial interests in the Global Security will be limited to persons who have accounts with DTC ("Participants") or persons who hold interests through Participants. QIBs may hold their interests in the Global Security directly through DTC if they are Participants in this system, or indirectly through organizations which are Participants in this system. So long as DTC or its nominee is the registered owner or holder of any of the notes, DTC or its nominee will be considered the sole owner or holder of the notes represented by the Global Security for all purposes under the indenture and under the notes represented thereby. No beneficial owner of an interest in the Global Security will be able to transfer the interest except in accordance with the applicable procedures of DTC in addition to those provided for under the indenture. The laws of some states require that some persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interest in the Global Security to the persons will be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants (as defined in this prospectus), the ability of a person having beneficial interests in the Global Security to pledge these interests to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of the interests, may be affected by the lack of a physical certificate evidencing these interests. Payments of the principal of, premium, if any, and interest on the notes represented by the Global Security will be made to DTC or its nominee, as the case may be, as the registered owner of the Global Security. None of AMPAM, the trustee or any paying agent under the indenture will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Security or for maintaining, supervising or reviewing any records relating to the beneficial ownership interest. AMPAM expects that DTC or its nominee, upon receipt of any payment of the principal of, premium, if any, and interest on the notes represented by the Global Security, will credit Participants' accounts with payments in amounts proportionate to their respective beneficial interests in the Global Security as shown in the records of DTC or its nominee. AMPAM also expects that payments by Participants to owners of beneficial interests in the Global Security held through Participants will be governed by standing instructions and customary practice as is now the case with securities held for the accounts of customers registered in the names of nominees for these customers. Such payment will be the responsibility of the Participants. DTC has advised AMPAM that DTC will take any action permitted to be taken by a holder of notes (including the presentation of notes for exchange as described below) only at the direction of one or more Participants to whose account the DTC interests in the Global Security are credited and only in respect of the aggregate principal amount as to which the Participant or Participants has or have given direction. DTC has advised AMPAM as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "clearing agency" registered under the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its Participants and facilitate the clearance and settlement of securities transactions between Participants through electronic book-entry changes in accounts of its Participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and various other organizations. Indirect access to the DTC system is available to others like banks, brokers, 116 123 dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly ("Indirect Participants"). Although DTC is expected to follow the foregoing procedures in order to facilitate transfers of interests in the Global Security among Participants of DTC, is it under no obligation to perform these procedures, and these procedures may be discontinued at any time. Neither AMPAM nor the trustee will have any responsibility for the performance by DTC or its direct or indirect participants of their obligations under the rules and procedures governing their operations. CERTIFICATED SECURITIES. Interests in the Global Security will be exchanged for Certificated Securities if DTC notifies AMPAM that it is unwilling or unable to continue as depositary for the Global Security, or DTC ceases to be a "Clearing Agency" registered under the Exchange Act, and a successor depositary is not appointed by AMPAM within 90 days. Upon the occurrence of any of the events described in the preceding sentence, AMPAM will cause the appropriate Certificated Securities to be delivered. 117 124 REGISTRATION RIGHTS AMPAM has entered into a registration rights agreement with the initial purchasers under which AMPAM and the guarantors have agreed, for the benefit of the holders of the notes, at AMPAM's cost, to use their reasonable best efforts: - to file with the SEC the registration statement of which this prospectus is a part related to the exchange offer of the exchange notes within 60 days after the Issue Date; - to cause this exchange offer registration statement to be declared effective under the Securities Act within 150 days of the Issue Date; - to keep this exchange offer registration statement effective until the closing of the exchange offer; and - to cause this exchange offer to be completed within 180 days of the Issue Date. Under the registration rights agreement, AMPAM is required to allow participating broker-dealers to use the prospectus contained in the exchange offer registration statement (subject to "black out" periods) following the exchange offer, in connection with the resale of exchange notes received in exchange for notes acquired by those participating broker-dealers for their own account as a result of market-making or other trading activities. The registration rights agreement shall be governed by, and construed under, the laws of the State of New York. If you have further questions about registration rights, you should refer to the registration rights agreement, a copy of which is available upon request to AMPAM. The registration rights agreement is also attached as an exhibit to this registration statement. In addition, the information described above concerning interpretations of and positions taken by the staff of the SEC is not intended to constitute legal advice, and prospective investors should consult their own advisors on these matters. PLAN OF DISTRIBUTION Each broker-dealer that receives exchange notes for its own account in the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for existing notes where the existing notes were acquired as a result of market-making activities or other trading activities. AMPAM will not receive any proceeds from any sale of exchange notes by broker-dealers. Exchange notes received by broker-dealers for their own account in the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the exchange notes or a combination of these methods of resale, at market prices prevailing at the time of resale, at prices related to those prevailing market prices or at negotiated prices. Any resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any broker-dealer or the purchasers of any exchange notes. Any broker-dealer that resells exchange notes that were received by it for its own account in the exchange offer and any broker or dealer that participates in a distribution of the exchange notes may be an "underwriter" within the meaning of the Securities Act and any profit on any resale of exchange notes and any commission or concessions received by any person may be considered underwriting compensation under the Securities Act. The letter of transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be regarded as an admission that it is an "underwriter," within the meaning of the Securities Act. AMPAM has agreed to pay all expenses incident to the exchange offer (including the expenses of one counsel for the holders of the notes), other than commissions or concessions of any broker-dealers, and will indemnify the holders of the notes (including any broker-dealers) against some liabilities, including liabilities under the Securities Act. 118 125 LEGAL MATTERS The validity of the notes offered hereby will be passed upon for AMPAM by Andrews & Kurth L.L.P., Houston, Texas. EXPERTS The audited financial statements of AMPAM and the founding companies included elsewhere in this prospectus have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included in this prospectus in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. WHERE YOU CAN FIND MORE INFORMATION We have filed with the SEC a registration statement under the Securities Act on Form S-4 related to the exchange notes offered by this prospectus. As allowed by SEC rules, this prospectus does not contain all the information contained in the registration statement. If you have a question on any contract, agreement or other document filed as an exhibit to the registration statement, please see the exhibits for a more complete description of the matter involved. Before filing this registration statement, we have not been subject to the periodic reporting and other informational requirements of the U.S. Securities Exchange Act of 1934. We have agreed that, whether or not we are required to do so by the rules and regulations of the Commission (and within 15 days of the date that is or would be prescribed thereby), for so long as any of the notes remain outstanding, we will furnish to the holders of the notes and file with the Commission (unless the Commission will not accept that filing) (1) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on forms 10-Q and 10-K if we were required to file forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations," and, with respect to the annual information only, a report thereon by our independent auditors and (2) all reports that would be required to be filed with the Commission on Form 8-K if we were required to file these reports. In addition, for so long as any of the notes remain outstanding, we have agreed to make available, upon request, to any prospective purchaser of the notes and beneficial owner of the notes in connection with the sale of the notes the information required by Rule 144A(d)(4) under the Securities Act. Information may be obtained from us at 1502 Augusta, Suite 425, Houston, Texas 77057, Attention: Secretary. 119 126 INDEX TO FINANCIAL STATEMENTS
PAGE ----- AMERICAN PLUMBING & MECHANICAL, INC. AND FOUNDING COMPANIES UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS Introduction to Unaudited Pro Forma Combined Financial Statements............................................. F-3 Unaudited Pro Forma Combined Balance Sheet................ F-4 Unaudited Pro Forma Combined Statements of Operations..... F-5 Notes to Unaudited Pro Forma Combined Financial Statements............................................. F-7 AMERICAN PLUMBING & MECHANICAL, INC. Report of Independent Public Accountants.................. F-12 Balance Sheets............................................ F-13 Statements of Operations.................................. F-14 Statements of Cash Flows.................................. F-15 Statements of Stockholders' Equity........................ F-16 Notes to Financial Statements............................. F-17 FOUNDING COMPANIES: CHRISTIANSON ENTERPRISES, INC. AND COMBINED COMPANIES Report of Independent Public Accountants.................. F-24 Combined Balance Sheets................................... F-25 Combined Statements of Operations......................... F-26 Combined Statements of Cash Flows......................... F-27 Combined Statements of Stockholders' Equity............... F-28 Notes to Combined Financial Statements.................... F-29 RCR PLUMBING, INC. (dba RCR COMPANIES, INC.) Report of Independent Public Accountants.................. F-38 Balance Sheets............................................ F-39 Statements of Operations.................................. F-40 Statements of Cash Flows.................................. F-41 Statements of Stockholders' Equity........................ F-42 Notes to Financial Statements............................. F-43 TEEPE'S RIVER CITY MECHANICAL, INC. Report of Independent Public Accountants.................. F-50 Balance Sheets............................................ F-51 Statements of Operations.................................. F-52 Statements of Cash Flows.................................. F-53 Statements of Stockholders' Equity........................ F-54 Notes to Financial Statements............................. F-55 KEITH RIGGS PLUMBING, INC. Report of Independent Public Accountants.................. F-63 Balance Sheets............................................ F-64 Statements of Operations.................................. F-65 Statements of Cash Flows.................................. F-66 Statements of Stockholders' Equity........................ F-67 Notes to Financial Statements............................. F-68 J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY Report of Independent Public Accountants.................. F-75 Combined Balance Sheets................................... F-76 Combined Statements of Operations......................... F-77 Combined Statements of Cash Flows......................... F-78 Combined Statements of Stockholders' Equity............... F-79 Notes to Combined Financial Statements.................... F-80
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PAGE ----- J.A. CROSON COMPANY OF FLORIDA Report of Independent Public Accountants.................. F-87 Balance Sheets............................................ F-88 Statements of Operations.................................. F-89 Statements of Cash Flows.................................. F-90 Statements of Stockholders' Equity........................ F-91 Notes to Financial Statements............................. F-92 POWER PLUMBING, INC. AND SUBSIDIARIES Report of Independent Public Accountants.................. F-99 Consolidated Balance Sheets............................... F-100 Consolidated Statements of Operations..................... F-101 Consolidated Statements of Cash Flows..................... F-102 Consolidated Statements of Stockholders' Equity........... F-103 Notes to Consolidated Financial Statements................ F-104 NELSON MECHANICAL CONTRACTORS, INC. Report of Independent Public Accountants.................. F-112 Balance Sheets............................................ F-113 Statements of Operations.................................. F-114 Statements of Cash Flows.................................. F-115 Statements of Stockholders' Equity........................ F-116 Notes to Financial Statements............................. F-117 SHERWOOD MECHANICAL, INC. Report of Independent Public Accountants.................. F-123 Balance Sheets............................................ F-124 Statements of Operations.................................. F-125 Statements of Cash Flows.................................. F-126 Statements of Stockholders' Equity........................ F-127 Notes to Financial Statements............................. F-128 MILLER MECHANICAL CONTRACTORS, INC. AND SUBSIDIARY Report of Independent Public Accountants.................. F-136 Balance Sheets............................................ F-137 Statements of Operations.................................. F-138 Statements of Cash Flows.................................. F-139 Statement of Stockholders' Equity......................... F-140 Notes to Consolidated Financial Statements................ F-141
F-2 128 AMERICAN PLUMBING & MECHANICAL, INC. AND FOUNDING COMPANIES UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS BASIS OF PRESENTATION The following unaudited pro forma combined financial statements give effect to (a) the acquisitions by American Plumbing & Mechanical, Inc. (AMPAM), of the outstanding capital stock of Christianson, RCR, Teepe's, Keith Riggs, Croson Ohio, Croson Florida, Power, Nelson, Sherwood and Miller, and related transactions, and (b) the issuance of the 11 5/8% Senior Subordinated Notes due 2008 and application of the net proceeds therefrom. The acquisitions occurred on April 1, 1999 and have been accounted for using the purchase method of accounting. Christianson has been reflected as the accounting acquiror for financial statement presentation purposes. The unaudited pro forma combined balance sheet gives effect to the acquisitions and related transactions, and the issuance of the notes, as if they had occurred on March 31, 1999. The unaudited pro forma combined statements of operations give effect to these transactions as if they had occurred on January 1 of the respective period presented. These pro forma combined financial statements should be read in conjunction with the financial statements of each of the Founding Companies included elsewhere herein. AMPAM has preliminarily analyzed the savings that it expects to be realized from reductions in salaries, bonuses and certain benefits, including lease payments to the owners. To the extent the owners of the founding companies have contractually agreed to prospective changes in salary, bonuses, benefits and lease payments, these changes have been reflected in the unaudited pro forma combined statements of operations. With respect to other potential cost savings, AMPAM cannot fully quantify these savings. Any potential cost savings are expected to be partially offset by costs related to AMPAM's new corporate management and by the costs associated with being a public company. However, because these costs cannot be accurately quantified at this time, they have not been included in the pro forma combined financial information of AMPAM. The pro forma adjustments are based on preliminary estimates, available information and certain assumptions that AMPAM management deems appropriate and may be revised as additional information becomes available. The pro forma financial data do not purport to represent what AMPAM's combined financial position or results of operations would actually have been if such transactions in fact had occurred on those dates and are not necessarily representative of AMPAM's combined financial position or results of operations for any future period. Since the founding companies were not under common control or management, historical combined results may not be comparable to, or indicative of, future performance. The unaudited pro forma combined financial statements should be read in conjunction with the historical financial statements and notes thereto included elsewhere in this offering memorandum. See also "Risk Factors" included elsewhere herein. F-3 129 AMERICAN PLUMBING & MECHANICAL, INC. AND FOUNDING COMPANIES UNAUDITED PRO FORMA COMBINED BALANCE SHEET MARCH 31, 1999 (IN THOUSANDS) ASSETS
KEITH CROSON CROSON CHRISTIANSON RCR TEEPE'S RIGGS OHIO FLORIDA POWER NELSON SHERWOOD ------------ ------- ------- ------ ------- ------- ------ ------ -------- CURRENT ASSETS: Cash and cash equivalents......... $ 5,439 $ 1,420 $ 749 $ 171 $ 379 $ 57 $3,083 $ 601 $ 11 Accounts receivable -- Contract, net................... 6,652 12,813 8,247 4,776 6,302 4,994 3,748 2,034 2,467 Other receivables............... 224 9 36 227 47 -- 264 123 -- Costs and estimated earnings in excess of billings on uncompleted contracts........... 350 2,090 1,533 -- 2,951 1,140 239 1,055 825 Inventories....................... 1,182 1,374 210 696 247 2 -- 400 274 Prepaid expenses and other current assets.......................... 40 22 558 -- 14 539 415 613 455 ------- ------- ------- ------ ------- ------ ------ ------ ------ Total current assets........ 13,887 17,728 11,333 5,870 9,940 6,732 7,749 4,826 4,032 PROPERTY AND EQUIPMENT, net........ 1,989 4,175 3,384 1,161 1,567 996 79 1,018 439 OTHER ASSETS....................... -- -- 416 -- -- -- -- -- 13 GOODWILL, NET...................... -- -- -- -- -- -- -- -- -- ------- ------- ------- ------ ------- ------ ------ ------ ------ Total assets................ $15,876 $21,903 $15,133 $7,031 $11,507 $7,728 $7,828 $5,844 $4,484 ======= ======= ======= ====== ======= ====== ====== ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term obligations..................... $ 505 $ 646 $ 934 $ 212 $ 986 $ 840 $ -- $ -- $ 814 Accounts payable and accrued expenses........................ 4,504 7,379 6,856 2,606 2,940 1,100 1,829 308 1,595 Advances payable to stockholder... -- -- -- -- -- -- -- -- -- Billings in excess of costs and estimated earnings on uncompleted contracts........... 622 2,537 1,291 -- 1,081 593 1,799 205 229 Other current liabilities......... -- -- -- -- -- -- 167 4,788 238 ------- ------- ------- ------ ------- ------ ------ ------ ------ Total current liabilities... 5,631 10,562 9,081 2,818 5,007 2,533 3,795 5,301 2,876 LONG-TERM OBLIGATIONS, net of current maturities................ 532 576 596 456 557 -- -- -- 98 SUBORDINATED LOAN.................. -- -- -- -- -- -- -- -- -- SELLER NOTES....................... -- -- -- -- -- -- -- -- -- DEFERRED TAXES..................... 10 -- -- -- -- -- 6 -- 157 OTHER LONG-TERM LIABILITIES........ -- -- 1,064 -- -- -- -- -- -- COMMITMENTS AND CONTINGENCIES SERIES A REDEEMABLE PREFERRED STOCK............................. -- -- -- -- -- -- -- -- -- STOCKHOLDERS' EQUITY: Restricted Common Stock........... -- -- -- -- -- -- -- -- -- Common Stock and additional paid-in capital................. 93 231 1 259 16 651 1 1,089 284 Retained earnings................. 9,610 10,938 4,391 3,685 5,927 4,544 4,026 (546) 1,069 Treasury stock.................... -- (404) -- (187) -- -- -- -- -- Receivable from stockholders...... -- -- -- -- -- -- -- -- -- ------- ------- ------- ------ ------- ------ ------ ------ ------ Total stockholders' equity..................... 9,703 10,765 4,392 3,757 5,943 5,195 4,027 543 1,353 ------- ------- ------- ------ ------- ------ ------ ------ ------ Total liabilities and stockholders' equity....... $15,876 $21,903 $15,133 $7,031 $11,507 $7,728 $7,828 $5,844 $4,484 ======= ======= ======= ====== ======= ====== ====== ====== ====== PRO FORMA PRO FORMA MILLER AMPAM ADJUSTMENTS COMBINED ------ ------ ----------- --------- CURRENT ASSETS: Cash and cash equivalents......... $1,985 $ 37 $ (3,071) $ 10,861 Accounts receivable -- Contract, net................... 1,284 -- -- 53,317 Other receivables............... 127 -- -- 1,057 Costs and estimated earnings in excess of billings on uncompleted contracts........... 72 -- -- 10,255 Inventories....................... 532 -- -- 4,917 Prepaid expenses and other current assets.......................... 22 (202) 2,476 ------ ------ -------- -------- Total current assets........ 4,022 37 (3,273) 82,883 PROPERTY AND EQUIPMENT, net........ 225 -- (2,038) 12,995 OTHER ASSETS....................... -- 5,618 307 6,354 GOODWILL, NET...................... -- -- 107,828 107,828 ------ ------ -------- -------- Total assets................ $4,247 $5,655 $102,824 $210,060 ====== ====== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term obligations..................... $ 26 $ -- $ (3,737) $ 1,226 Accounts payable and accrued expenses........................ 892 2,032 4,281 36,322 Advances payable to stockholder... -- 3,622 (3,622) -- Billings in excess of costs and estimated earnings on uncompleted contracts........... 866 -- -- 9,223 Other current liabilities......... -- -- -- 5,193 ------ ------ -------- -------- Total current liabilities... 1,784 5,654 (3,078) 51,964 LONG-TERM OBLIGATIONS, net of current maturities................ 37 -- 121,408 124,260 SUBORDINATED LOAN.................. -- -- -- -- SELLER NOTES....................... -- -- -- -- DEFERRED TAXES..................... 12 -- 1,269 1,454 OTHER LONG-TERM LIABILITIES........ -- -- -- 1,064 COMMITMENTS AND CONTINGENCIES SERIES A REDEEMABLE PREFERRED STOCK............................. -- -- 13,635 13,635 STOCKHOLDERS' EQUITY: Restricted Common Stock........... -- 24 -- 24 Common Stock and additional paid-in capital................. 74 9 19,896 22,604 Retained earnings................. 2,340 -- (50,929) (4,945) Treasury stock.................... -- -- 591 -- Receivable from stockholders...... -- (32) 32 -- ------ ------ -------- -------- Total stockholders' equity..................... 2,414 1 (30,410) 17,683 ------ ------ -------- -------- Total liabilities and stockholders' equity....... $4,247 $5,655 $102,824 $210,060 ====== ====== ======== ========
See accompanying notes to unaudited pro forma combined financial statements. F-4 130 AMERICAN PLUMBING & MECHANICAL, INC. AND FOUNDING COMPANIES UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
KEITH CROSON CROSON CHRISTIANSON RCR TEEPE'S RIGGS OHIO FLORIDA POWER NELSON SHERWOOD ------------ ------- ------- ------- ------- ------- ------- ------- -------- REVENUES........................... $63,374 $63,293 $50,627 $34,464 $25,234 $28,142 $17,109 $15,058 $13,556 COST OF REVENUES (including depreciation).................... 45,704 51,604 44,048 29,965 20,438 20,483 14,371 10,107 11,066 ------- ------- ------- ------- ------- ------- ------- ------- ------- Gross profit............... 17,670 11,689 6,579 4,499 4,796 7,659 2,738 4,951 2,490 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......................... 17,078 8,370 4,779 2,943 2,032 2,960 1,268 1,759 2,189 GOODWILL AMORTIZATION.............. -- -- -- -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from operations..... 592 3,319 1,800 1,556 2,764 4,699 1,470 3,192 301 OTHER INCOME (EXPENSE): Interest, net.................... (14) (270) (43) (73) (9) (108) 30 (18) (83) Other, net....................... 70 (11) (177) 97 (7) -- 83 184 3 ------- ------- ------- ------- ------- ------- ------- ------- ------- Other income (expense), net...................... 56 (281) (220) 24 (16) (108) 113 166 (80) ------- ------- ------- ------- ------- ------- ------- ------- ------- INCOME BEFORE PROVISION FOR INCOME TAXES............................ 648 3,038 1,580 1,580 2,748 4,591 1,583 3,358 221 PROVISION FOR INCOME TAXES......... 32 24 666 -- 33 -- 612 -- 207 ------- ------- ------- ------- ------- ------- ------- ------- ------- NET INCOME......................... 616 3,014 914 1,580 2,715 4,591 971 3,358 14 PREFERRED DIVIDENDS................ -- -- -- -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- NET INCOME AVAILABLE TO COMMON STOCKHOLDERS..................... $ 616 $ 3,014 $ 914 $ 1,580 $ 2,715 $ 4,591 $ 971 $ 3,358 $ 14 ======= ======= ======= ======= ======= ======= ======= ======= ======= PRO FORMA NET INCOME AVAILABLE TO COMMON STOCKHOLDERS PER SHARE.... SHARES USED IN COMPUTING PRO FORMA NET INCOME AVAILABLE TO COMMON STOCKHOLDERS PER SHARE(1)........ PRO FORMA PRO FORMA MILLER AMPAM ADJUSTMENTS COMBINED ------- ------ ----------- ---------- REVENUES........................... $11,346 $ -- $ -- $ 322,203 COST OF REVENUES (including depreciation).................... 7,675 -- -- 255,461 ------- ------ -------- ---------- Gross profit............... 3,671 -- -- 66,742 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......................... 2,531 -- (14,654) 31,255 GOODWILL AMORTIZATION.............. -- -- 2,696 2,696 ------- ------ -------- ---------- Income from operations..... 1,140 -- 11,958 32,791 OTHER INCOME (EXPENSE): Interest, net.................... 35 -- (13,783) (14,336) Other, net....................... 13 -- -- 255 ------- ------ -------- ---------- Other income (expense), net...................... 48 -- (13,783) (14,081) ------- ------ -------- ---------- INCOME BEFORE PROVISION FOR INCOME TAXES............................ 1,188 -- (1,825) 18,710 PROVISION FOR INCOME TAXES......... 463 -- 6,290 8,327 ------- ------ -------- ---------- NET INCOME......................... 725 -- (8,115) 10,383 PREFERRED DIVIDENDS................ -- -- 1,363 1,363 ------- ------ -------- ---------- NET INCOME AVAILABLE TO COMMON STOCKHOLDERS..................... $ 725 $ -- $ (9,478) $ 9,020 ======= ====== ======== ========== PRO FORMA NET INCOME AVAILABLE TO COMMON STOCKHOLDERS PER SHARE.... $ 0.73 ========== SHARES USED IN COMPUTING PRO FORMA NET INCOME AVAILABLE TO COMMON STOCKHOLDERS PER SHARE(1)........ 12,369,780 ==========
- --------------- (1) Includes (a) 3,471,162 shares of common stock and restricted common stock issued to Sterling City Capital LLC, the management of AMPAM and certain other individuals and (b) 8,898,618 shares issued to acquire founding companies. These share amounts exclude additional shares of common stock that may be issued to the stockholders of the founding companies if certain targeted earnings thresholds are satisfied during the year ended December 31, 1999. See "Certain Transaction -- Acquisition of Founding Companies -- Additional Consideration" included elsewhere herein. These share amounts also exclude 2,142,115 shares of common stock subject to options granted in connection with the acquisitions at an exercise price equal to their then fair market value. See accompanying notes to unaudited pro forma combined financial statements. F-5 131 AMERICAN PLUMBING & MECHANICAL, INC. AND FOUNDING COMPANIES UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
KEITH CROSON CROSON CHRISTIANSON RCR TEEPE'S RIGGS OHIO FLORIDA POWER NELSON SHERWOOD ------------ ------- ------- ------- ------- ------- ------- ------- -------- REVENUES........................... $16,824 $19,441 $10,546 $ 8,917 $ 7,247 $ 8,274 $ 5,620 $ 4,670 $ 3,969 COST OF REVENUES (including depreciation).................... 11,390 15,361 9,287 7,469 6,081 5,482 4,022 2,510 3,468 ------- ------- ------- ------- ------- ------- ------- ------- ------- Gross profit............... 5,434 4,080 1,259 1,448 1,166 2,792 1,598 2,160 501 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......................... 1,863 2,452 1,126 706 676 869 346 1,029 660 GOODWILL AMORTIZATION.............. -- -- -- -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from operations..... 3,571 1,628 133 742 490 1,923 1,252 1,131 (159) OTHER INCOME (EXPENSE): Interest, net.................... (16) (30) (49) 2 (4) (7) 19 (71) (25) Other, net....................... 9 613 5 228 (9) -- 4 425 1 ------- ------- ------- ------- ------- ------- ------- ------- ------- Other income (expense), net...................... (7) 583 (44) 230 (13) (7) 23 354 (24) ------- ------- ------- ------- ------- ------- ------- ------- ------- INCOME BEFORE PROVISION FOR INCOME TAXES............................ 3,564 2,211 89 972 477 1,916 1,275 1,485 (183) PROVISION FOR INCOME TAXES......... 162 26 27 -- (6) -- 488 -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- NET INCOME......................... 3,402 2,185 62 972 483 1,916 787 1,485 (183) PREFERRED DIVIDENDS................ -- -- -- -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- NET INCOME AVAILABLE TO COMMON STOCKHOLDERS..................... $ 3,402 $ 2,185 $ 62 $ 972 $ 483 $ 1,916 $ 787 $ 1,485 $ (183) ======= ======= ======= ======= ======= ======= ======= ======= ======= PRO FORMA NET INCOME AVAILABLE TO COMMON STOCKHOLDERS PER SHARE.... SHARES USED IN COMPUTING PRO FORMA NET INCOME AVAILABLE TO COMMON STOCKHOLDERS PER SHARE(1)........ PRO FORMA PRO FORMA MILLER AMPAM ADJUSTMENTS COMBINED ------- ------- ----------- ---------- REVENUES........................... $ 2,497 $ -- $ -- $88,005 COST OF REVENUES (including depreciation).................... 1,662 -- -- 66,732 ------- ------- ------- ------- Gross profit............... 835 -- -- 21,273 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......................... 458 -- (1,159) 9,026 GOODWILL AMORTIZATION.............. -- -- 674 674 ------- ------- ------- ------- Income from operations..... 377 -- 485 11,573 OTHER INCOME (EXPENSE): Interest, net.................... 16 -- (3,407) (3,572) Other, net....................... 14 -- (896) 394 ------- ------- ------- ------- Other income (expense), net...................... 30 -- (4,303) (3,178) ------- ------- ------- ------- INCOME BEFORE PROVISION FOR INCOME TAXES............................ 407 -- (3,818) 8,395 PROVISION FOR INCOME TAXES......... 173 -- 2,667 3,537 ------- ------- ------- ------- NET INCOME......................... 234 -- (6,485) 4,858 PREFERRED DIVIDENDS................ -- -- 341 341 ------- ------- ------- ------- NET INCOME AVAILABLE TO COMMON STOCKHOLDERS..................... $ 234 $ -- $(6,826) $ 4,517 ======= ======= ======= ======= PRO FORMA NET INCOME AVAILABLE TO COMMON STOCKHOLDERS PER SHARE.... $ 0.37 ======= SHARES USED IN COMPUTING PRO FORMA NET INCOME AVAILABLE TO COMMON STOCKHOLDERS PER SHARE(1)........ 12,369,780 ==========
- --------------- (1) Includes (a) 3,471,162 shares of common stock and restricted common stock issued to Sterling City Capital LLC, the management of AMPAM and certain other individuals and (b) 8,898,618 shares issued to acquire founding companies. These share amounts exclude additional shares of common stock that may be issued to the stockholders of the founding companies if certain targeted earnings thresholds are satisfied during the year ended December 31, 1999. See "Certain Transaction -- Acquisition of Founding Companies -- Additional Consideration" included elsewhere herein. These share amounts also exclude 2,142,115 shares of common stock subject to options granted in connection with the acquisitions at an exercise price equal to their then fair market value. See accompanying notes to unaudited pro forma combined financial statements. F-6 132 AMERICAN PLUMBING & MECHANICAL, INC. AND FOUNDING COMPANIES NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS 1. GENERAL: American Plumbing & Mechanical, Inc. (AMPAM) was founded to be the leading national provider of plumbing and mechanical contracting services to the residential and commercial/institutional markets. AMPAM conducted no operations prior to April 1, 1999, when it acquired the founding companies concurrently with entering into the credit facility and the subordinated loan. The historical financial statements reflect the financial position and results of operations of the founding companies and were derived from the respective founding companies' financial statements. The periods included in these financial statements for the individual founding companies are for the year ended December 31, 1998, except for Miller, Sherwood and Croson Ohio for which the period is the twelve months ended September 30, 1998. 2. ACQUISITION OF FOUNDING COMPANIES: On April 1, 1998, AMPAM acquired all of the outstanding capital stock and other equity interests of the founding companies. The acquisitions were accounted for using the purchase method of accounting, with Christianson being reflected as the accounting acquiror. As the accounting acquiror, for accounting purposes under SEC SAB No. 97, Christianson is treated as (a) having acquired all the other founding companies (even though AMPAM legally made such acquisitions), (b) having merged with AMPAM (with purchase accounting reflected for AMPAM's non-management stock ownership) and (c) representing the financial history of AMPAM prior to April 1, 1999. The consideration paid to the stockholders of the founding companies, excluding the accounting acquiror (Christianson) was $46.3 million in cash, $4.3 million in seller notes and 7,972,000 shares of common stock. This initial consideration excludes certain additional shares of common stock and cash that may be issued to the stockholders of the founding companies if certain targeted earnings thresholds are satisfied during the year ended December 31, 1999, which could increase goodwill and amortization of goodwill from the amounts reflected herein. See "Certain Transactions -- Acquisition of Founding Companies -- Additional Consideration" included elsewhere herein for further discussion. The table below does not reflect net transfers of $30.6 million which represent the distribution of owner amounts such as excess working capital, distribution of various founding companies' retained earnings, distribution of various founding companies' S corporation accumulated adjustment accounts and the distribution of nonoperating assets, net of nonoperating liabilities, a portion of which were transferred to the owners in connection with the acquisitions of the founding companies as of March 31, 1999. The excess working capital distributions are subject to adjustment based upon finalization of the founding companies working capital balances as of March 31, 1999. 3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS: The following tables summarize unaudited pro forma combined balance sheet adjustments related to the acquisitions and related transactions, and the issuance of the notes (in thousands):
ADJUSTMENT --------------------------------------------------------------------------------------------- (A) (B) (C) (D) (E) (F) (G) (H) (I) -------- ------- -------- -------- ------- -------- -------- ------- -------- ASSETS CURRENT ASSETS -- Cash and cash equivalents............. $(10,000) $ -- $ -- $ -- $ -- $ 98,576 $(97,676) $(5,622) $ 11,651 Prepaid expenses and other current assets.......... -- (202) -- -- -- -- -- -- -- -------- ------- -------- -------- ------- -------- -------- ------- -------- Total current assets.... (10,000) (202) -- -- -- 98,576 (97,676) (5,622) 11,651 Property and equipment, net....................... -- (2,038) -- -- -- -- -- -- -- Other long-term assets...... -- -- -- (5,618) -- 1,675 -- -- 4,250 Goodwill, net............... -- -- -- 107,828 -- -- -- -- -- -------- ------- -------- -------- ------- -------- -------- ------- -------- Total assets............ $(10,000) $(2,240) $ -- $102,210 $ -- $100,251 $(97,676) $(5,622) $ 15,901 ======== ======= ======== ======== ======= ======== ======== ======= ======== PRO FORMA ADJUSTMENTS ----------- ASSETS CURRENT ASSETS -- Cash and cash equivalents............. $ (3,071) Prepaid expenses and other current assets.......... (202) -------- Total current assets.... (3,273) Property and equipment, net....................... (2,038) Other long-term assets...... 307 Goodwill, net............... 107,828 -------- Total assets............ $102,824 ========
F-7 133 AMERICAN PLUMBING & MECHANICAL, INC. AND FOUNDING COMPANIES NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
ADJUSTMENT --------------------------------------------------------------------------------------------- (A) (B) (C) (D) (E) (F) (G) (H) (I) -------- ------- -------- -------- ------- -------- -------- ------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES -- Current maturities of long-term obligations... $ 12,372 $ -- $ 34,585 $ 46,318 $ -- $ -- $(97,012) $ -- $ -- Accounts payable and accrued expenses........ 6,313 -- -- -- -- -- -- (2,032) $ -- Advances payable to stockholder............. -- -- -- -- -- -- -- (3,622) -- -------- ------- -------- -------- ------- -------- -------- ------- -------- Total current liabilities........... 18,685 -- 34,585 46,318 -- -- (97,012) (5,654) -- LONG-TERM DEBT, net......... -- (346) -- -- -- 70,251 (664) 52,167 SUBORDINATED LOAN........... -- -- -- -- -- 29,700 -- -- (29,700) SELLER NOTES................ -- -- 1,491 4,275 -- -- -- -- (5,766) DEFERRED TAXES.............. -- -- -- 1,269 -- -- -- -- -- SERIES A REDEEMABLE PREFERRED STOCK........... -- -- 13,635 -- -- -- -- -- -- STOCKHOLDERS' EQUITY -- Common Stock and additional paid-in capital................. -- -- (49,711) 61,610 7,697 -- -- -- 300 Warrants.................. -- -- -- -- -- 300 -- -- (300) Retained earnings......... (28,685) (1,894) -- (11,853) (7,697) -- -- -- (800) Treasury Stock............ -- -- -- 591 -- -- -- -- -- Receivable from stockholders............ -- -- -- -- -- -- -- 32 -- -------- ------- -------- -------- ------- -------- -------- ------- -------- Total stockholders' equity................ (28,685) (1,894) (49,711) 50,348 -- 300 -- 32 (800) -------- ------- -------- -------- ------- -------- -------- ------- -------- Total liabilities and stockholders' equity................ $(10,000) $(2,240) $ -- $102,210 $ -- $100,251 $(97,676) $(5,622) $ 15,901 ======== ======= ======== ======== ======= ======== ======== ======= ======== PRO FORMA ADJUSTMENTS ----------- CURRENT LIABILITIES -- Current maturities of long-term obligations... $ (3,737) Accounts payable and accrued expenses........ 4,281 Advances payable to stockholder............. (3,622) -------- Total current liabilities........... (3,078) LONG-TERM DEBT, net......... 121,408 SUBORDINATED LOAN........... -- SELLER NOTES................ -- DEFERRED TAXES.............. 1,269 SERIES A REDEEMABLE PREFERRED STOCK........... 13,635 STOCKHOLDERS' EQUITY -- Common Stock and additional paid-in capital................. 19,896 Warrants.................. -- Retained earnings......... (50,929) Treasury Stock............ 591 Receivable from stockholders............ 32 -------- Total stockholders' equity................ (30,410) -------- Total liabilities and stockholders' equity................ $102,824 ========
Pro Forma Adjustments: (a) Records the transfer in connection with the acquisitions of $28.7 million of owner amounts, representing previously undistributed S corporation accumulated adjustment accounts, previously undistributed retained earnings of C corporations and excess working capital to the owners of the founding companies. A portion of such amount was funded using $12.4 million of notes payable to the owners which was retired with proceeds of the credit facility and the subordinated loan and $10.0 million of available operating cash from the founding companies. The remaining $6.3 million of excess working capital (subject to adjustment as described above) will be paid to the owners of the founding companies upon finalization of the working capital balances as of March 31, 1999. (b) Records the distribution of $1.9 million of nonoperating assets, net of nonoperating liabilities, to certain stockholders of the founding companies as part of the owner amounts prior to the acquisitions. (c) Records a liability for the cash, seller notes and the preferred stock of the acquisition consideration paid to Christianson, the accounting acquirer, and records the merger of AMPAM and Christianson as part of the acquisitions. (d) Records the purchase of the founding companies by AMPAM, consisting of notes payable incurred to finance the $46.3 million in cash, $4.3 million in seller notes, 8.1 million shares of common stock valued at its estimated fair market value of $6.91 per share and 2.1 million shares of restricted common stock issued to Sterling City Capital, LLC and certain individuals or consultants valued at its estimated fair market value of $5.53 per share. Also records estimated transaction costs (including accounting, legal and other) of $5.5 million, $2.0 million of which were related to the acquisitions and $3.5 million of which were related to the common stock issuance. The total purchase price was approximately $120.6 million resulting in purchase price in excess of net assets acquired (goodwill) of $107.8 million. Also, records deferred taxes for differences between the F-8 134 AMERICAN PLUMBING & MECHANICAL, INC. AND FOUNDING COMPANIES NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) financial reporting and tax basis of assets and liabilities, including on certain of the founding companies that have historically elected S corporation status for tax purposes as if they were C corporations. Excludes additional shares of common stock and cash that may be issued to the stockholders of the founding companies if certain targeted earnings thresholds are satisfied during the year ended December 31, 1999. See "Certain Transactions -- Acquisition of Founding Companies -- Additional Consideration" included elsewhere herein. The following reconciles the combined historical net assets of the founding companies to the fair value of net assets acquired (in thousands):
ACQUIRED FOUNDING TOTAL COMBINED LESS: CHRISTIANSON CORPORATIONS -------------- ------------------ ------------ Historical net assets....................... $ 48,093 $(9,703) $ 38,390 Transfer of owner amount (see (a) and (b) above)................................. (30,579) 6,057 (24,522) Purchase adjustments -- deferred taxes... (1,269) 157 (1,112) -------- ------- -------- Net assets after transfers and purchase adjustments............................ $ 16,245 $(3,489) $ 12,756 ======== ======= ========
(e) Reflects the effects on the pro forma balance sheet of a $7.7 million non-recurring, non-cash compensation charge which management expects to record related to the issuance of stock to certain members of AMPAM's management. This charge has not been reflected in the pro forma combined statements of operations because these costs are non-recurring, non-cash costs of the acquisitions and related financings. (f) Records the borrowings of $70.3 million under the credit facility (net of financing costs of $1.2 million) and $30.0 million under the subordinated loan net of financing costs of $0.5 million and a discount of $0.3 million related to the estimated fair value of the warrants issued in connection with the subordinated loan. (g) Reflects the repayment of $97.0 million of short-term debt and $0.8 million of long-term debt assumed by AMPAM with proceeds obtained from the subordinated loan and the credit facility. (h) Reflects the repayment of the advances from Sterling City Capital, LLC and other payables for transaction expenses and reflects the collection of the receivable from the stockholders of AMPAM. (i) Records the net cash proceeds of this notes offering, the deferral of $4.8 million of related debt issuance costs and the use of such proceeds to repay the subordinated loan and credit facility advances. Also reflects the write off of $0.5 million of deferred loan costs and $0.3 million of discount related to the subordinated loan and the write off of $0.3 million recorded value of the warrants issued in connection with the subordinated loan and which will be cancelled in connection with the repayment of the subordinated loan. F-9 135 AMERICAN PLUMBING & MECHANICAL, INC. AND FOUNDING COMPANIES NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS: The following tables summarize unaudited pro forma combined statement of operations adjustments for the year ended December 31, 1998 related to the acquisitions and related transactions, and the issuance of the notes (in thousands):
ADJUSTMENT ------------------------------------------------- PRO FORMA (A) (B) (C) (D) (E) ADJUSTMENTS -------- ------- -------- ------- ------- ----------- Selling, general and administrative expenses......... $(14,654) $ -- $ -- $ -- $ -- $(14,654) Goodwill amortization............. -- 2,696 -- -- -- 2,696 -------- ------- -------- ------- ------- -------- Income from operations............ 14,654 (2,696) -- -- -- 11,958 Interest expense.................. -- -- (13,783) -- -- (13,783) -------- ------- -------- ------- ------- -------- Income before income taxes................. 14,654 (2,696) (13,783) -- -- (1,825) Provisions for income taxes....... -- -- -- 6,290 -- 6,290 -------- ------- -------- ------- ------- -------- Net income........................ 14,654 (2,696) (13,783) (6,290) -- (8,115) Preferred dividends............... -- -- -- -- 1,363 1,363 -------- ------- -------- ------- ------- -------- Net income available to common shareholders.................... $ 14,654 $(2,696) $(13,783) $(6,290) $(1,363) $ (9,478) ======== ======= ======== ======= ======= ========
The following tables summarize unaudited pro forma combined statement of operations adjustments for the three months ended March 31, 1999 related to the acquisitions (in thousands):
ADJUSTMENT --------------------------------------------- PRO FORMA (A) (B) (C) (D) (E) ADJUSTMENTS ------- ----- ------- ------- ------- ----------- Selling, general and administrative expenses........................... $(1,159) $ -- $ -- $ -- $ -- $(1,159) Goodwill amortization................ -- 674 -- -- -- 674 ------- ----- ------- ------- ------- ------- Income from operations..... 1,159 (674) -- -- -- 485 Interest expense..................... -- -- (3,407) -- -- (3,407) Other income......................... (896) -- -- -- -- (896) ------- ----- ------- ------- ------- ------- Income before income taxes.................... 263 (674) (3,407) -- -- (3,818) Provisions for income taxes.......... -- -- -- 2,667 -- 2,667 ------- ----- ------- ------- ------- ------- Net income........................... 263 (674) (3,407) (2,667) -- (6,485) Preferred dividends.................. -- -- -- -- 341 341 ------- ----- ------- ------- ------- ------- Net income available to common shareholders....................... $ 263 $(674) $(3,407) $(2,667) $ (341) $(6,826) ======= ===== ======= ======= ======= =======
Pro Forma Adjustments: (a) Reflects the reduction in salaries, bonuses, benefits and lease payments to the owners of the founding companies. These reductions in salaries, bonuses, benefits and lease payments have been agreed to prospectively in accordance with the terms of employment and lease agreements executed as part of the acquisitions. The employment agreements are primarily for five years, contain restrictions related to competition and provide severance for termination of employment in certain circumstances. Also, for the three months ended March 31, 1999, reflects the reduction of other income to eliminate the gain on disposal of assets related to AMPAM's acquisition of the founding companies. F-10 136 AMERICAN PLUMBING & MECHANICAL, INC. AND FOUNDING COMPANIES NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Upon consummation of the acquisitions, AMPAM also expects to record a non-recurring, non-cash compensation charge of $7.7 million related to shares of common stock and restricted common stock owned by management. Such charge represents the fair value of management's shares less the amount paid for such shares. The issuances of the management shares were made in connection with the organization of AMPAM, and no further issuances of this nature are anticipated. (b) Reflects the amortization of goodwill to be recorded as a result of these acquisitions over a 40-year estimated life, which is management's estimate as the period to be benefitted. Upon consummation of the acquisitions, AMPAM will record on its balance sheet $107.8 million of goodwill, representing the excess of the purchase price for the founding companies over the fair value of the net assets to be acquired. Neither the goodwill amortization nor the compensation charge will be deductible for federal income tax purposes. (c) Reflects the net effect on interest expense related to the $114.6 million portion of the original issuance of the notes to be used to repay existing debt at an estimated rate of 11 5/8% per annum and related amortization of unamortized debt discount and offering costs (d) Reflects the incremental provision for federal and state income taxes at a 39% overall tax rate, before nondeductible goodwill and other permanent items, relating to the other statements of operations adjustments and for income taxes on the pretax income of founding companies that have historically elected S corporation tax status. (e) Reflects the dividends which would have been owed to the shareholders of the redeemable preferred stock. F-11 137 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To American Plumbing & Mechanical, Inc. We have audited the accompanying balance sheet of American Plumbing & Mechanical, Inc. as of December 31, 1998, and March 31, 1999, and the related statements of operations, cash flows and stockholders' equity for the period from inception (June 29, 1998) through December 31, 1998, and for the three months ended March 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Plumbing & Mechanical, Inc. as of December 31, 1998, and March 31, 1999, and the results of its operations and its cash flows for the period from inception (June 29, 1998) through December 31, 1998, and for the three months ended March 31, 1999, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Houston, Texas June 14, 1999 F-12 138 AMERICAN PLUMBING & MECHANICAL, INC. BALANCE SHEETS ASSETS
DECEMBER 31, MARCH 31, 1998 1999 ------------ ---------- CASH AND CASH EQUIVALENTS................................... $ -- $ 37,291 OTHER ASSETS................................................ -- 45,000 DEFERRED TRANSACTION COSTS.................................. 4,520,976 5,573,373 ---------- ---------- Total assets...................................... $4,520,976 $5,655,664 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY ACCOUNTS PAYABLE............................................ $1,954,692 $2,032,463 AMOUNTS DUE TO STOCKHOLDERS................................. 2,565,284 3,622,201 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, 10,000,000 authorized, none issued and outstanding............................ -- -- Restricted common stock, $.01 par value, 5,000,000 shares authorized, 2,417,517 shares issued and outstanding.... 24,175 24,175 Common stock, $.01 par value, 100,000,000 authorized, 900,000 shares issued and outstanding.................. 9,000 9,000 Additional paid-in capital................................ -- -- Receivable from stockholders.............................. (32,175) (32,175) Retained earnings......................................... -- -- ---------- ---------- Total stockholders' equity........................ 1,000 1,000 ---------- ---------- Total liabilities and stockholders' equity........ $4,520,976 $5,655,664 ========== ==========
Reflects a 1,683-for-one stock split effected in March 1999. The accompanying notes are an integral part of these financial statements. F-13 139 AMERICAN PLUMBING & MECHANICAL, INC. STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (JUNE 29, FOR THE THREE 1998) MONTHS THROUGH ENDED DECEMBER 31, MARCH 31, 1998 1999 ------------ ------------- REVENUES.................................................... $ -- $ -- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ -- -- ----------- ----------- INCOME BEFORE INCOME TAXES.................................. -- -- PROVISION FOR INCOME TAXES.................................. -- -- ----------- ----------- NET INCOME.................................................. $ -- $ -- =========== ===========
The accompanying notes are an integral part of these financial statements. F-14 140 AMERICAN PLUMBING & MECHANICAL, INC. STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JUNE 29, FOR THE THREE 1998) MONTHS THROUGH ENDED DECEMBER 31, MARCH 31, 1998 1999 ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................ $ -- $ -- Adjustments to reconcile net income to net cash used in operating activities -- Changes in assets and liabilities -- Increase in other assets............................. -- (45,000) Increase in deferred transaction costs............... (4,520,976) (1,052,397) Increase in amounts due to stockholders.............. 2,565,284 1,056,917 Increase in accounts payable......................... 1,954,692 77,771 ----------- ----------- Net cash provided (used) in operating activities...................................... (1,000) 37,291 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Initial capitalization.................................... 1,000 -- ----------- ----------- Net cash provided by financing activities......... 1,000 -- ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS................... -- 37,291 CASH AND CASH EQUIVALENTS, beginning of period.............. -- -- ----------- ----------- CASH AND CASH EQUIVALENTS, end of period.................... $ -- $ 37,291 =========== ===========
The accompanying notes are an integral part of these financial statements. F-15 141 AMERICAN PLUMBING & MECHANICAL, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
RESTRICTED COMMON STOCK COMMON STOCK ADDITIONAL RECEIVABLE TOTAL ------------------- ---------------- PAID-IN FROM RETAINED STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS EARNINGS EQUITY --------- ------- ------- ------ ---------- ------------ -------- ------------- INITIAL CAPITALIZATION AND SUBSEQUENT SHARE ISSUANCE, June 29, 1998................ 2,417,517 $24,175 900,000 $9,000 $-- $(32,175) $-- $1,000 NET INCOME (LOSS).............. -- -- -- -- -- -- -- -- --------- ------- ------- ------ --- -------- --- ------ BALANCE, December 31, 1998..... 2,417,517 24,175 900,000 9,000 -- (32,175) -- 1,000 NET INCOME (LOSS).............. -- -- -- -- -- -- -- -- --------- ------- ------- ------ --- -------- --- ------ BALANCE, March 31, 1999........ 2,417,517 $24,175 900,000 $9,000 $-- $(32,175) $-- $1,000 ========= ======= ======= ====== === ======== === ======
Reflects a 1,683-for-one stock split effected in March 1999. The accompanying notes are an integral part of these financial statements. F-16 142 AMERICAN PLUMBING & MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION: American Plumbing & Mechanical, Inc., a Delaware corporation (AMPAM or the "Company"), was organized in June 1998 to be the leading provider of plumbing and mechanical contracting services in the United States, focusing primarily on the commercial/institutional and residential markets. On April 1, 1999, AMPAM acquired ten U.S. businesses (see Note 4, the Acquisitions) and completed the initial financings (see Note 5). On May 19, 1999, the Company completed additional financings (see Note 6) and intends to continue to acquire through merger or purchase similar companies to expand its national or regional operations. AMPAM has not conducted any operations, and all activities to date have related to the Acquisitions. All expenditures of the Company to March 31, 1999 were funded by its founder and then primary stockholder, Sterling City Capital, LLC, on behalf of the Company. AMPAM has treated these costs as deferred transaction costs in the accompanying balance sheet. The ability of AMPAM to generate future income is dependent upon the ability of the Company to manage the integration of the acquisitions as well as the effect on the combined companies of the following factors which are discussed in more detail in "Risk Factors" -- substantial indebtedness and potential incurrence of additional debt that would be senior to the notes offer (discussed in Note 6), absence of combined operating history and dependence on future operating performance, exposure to cyclicality and downturns in construction, availability of skilled labor, management of growth, reliance on acquisitions, competition, dependence on key personnel, amortization of goodwill and acquisition and other related accounting issues, availability of acquisition financing, use of fixed price contracting and potential materials and labor cost escalations, the Year 2000 issue, potential adverse effect of future acquisitions, potential inability of the Company to repurchase the notes from the offering (discussed in Note 6) upon a change of control, lack of a trading market for the notes, seasonality and fluctuation of quarterly operating results, concentration of customers, regulations, liability and insurance. 2. STOCKHOLDERS' EQUITY: Common Stock In connection with the organization and initial capitalization of AMPAM, the Company issued 2,092,401 shares of restricted common stock at $.01 par value (restricted common stock). AMPAM has subsequently issued 1,225,116 additional shares of restricted common stock and common stock to certain management of AMPAM and other individuals. The shares of restricted common stock have rights similar to shares of common stock, except that such shares are entitled to elect one member of the board of directors and are entitled to one-fourth of one vote for each share held on all other matters, and are subordinate in liquidation to all other classes of stock. Each share of restricted common stock will convert into common stock upon the occurrence of certain events. Consequently, as of December 31, 1998 and as restated for the 1,683-for-one stock split discussed below, the Company had issued a total of 1,598,901 shares to Sterling City Capital, LLC and an aggregate of 1,718,616 shares to the executive management of the Company and other individuals. The shares issued prior to December 1998 were recorded at their estimated fair value at that time of $.01 par value. The fair value at that time of all such shares was based on specific factors related to the Company and the transaction including restrictions on transferability and sale, the time value of money during the holding period and the substantive progress of the transaction at each issuance date. On April 1, 1999, the Company expects to reflect the shares previously issued to Sterling City Capital, LLC and certainconsultants as acquisition costs (i.e., goodwill) in connection with the acquisitions. Additionally, the Company expects to record a nonrecurring, noncash compensation charge related to the shares issued on April 1, 1999 to management of $7.7 million which will represent the difference between the estimated fair value ($6.91 for common stock and $5.53 for restricted common stock) and their recorded values. The management and Sterling City Capital, LLC F-17 143 AMERICAN PLUMBING & MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) shares were issued in contemplation of the acquisitions, and no further stock issuances of this nature are anticipated. AMPAM effected a 1,683-for-one stock split in March 1999 for each share of restricted common stock and each share of common stock of the Company then outstanding. In addition, the Company increased the number of authorized shares of common stock to 100,000,000 and increased the number of authorized shares of $.01 par value preferred stock to 10,000,000. The effects of the stock split and the increase in the shares of authorized common stock have been retroactively reflected on the balance sheet, statement of stockholders' equity and in the accompanying notes. Additionally, the difference between the initial capitalization value and the par value of total shares outstanding subsequent to the stock split has been reflected as a receivable from stockholders. Preferred Stock An aggregate of 1,048,820 shares of preferred stock was issued to certain stockholders of Christianson at the closing of the acquisitions. Such Christianson stockholders received their acquisition consideration solely in the form of cash and shares of preferred stock. The preferred stock is cumulative, redeemable and convertible and will be recorded at its estimated fair value of $13 per share. The holders of the preferred stock are entitled to receive dividends at an annual rate of 10% based on the liquidation value (as defined below). The dividends will be payable in cash semiannually in arrears. The dividend payment dates are June 30 and December 31, beginning on June 30, 1999. The holders of the preferred stock are also entitled to receive additional dividends on an equal share for share basis with the common stock to the extent that the Company has paid cumulative dividends on a base amount of $13.00 per share of common stock, as proportionately adjusted for any stock dividends, combinations, splits or other similar events with respect to such shares, a common stock base amount. However, the right of the holders of the preferred stock to receive this preferential dividend will extinguish 40 days after the 25th day following the date of the final prospectus related to an initial public offering of the Company's common stock. After such time, the holders will be entitled to share equally, on a per share basis, in any dividends of the Company with the holders of common stock. The preferred stock is senior to all other classes of the Company's capital stock (including the common stock) in right of liquidation, dividends and distributions. The liquidation value of the preferred stock is $13.00 per share, plus accrued and unpaid dividends, as adjusted proportionately for any stock dividends, combinations, splits or other similar events with respect to such shares, a liquidation value. In addition, the preferred stock shares equally, on a per share basis, with the common stock after each share is paid the common stock base amount plus a cumulative amount of dividends equal to 10% from the later to occur of the date of issuance of the preferred stock or the date of issuance of such share of common stock. Except under certain circumstances, the preferred stock is not entitled to vote as a separate class, but votes together with the holders of shares of all other classes of capital stock of the Company as one class on all matters submitted to a vote of the Company's stockholders. Each holder of shares of preferred stock is entitled to the number of votes equal to the largest number of full shares of common stock into which all shares of preferred stock held by such holder could be converted at the record date for the determination of the stockholders entitled to vote on such matters. In all cases where the holders of shares of preferred stock are required by law to vote separately as a class, such holders are entitled to one vote for each such share. The preferred stock is redeemable at the Company's option at any time and from time to time, in whole or in part prior to an initial public offering of AMPAM common stock or an "IPO" for the greater of (i) the fair market value of the preferred stock and (ii) $13.00 per share of preferred stock, plus, in F-18 144 AMERICAN PLUMBING & MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) each case, accrued and unpaid dividends thereon. After an IPO, the Company has the right to redeem the preferred stock at any time and from time to time, in whole or in part, at a price equal to the trading price of the common stock at the time of redemption but in no event for less than $13.00 per share of preferred stock, plus accrued and unpaid dividends. After the third anniversary of the date of issuance, the holders of the preferred stock may require the Company to redeem the preferred stock. In each such case, the redemption price per share will be equal to the liquidation value plus accrued and unpaid dividends through the date of redemption. Prior to the filing of a registration statement by the Company with the Securities and Exchange Commission with respect to an IPO, the holders of preferred stock may convert the preferred stock into common stock on a share-for-share basis. Not later than the twenty-fifth day after the date of the final prospectus relating to such IPO, the Company will give notice to each holder of preferred stock to the effect that the preferred stock will automatically convert into shares of common stock on the 40th day thereafter unless such holder gives the Company written notice on or before such date that such holder elects such conversion not occur with respect to such holder's shares of preferred stock. In the event the Company does not receive such notice on or before such date, the preferred stock shall be converted into common stock at a conversion ratio equal to the liquidation value (without inclusion of accrued but unpaid dividends) divided by the price per share to the public in the IPO, effective as of such date. The Company may convert the preferred stock following the consummation of an IPO on a share-for-share basis, unless such conversion would result in the holder of preferred stock receiving common stock having a value of less than $13.00 per share, in which case the conversion would be made at a conversion ratio equal to the liquidation value (without inclusion of accrued but unpaid dividends) divided by the price per share to the public in the IPO. Other Preferred Stock Additionally, the board of directors of the Company may authorize the issuance from time to time shares of one or more new classes or series of preferred stock. Subject to the provisions of the Company's amended and restated certificate of incorporation and limitations prescribed by law, the board of directors is expressly authorized to adopt resolutions to issue the shares, to fix the number of shares and to change the number of shares constituting any series, and to provide for or change the voting powers, designations, preferences and relative, participating, optional or other special rights, qualifications, limitations or restrictions thereof, including dividend rights (including whether dividends are cumulative), dividend rates, terms of redemption (including sinking fund provisions), redemption prices, conversion rights and liquidation preferences of the shares constituting any class or series of the preferred stock, in each case without any further action or vote by the stockholders. The Company has no current plans to issue any shares of preferred stock of any class or series other than the preferred stock. Stock Plan In February 1999, the Company's board of directors and stockholders approved the Company's 1999 Stock Plan, or the "stock plan", which provides for the granting or awarding of incentive or nonqualified stock options, stock appreciation rights, restricted or phantom stock, and other incentive awards to directors, officers, key employees and consultants of the Company. The number of shares authorized and reserved for issuance under the stock plan is the greater of 3.7 million shares or 15% of the aggregate number of shares of common stock outstanding. The terms of the option awards will be established by the Compensation Committee of the Company's board of directors. The Company granted nonqualified stock options to purchase a total of approximately 2.1 million shares of common stock to key employees of the Company at the consummation of the acquisitions. These options vest at the rate of 20 percent per year, commencing on the first anniversary of the grant date and will expire at the earliest of ten years from the F-19 145 AMERICAN PLUMBING & MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) date of grant, three months following termination of employment other than due to death or disability, or one year following termination of employment due to death or disability. 3. STOCK-BASED COMPENSATION: Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," allows entities to choose between a new fair value method of accounting for employee stock options or similar equity instruments and the current method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25 under which compensation expense is recorded to the extent that the fair market value of the related stock is in excess of the options exercise price at date of grant. Entities electing to remain with the accounting in APB Opinion No. 25 must make pro forma disclosures of net income and earnings per share as if the fair value method of accounting prescribed in SFAS No. 123 had been applied. The Company will measure compensation expense attributable to stock options based on the method prescribed in APB Opinion No. 25 and will provide the required pro forma disclosure of net income and earnings per share, as applicable, in the notes to future consolidated annual financial statements. 4. FOUNDING COMPANY ACQUISITIONS: On April 1, 1999 AMPAM acquired the following entities contemporaneously with the related initial financings. The entities acquired were: Christianson Enterprises, Inc., Christianson Service Company and Professional Services, Inc. (collectively, Christianson) R.C.R. Plumbing, Inc. Teepe's River City Mechanical, Inc. Keith Riggs Plumbing, Inc. J. A. Croson Company and Franklin Fire Sprinkler Company J. A. Croson Company of Florida Power Plumbing, Inc. Nelson Mechanical Contractors, Inc. Sherwood Mechanical, Inc. Miller Mechanical Contractors, Inc. The Company's results of operations will include the founding companies beginning April 1, 1999. Prior to April 1, 1999 the Company's results of operations will be reflected as those of Christianson, since it has been identified as the accounting acquiror. The acquisition consideration delivered upon the closing of the acquisitions consisted of (i) $99.9 million in cash (which represents a portion of the $106.3 million cash consideration, subject to adjustment as discussed below, to be paid to the stockholders of the founding companies), (ii) $5.8 million of seller notes, (iii) 8,898,618 shares of common stock and (iv) 1,048,820 shares of preferred stock. Additionally, approximately 2.1 million shares of restricted common stock issued to Sterling City Capital, LLC and certain consultants will be reflected as goodwill as part of the acquisition transactions. Included in the $99.9 million cash acquisition consideration paid upon closing was a portion of the cash payments to be made to the stockholders of the founding companies based upon the level of working capital of such founding company as of the closing date. In the event that the adjusted level of working capital as of the closing date is more or less than the unadjusted level, the cash portion of the acquisition consideration payable to such stockholder will be adjusted accordingly. The stockholders of each founding company were also entitled to distributions of certain nonoperating assets of such founding company F-20 146 AMERICAN PLUMBING & MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (subject to assumption of related liabilities), retained earnings of such founding company (if a C corporation) or the positive amount of the accumulated adjustment account (if an S corporation). In addition to the acquisition consideration and other payments and distributions described above, the stockholders of each founding company (including certain former shareholders of Christianson) may receive additional consideration in the event such founding company generates actual adjusted net income for the year ending December 31, 1999, in excess of a designated target level of net income for that period. Any additional stock issued or cash paid will be recorded as additional consideration and, accordingly, will be reflected as goodwill in the financial statements of the Company. The acquisitions will result in a substantial amount of goodwill recorded on the Company's balance sheet. Goodwill from the acquisitions to be amortized on a straight-line basis over 40 years. The Company's management will periodically evaluate recorded goodwill balances, net of accumulated amortization, for impairment based on the undiscounted cash flows associated with the asset compared to the carrying amount of that asset. In addition, the Company has entered into employment agreements with certain key executives of the founding companies and is currently negotiating and expects to enter into employment agreements with the executive officers of AMPAM. These employment agreements will generally prohibit such individuals from disclosing confidential information and trade secrets, and restrict such individuals from competing with the Company for a period of two years following termination of employment. The initial term of these employment agreements is five years with provisions for annual extensions at the end of the initial term. 5. INITIAL FINANCINGS On April 1, 1999, the Company obtained debt financing in the form of a credit facility, a subordinated loan, seller notes and a note to Sterling City Capital, LLC or a sponsor note, which all comprise the initial financings. The key terms of these debt instruments are as follows: The Credit Facility The credit facility is a senior secured revolving credit facility in an aggregate principal amount of $95 million. Amounts borrowed under the credit facility were used to fund a part of the cash portion of the acquisition consideration and will be used to fund future acquisitions and to provide financing of general corporate purposes. The credit facility bears interest, at the option of the Company, at the base rate of the arranging bank plus an applicable margin or at LIBOR plus an applicable margin. The applicable margin fluctuates based on the Company's ratio of funded debt to EBITDA and will be between 1.50% and 2.50% above LIBOR or 0.00% and 1.00% above the arranging banks base rate. Interest is payable no less frequently than quarterly in arrears. The term of the credit facility is three years from the date of closing of the acquisitions and all principal amounts borrowed will be payable in full at maturity. The credit facility is secured by (1) the accounts receivable, the seller notes, inventory, equipment and other personal property of the Company and (2) all of the capital stock owned by AMPAM of its existing or later-formed domestic subsidiaries. The Company is required to make prepayments or commitment reductions on the credit facility under certain circumstances. The credit facility requires the Company to maintain compliance with certain specified financial covenants including maximum ratios of funded debt to EBITDA, a minimum fixed charge coverage ratio, a minimum net worth and other restrictive covenants. Additionally, the terms of the credit facility limit the ability of the Company to incur additional indebtedness, dispose of assets, make acquisitions or other investments and to make various other payments. F-21 147 AMERICAN PLUMBING & MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) As of April 1, 1999, $70.3 million was outstanding on the credit facility. The Company repaid such outstanding amount in full with the proceeds from the offering discussed in Note 6. The Subordinated Loan The subordinated loan was a senior subordinated loan in an aggregate principal amount of $30.0 million. The subordinated loan was a senior subordinated obligation of the Company, subordinated to all other of the Company's senior debt (including the credit facility) and senior to all other subordinated debt of the Company (including the seller notes). Amounts borrowed under the subordinated loan were used to fund a portion of the cash acquisition consideration. The subordinated loan bore interest at an annual rate equal to three months LIBOR plus 350 basis points. Interest was payable quarterly in arrears. Concurrently with entering into the subordinated loan, AMPAM deposited into escrow, for the benefit of the lenders, warrants to purchase common stock. The warrants terminated when the subordinated loan was repaid, upon closing of the offering discussed in Note 6. The Company recorded the warrants as an increase to stockholder's equity for their estimated fair value (approximately $0.3 million) and a corresponding discount to the subordinated loan recorded value. The discount was amortized as additional interest expense. As of April 1, 1999, $30.0 million was outstanding on the subordinated loan. The Company repaid such outstanding amount in full with the proceeds from the offering discussed below. Upon repayment, the Company wrote off deferred loan issuance costs of $0.5 million and the discount of approximately $0.3 million. The Seller Notes The Company issued $5.8 million principal amount of seller notes due on April 1, 2002. The seller notes bore interest at the rate of 10% per annum. Interest on the seller notes was payable quarterly, commencing 90 days from the date of issuance. The seller notes were unsecured obligations of the Company, subordinated in the right of payment to any and all existing and future senior indebtedness of the Company (including the credit facility and the subordinated loan). The seller notes were repaid upon completion of the offering discussed in Note 6. The Sponsor Note The Company issued a subordinated note payable to Sterling City Capital, LLC on April 1, 1999 in settlement of the amounts due to stockholders of $3.5 million ($2.5 million at December 31, 1998). The sponsor note was due on April 1, 2002 and bore interest payable quarterly at the annual rate of 10%. The sponsor note was redeemed by the Company upon completion of the offering discussed in Note 6. 6. THE OFFERING AND THE EXCHANGE OFFERING On May 19, 1999, the Company completed an offering of $125.0 million of senior subordinated notes due in 2008. The notes are subordinated to all existing and future senior indebtedness of the Company and are guaranteed by each of the Company's current and future subsidiaries. The Company has the option to redeem the notes at any time on or after 2004, at specified redemption prices. Before 2002, the Company also has the option, under certain circumstances, to redeem up to 35% of the aggregate principal amount of the notes at specified redemption prices. Additionally, the Company is required under certain circumstances to repurchase the notes at specified redemption prices in the event of a change in control. Additionally, the terms of the notes limit the ability of the Company to, among other things, incur additional indebtedness, dispose of assets, make acquisitions, make other investments, pay dividends and to F-22 148 AMERICAN PLUMBING & MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) make various other payments. In conjunction with this offering, the Company entered into a registration rights agreement whereby the Company agreed to file a registration statement within 60 days after the close of the offering that would enable noteholders to exchange their privately placed notes for publicly registered notes with substantially identical terms. Additionally, the Company agreed, among other things, to use their reasonable best efforts to cause the registration statement to become effective within 150 days after the close of the offering and to be completed within 180 days after the close of the offering. If the Company does not comply with their obligations (including their reasonable best efforts) under the registration rights agreement, the interest rate on the notes will increase. The net proceeds from the offering of approximately $117.7 million, were used (1) to repay the outstanding indebtedness ($70.3 million as of April 1, 1999) under the $95.0 million credit facility discussed above (2) to repay the $30.0 million subordinated loan (3) to repay the seller notes and the sponsor note ($9.3 million as of April 1, 1999) and (4) for general corporate purposes. The Company is currently in the process of registering the privately placed notes with the Securities and Exchange Commission and, accordingly, intends to meet their obligations, as described above, under the registration rights agreement. No assurance can be made that the exchange offering will be completed. F-23 149 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Christianson Enterprises, Inc., and Combined Companies: We have audited the accompanying combined balance sheets of Christianson Enterprises, Inc., and Combined Companies (the Company) as of December 31, 1997 and 1998 and March 31, 1999, and the related combined statements of operations, cash flows and stockholders' equity for the year ended August 31, 1996, the four months ended December 31, 1996, the years ended December 31, 1997 and 1998 and the three months ended March 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of the Company as of December 31, 1997 and 1998 and March 31, 1999, and the results of their operations and their cash flows for each of the year ended August 31, 1996, the four months ended December 31, 1996, the years ended December 31, 1997 and 1998, and the three months ended March 31, 1999 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Austin, Texas May 14, 1999 F-24 150 CHRISTIANSON ENTERPRISES, INC. AND COMBINED COMPANIES COMBINED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE INFORMATION) ASSETS
DECEMBER 31 ---------------- MARCH 31 1997 1998 1999 ------ ------- -------- CURRENT ASSETS: Cash and cash equivalents................................. $ 165 $ 1,980 $ 5,439 Accounts receivable -- Contract, net.......................................... 4,835 6,301 6,652 Other.................................................. 166 93 221 Related parties........................................ 32 3 3 Inventories............................................... 376 450 1,182 Costs and estimated earnings in excess of billings on uncompleted contracts.................................. 143 273 350 Prepaid expenses and other current assets................. 165 233 40 ------ ------- ------- Total current assets.............................. 5,882 9,333 13,887 PROPERTY AND EQUIPMENT, net................................. 1,590 1,699 1,989 OTHER ASSETS................................................ 162 178 -- ------ ------- ------- Total assets...................................... $7,634 $11,210 $15,876 ====== ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of capital lease obligations........... $ 396 $ 480 $ 505 Accounts payable and accrued expenses..................... 944 3,213 4,165 Accounts payable, related parties......................... 17 37 -- Billings in excess of costs and estimated earnings on uncompleted contracts.................................. 174 611 622 Income taxes payable...................................... 66 169 339 Deferred income taxes..................................... 6 31 -- ------ ------- ------- Total current liabilities......................... 1,603 4,541 5,631 LONG-TERM LIABILITIES: Capital lease obligations, net of current maturities...... 329 349 532 Deferred income taxes..................................... 17 19 10 ------ ------- ------- Total liabilities................................. 1,949 4,909 6,173 ------ ------- ------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $1.00 par value and 1,000,000 shares authorized for each of Christianson Enterprises, Inc. (CEI), GGR Leasing Corporation (GGR) and Christianson Service Company (CSC), 1,200, 78,000 and 3,000 issued and outstanding for CEI, GGR and CSC, respectively..... 82 82 82 Additional paid-in capital................................ 11 11 11 Retained earnings......................................... 5,592 6,208 9,610 ------ ------- ------- Total stockholders' equity........................ 5,685 6,301 9,703 ------ ------- ------- Total liabilities and stockholders' equity........ $7,634 $11,210 $15,876 ====== ======= =======
The accompanying notes are an integral part of these combined financial statements. F-25 151 CHRISTIANSON ENTERPRISES, INC. AND COMBINED COMPANIES COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS)
FOUR MONTHS YEAR ENDED THREE MONTHS ENDED YEAR ENDED ENDED DECEMBER 31 DECEMBER 31 MARCH 31 AUGUST 31, --------------------- ----------------- --------------------- 1996 1995 1996 1997 1998 1998 1999 ---------- ----------- ------- ------- ------- ----------- ------- (UNAUDITED) (UNAUDITED) REVENUES.................. $50,330 $14,619 $15,576 $50,909 $63,374 $12,744 $16,824 COST OF REVENUES (Including depreciation)........... 38,203 11,044 11,868 37,504 45,704 9,024 11,390 ------- ------- ------- ------- ------- ------- ------- Gross profit......... 12,127 3,575 3,708 13,405 17,670 3,720 5,434 ------- ------- ------- ------- ------- ------- ------- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 11,051 3,430 5,142 11,497 17,078 3,253 1,863 ------- ------- ------- ------- ------- ------- ------- Income (loss) from operations......... 1,076 145 (1,434) 1,908 592 467 3,571 ------- ------- ------- ------- ------- ------- ------- OTHER INCOME (EXPENSE): Interest and dividend income............... 109 24 39 126 102 4 11 Interest expense........ (92) (29) (33) (102) (116) (37) (27) Other................... 250 230 26 35 70 15 9 ------- ------- ------- ------- ------- ------- ------- Other income (expense), net..... 267 225 32 59 56 (18) (7) ------- ------- ------- ------- ------- ------- ------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES................... 1,343 370 (1,402) 1,967 648 449 3,564 PROVISION (BENEFIT) FOR INCOME TAXES............ 345 74 (56) 77 32 20 162 ------- ------- ------- ------- ------- ------- ------- NET INCOME (LOSS)......... $ 998 $ 296 $(1,346) $ 1,890 $ 616 $ 429 $ 3,402 ======= ======= ======= ======= ======= ======= =======
The accompanying notes are an integral part of these combined financial statements. F-26 152 CHRISTIANSON ENTERPRISES, INC. AND COMBINED COMPANIES COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOUR MONTHS YEAR ENDED THREE MONTHS ENDED YEAR ENDED ENDED DECEMBER 31 DECEMBER 31 MARCH 31 AUGUST 31, --------------------- ----------------- -------------------- 1996 1995 1996 1997 1998 1998 1999 ---------- ----------- ------- ------- ------- ----------- ------ (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)............... $ 998 $ 296 $(1,346) $ 1,890 $ 616 $ 429 $3,402 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities -- Depreciation and amortization................ 461 152 184 595 673 159 136 Loss on disposal of property and equipment............... 1 -- 14 1 -- -- 1 Deferred income taxes......... 145 (53) (135) 49 (35) (9) (8) Changes in operating assets and liabilities -- (Increase) decrease in -- Accounts receivable...... (870) 421 1,425 (648) (1,363) (115) (479) Inventories.............. (160) (282) (269) 411 (75) (473) (732) Prepaid expenses and other current assets... (234) (234) (80) (16) (153) -- 263 Increase (decrease) in -- Accounts payable and accrued expenses....... 2,008 2,958 2,312 (5,631) 2,290 3,943 1,102 Other current liabilities............ 6 123 207 14 540 -- 11 ------ ------ ------- ------- ------- ------ ------ Net cash provided by (used in) operating activities............. 2,355 3,381 2,312 (3,335) 2,493 3,934 3,696 ------ ------ ------- ------- ------- ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions of property and equipment..................... (269) (76) (61) (166) (167) (15) (92) ------ ------ ------- ------- ------- ------ ------ Net cash used in investing activities........... (269) (76) (61) (166) (167) (15) (92) ------ ------ ------- ------- ------- ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings of long-term debt.... 103 103 -- -- -- -- -- Payments of long-term debt...... (454) (149) (147) (425) (511) (134) (145) ------ ------ ------- ------- ------- ------ ------ Net cash used in financing activities........... (351) (46) (147) (425) (511) (134) (145) ------ ------ ------- ------- ------- ------ ------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 1,735 3,259 2,104 (3,926) 1,815 3,785 3,459 CASH AND CASH EQUIVALENTS, beginning of period............. 252 252 1,987 4,091 165 165 1,980 ------ ------ ------- ------- ------- ------ ------ CASH AND CASH EQUIVALENTS, end of period.......................... $1,987 $3,511 $ 4,091 $ 165 $ 1,980 $3,950 $5,439 ====== ====== ======= ======= ======= ====== ====== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for -- Interest...................... $ 92 $ 29 $ 33 $ 102 $ 116 $ 29 $ 27 Income taxes.................. 200 127 80 28 29 -- -- Capital lease additions......... 630 141 -- 460 615 197 394
The accompanying notes are an integral part of these combined financial statements. F-27 153 CHRISTIANSON ENTERPRISES, INC. AND COMBINED COMPANIES COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE INFORMATION)
COMMON STOCK ADDITIONAL TOTAL --------------- PAID-IN RETAINED STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS EQUITY ------ ------ ---------- -------- ------------- BALANCE, August 31, 1995.................... 79,200 $79 $11 $ 4,050 $ 4,140 Net income................................ -- -- -- 998 998 ------ --- --- ------- ------- BALANCE, August 31, 1996.................... 79,200 79 11 5,048 5,138 Net loss.................................. -- -- -- (1,346) (1,346) ------ --- --- ------- ------- BALANCE, December 31, 1996.................. 79,200 79 11 3,702 3,792 Formation of Christianson Service Company................................ 3,000 3 -- -- 3 Net income................................ -- -- -- 1,890 1,890 ------ --- --- ------- ------- BALANCE, December 31, 1997.................. 82,200 82 11 5,592 5,685 Net income................................ -- -- -- 616 616 ------ --- --- ------- ------- BALANCE, December 31, 1998.................. 82,200 82 11 6,208 6,301 Net income................................ -- -- -- 3,402 3,402 ------ --- --- ------- ------- BALANCE, March 31, 1999..................... 82,200 $82 $11 $ 9,610 $ 9,703 ====== === === ======= =======
The accompanying notes are an integral part of these combined financial statements. F-28 154 CHRISTIANSON ENTERPRISES, INC. AND COMBINED COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION: Christianson Enterprises, Inc., a Texas Corporation, and its wholly owned subsidiaries, together with Christianson Service Company and GGR Leasing Corporation, both Texas Corporations (the Combined Companies), which are owned by the stockholders of Christianson Enterprises, Inc., are collectively referred to herein as the "Company." The Company provides plumbing and air conditioning installation and repair services primarily for single-family residential markets in Texas. The Company performs the majority of its services under fixed-price contracts which generally span three months. The Company and its stockholders entered into a definitive agreement with American Plumbing & Mechanical, Inc. (AMPAM), pursuant to which all outstanding shares of the Company's common stock were exchanged for cash, notes and shares of AMPAM common and preferred stock concurrently with the consummation of the related financing. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation and Combination The accompanying financial statements present Christianson Enterprises, Inc., consolidated with its wholly owned subsidiaries, together with Christianson Service Company and GGR Leasing Corporation on a combined basis. All significant intercompany transactions have been eliminated in consolidation and combination. Effective December 31, 1997, Christianson Enterprises, Inc., and its subsidiaries changed their year ends from August 31 to December 31. Christianson Service Company and GGR Leasing Corporation have each reported on a December 31 year-end since inception. For the years ended August 31, 1995 and 1996, the results of operations for Christianson Service Company and GGR Leasing Corporation have been conformed to an August 31 year-end. Generally accepted accounting principles have been consistently applied to the financial statements for all periods presented. Interim Financial Information The interim financial statements for the four months ended December 31, 1995, and the three months ended March 31, 1998, are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company's management, the unaudited interim financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Inventories Inventories consist of parts and supplies held for use in the ordinary course of business and are stated at the lower of cost or market using the first-in, first-out (FIFO) method. F-29 155 CHRISTIANSON ENTERPRISES, INC. AND COMBINED COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Property and Equipment Property and equipment are stated at cost, and depreciation is computed using the straight-line method over the estimated useful lives of the assets. Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments, which extend the useful lives of existing equipment, are capitalized and depreciated. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statement of operations. Revenue Recognition The Company recognizes revenue when services are performed except when work is being performed under a construction contract. Revenues from construction contracts are recognized on the percentage-of-completion method measured by the percentage of cost incurred to date to total estimated costs for each contract. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor and depreciation costs. Provisions for the total estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to costs and income and their effects are recognized in the period in which the revisions are determined. An amount equal to contract costs attributable to claims is included in revenues when realization is probable and the amount can be reliably estimated. The current asset, "Costs and estimated earnings in excess of billings on uncompleted contracts," represents revenues recognized in excess of amounts billed. The current liability, "Billings in excess of costs and estimated earnings on uncompleted contracts," represents billings in excess of revenues recognized. Warranty Costs For certain contracts, the Company warrants labor for one year after completion of a plumbing or air conditioning installation. The Company generally warrants labor for 90 days after plumbing and air conditioner repairs. A reserve for warranty costs is recorded based upon the historical level of warranty claims and management's estimate of future costs. Provision for Doubtful Accounts The Company provides an allowance for doubtful accounts based upon an estimate of uncollectable balances. Officers' Compensation Total officers' compensation for the years ended August 31, 1996, and December 31, 1997 and 1998, the four months ended December 31, 1995 and 1996, and the three months ended March 31, 1999, was $6,905,000, $6,643,000, $10,701,000, $2,257,000 (unaudited), $3,763,000, and $400,000, respectively. Such amounts are included within selling, general and administrative expenses in the accompanying statements of operations. Income Taxes Effective January 1, 1997, Christianson Enterprises, Inc., including its wholly owned subsidiaries, elected S Corporation status. Christianson Service Company and GGR Leasing Corporation have elected F-30 156 CHRISTIANSON ENTERPRISES, INC. AND COMBINED COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) S Corporation status. Under S Corporation status, as defined by the Internal Revenue Code, the Company itself is not subject to taxation for federal purposes; rather, the stockholders report their share of the Company's taxable earnings or losses in their personal tax returns. Certain states do not recognize S Corporation status for purposes of state taxation. Consequently, the provision for current and deferred income taxes for the years ended December 31, 1997, 1998 and the three months ended March 31, 1999, consists of only state income taxes. The Company terminated its S Corporation status concurrently with the effective date of the merger discussed in Note 13. The Company follows the liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under this method, deferred assets and liabilities are recorded for future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the underlying assets or liabilities are recovered or settled. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Realization of Long-Lived Assets The Company has adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in the event that facts and circumstances indicate that property and equipment or other assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset's carrying amount to determine if an impairment of such property is necessary. The effect of any impairment would be to expense the difference between the fair value of such property and its carrying value. Adoption of this standard did not have a material effect on the financial position or results of operations of the Company. Reclassifications Certain reclassifications have been made to the prior-year financial statements to conform to the current-year presentation. 3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS: Contract receivables consist of the following (in thousands):
DECEMBER 31 ---------------- MARCH 31, 1997 1998 1999 ------ ------ --------- Billed.................................................. $4,957 $6,402 $6,739 Allowance for uncollectible accounts.................... (122) (101) (87) ------ ------ ------ Contract receivables, net............................... $4,835 $6,301 $6,652 ====== ====== ======
F-31 157 CHRISTIANSON ENTERPRISES, INC. AND COMBINED COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Activity in the Company's allowance for doubtful accounts receivable consists of the following (in thousands):
FOUR MONTHS ENDED YEAR ENDED THREE MONTHS YEAR ENDED DECEMBER 31 DECEMBER 31 ENDED AUGUST 31, ------------------ ----------- MARCH 31, 1996 1995 1996 1997 1998 1999 ---------- ----------- ---- ---- ---- ------------ (UNAUDITED) Balance at beginning of period.... $ 74 $74 $117 $109 $122 $101 Additions to costs and expenses... 74 25 2 63 59 10 Deductions for uncollectible receivables written off and recoveries...................... (31) (6) (10) (50) (80) (24) ---- --- ---- ---- ---- ---- Balance at end of period.......... $117 $93 $109 $122 $101 $ 87 ==== === ==== ==== ==== ====
Plumbing and air conditioning installation contracts in progress are as follows (in thousands):
DECEMBER 31 ----------------- MARCH 31, 1997 1998 1999 ------- ------- --------- Costs incurred on contracts in progress................. $ 1,200 $ 1,848 $ 3,569 Estimated earnings, net of losses....................... 1,100 4,259 3,200 ------- ------- ------- 2,300 6,107 6,769 Less -- Billings to date................................ (2,331) (6,445) (7,041) ------- ------- ------- $ (31) $ (338) $ (272) ======= ======= ======= Costs and estimated earnings in excess of billings on uncompleted contracts................................. $ 143 $ 273 $ 350 Billings in excess of costs and estimated earnings on uncompleted contracts................................. (174) (611) (622) ------- ------- ------- $ (31) $ (338) $ (272) ======= ======= =======
Accounts payable and accrued expenses consist of the following (in thousands):
DECEMBER 31 -------------- MARCH 31, 1997 1998 1999 ---- ------ --------- Accounts payable, trade.................................. $239 $2,101 $$2,845 Accrued warranty......................................... 315 410 410 Accrued payroll.......................................... 25 132 475 Accrued bonuses.......................................... 74 173 -- Accrued vacation......................................... 258 205 205 Self-insurance reserve................................... -- 115 153 Other accrued expenses................................... 33 77 77 ---- ------ ------ $944 $3,213 $4,165 ==== ====== ======
F-32 158 CHRISTIANSON ENTERPRISES, INC. AND COMBINED COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 4. PROPERTY AND EQUIPMENT, NET: Property and equipment, net consists of the following (in thousands):
ESTIMATED DECEMBER 31 USEFUL LIVES ----------------- MARCH 31, IN YEARS 1997 1998 1999 ------------ ------- ------- --------- Vehicles and equipment.......................... 5 $ 4,531 $ 5,180 $ 5,507 Office equipment................................ 5-7 403 378 391 ------- ------- ------- 4,934 5,558 5,898 Less -- Accumulated depreciation and amortization.................................. (3,344) (3,859) (3,909) ------- ------- ------- Property and equipment, net................... $ 1,590 $ 1,699 $ 1,989 ======= ======= =======
Capital leases of approximately $1,666,000, $1,529,000 and $1,118,000 as of March 31, 1999, December 31, 1998 and 1997 are included in vehicles and equipment. 5. LONG-TERM DEBT: Long-term debt consists of capital lease obligations. The maturities of capital lease obligations are as follows (in thousands):
DECEMBER 31, MARCH 31, 1998 1999 ------------ --------- 1999........................................................ $ 522 $ 421 2000........................................................ 328 402 2001........................................................ 95 309 ----- ------ Total lease payments.............................. 945 1,132 Less -- Amounts representing interest....................... (116) (95) ----- ------ Present value of minimum lease payments..................... 829 1,037 Less -- Current maturities.................................. (480) (505) ----- ------ Capital lease obligations, net of current maturities........ $ 349 $ 532 ===== ======
6. LEASES: The Company leases facilities under operating leases from related parties. The Company also leases certain vehicles and equipment under operating leases from third parties. Lease expiration dates vary, and approximate lease payments were as follows (in thousands):
RELATED THIRD PARTIES PARTIES ------- ------- Four months ended December 31 -- 1995 (unaudited).......................................... $ 52 $15 1996...................................................... 52 11 Year ended August 31, 1996.................................. 156 43 Year ended December 31 -- 1997...................................................... 466 33 1998...................................................... 492 18 Three months ended March 31, 1999........................... 135 35
F-33 159 CHRISTIANSON ENTERPRISES, INC. AND COMBINED COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Future minimum lease payments under these noncancelable operating leases are as follows (in thousands):
RELATED THIRD PARTIES PARTIES ------- ------- Year ending December 31 -- 1999...................................................... $ 495 $19 2000...................................................... 554 2 2001...................................................... 559 -- 2002...................................................... 69 -- 2003...................................................... 24 -- ------ --- $1,701 $21 ====== ===
7. INCOME TAXES: Federal and state income taxes are as follows (in thousands):
FOUR MONTHS YEAR ENDED THREE MONTHS YEAR ENDED ENDED DECEMBER 31 DECEMBER 31 ENDED AUGUST 31, ------------------- ------------ MARCH 31, 1996 1995 1996 1997 1998 1999 ---------- ----------- ---- ---- ---- ------------ (UNAUDITED) Federal -- Current.............. $155 $105 $ 71 $ -- $ -- $ -- Deferred............. 126 (49) (64) (16) -- -- State -- Current.............. 45 22 8 28 67 170 Deferred............. 19 (4) (71) 65 (35) (8) ---- ---- ---- ---- ---- ---- $345 $ 74 $(56) $ 77 $ 32 $162 ==== ==== ==== ==== ==== ====
Actual income tax expense differs from income tax expense computed by applying the U.S. federal statutory corporate rate of 35 percent to income (loss) before provision for income taxes as follows (in thousands):
FOUR MONTHS YEAR ENDED YEAR ENDED ENDED DECEMBER 31 DECEMBER 31 THREE MONTHS ENDED AUGUST 31, ------------------- ------------- MARCH 31, 1996 1995 1996 1997 1998 1999 ---------- ----------- ----- ----- ----- ------------------ (UNAUDITED) Provision (benefit) at the statutory rate.................. $ 470 $130 $(491) $ 688 $ 227 $ 1,247 Increase (decrease) resulting from -- Earnings of combined corporations taxed as S Corporations................. (199) (78) 501 (688) (227) (1,247) Permanent differences, primarily meals and entertainment...... 31 10 (3) 5 -- -- State income tax, net of benefit for federal deduction........ 43 12 (63) 88 32 162 Reversal of C Corporation federal deferred taxes....... -- -- -- (16) -- -- ----- ---- ----- ----- ----- ------- $ 345 $ 74 $ (56) $ 77 $ 32 $ 162 ===== ==== ===== ===== ===== =======
F-34 160 CHRISTIANSON ENTERPRISES, INC. AND COMBINED COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Deferred income tax provisions result from temporary differences in the recognition of income and expenses for financial reporting purposes and for tax purposes. The tax effects of these temporary differences, representing deferred tax assets and liabilities, result principally from the following (in thousands):
DECEMBER 31 ------------ MARCH 31, 1997 1998 1999 ---- ---- --------- Deferred income tax assets -- Reserves and accrued expenses............................ $ 25 $ 62 $ 34 Other.................................................... 1 -- (4) ---- ---- ---- Total deferred income tax assets................. 26 62 30 ---- ---- ---- Deferred income tax liabilities -- Property and equipment................................... (17) (15) (10) Revenue recognition...................................... (32) (23) -- Other.................................................... -- (12) -- ---- ---- ---- Total deferred income tax liabilities............ (49) (50) (10) ---- ---- ---- Net deferred income tax assets (liabilities)..... $(23) $ 12 $ 20 ==== ==== ====
The net deferred tax assets and liabilities are comprised of the following (in thousands):
DECEMBER 31 ------------ MARCH 31, 1997 1998 1999 ---- ---- --------- Deferred tax assets -- Current................................................... $ 26 $ 56 $ 34 Long-term................................................. -- 6 -- ---- ---- ---- Total deferred income tax assets.................. 26 62 34 ---- ---- ---- Deferred tax liabilities -- Current................................................... (32) (31) (4) Long-term................................................. (17) (19) (10) ---- ---- ---- Total deferred income tax liabilities............. (49) (50) (14) ---- ---- ---- Net deferred income tax assets (liabilities)........... $(23) $ 12 $ 20 ==== ==== ====
Effective January 1, 1997, Christianson Enterprises, Inc., elected S Corporation status. As such, Christianson Enterprises, Inc., was no longer directly responsible for any federal deferred tax liability. The removal of the federal deferred tax liability of $16,000 at December 31, 1996, is recognized in the 1997 statement of operations for the year ended December 31, 1997. 8. STOCKHOLDERS' EQUITY: Effective May 13, 1998, the outstanding shares of common stock of Christianson Enterprises, Inc., were split 10 for 1. This split has been reflected retroactively for all periods presented in the accompanying financial statements. Shares of common stock of Christianson Enterprises, Inc., are not transferable unless they are first offered for sale to Christianson Enterprises, Inc. and secondly to the other shareholders of Christianson Enterprises, Inc. F-35 161 CHRISTIANSON ENTERPRISES, INC. AND COMBINED COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 9. RELATED-PARTY TRANSACTIONS: Leases As discussed in Note 6, the Company leases its facilities and its furniture and fixtures in Austin and San Antonio, Texas, from related parties. It is management's opinion that such leases are at market value. Other Through December 31, 1995, the Company subcontracted its construction labor to a related party. The Company was charged for such labor based on the related party's actual costs. For the year ended August 31, 1996, and the four months ended December 31, 1995, subcontractor labor costs reflected within cost of revenues in the accompanying statements of operations were $2,663,000 and $2,663,000 (unaudited), respectively. This relationship was terminated effective December 31, 1995. Also through December 31, 1995, the related party provided workers' compensation insurance to its employees through a self-insurance program. The related party charged the Company an agreed-upon rate for such insurance based on an estimate of the cost of workers' compensation insurance as a subscriber under the Texas risk pool. Claims were administered and paid by the related party. For the year ended August 31, 1996, and the four months ended December 31, 1995, workers' compensation insurance costs reflected within cost of services in the accompanying statements of operations were $268,000 and $268,000 (unaudited), respectively. This relationship was terminated effective December 31, 1995. In connection with various administrative and management services provided to the related party, the Company charged a fee to the related party for such services. For the years ended August 31, 1996, and the four months ended December 31, 1995, the Company charged the related party $225,000 and $225,000 (unaudited), respectively. These amounts are included within other income in the accompanying statements of operations. As discussed above, the relationship was terminated December 31, 1995; therefore, no fees were charged subsequent to this date. 10. FINANCIAL INSTRUMENTS: The Company's financial instruments consist of cash and cash equivalents, capital lease obligations and debt. The Company believes that the carrying value of these instruments on the accompanying balance sheets approximates their fair values. 11. COMMITMENTS AND CONTINGENCIES: Litigation The Company is involved in disputes or legal actions arising in the ordinary course of business. Management does not believe the outcome of such legal actions will have a material adverse effect on the Company's financial position or results of operations. Insurance The Company carries a broad range of insurance coverage, including business auto liability, general liability, workers' compensation and an umbrella policy. The Company has not incurred significant claims or losses on any of these insurance policies. Beginning on May 1, 1998, the Company self-insured for medical claims up to $50,000 per year per individual covered, with a $642,000 aggregate maximum exposure per year. Claims in excess of these amounts are covered by a stop-loss policy. At December 31, 1998, and March 31, 1999, the Company has F-36 162 CHRISTIANSON ENTERPRISES, INC. AND COMBINED COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) recorded reserves within accounts payable and accrued liabilities for its portion of self-insurance claims based on estimated claims. 12. MAJOR CUSTOMERS AND RISK CONCENTRATION: The Company had sales of approximately 24.1 percent, 22.8 percent, 23.1 percent, 23.5 percent (unaudited), 23.4 percent and 18.4 percent of total sales to one major customer during the years ended August 31, 1996, December 31, 1997 and 1998, the four months ended December 31, 1995 and 1996 and the three months ended March 31, 1999, respectively. In general, the Company performs its services under contract terms that entitle it to progress payments and is, by law, granted a lien interest on the work until paid. The Company is exposed to potential credit risk related to changes in business and economic factors within the region. However, management believes that its contract acceptance, billing and collection policies are adequate to minimize the potential credit risk. The Company's customers are primarily in the construction industry. Accordingly, the Company is exposed to risks of fluctuations in construction in the areas in which it operates. 13. SUBSEQUENT EVENT: On April 1, 1999, AMPAM acquired through merger all the stock of the Company in exchange for cash, notes and common and preferred stock of AMPAM, after which the Company is a wholly owned subsidiary of AMPAM. In connection with the merger, the Company made cash distributions which represent the Company's estimated S Corporation accumulated adjustment account. As discussed in Note 2, in connection with the merger, the Company converted from an S Corporation to a C Corporation. Upon conversion to C Corporation status, the Company recorded deferred taxes for which it will be responsible. If the S Corporation status had been terminated as of December 31, 1998 or March 31, 1999, the Company would have recorded an additional deferred tax asset of approximately $471,000 and $296,000, respectively, due primarily to reserves and accrued expenses and an additional deferred tax liability of approximately $379,000 and $121,000, respectively, due primarily to differences between book and tax depreciation and revenue recognition. Concurrently with the merger, the Company entered into agreements with the stockholders to lease land and buildings used in the Company's operations for a negotiated amount and term. F-37 163 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To RCR Plumbing, Inc.: We have audited the accompanying balance sheets of RCR Plumbing, Inc. (dba RCR Companies, Inc.) as of December 31, 1997 and 1998, and the related statements of operations, cash flows and stockholders' equity for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of RCR Plumbing, Inc., as of December 31, 1997 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Phoenix, Arizona, March 19, 1999 F-38 164 RCR PLUMBING, INC. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE INFORMATION) ASSETS
DECEMBER 31 ----------------- MARCH 31, 1997 1998 1999 ------- ------- ----------- (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents................................. $ -- $ 1,378 $ 1,420 Accounts receivable -- Contract, net.......................................... 10,350 10,360 12,813 Other.................................................. 59 132 9 Costs and estimated earnings in excess of billings on uncompleted contracts.................................. 1,557 1,536 2,090 Inventories............................................... 1,706 1,308 1,374 Prepaid expenses and other current assets................. 95 128 22 ------- ------- ------- Total current assets.............................. 13,767 14,842 17,728 PROPERTY AND EQUIPMENT, net................................. 4,848 5,484 4,175 ------- ------- ------- Total assets...................................... $18,615 $20,326 $21,903 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Bank overdraft............................................ $ 772 $ 130 $ -- Lines of credit........................................... 1,910 -- -- Current maturities of long-term debt...................... 144 129 171 Current maturities of capital lease obligations........... 465 495 475 Accounts payable and accrued expenses..................... 3,739 4,804 7,379 Billings in excess of costs and estimated earnings on uncompleted contracts.................................. 2,000 2,612 2,537 ------- ------- ------- Total current liabilities......................... 9,030 8,170 10,562 LONG-TERM LIABILITIES: Long-term debt, net of current maturities................. 1,543 1,415 -- Capital lease obligations................................. 229 521 576 ------- ------- ------- Total liabilities................................. 10,802 10,106 11,138 ------- ------- ------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, no par value, 75,000 shares authorized, 12,163 shares issued and outstanding................... 194 194 194 Additional paid-in capital................................ 37 37 37 Retained earnings......................................... 7,986 10,393 10,938 Treasury stock, 14,601, shares, at cost................... (404) (404) (404) ------- ------- ------- Total stockholders' equity........................ 7,813 10,220 10,765 ------- ------- ------- Total liabilities and stockholders' equity........ $18,615 $20,326 $21,903 ======= ======= =======
The accompanying notes are an integral part of these financial statements. F-39 165 RCR PLUMBING, INC. STATEMENTS OF OPERATIONS (IN THOUSANDS)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31 MARCH 31, --------------------------- ------------------------- 1996 1997 1998 1998 1999 ------- ------- ------- ----------- ----------- (UNAUDITED) REVENUES................................. $40,430 $49,738 $63,293 $13,200 $19,441 COST OF REVENUES (including depreciation).......................... 35,102 42,377 51,604 10,744 15,361 ------- ------- ------- ------- ------- Gross profit........................ 5,328 7,361 11,689 2,456 4,080 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............................... 3,979 5,712 8,370 1,724 2,452 ------- ------- ------- ------- ------- Income from operations.............. 1,349 1,649 3,319 732 1,628 ------- ------- ------- ------- ------- OTHER INCOME (EXPENSE): Interest income........................ 34 25 1 1 6 Interest expense....................... (118) (251) (271) (90) (36) Other.................................. 96 98 (11) 1 8 Gain on Sale of Buildings.............. -- -- -- -- 605 ------- ------- ------- ------- ------- Other income (expense), net......... 12 (128) (281) (88) 583 ------- ------- ------- ------- ------- INCOME BEFORE PROVISION FOR INCOME TAXES.................................. 1,361 1,521 3,038 644 2,211 PROVISION FOR INCOME TAXES............... 19 5 24 8 26 ------- ------- ------- ------- ------- NET INCOME............................... $ 1,342 $ 1,516 $ 3,014 $ 636 $ 2,185 ======= ======= ======= ======= =======
The accompanying notes are an integral part of these financial statements. F-40 166 RCR PLUMBING, INC. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31 MARCH 31 --------------------------- --------------------- 1996 1997 1998 1998 1999 ------- ------- ------- ----------- ------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................ $ 1,342 $ 1,516 $ 3,014 $ 636 $ 2,185 Adjustments to reconcile net income to net cash provided by (used in) operating activities -- Depreciation and amortization........................... 345 561 879 185 231 Loss (gain) on sale of property and equipment........... (14) (12) 19 -- (605) Changes in operating assets and liabilities: (Increase) decrease in -- Accounts receivable................................. (1,221) (4,838) (83) 379 (2,330) Costs and estimated earnings in excess of billings on uncompleted contracts.......................... (263) (228) 21 (237) (554) Inventories......................................... 419 (85) 398 (238) (66) Prepaid expenses and other current assets........... 34 117 (33) 96 106 Increase (decrease) in -- Accounts payable and accrued expenses............... 396 423 1,065 1,330 2,575 Billings in excess of costs and estimated earnings on uncompleted contracts.......................... 314 1,032 612 (312) (75) ------- ------- ------- ------- ------- Net cash provided by (used in) operating activities...................................... 1,352 (1,514) 5,892 1,839 1,467 ------- ------- ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment.............. 67 512 103 -- 42 Additions of property and equipment....................... (2,053) (1,112) (607) (269) (299) ------- ------- ------- ------- ------- Net cash used in investing activities............. (1,986) (600) (504) (269) (257) ------- ------- ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Bank overdraft............................................ -- 772 (642) (772) (130) Borrowings on line of credit.............................. -- 1,910 -- -- -- Payments on line of credit................................ -- -- (1,910) (350) -- Borrowings on long-term debt and capital lease obligations............................................. 1,153 184 -- -- -- Payments on long-term debt and capital lease obligations............................................. (322) (966) (851) (170) (210) Distributions to stockholders............................. (25) (948) (607) (197) (828) ------- ------- ------- ------- ------- Net cash provided by (used in) financing activities...................................... 806 952 (4,010) (1,489) (1,168) ------- ------- ------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 172 (1,162) 1,378 81 1,252 CASH AND CASH EQUIVALENTS, beginning of period.............. 990 1,162 -- -- 1,378 ------- ------- ------- ------- ------- CASH AND CASH EQUIVALENTS, end of period.................... $ 1,162 $ -- $ 1,378 $ 81 $ 1,420 ======= ======= ======= ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for -- Interest................................................ $ 177 $ 362 $ 397 $ 120 $ 75 Capital lease additions................................. 415 902 1,030 284 204 SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES: In connection with the completion of the AMPAM Agreement, the Company transferred certain assets of the Company to the stockholders with a fair market value of approximately $2,144. In return the stockholders assumed liabilities related to those assets of approximately $1,332. The difference between the fair market value of the assets transferred and the liabilities assumed was approximately $812 and was accounted for as a distribution to stockholders equity.
The accompanying notes are an integral part of these financial statements. F-41 167 RCR PLUMBING, INC. STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE INFORMATION)
COMMON STOCK ADDITIONAL TOTAL --------------- PAID-IN RETAINED TREASURY STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY ------ ------ ---------- -------- -------- ------------- BALANCE, December 31, 1995......... 12,163 $194 $-- $ 6,101 $(404) $ 5,891 Distributions to stockholders.... -- -- -- (25) -- (25) Net income....................... -- -- -- 1,342 -- 1,342 Stockholder contribution of assets........................ -- -- 37 -- -- 37 ------ ---- --- ------- ----- ------- BALANCE, December 31, 1996......... 12,163 194 37 7,418 (404) 7,245 Distributions to stockholders.... -- -- -- (948) -- (948) Net income....................... -- -- -- 1,516 -- 1,516 ------ ---- --- ------- ----- ------- BALANCE, December 31, 1997......... 12,163 194 37 7,986 (404) 7,813 Distributions to stockholders.... -- -- -- (607) -- (607) Net income....................... -- -- -- 3,014 -- 3,014 ------ ---- --- ------- ----- ------- BALANCE, December 31, 1998......... 12,163 194 37 10,393 (404) 10,220 Distributions to stockholders (Unaudited)................... -- -- -- (1,640) -- (1,640) Net income (Unaudited)........... -- -- -- 2,185 -- 2,185 ------ ---- --- ------- ----- ------- BALANCE, March 31, 1999 (Unaudited)...................... 12,163 $194 $37 $10,938 $(404) $10,765 ====== ==== === ======= ===== =======
The accompanying notes are an integral part of these financial statements. F-42 168 RCR PLUMBING, INC. NOTES TO FINANCIAL STATEMENTS (1) BUSINESS AND ORGANIZATION: RCR Plumbing, Inc., a California corporation (the Company), focuses on providing installation of plumbing and heating, ventilation, and air conditioning (HVAC) primarily for developers and builders of single-family and multi-family developments, apartment buildings and condominiums. The Company performs the majority of its contract work under fixed price arrangements with contract terms generally ranging from six to 12 months. The Company performs the majority of its work in California and Nevada. The Company and its stockholders entered into a definitive agreement with American Plumbing & Mechanical, Inc. (AMPAM), pursuant to which all outstanding shares of the Company's common stock were exchanged for cash, notes and shares of AMPAM common stock concurrently with the consummation of the related financing. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Interim Financial Information The interim financial statements as of March 31, 1999, and for the three months ended March 31, 1998 and 1999, are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company's management, the unaudited interim financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Accounts Receivable and Provision for Doubtful Accounts The Company provides an allowance for doubtful accounts based upon an estimate of uncollectable balances. Inventories Inventories consist of parts and supplies held for use in the ordinary course of business and are stated at the lower of cost or market using the first-in, first-out (FIFO) method. Property and Equipment Property and equipment are stated at cost, and depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized over the lesser of the life of the lease or the estimated useful life of the asset. Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments, which extend the useful lives of existing equipment, are capitalized and depreciated. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statements of operations. F-43 169 RCR PLUMBING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Revenue Recognition The Company recognizes revenue when services are performed except when work is being performed under a construction contract. Revenues from construction contracts are recognized on the percentage-of-completion method measured by the percentage of cost incurred to date to total estimated costs for each contract. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor and depreciation costs. Provisions for the total estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to costs and income and their effects are recognized in the period in which the revisions are determined. An amount equal to contract costs attributable to claims is included in revenues when realization is probable and the amount can be reliably estimated. A portion of the Company's receivables are comprised of retainages. These balances billed but not paid by customers pursuant to retainage provisions in construction contracts will be due upon completion of the contracts and acceptance by the customer. Based on the Company's experience with similar contracts in recent years, the retention balance at each balance sheet date will be collected within the subsequent fiscal year. The current asset, "Costs and estimated earnings in excess of billings on uncompleted contracts," represents revenues recognized in excess of amounts billed. The current liability, "Billings in excess of costs and estimated earnings on uncompleted contracts," represents billings in excess of revenues recognized. Warranty Costs The Company generally warrants labor and materials for twelve months after installation of a new plumbing or HVAC contract. A reserve for warranty costs is recorded based upon the historical level of warranty claims and management's estimate of future costs. Income Taxes The Company has elected S Corporation status as defined by the Internal Revenue Code, whereby the Company is not subject to taxation for federal purposes. Under S Corporation status, the stockholders report their shares of the Company's taxable earnings or losses in their personal tax returns. Certain states do not recognize the S Corporation status for purposes of state taxation. The provision for income taxes in the accompanying statements of operations represents the state tax provision related to such states. The Company terminated its S Corporation status concurrently with the effective date of the merger discussed in Note 13. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Realization of Long-Lived Assets The Company has adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Accordingly, in the event that facts and circumstances indicate that property and equipment or other assets may be impaired, an evaluation of F-44 170 RCR PLUMBING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset's carrying amount to determine if an impairment of such property is necessary. The effect of any impairment would be to expense the difference between the fair value of such property and its carrying value. Adoption of this standard did not have a material effect on the financial position or results of operations of the Company. (3) DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS: Contract receivables consist of the following (in thousands):
DECEMBER 31 ----------------- MARCH 31, 1997 1998 1999 ------- ------- ----------- (UNAUDITED) Billed................................................. $10,055 $ 9,529 $12,280 Retainage.............................................. 379 473 412 Other.................................................. 66 476 248 Allowance for uncollectible accounts................... (150) (118) (127) ------- ------- ------- Balance at end of period..................... $10,350 $10,360 $12,813 ======= ======= =======
Plumbing and HVAC installation contracts in progress are as follows (in thousands):
DECEMBER 31 ------------------- MARCH 31, 1997 1998 1999 -------- -------- ----------- (UNAUDITED) Costs incurred on contracts in progress.............. $ 13,351 $ 22,929 $27,008 Estimated earnings, net of losses.................... 4,763 9,008 10,265 -------- -------- ------- 18,114 31,937 37,273 Less -- billings to date............................. (18,557) (33,013) 37,720 -------- -------- ------- $ (443) $ (1,076) $ (447) ======== ======== ======= Costs and estimated earnings in excess of billings on uncompleted contracts.............................. $ 1,557 $ 1,536 $ 2,090 Billings in excess of costs and estimated earnings on uncompleted contracts.............................. (2,000) (2,612) (2,537) -------- -------- ------- $ (443) $ (1,076) $ (447) ======== ======== =======
Accounts payable and accrued expenses consist of the following (in thousands):
DECEMBER 31 --------------- MARCH 31, 1997 1998 1999 ------ ------ ----------- (UNAUDITED) Accounts payable, trade.................................. $2,726 $3,420 $ 4,656 Accrued compensation and benefits........................ 524 800 2,094 Other accrued expenses................................... 489 584 629 ------ ------ ------- Balance at end of period................................. $3,739 $4,804 $ 7,379 ====== ====== =======
F-45 171 RCR PLUMBING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (4) PROPERTY AND EQUIPMENT: Property and equipment, including capital lease assets, consist of the following (in thousands):
ESTIMATED DECEMBER 31 USEFUL LIVES ----------------- MARCH 31, IN YEARS 1997 1998 1999 ------------ ------- ------- ----------- (UNAUDITED) Land....................................... $ 446 $ 423 $ -- Transportation equipment................... 2 - 6 2,195 3,055 3,185 Machinery and equipment.................... 3 - 7 585 678 724 Computer and telephone equipment........... 3 - 7 802 946 683 Building and leasehold improvements........ 5 -39 2,338 2,411 1,253 Furniture and fixtures..................... 7 207 221 628 ------- ------- ------- 6,573 7,734 6,473 Less -- accumulated depreciation and amortization............................. (1,725) (2,250) (2,298) ------- ------- ------- Property and equipment, net................ $ 4,848 $ 5,484 $ 4,175 ======= ======= =======
(5) LINES OF CREDIT AND LONG-TERM DEBT: During 1997, the Company negotiated two lines of credit, with an aggregate credit limit of $4.5 million. The lines of credit expired May 1, 1999, and are to be used for working capital and equipment purchases, and bear interest ranging from the Bank's Reference Rate (8.5% at December 31, 1998) to the Bank's Reference Rate plus .5%. The lines of credit are collateralized by machinery and equipment, inventory and receivables. Borrowings on the lines of credit at December 31, 1997 totaled $1.9 million. At December 31, 1998, and March 31, 1999, the Company had no borrowings against this line of credit. The line of credit was terminated on April 5, 1999. Long-term debt consists of the following (in thousands):
DECEMBER 31 --------------- MARCH 31, 1997 1998 1999 ------ ------ ----------- (UNAUDITED) Notes payable to a bank, due in monthly installments of $2,218 including interest at 9.5% through October 2002, collateralized by real estate with a carrying value of $241,000 and $235,000 at December 31, 1997 and 1998, respectively and $0 at March 31, 1999................... $ 225 $ 221 $ -- Notes payable to a bank, due in monthly installments ranging from $359 to $5,365 at interest rates ranging from 8.25% to 11%, maturity dates ranging from February 1999 to December 2003. Notes are collateralized by vehicles and real estate, with a carrying value of $1,335,000 and $1,313,000 at December 31, 1997 and 1998, respectively and $243,000 at March 31, 1999............. $ 727 $ 679 $ 171
F-46 172 RCR PLUMBING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31 --------------- MARCH 31, 1997 1998 1999 ------ ------ ----------- (UNAUDITED) Notes payable to a bank, due in monthly installments from $7,896 to $8,917 at interest rates ranging from 9% to 9.75%, maturity date of October 2000. Notes are collateralized by real estate, with a carrying value of $1,215,000 and $1,171,000 at December 31, 1997 and 1998, respectively and $0 at March 31, 1999................... 735 644 -- ------ ------ --------- Totals.......................................... 1,687 1,544 171 Less -- current maturities................................ (144) (129) (171) ------ ------ --------- Total long-term debt............................ $1,543 $1,415 $ -- ====== ====== =========
The maturities of long-term debt as of December 31, 1998, are as follows (in thousands):
YEAR ENDING DECEMBER 31, - ------------ 1999............................................................. $ 129 2000............................................................. 730 2001............................................................. 13 2002............................................................. 216 2003............................................................. 456 ------ $1,544 ======
(6) LEASES: The Company leases various automobiles and equipment under capital lease and noncancelable operating arrangements. Future minimum lease payments under capital lease arrangements at December 31, 1998, and March 31, 1999, are as follows (in thousands):
YEAR ENDING YEAR ENDING DECEMBER 31, MARCH 31, ------------ ----------- (UNAUDITED) 1999....................................... $ 609 $ 453 2000....................................... 394 476 2001....................................... 210 276 2002....................................... 25 39 2003....................................... 27 30 ------ ------ 1,265 1,274 Amounts representing interest................ (249) (223) ------ ------ 1,016 1,051 Less -- current maturities................... (495) (475) ------ ------ Noncurrent................................... $ 521 $ 576 ====== ======
F-47 173 RCR PLUMBING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Future minimum lease payments under these noncancelable operating leases at December 31, 1998, are as follows (in thousands):
YEAR ENDING DECEMBER 31, - ------------ 1999.............................................................. $305 2000.............................................................. 297 2001.............................................................. 125 ---- $727 ====
Lease expense for the years ended December 31, 1996, 1997 and 1998 and the three months ended March 31, 1999 totaled approximately $230,000, $243,000, $312,000 and $78,000 (unaudited), respectively. (7) RELATED-PARTY TRANSACTIONS: Two of the Company's stockholders owned a partnership which leased vehicles to the Company at rates that in management's opinion, approximated market. During 1996, these stockholders contributed all such leased vehicles to the Company, at their historical cost, less accumulated depreciation. Upon the contribution of these assets, the net book value approximated zero. A Company stockholder and employee owned a partnership, which leased steel storage containers to the Company at rates that in management's opinion, approximated market. During 1996, this stockholder and employee contributed all such leased assets to the Company. These assets were contributed at the approximate historical cost, less accumulated depreciation, of approximately $37,000. A Company stockholder and employee owned a partnership, which leased certain equipment to the Company at rates that in management's opinion, approximate market. The Company incurred lease expense under this arrangement of approximately $87,000, $52,000, $77,000 and $70,000 (unaudited) for the years ended December 31, 1996, 1997 and 1998 and the three months ended March 31, 1999, respectively. The Company funds three life insurance policies for certain officers of the Company. Two of the policies name the Company as the beneficiary, while the other names one of the Company's stockholders as the beneficiary. Total payments for these policies approximated $41,000, $29,000, $12,000 and $0 (unaudited) for the years ended December 31, 1996, 1997 and 1998 and the three months ended March 31, 1999, respectively. The Company leases its two primary facilities from one of its stockholders at rates that in management's opinion, approximate market. Lease expense related to these buildings totaled approximately $220,000, $220,000, $220,000 and $55,000 (unaudited) for the years ended December 31, 1996, 1997 and 1998 and the three months ended March 31, 1999, respectively. (8) EMPLOYEE BENEFIT PLAN: The Company has a defined contribution profit-sharing plan. The Plan provides for the Company to match 25% to 100%, depending on length of service, of the first 6% contributed by each employee. Total contributions by the Company under the Plan were approximately $150,000, $172,000, $222,000 and $50,000 (unaudited) for the years ending December 31, 1996, 1997 and 1998 and the three months ended March 31, 1999, respectively. The Company may also make discretionary contributions. The Company made no discretionary contributions for the years ended December 31, 1996, 1997 and 1998 and for the three months ended March 31, 1999. (9) FINANCIAL INSTRUMENTS: The Company's financial instruments consist of cash and cash equivalents, lines of credit and debt. The Company believes that the carrying value of these instruments on the accompanying balance sheets approximate their fair value. F-48 174 RCR PLUMBING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (10) COMMITMENTS AND CONTINGENCIES: Litigation The Company is involved in disputes or legal actions arising in the ordinary course of business. Management does not believe the outcome of such legal actions will have a material adverse effect on the Company's financial position or results of operations. Insurance The Company carries a broad range of insurance coverage, including business auto liability, general liability and an umbrella policy. The Company has not incurred significant claims or losses on any of these insurance policies. (11) CONCENTRATION OF CREDIT RISK: In general, the Company performs its services under contract terms that entitle it to progress payments and is, by law, granted a lien interest in the work until paid. The Company is exposed to potential credit risk related to changes in business and economic factors within the region. However, management believes that its contract acceptance, billing and collection policies are adequate to minimize the potential credit risk. The Company's customers are primarily in the construction industry. Accordingly, the Company is exposed to risks of fluctuations in construction in the areas which it operates. (12) SALE OF COMMON STOCK: During 1998, one of the Company's stockholders sold all his shares to another stockholder. Subsequent to this transaction, the Company was owned by the two remaining stockholders. (13) EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS (UNAUDITED): On April 1, 1999, AMPAM acquired through merger all the stock of the Company in exchange for cash, notes and stock of AMPAM, after which the Company is a wholly owned subsidiary of AMPAM. In connection with the completion of the AMPAM Agreement, the Company transferred certain assets of the Company to the stockholders with a fair market value of approximately $2,144,000. In return the stockholders assumed liabilities related to those assets of approximately $1,332,000. In accordance with Accounting Principles Board No. 29, the Company recognized a gain on the transfer of the property of approximately $605,000. The difference between the fair market value of the assets transferred and the liabilities assumed was approximately $812,000 and was accounted for as a distribution to stockholders equity. Additionally, the Company made cash distributions which represent the Company's estimated S corporation accumulated adjustment account. As discussed in Note 2, in connection with the merger, the Company converted from an S Corporation to a C Corporation. Upon conversion to C Corporation status, the Company recorded deferred taxes for which it will be responsible. If the S Corporation had been terminated as of December 31, 1998 or March 31, 1999, the Company would have recorded a net current deferred tax liability of approximately $1,850,356 and $719,318, respectively, and a net non-current deferred tax liability of approximately $156,908 and $168,038, respectively. Deferred tax assets are a result of bad debt allowances, and warranty and other liability reserves. Deferred tax liabilities are a result of differences between book and tax depreciation, and differences between the percentage of completion and completed contract method of accounting for its contracts. Concurrently with the merger, the Company entered into agreements with the stockholders to lease office space used in the Company's operations for a negotiated amount and term. F-49 175 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Teepe's River City Mechanical, Inc.: We have audited the accompanying balance sheets of Teepe's River City Mechanical, Inc. as of December 31, 1997, 1998 and March 31, 1999, and the related statements of operations, cash flows and stockholders' equity for each of the three years in the period ended December 31, 1998 and for the three months ended March 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Teepe's River City Mechanical, Inc. as of December 31, 1997, 1998 and March 31, 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, and for the three months ended March 31, 1999, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP St. Louis, Missouri May 21, 1999 F-50 176 TEEPE'S RIVER CITY MECHANICAL, INC. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE INFORMATION) ASSETS
DECEMBER 31 ----------------- MARCH 31, 1997 1998 1999 ------- ------- --------- CURRENT ASSETS: Cash and cash equivalents................................. $ 802 $ 1,177 $ 749 Accounts receivable -- Contract, net.......................................... 6,729 8,709 8,247 Other.................................................. 77 44 36 Costs and estimated earnings in excess of billings on uncompleted contracts.................................. 336 1,263 1,533 Inventories............................................... 128 201 210 Prepaid expenses and other current assets................. 169 178 178 Deferred income taxes..................................... 398 388 380 ------- ------- ------- Total current assets.............................. 8,639 11,960 11,333 PROPERTY AND EQUIPMENT, net................................. 3,710 3,394 3,384 RELATED PARTY RECEIVABLES................................... 214 219 220 OTHER ASSETS................................................ 202 200 196 ------- ------- ------- Total assets...................................... $12,765 $15,773 $15,133 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term debt...................... $ 338 $ 308 $ 258 Note payable.............................................. 520 498 676 Accounts payable and accrued expenses..................... 3,520 6,268 5,524 Billings in excess of costs and estimated earnings on uncompleted contracts.................................. 2,226 1,463 1,291 Retainage payable......................................... 1,036 1,221 1,332 ------- ------- ------- Total current liabilities......................... 7,640 9,758 9,081 LONG-TERM DEBT, net of current maturities................... 1,318 601 596 OTHER LONG-TERM OBLIGATIONS................................. 391 1,084 1,064 ------- ------- ------- Total liabilities................................. 9,349 11,443 10,741 ------- ------- ------- STOCKHOLDERS' EQUITY: Common stock, no par value, $15 stated value, 500 shares authorized, 90 shares issued and outstanding........... 1 1 1 Retained earnings......................................... 3,415 4,329 4,391 ------- ------- ------- Total stockholders' equity........................ 3,416 4,330 4,392 ------- ------- ------- Total liabilities and stockholders' equity........ $12,765 $15,773 $15,133 ======= ======= =======
The accompanying notes are an integral part of these financial statements. F-51 177 TEEPE'S RIVER CITY MECHANICAL, INC. STATEMENTS OF OPERATIONS (IN THOUSANDS)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31 MARCH 31 --------------------------- --------------------- 1996 1997 1998 1998 1999 ------- ------- ------- ----------- ------- (UNAUDITED) REVENUES................................... $35,400 $42,687 $50,627 $11,449 $10,546 COST OF REVENUES (including depreciation).. 30,410 37,170 44,048 10,066 9,287 ------- ------- ------- ------- ------- Gross profit.......................... 4,990 5,517 6,579 1,383 1,259 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................................. 3,414 4,158 4,779 1,205 1,126 ------- ------- ------- ------- ------- Income from operations................ 1,576 1,359 1,800 178 133 ------- ------- ------- ------- ------- OTHER INCOME (EXPENSE): Interest income.......................... 54 71 82 17 12 Interest expense......................... (76) (145) (125) (33) (61) Other.................................... 13 14 (177) -- 5 ------- ------- ------- ------- ------- Other income (expense), net........... (9) (60) (220) (16) (44) ------- ------- ------- ------- ------- INCOME BEFORE PROVISION FOR INCOME TAXES... 1,567 1,299 1,580 162 89 PROVISION FOR INCOME TAXES................. 658 522 666 55 27 ------- ------- ------- ------- ------- NET INCOME................................. $ 909 $ 777 $ 914 $ 107 $ 62 ======= ======= ======= ======= =======
The accompanying notes are an integral part of these financial statements. F-52 178 TEEPE'S RIVER CITY MECHANICAL, INC. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31 MARCH 31 -------------------------- -------------------- 1996 1997 1998 1998 1999 ------ ------- ------- ----------- ------ (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income.................................... $ 909 $ 777 $ 914 $ 107 $ 62 Adjustments to reconcile net income to net cash provided by (used in) operating activities -- Depreciation and amortization.............. 272 388 303 76 88 (Gain) loss on sale of property and equipment................................ 1 2 114 -- 5 Deferred income taxes...................... 52 72 (33) 47 -- Other, net................................. 2 (9) 2 9 4 Changes in operating assets and liabilities -- (Increase) decrease in -- Accounts receivable................... (783) (1,681) (1,952) (1,537) 470 Costs and estimated earnings in excess of billings on uncompleted contracts........................... (983) 720 (927) (564) (270) Inventories........................... 28 (62) (73) (23) (9) Prepaid expenses and other current assets.............................. 9 (39) (9) 15 -- Increase (decrease) in -- Accounts payable and accrued expenses............................ 1,511 (803) 2,933 2,447 (633) Billings in excess of costs and estimated earnings on uncompleted contracts........................... (468) 1,137 (763) 59 (172) ------ ------- ------- ------- ------ Net cash provided by operating activities....................... 550 502 509 636 (455) ------ ------- ------- ------- ------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment.................................. 15 141 349 -- 7 Additions of property and equipment........... (677) (1,488) (450) (79) (90) Other investing activities.................... -- -- 736 -- (13) ------ ------- ------- ------- ------ Net cash (used in) provided by investing activities................ (662) (1,347) 635 (79) (96) ------ ------- ------- ------- ------ CASH FLOWS FROM FINANCING ACTIVITIES: Net (payments) proceeds from note payable..... -- 520 (22) (220) 178 Borrowings of long-term debt.................. 226 1,280 326 2 35 Payments of long-term debt.................... (210) (846) (1,073) (127) (90) ------ ------- ------- ------- ------ Net cash provided by (used in) financing activities................ 16 954 (769) (345) 123 ------ ------- ------- ------- ------ Net (decrease) increase in cash and cash equivalents.................... (96) 109 375 212 (428) CASH AND CASH EQUIVALENTS, beginning of period........................................ 789 693 802 802 1,177 ------ ------- ------- ------- ------ CASH AND CASH EQUIVALENTS, end of period........ $ 693 $ 802 $ 1,177 $ 1,014 $ 749 ====== ======= ======= ======= ====== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for -- Interest................................... $ 76 $ 145 $ 120 $ 33 $ 55 Income taxes............................... $ 624 $ 607 $ 299 $ -- $ 145 Capital lease additions....................... $ -- $ 378 $ -- $ -- $ --
The accompanying notes are an integral part of these financial statements. F-53 179 TEEPE'S RIVER CITY MECHANICAL, INC. STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE INFORMATION)
COMMON STOCK TOTAL --------------- RETAINED STOCKHOLDERS' SHARES AMOUNT EARNINGS EQUITY ------ ------ -------- ------------- BALANCE, December 31, 1995............................. 90 $1 $1,729 $1,730 Net income........................................... -- -- 909 909 -- -- ------ ------ BALANCE, December 31, 1996............................. 90 1 2,638 2,639 Net income........................................... -- -- 777 777 -- -- ------ ------ BALANCE, December 31, 1997............................. 90 1 3,415 3,416 Net income........................................... -- -- 914 914 -- -- ------ ------ BALANCE, December 31, 1998............................. 90 1 4,329 4,330 Net income........................................... -- -- 62 62 -- -- ------ ------ BALANCE, March 31, 1999................................ 90 $1 $4,391 $4,392 == == ====== ======
The accompanying notes are an integral part of these financial statements. F-54 180 TEEPE'S RIVER CITY MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION: Teepe's River City Mechanical, Inc., an Ohio corporation (the Company), provides plumbing and mechanical services for commercial and industrial properties. The Company performs the majority of its contract work under fixed price contracts with contract terms generally ranging from six to twelve months. The Company performs the majority of its work in Ohio, Kentucky and Indiana. The Company and its stockholders intend to enter into a definitive agreement with American Plumbing & Mechanical, Inc. (AMPAM), pursuant to which all outstanding shares of the Company's common stock will be exchanged for cash, notes and shares of AMPAM common stock concurrently with the consummation of the related financing. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Interim Financial Information The interim financial statements for the three months ended March 31, 1998, are unaudited and have been pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company's management, the unaudited interim financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Accounts Receivable and Allowance for Doubtful Accounts The Company provides an allowance for doubtful accounts based upon an estimate of uncollectable balances. Inventories Inventories consist of parts and supplies held for use in the ordinary course of business and are stated at the lower of cost or market using the first-in, first-out (FIFO) method. Property and Equipment Property and equipment are stated at cost, and depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized over the lesser of the life of the lease or the estimated useful life of the asset. Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments, which extend the useful lives of existing equipment, are capitalized and depreciated. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statements of operations. F-55 181 TEEPE'S RIVER CITY MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Revenue Recognition Revenues from construction contracts are recognized on the percentage-of-completion method measured by the percentage of cost incurred to date to total estimated costs for each contract. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor and depreciation costs. Provisions for the total estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to costs and income and their effects are recognized in the period in which the revisions are determined. An amount equal to contract costs attributable to claims is included in revenues when realization is probable and the amount can be reliably estimated. Revenue from noncontract work is recognized when the services are performed. The balances billed but not paid by customers pursuant to retainage provisions in construction contracts will be due upon completion of the contracts and acceptance by the customer. The current asset, "costs and estimated earnings in excess of billings on uncompleted contracts," represents revenues recognized in excess of amounts billed. The current liability, "billings in excess of costs and estimated earnings on uncompleted contracts," represents billings in excess of revenues recognized. Warranty Costs For certain contracts, the Company warrants labor for one year after installation of plumbing or mechanical systems. A reserve for warranty costs is recorded based upon the historical level of warranty claims and management's estimate of future costs. Income Taxes The Company, which is a C Corporation, follows the liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under this method, deferred assets and liabilities are recorded for future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the underlying assets or liabilities are recovered or settled. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Realization of Long-Lived Assets The Company has adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in the event that facts and circumstances indicate that property and equipment or other assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset's carrying amount to determine if an impairment of such property is necessary. The effect of any impairment would be to expense the difference between the fair value of such property and its carrying value. Adoption of this standard did not have a material effect on the financial position or results of operations of the Company. F-56 182 TEEPE'S RIVER CITY MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS: Contract receivables consist of the following (in thousands):
DECEMBER 31, ---------------- MARCH 31, 1997 1998 1999 ------ ------ --------- Trade................................................... $4,855 $6,087 $5,828 Unbilled retainage...................................... 1,849 2,186 2,052 Billed retainage........................................ 225 636 567 Allowance for uncollectible accounts.................... (200) (200) (200) ------ ------ ------ Balance at end of year............................. $6,729 $8,709 $8,247 ====== ====== ======
Installation contracts in progress are as follows (in thousands):
DECEMBER 31, ------------------ MARCH 31, 1997 1998 1999 ------- ------- --------- Costs incurred on contracts in progress............... $45,748 $60,913 $58,710 Estimated earnings, net of losses..................... 4,995 8,213 7,867 ------- ------- ------- 50,743 69,126 66,577 Less -- Billings to date.............................. 52,633 69,326 66,335 ------- ------- ------- $(1,890) $ (200) $ 242 ======= ======= ======= Costs and estimated earnings in excess of billings on uncompleted contracts............................... $ 336 $ 1,263 $ 1,533 Billings in excess of costs and estimated earnings on uncompleted contracts............................... (2,226) (1,463) (1,291) ------- ------- ------- $(1,890) $ (200) $ 242 ======= ======= =======
Accounts payable and accrued expenses consist of the following (in thousands):
DECEMBER 31, ---------------- MARCH 31, 1997 1998 1999 ------ ------ --------- Accounts payable, trade................................. $2,737 $5,226 $5,040 Accrued compensation and benefits....................... 357 664 311 Other accrued expenses.................................. 426 378 173 ------ ------ ------ $3,520 $6,268 $5,524 ====== ====== ======
F-57 183 TEEPE'S RIVER CITY MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 4. PROPERTY AND EQUIPMENT: Property and equipment, including capital lease assets, consists of the following (in thousands):
ESTIMATED DECEMBER 31, USEFUL LIVES ----------------- MARCH 31, IN YEARS 1997 1998 1999 ------------ ------- ------- --------- Land, Building and leasehold improvements... 15-40 $ 1,613 $ 1,078 $ 1,006 Machinery and equipment..................... 6-10 1,338 1,671 1,741 Transportation equipment.................... 5-10 1,140 1,387 1,402 Furniture and fixtures...................... 5-12 720 779 801 Property held under capital lease........... 12 378 378 378 Tools....................................... 5-7 56 55 56 ------- ------- ------- 5,245 5,348 5,384 Less -- Accumulated depreciation and amortization (1,535) (1,954) (2,000) ------- ------- ------- $ 3,710 $ 3,394 $ 3,384 ======= ======= =======
5. LONG-TERM DEBT: Long-term debt consists of the following (in thousands):
DECEMBER 31, --------------- MARCH 31, 1997 1998 1999 ------ ----- --------- Mortgage note payable in monthly installments through November 2003. The interest rate (8.5% at December 31, 1997) is subject to annual adjustment based upon current market interest rates. Land and building are pledged as collateral. The shareholders of the Company are guarantors........................................ $ 363 $ -- $ -- Mortgage note payable requires monthly installments of $3 through October 2012. The interest rate (8.3% at December 31, 1997) is subject to triennial adjustment based upon current market interest rates. Land and building are pledged as collateral. The shareholders of the Company are guarantors......................... 301 -- -- Various installment notes payable with interest rates ranging from 6.7% to 9.0%, payable in monthly installments of $21 including interest, with various maturities through August 2004, collateralized by equipment............................................. 631 592 553 Capital lease obligation, payable in monthly installments of $5, maturing September 2004, bearing interest at 4.2%. The lease is collateralized by equipment............................................. 361 317 301 ------ ----- ----- Totals........................................ 1,656 909 854 Less -- Current portion................................. (338) (308) (258) ------ ----- ----- Long-term..................................... $1,318 $ 601 $ 596 ====== ===== =====
F-58 184 TEEPE'S RIVER CITY MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The maturities of long-term debt are as follows (in thousands): Year ending December 31: 1999...................................................... $258 2000...................................................... 279 2001...................................................... 133 2002...................................................... 79 2003...................................................... 59 Thereafter................................................ 46 ---- $854 ====
6. NOTE PAYABLE: The Company has a note payable to a bank that provided for borrowings of up to $1,500,000 at December 31, 1997, 1998 and March 31, 1999. The note had outstanding balances of $520,000, $498,000 and $676,000 at December 31, 1997, 1998 and March 31, 1999, respectively. At December 31, 1997, the note bore interest at 8.5%, payable monthly with a maturity date of July 1998. At December 31, 1998, and March 31, 1999, the note bore interest at 7.75%, payable monthly with a maturity date of July 1999. The note is secured by the Company's assets and is subject to certain restrictive covenants. 7. LEASES: The Company leases vehicles and office equipment under operating leases. Lease expense related to these lease agreements totaled $30,000, $98,000, $40,000 and $7,833 for the years ended December 31, 1996, 1997 and 1998, and the three months ended March 31, 1999, respectively. The Company also leases a crane under a capital lease from a third party. The capital lease requires payments of $63,000 per year through September 2004. Future minimum lease payments under noncancelable operating leases at December 31, 1998, are as follows (in thousands): Year ending December 31: 1999...................................................... $ 88 2000...................................................... 82 2001...................................................... 64 2002...................................................... 37 ---- $271 ====
8. INCOME TAXES: Federal and state income tax expenses are as follows (in thousands):
YEAR ENDED DECEMBER 31 THREE MONTHS -------------------- ENDED MARCH 31, 1996 1997 1998 1999 ---- ---- ---- --------------- Federal: Current..................................... $485 $362 $653 $13 Deferred.................................... 42 60 (45) -- State: Current..................................... 121 88 46 14 Deferred.................................... 10 12 12 -- ---- ---- ---- --- $658 $522 $666 $27 ==== ==== ==== ===
F-59 185 TEEPE'S RIVER CITY MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Actual income tax expense differs from income tax expense computed by applying the U.S. federal statutory corporate rate of 34% to income before provision for income taxes as follows (in thousands):
YEAR ENDED DECEMBER 31 THREE MONTHS -------------------- ENDED MARCH 31, 1996 1997 1998 1999 ---- ---- ---- --------------- Provision at the statutory rate............... $533 $442 $537 $ 30 Increase resulting from: State income tax, net of benefit for federal deduction................................ 79 57 58 14 Benefit of lower marginal tax rates......... (15) (13) (13) (13) Other....................................... 61 36 84 (4) ---- ---- ---- ---- $658 $522 $666 $ 27 ==== ==== ==== ====
Deferred income tax provisions result from temporary differences in the recognition of income and expenses for financial reporting purposes and for tax purposes. The tax effects of these temporary differences, representing deferred tax assets and liabilities, result principally from the following (in thousands):
AS OF DECEMBER 31 THREE MONTHS -------------- ENDED MARCH 31, 1997 1998 1999 ----- ----- --------------- Deferred income tax assets: Allowance for doubtful accounts................... $ 82 $ 82 $ 82 Accrued expenses.................................. 316 306 298 ----- ----- ---- Total deferred income tax asset........... 398 388 380 ----- ----- ---- Deferred income tax liabilities: Property and equipment............................ (388) (335) (333) Other............................................. (3) (13) (7) ----- ----- ---- Total deferred income tax liability (included in other long-term obligations)............................ (391) (348) (340) ----- ----- ---- Net deferred income tax asset............. $ 7 $ 40 $ 40 ===== ===== ====
The net deferred tax assets and liabilities are comprised of the following (in thousands):
AS OF DECEMBER 31 THREE MONTHS -------------- ENDED MARCH 31, 1997 1998 1999 ----- ----- --------------- Deferred tax assets: Current........................................... $ 398 $ 388 $ 380 Long-term......................................... -- -- -- ----- ----- ----- Total..................................... 398 388 380 ----- ----- ----- Deferred tax liabilities: Current........................................... -- -- -- Long-term......................................... (391) (348) (340) ----- ----- ----- Net deferred income tax asset............. $ 7 $ 40 $ 40 ===== ===== =====
F-60 186 TEEPE'S RIVER CITY MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 9. RELATED-PARTY TRANSACTIONS: In July 1998, the Company sold certain property to an entity controlled by the Company's majority stockholder. Concurrent with the sale, the Company entered into a lease with the entity for the same property. The lease calls for monthly lease payments of approximately $12,000. The sale leaseback was recorded under the deposit method using Statement of Financial Accounting Standards (SFAS) No. 98, "Accounting for Leases" and, as such, the liability of $736,000 and $724,000 is recorded at December 31, 1998, and March 31, 1999, respectively, as a deposit and all payments will be charged against the deposit liability, that is included in other long-term obligations on the balance sheet. In 1997, the Company entered into an operating lease for its Columbus, Ohio building with a related entity. The building lease expires in August 2003 with an option to renew for two five year terms. The lease calls for monthly lease payments of approximately $5,000. Total rent paid under this was $18,000, $55,000 and $15,000 in 1997, 1998 and for the three months ended March 31, 1999, respectively. As of December 31, 1997 and 1998, and March 31, 1999, the Company has loans to a shareholder and to an officer. Both receivables are classified as related party receivables for balance sheet presentation. The loan to the shareholder has an outstanding balance of $114,000, $122,940 and $121,752 at December 31, 1997, 1998, and March 31, 1999, respectively. The loan bears interest at the applicable federal rate (5.9% at December 31, 1997, 1998 and 5.9% at March 31, 1999). Total interest income related to this loan was $7,000 for December 31, 1997 and 1998, and $1,771 for the three months ended March 31, 1999. The loan to the officer of the Company had an outstanding balance of $100,000, $98,000 and $98,000 at December 31, 1997, 1998, and March 31, 1999, respectively. The loan bears interest at the prime rate, 8.5% at December 31, 1997 and 1998, and 7.75% at March 31, 1999, respectively, and matures in August 1999. 10. EMPLOYEE BENEFIT PLAN: The Company has a defined contribution profit-sharing plan for all employees with immediate vesting. The plan provides for the Company to match the first $500 contributed by each employee, which vests over a period of seven years. Total contributions by the Company under the plan were approximately $50,000, $57,000, $71,000 and $54,000 for the years ended December 31, 1996, 1997, 1998 and the three months ended March 31, 1999, respectively. The Company's field personnel elected to have the Company contribute a portion of their wages earned on prevailing wage contracts to a multiemployer plan. The expense related to this plan was $333,000, $570,000, $501,700 and $103,941 for the years ended December 31, 1996, 1997, 1998 and the three months ended March 31, 1999, respectively. 11. FINANCIAL INSTRUMENTS: The Company's financial instruments consist of cash and cash equivalents, a notes payable and long-term debt. The Company believes that the carrying value of these instruments on the accompanying balance sheets approximates their fair value. 12. COMMITMENTS AND CONTINGENCIES: Guarantees The Company is the guarantor on several loans entered into by a company affiliated through common ownership. The loans had outstanding balances $1,937,000, $3,037,000 and $3,020,000 at December 31, 1997, 1998, and March 31,1999, respectively. F-61 187 TEEPE'S RIVER CITY MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Litigation The Company is involved in disputes or legal actions arising in the ordinary course of business. Management does not believe the outcome of such legal actions will have a material adverse effect on the Company's financial position or results of operations. Insurance The Company carries a broad range of insurance coverage, including business auto liability, general liability and an umbrella policy. The Company has not incurred significant claims or losses on any of these insurance policies. The Company participates in a state-wide workers' compensation program. In June 1998, the Company received a one-time refund of $422,000 as a result of positive claims experience and strong earnings of the workers' compensation fund. The refund is reflected as a reduction in cost of services in 1998. 13. MAJOR CUSTOMERS AND RISK CONCENTRATION: The Company had sales greater than 10% of the total revenues for one, three, two and one major customers during the years ended December 31, 1996, 1997, 1998, and for the three months ended March 31, 1999, respectively. These customers represented approximately 10.4%, 30.5%, 23.4% and 10.0% of total revenues during the years ended December 31, 1996, 1997, 1998, and for the three months ended March 31, 1999, respectively. In general, the Company performs its services under contract terms that entitle it to progress payments and is, by law, granted a lien interest in the work until paid. The Company is exposed to potential credit risk related to changes in business and economic factors within Ohio, Kentucky and Indiana. However, management believes that its contract acceptance, billing and collection policies are adequate to minimize the potential credit risk. The Company's customers are primarily in the construction industry. Accordingly, the Company is exposed to risks of fluctuations in construction in the areas which it operates. 14. SUBSEQUENT EVENT: On April 1, 1999, AMPAM acquired through merger all the stock of the Company in exchange for cash, notes and stock of AMPAM, after which the Company is a wholly owned subsidiary of AMPAM. Concurrently with the merger, the Company entered into agreements with the stockholder to lease land and buildings used in the Company's operations for a negotiated amount and term. F-62 188 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Keith Riggs Plumbing, Inc.: We have audited the accompanying balance sheets of Keith Riggs Plumbing, Inc., (an Arizona corporation), as of December 31, 1997 and 1998, and the related statements of operations, cash flows and stockholders' equity for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Keith Riggs Plumbing, Inc., as of December 31, 1997 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Phoenix, Arizona March 17, 1999 F-63 189 KEITH RIGGS PLUMBING, INC. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE INFORMATION) ASSETS
DECEMBER 31 --------------- MARCH 31, 1997 1998 1999 ------ ------ ----------- (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents................................. $ 64 $ 194 $ 171 Accounts receivable -- Contract, net.......................................... 4,927 4,207 4,776 Other.................................................. 7 4 227 Inventories............................................... 314 516 696 Prepaid expenses and other current assets................. 29 21 -- ------ ------ ------ Total current assets.............................. 5,341 4,942 5,870 PROPERTY AND EQUIPMENT, net................................. 1,432 1,227 1,161 OTHER ASSETS................................................ 4 -- -- ------ ------ ------ Total assets...................................... $6,777 $6,169 $7,031 ====== ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Bank overdraft............................................ $ 224 $ -- $ -- Line of credit............................................ 450 -- -- Current maturities of long-term debt...................... 224 214 200 Current maturities of notes payable -- related parties.... 32 16 12 Accounts payable and accrued expenses..................... 3,035 2,482 2,606 ------ ------ ------ Total current liabilities......................... 3,965 2,712 2,818 LONG-TERM LIABILITIES: Long-term debt, net of current maturities................. 562 437 382 Notes payable -- related parties, net of current maturities............................................. 89 84 74 ------ ------ ------ Total liabilities................................. 4,616 3,233 3,274 ------ ------ ------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $1 par value; 1,000,000 shares authorized; 10,250 shares issued and 8,200 shares outstanding...... 10 10 10 Additional paid-in capital................................ 249 249 249 Retained earnings......................................... 2,089 2,864 3,685 Treasury stock, at cost, 2,050 shares..................... (187) (187) (187) ------ ------ ------ Total stockholders' equity........................ 2,161 2,936 3,757 ------ ------ ------ Total liabilities and stockholders' equity........ $6,777 $6,169 $7,031 ====== ====== ======
The accompanying notes are an integral part of these financial statements. F-64 190 KEITH RIGGS PLUMBING, INC. STATEMENTS OF OPERATIONS (IN THOUSANDS)
YEAR ENDED THREE MONTHS DECEMBER 31, ENDED MARCH 31, ------------------- -------------------- 1997 1998 1998 1999 ------- ------- ----------- ------ (UNAUDITED) REVENUES.......................................... $29,680 $34,464 $7,279 $8,917 COST OF REVENUES (including depreciation)......... 25,865 29,965 6,190 7,469 ------- ------- ------ ------ Gross profit................................. 3,815 4,499 1,089 1,448 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES...... 2,583 2,943 655 706 ------- ------- ------ ------ Income from operations....................... 1,232 1,556 434 742 ------- ------- ------ ------ OTHER INCOME (EXPENSE): Interest income................................. 8 17 2 11 Interest expense................................ (74) (90) (26) (9) Other........................................... 165 97 (14) 228 ------- ------- ------ ------ Other income (expense)....................... 99 24 (38) 230 ------- ------- ------ ------ NET INCOME........................................ $ 1,331 $ 1,580 $ 396 $ 972 ======= ======= ====== ======
The accompanying notes are an integral part of these financial statements. F-65 191 KEITH RIGGS PLUMBING, INC. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED THREE MONTHS DECEMBER 31, ENDED MARCH 31, ----------------- ------------------- 1997 1998 1998 1999 ------- ------- ----------- ----- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income.......................................... $ 1,331 $ 1,580 $396 $ 972 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization.................... 420 438 105 96 (Gain) loss on sale of property and equipment.... 9 2 15 (28) Changes in operating assets and liabilities: (Increase) decrease in -- Accounts receivable, contract, net.......... (818) 720 351 (569) Accounts receivable, other.................. 4 3 (14) (223) Inventories................................. 49 (202) -- (180) Prepaid expenses and other current assets... 19 8 -- 21 Other noncurrent assets..................... -- 4 (2) -- Increase (decrease) in -- Accounts payable and accrued expenses....... 244 (553) (666) 124 ------- ------- ---- ----- Net cash provided by operating activities............................. 1,258 2,000 185 213 ------- ------- ---- ----- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment........ 35 22 -- 64 Additions of property and equipment................. (327) (148) (41) (66) ------- ------- ---- ----- Net cash used in investing activities..... (292) (126) (41) (2) ------- ------- ---- ----- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in borrowings under line of credit........................................... 450 (450) (450) -- Proceeds from long-term debt........................ 248 -- -- -- Payments of long-term debt.......................... (341) (246) (62) (69) Distributions to stockholders....................... (974) (805) (202) (151) Payments to related parties......................... (20) (19) (8) (14) Increase in treasury stock.......................... (55) -- -- -- Decrease in bank overdraft.......................... (540) (224) 602 -- ------- ------- ---- ----- Net cash used in financing activities..... (1,232) (1,744) (120) (234) ------- ------- ---- ----- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................................... (266) 130 CASH AND CASH EQUIVALENTS, beginning of period........ 330 64 64 194 ------- ------- ---- ----- CASH AND CASH EQUIVALENTS, end of period.............. $ 64 $ 194 $ 88 $ 171 ======= ======= ==== ===== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for -- interest........................... $ 74 $ 90 $ 26 $ 15 ======= ======= ==== ===== SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Additions of property and equipment via debt financing........................................ $ 183 $ 110 $ 16 $ -- ======= ======= ==== =====
The accompanying notes are an integral part of these financial statements. F-66 192 KEITH RIGGS PLUMBING, INC. STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE INFORMATION)
COMMON STOCK --------------- ADDITIONAL TOTAL SHARES PAID-IN RETAINED TREASURY STOCKHOLDERS' ISSUED AMOUNT CAPITAL EARNINGS STOCK EQUITY ------ ------ ---------- -------- -------- ------------- BALANCE, December 31, 1996......... 10,250 $10 $249 $1,732 $(132) $1,859 Distributions to stockholders.... -- -- -- (974) -- (974) Net income....................... -- -- -- 1,331 -- 1,331 Other (Note 7)................... -- -- -- -- (55) (55) ------ --- ---- ------ ----- ------ BALANCE, December 31, 1997......... 10,250 10 249 2,089 (187) 2,161 Distributions to stockholders.... -- -- -- (805) -- (805) Net income....................... -- -- -- 1,580 -- 1,580 ------ --- ---- ------ ----- ------ BALANCE, December 31, 1998......... 10,250 $10 $249 $2,864 $(187) $2,936 Distributions to stockholders (Unaudited)................... -- -- -- (151) -- (151) Net income (Unaudited)........... -- -- -- 972 -- 972 ------ --- ---- ------ ----- ------ BALANCE, March 31, 1999 (Unaudited)...................... 10,250 $10 $249 $3,685 $(187) $3,757 ====== === ==== ====== ===== ======
The accompanying notes are an integral part of these financial statements. F-67 193 KEITH RIGGS PLUMBING, INC. NOTES TO FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION: Keith Riggs Plumbing, Inc., an Arizona corporation (the Company), provides plumbing services primarily for residential contractors. The Company performs the majority of its contract work under fixed price contracts in the state of Arizona. The Company and its stockholders intend to enter into a definitive agreement with American Plumbing & Mechanical, Inc. (AMPAM), pursuant to which all outstanding shares of the Company's common stock will be exchanged for cash and shares of AMPAM common stock concurrently with the consummation of the related financing. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Interim Financial Information The interim financial statements as of March 31, 1999, and for the three months ended March 31, 1998 and 1999, are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company's management, the unaudited interim financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Receivable and Provision for Doubtful Accounts The Company provides an allowance for doubtful accounts based upon an estimate of uncollectable balances. Inventories Inventories consist of parts and supplies held for use in the ordinary course of business and are stated at the lower of cost or market using the first-in, first-out (FIFO) method. Property and Equipment Property and equipment are stated at cost, and depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized over the lesser of the life of the lease or the estimated useful life of the asset. Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments, which extend the useful lives of existing equipment, are capitalized and depreciated. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statements of operations. Revenue Recognition The Company recognizes revenue when services are performed except when work is being performed under a construction contract. Revenue from construction contracts is generally recognized on the F-68 194 KEITH RIGGS PLUMBING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) percentage-of-completion method measured by the percentage of cost incurred to date to total estimated costs for each contract. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor and depreciation costs. Warranty Costs The Company warrants labor for two years after installation of new plumbing. The Company generally warrants labor for 30 days after repair of existing plumbing. A reserve for warranty costs is recorded based upon the historical level of warranty claims and management's estimate of future costs. Income Taxes The Company has elected Subchapter S status under the Internal Revenue Code. Therefore, the tax effects of the Company's operations will be reflected on the tax returns of the individual stockholders. The Company will terminate its S Corporation status concurrently with the effective date of the merger discussed in Note 13. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Realization of Long-Lived Assets The Company has adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Accordingly, in the event that facts and circumstances indicate that property and equipment or other assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset's carrying amount to determine if an impairment of such property is necessary. The effect of any impairment would be to expense the difference between the fair value of such property and its carrying value. 3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS: Contract receivables at December 31, 1997 and 1998, and March 31, 1999, consist of the following (in thousands):
1997 1998 1999 ------ ------ ----------- (UNAUDITED) Billed................................................... $4,912 $4,016 $4,598 Unbilled................................................. 117 293 280 Allowance for doubtful accounts.......................... (102) (102) (102) ------ ------ ------ Balance at end of year......................... $4,927 $4,207 $4,776 ====== ====== ======
F-69 195 KEITH RIGGS PLUMBING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Accounts payable and accrued expenses at December 31, 1997 and 1998, and March 31, 1999, consist of the following (in thousands):
1997 1998 1999 ------ ------ ----------- (UNAUDITED) Accounts payable, trade.................................. $2,354 $1,783 $1,689 Accrued compensation and benefits........................ 352 445 518 Other accrued expenses................................... 329 254 399 ------ ------ ------ Balance at end of year......................... $3,035 $2,482 $2,606 ====== ====== ======
4. PROPERTY AND EQUIPMENT: Property and equipment at December 31, 1997 and 1998, and March 31, 1999, consist of the following (in thousands):
ESTIMATED USEFUL LIVES IN YEARS 1997 1998 1999 ------------ ------- ------- ----------- (UNAUDITED) Land............................................... -- $ 20 $ -- $ -- Transportation equipment........................... 5-7 2,551 2,735 2,633 Machinery and equipment............................ 5-10 244 249 311 Building and leasehold improvements................ 7-40 284 284 284 Furniture and fixtures............................. 3-10 207 221 221 ------- ------- ------- 3,306 3,489 3,449 Less -- accumulated depreciation and amortization..................................... (1,874) (2,262) (2,288) ------- ------- ------- Property and equipment, net.............. $ 1,432 $ 1,227 $ 1,161 ======= ======= =======
5. LOAN AGREEMENT: At December 31, 1998, and March 31, 1999, the Company had a Loan Agreement (the Agreement) with a bank that provides for a revolving line of credit of $550,000 and a term loan of $450,000. The proceeds of the revolving line of credit are used to finance temporary increases in inventory and accounts receivable and provide funds to take advantage of trade discounts. Proceeds of the term loan are used to provide working capital. The revolving line of credit requires payment of interest monthly at .5% over the prime rate, which was 8.25% at December 31, 1998, and 7.75% at March 31, 1999, and matures on May 28, 1999. Borrowings on the line of credit at December 31, 1997, totaled $450,000. There were no borrowings at December 31, 1998, and March 31, 1999. The line of credit was terminated subsequent to March 31, 1999. The term loan is payable in monthly installments of $7,500 plus interest at 9% and matures in June 2002. At December 31, 1997 and 1998, and March 31, 1999, $395,625, $298,125 and $283,125 (unaudited). respectively, was outstanding on the term loan. Subsequent to March 31, 1999, and in connection with the merger (see Note 13), the Company paid in full the amounts outstanding under the term loan. The Agreement is collateralized by receivables, inventory and equipment. In addition, the shareholders of the Company are guarantors of the term loan. Under the terms of the Agreement, the Company is required to maintain certain financial covenants on a monthly basis, the most restrictive of which are the following: maintenance of a debt to tangible net worth ratio of not more than 3.5 to 1.0; a debt service coverage ratio greater than 1.5 to 1.0; and a current ratio of not less than 1.1 to 1.0. The Agreement also places restrictions on the Company's ability to create F-70 196 KEITH RIGGS PLUMBING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) liens or encumbrances to be placed on the collateral, to transfer or sell the collateral, or to change ownership of the Company. 6. LONG-TERM DEBT: Long-term debt at December 31, 1997 and 1998, and March 31, 1999, consists of the following (in thousands):
1997 1998 1999 ----- ----- ----------- (UNAUDITED) Term loan (Note 5)........................................ $ 396 $ 298 $ 283 Notes payable to a bank, payable in monthly installments of principal and interest at 9%; maturing through July 2003; secured by vehicles............................... 195 205 179 Note payable to a bank, payable in monthly installments of principal and interest at 4.6%, maturing September 2001; secured by equipment.................................... 39 29 16 Notes payable to various credit corporations, payable in monthly installments of principal and interest at rates between 6.45% and 10.9%; maturing through October 2001; secured by vehicles and equipment....................... 156 119 104 ----- ----- ----- 786 651 582 Less -- current maturities.............................. (224) (214) (200) ----- ----- ----- Total long-term debt, net of current maturities.................................... $ 562 $ 437 $ 382 ===== ===== =====
The maturities of long-term debt as of December 31, 1998, are as follows (in thousands):
YEAR ENDING DECEMBER 31, - ------------ 1999...................................................... $214 2000...................................................... 185 2001...................................................... 151 2002...................................................... 59 2003...................................................... 8 Thereafter................................................ 34 ---- $651 ====
7. STOCKHOLDERS' EQUITY: Common Stock Split On February 1, 1998, the Company declared a 1.025 for 1.0 stock split of the Company's common stock to stockholders of record on December 31, 1997. All share amounts have been restated to reflect the split. Buy-Sell Agreement The Keith Riggs Plumbing, Inc. Stockholders' Buy-Sell Agreement (the "Buy-Sell Agreement") restricts the sale, assignment, transfer, pledge or other disposition of the Company's shares without the prior written consent of the other stockholders. Additionally, under certain circumstances shares of stock shall be repurchased by the Company. The redemption price is to be based on an annual certificate of value or, in the absence of the former, on an appraisal performed at the time of the transaction, and is to be paid according to the terms stipulated in the Buy-Sell Agreement. F-71 197 KEITH RIGGS PLUMBING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Buy-Sell Agreement also provides for the issuance of 100 shares of the Company's common stock to any lineal descendant of the founders based upon attaining 10 years of continuous service and shall receive 100 shares for each additional year of service thereafter until the 20th year of service, when an additional 1,000 shares shall be issued for a maximum of 2,000 shares. The years of service are measured at December 31st and the shares are issued on February 1st of the subsequent year. Such shares may be issued through the issuance of new shares or existing shares. On February 1, 1998 and 1999, 100 shares of the Company's common stock were issued in connection with the terms of this Agreement. The Company's stockholders elected to issue the shares from their existing holdings. Treasury Stock Treasury stock consists of 2,050 shares redeemed from one stockholder in 1994 for an 11-year note payable collateralized by a life insurance policy. The Company recorded the value of the treasury shares at the present value of the note discounted at 8%. In 1997, upon the death of the stockholder and receipt of the insurance proceeds, the Company repaid this debt in its entirety. The $55,062 loss associated with this early extinguishment of debt with a related party was recorded as an additional cost of treasury stock. 8. RELATED-PARTY TRANSACTIONS: At December 31, 1998, the Company had a note payable due to one stockholder amounting to $10,600. This note is noninterest bearing and is due on demand. At December 31, 1998, and March 31, 1999, the Company had a note payable to RGS Land LLC (RGS), a company wholly owned by the Company's stockholders, amounting to $90,008 and $74,008 (unaudited), respectively. This note is payable in monthly installments of $1,333 plus interest at prime plus 2% and matures in July 2004. The proceeds received from the RGS note were used to construct the Glendale, Arizona facility. Subsequent to March 31, 1999, these notes were paid in full. The Company leases its main premises in Mesa, Arizona and in Glendale, Arizona, from the principal stockholders. The Company's lease obligation is on a month to month basis with no fixed term. Rent expense for these locations totaled $61,330, $63,878 and $11,118 (unaudited) for the years ended December 31, 1997 and 1998, and the three months ended March 31, 1999, respectively. Management of the Company believes that the approximate market rental value for these properties is $180,000 per year. 9. EMPLOYEE BENEFIT PLAN: Effective January 1, 1997, the Company established the Keith Riggs Plumbing, Inc. 401(k) Plan. The Plan covers full time employees and provides for employer contributions on a discretionary basis. The Company's expense for the years ended December 31, 1997 and 1998, and the three months ended March 31, 1999, totaled $25,448, $32,383 and $0 (unaudited), respectively. 10. FINANCIAL INSTRUMENTS: The Company's financial instruments consist of cash and cash equivalents, accounts receivable, other current assets, the line of credit, accounts payable and accrued expenses, notes payable and debt. The Company believes that the carrying value of these instruments on the accompanying balance sheets approximates their fair value. F-72 198 KEITH RIGGS PLUMBING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 11. COMMITMENTS AND CONTINGENCIES: Litigation The Company is involved in disputes or legal actions arising in the ordinary course of business. Management does not believe the outcome of such legal actions will have a material adverse effect on the Company's financial position or results of operations. Insurance The Company carries a broad range of insurance coverage, including business auto liability, general liability, property and workers' compensation. The Company has not incurred significant claims or losses on any of these insurance policies. The workers' compensation policy provides for an annual refundable deposit in addition to the premium payments. As of March 31, 1999, $200,000 (unaudited) has been accrued for a 1996 and 1997 compensation refund. Operating Leases In addition to the related-party leases described in Note 8, the Company leases certain equipment from unaffiliated third parties under noncancellable operating leases. Rent expense related to these lease agreements totaled $24,371, $31,818 and $20,863 (unaudited) for the years ended December 31, 1997 and 1998, and the three months ended March 31, 1999, respectively. Future minimum lease payments under these noncancellable leases are as follows:
YEAR ENDING DECEMBER 31, - ------------ 1999................................................... $ 83,451 2000................................................... 83,451 2001................................................... 30,548 -------- $197,450 ========
12. MAJOR CUSTOMERS AND RISK CONCENTRATION: The Company had revenues greater than 10% of total revenues to the following major customers for the periods ended December 31, 1997 and 1998, and March 31, 1999:
1997 1998 1999 --------------------------- --------------------------- --------------------------- REVENUES PERCENT OF REVENUES PERCENT OF REVENUES PERCENT OF (IN THOUSANDS) REVENUES (IN THOUSANDS) REVENUES (IN THOUSANDS) REVENUES -------------- ---------- -------------- ---------- -------------- ---------- (UNAUDITED) Customer A............. $3,773 12.7% $6,143 17.8% $1,384 15.5% Customer B............. 5,370 18.1 5,771 16.7 1,153 12.9 Customer C............. 4,388 14.8 5,741 16.7 1,082 12.1 Customer D............. 3,580 12.1 3,574 10.3 -- --
Financial instruments which potentially expose the Company to concentrations of credit risk, as defined by SFAS No. 105, consist primarily of contract accounts receivable. At December 31, 1998, and March 31, 1999, approximately 39% and 47% (unaudited) of contract accounts receivable are due from three customers. In general, the Company performs its services under contract terms that entitle it to progress payments and is, by law, granted a lien interest in the work until paid. The Company is exposed to potential credit risk related to changes in business and economic factors within the state of Arizona. F-73 199 KEITH RIGGS PLUMBING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) However, management believes that its contract acceptance, billing and collection policies are adequate to minimize the potential credit risk. The Company's customers are primarily in the construction industry. Accordingly, the Company is exposed to risks of fluctuations in construction in the areas which it operates. The Company relies on several key vendors to supply its primary material needs. However, the Company believes that other suppliers could provide for the Company's needs on comparable terms. Abrupt changes in the supply flow could, however cause a delay and a possible inability to meet its commitments on schedule or a possible loss of sales which would offset operating results adversely. 13. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS (UNAUDITED): On April 1, 1999, AMPAM acquired through merger all the stock of the Company in exchange for cash and stock of AMPAM, after which the Company is a wholly owned subsidiary of AMPAM. In connection with the merger, the Company sold or distributed certain non-operating assets and attendant liabilities, if any, to the stockholders. Additionally, the Company made cash distributions prior to the merger which represent the Company's estimated S corporation accumulated adjustment account. As discussed in Note 2, in connection with the merger, the Company converted from an S corporation to a C corporation. Upon conversion to C corporation status, the Company recorded deferred taxes for which it will be responsible. If the S corporation had been terminated as of December 31, 1998, and March 31, 1999, the Company would have recorded a deferred tax asset of approximately $140,000 and $192,000, respectively, due to various book reserves and accruals and a deferred tax liability of approximately $246,000 and $265,000, respectively, due to differences between book and tax depreciation and due to an accrual for unbilled revenue. Concurrently with the merger, the Company entered into agreements with the stockholders to lease office space used in the Company's operations for a negotiated amount and term. F-74 200 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of J.A. Croson Company and Franklin Fire Sprinkler Company: We have audited the accompanying combined balance sheets of J.A. Croson Company and Franklin Fire Sprinkler Company (combined, the Company) as of September 30, 1997 and 1998, and March 31, 1999, and the related combined statements of operations, cash flows and stockholders' equity for each of the three years in the period ended September 30, 1998, and for the six months ended March 31, 1999. These combined financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of J.A. Croson Company and Franklin Fire Sprinkler Company as of September 30, 1997 and 1998, and March 31, 1999, and the combined results of their operations and their cash flows for each of the three years in the period ended September 30, 1998, and for the six months ended March 31, 1999, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP St. Louis, Missouri, May 14, 1999 F-75 201 J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY COMBINED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
SEPTEMBER 30, ---------------- MARCH 31, 1997 1998 1999 ------ ------- --------- CURRENT ASSETS: Cash and cash equivalents................................. $ 479 $ 692 $ 379 Accounts receivable -- Contract, net.......................................... 3,148 4,179 4,970 Contract -- related party.............................. 1,761 1,152 1,332 Other.................................................. 90 22 47 Costs and estimated earnings in excess of billings on uncompleted contracts.................................. 2,318 2,327 2,951 Inventories............................................... 292 215 247 Prepaid expenses and other current assets................. 15 -- 14 ------ ------- ------- Total current assets.............................. 8,103 8,587 9,940 PROPERTY AND EQUIPMENT, net................................. 1,629 1,569 1,567 OTHER ASSETS................................................ 2 -- -- ------ ------- ------- Total assets...................................... $9,734 $10,156 $11,507 ====== ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt...................... $ 20 $ 13 $ -- Current portion of other long-term obligations............ 201 181 186 Notes payable short-term.................................. -- -- 800 Accounts payable and accrued expenses..................... 3,375 2,782 2,940 Billings in excess of costs and estimated earnings on uncompleted contracts.................................. 1,217 1,452 1,081 ------ ------- ------- Total current liabilities......................... 4,813 4,428 5,007 LONG-TERM DEBT, net of current maturities................... 93 61 64 OTHER LONG-TERM OBLIGATIONS, net of current portion......... 636 570 493 ------ ------- ------- Total liabilities................................. 5,542 5,059 5,564 ------ ------- ------- STOCKHOLDERS' EQUITY: Croson common stock, $20 stated value; 750 shares authorized, issued and outstanding..................... 15 15 15 Franklin common stock, $5 stated value; 750 shares authorized, 100 issued and outstanding................. 1 1 1 Retained earnings......................................... 4,176 5,081 5,927 ------ ------- ------- Total stockholders' equity........................ 4,192 5,097 5,943 ------ ------- ------- Total liabilities and stockholders' equity........ $9,734 $10,156 $11,507 ====== ======= =======
The accompanying notes are an integral part of these combined financial statements. F-76 202 J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY COMBINED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30, MARCH 31, --------------------------- --------------------- 1996 1997 1998 1998 1999 ------- ------- ------- ----------- ------- (UNAUDITED) REVENUES................................... $26,185 $27,029 $25,234 $12,330 $17,194 COST OF REVENUES (including depreciation).. 22,305 22,970 20,438 10,500 14,407 ------- ------- ------- ------- ------- Gross profit.......................... 3,880 4,059 4,796 1,830 2,787 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................................. 2,263 2,217 2,032 894 1,232 ------- ------- ------- ------- ------- Income from operations................ 1,617 1,842 2,764 936 1,555 ------- ------- ------- ------- ------- OTHER INCOME (EXPENSE): Interest income.......................... 66 49 42 21 20 Interest expense......................... (55) (55) (51) (28) (23) Other.................................... 15 3 (7) (12) (1) ------- ------- ------- ------- ------- Other income (expense), net........... 26 (3) (16) (19) (4) ------- ------- ------- ------- ------- INCOME BEFORE PROVISION FOR INCOME TAXES... 1,643 1,839 2,748 917 1,551 PROVISION FOR INCOME TAXES................. 23 32 33 19 12 ------- ------- ------- ------- ------- NET INCOME................................. $ 1,620 $ 1,807 $ 2,715 $ 898 $ 1,539 ======= ======= ======= ======= =======
The accompanying notes are an integral part of these combined financial statements. F-77 203 J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY COMBINED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30 MARCH 31 --------------------------- -------------------- 1996 1997 1998 1998 1999 ------- ------- ------- ----------- ------ (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income......................................... $ 1,620 $ 1,807 $ 2,715 $ 898 $1,539 Adjustments to reconcile net income to net cash provided by (used in) operating activities -- Depreciation and amortization.................... 310 348 359 144 181 Gain on sale of property and equipment........... (10) (5) (4) (4) -- Changes in operating assets and liabilities -- (Increase) decrease in -- Accounts receivable......................... (509) 8 (354) 655 (996) Costs and estimated earnings in excess of billings on uncompleted contracts......... 685 (1,165) (9) 86 (624) Inventories................................. (37) (69) 77 59 (32) Prepaid expenses and other current assets... -- (15) 15 (43) (14) Increase (decrease) in -- Accounts payable and accrued expenses....... 93 101 (593) (580) 158 Billings in excess of costs and estimated earnings on uncompleted contracts......... (22) (194) 235 309 (371) Other....................................... 240 -- -- -- ------- ------- ------- ------- ------ Net cash provided by operating activities.............................. 2,370 816 2,441 1,524 (159) ------- ------- ------- ------- ------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment....... 11 13 18 18 -- Acquisitions of property and equipment............. (336) (289) (112) (112) (107) Other investing activities......................... 13 -- -- -- 800 ------- ------- ------- ------- ------ Net cash used in investing activities....... (312) (276) (94) (94) 693 ------- ------- ------- ------- ------ CASH FLOWS FROM FINANCING ACTIVITIES: Payments of long-term debt......................... -- (125) (45) (18) (13) Payments of other long-term obligations............ (142) (162) (279) (131) (141) Distributions to stockholders...................... (1,323) (1,303) (1,810) (1,166) (693) ------- ------- ------- ------- ------ Net cash used in financing activities....... (1,465) (1,590) (2,134) (1,315) (847) ------- ------- ------- ------- ------ Net increase (decrease) in cash and cash equivalents............................... 593 (1,050) 213 115 (313) CASH AND CASH EQUIVALENTS, beginning of period....... 936 1,529 479 479 692 ------- ------- ------- ------- ------ CASH AND CASH EQUIVALENTS, end of period............. $ 1,529 $ 479 $ 692 $ 594 $ 379 ======= ======= ======= ======= ====== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for -- Interest......................................... $ 55 $ 55 $ 51 $ 28 $ 21 Income taxes..................................... $ 23 $ 23 $ 25 $ 10 $ 9 Capital lease additions............................ $ 169 $ 187 $ 172 $ 39 $ 52
The accompanying notes are an integral part of these combined financial statements. F-78 204 J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
SHARES OF COMMON COMMON RETAINED STOCK STOCK EARNINGS TOTAL --------- ------ -------- ------- BALANCE, September 30, 1995............................ 1,500 $16 $ 3,375 $ 3,391 Distributions to stockholders........................ -- -- (1,323) (1,323) Net income........................................... -- -- 1,620 1,620 ----- --- ------- ------- BALANCE, September 30, 1996............................ 1,500 16 3,672 3,688 Distributions to stockholders........................ -- -- (1,303) (1,303) Net income........................................... -- -- 1,807 1,807 ----- --- ------- ------- BALANCE AT SEPTEMBER 30, 1997.......................... 1,500 16 4,176 4,192 Distributions to stockholders........................ -- -- (1,810) (1,810) Net income........................................... -- -- 2,715 2,715 ----- --- ------- ------- BALANCE AT SEPTEMBER 30, 1998.......................... 1,500 16 5,081 5,097 Distributions to stockholders........................ -- -- (693) (693) Net income........................................... -- -- 1,539 1,539 ----- --- ------- ------- BALANCE AT MARCH 31, 1999.............................. 1,500 $16 $ 5,927 $ 5,943 ===== === ======= =======
The accompanying notes are an integral part of these combined financial statements. F-79 205 J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION: J.A. Croson Company (Croson), an Ohio corporation, provides plumbing and mechanical contracting services for commercial and industrial entities primarily in Ohio. Franklin Fire Sprinkler Company (Franklin) provides fire protection contracting services for commercial and industrial entities throughout Ohio. The lengths of construction contracts are typically less than one year. Croson and Franklin are collectively referred to herein as the Company. The Company and its stockholders intend to enter into a definitive agreement with American Plumbing & Mechanical, Inc. (AMPAM), pursuant to which all outstanding shares of the Company's common stock will be exchanged for cash and shares of AMPAM common stock concurrently with the consummation of the related financing. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Combination The accompanying financial statements include the accounts of Croson and Franklin which are affiliated through common ownership. Intercompany transactions and balances have been eliminated in combination. Interim Financial Information The interim financial statements for the six months ended March 31, 1998, are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company's management, the unaudited interim financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Accounts Receivable and Provision for Doubtful Accounts The Company provides an allowance for doubtful accounts based upon an estimate of uncollectable balances. Inventories Inventories consist of parts and supplies held for use in the ordinary course of business and are stated at the lower of cost or market using the first-in, first-out (FIFO) method. Property and Equipment Property and equipment are stated at cost, and depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized over the lesser of the life of the lease or the estimated useful life of the asset. Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments, which extend the useful lives of existing equipment, are capitalized and F-80 206 J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) depreciated. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statement of operations. Revenue Recognition The Company recognizes revenue when services are performed except when work is being performed under a construction contract. Revenues from construction contracts are recognized on the percentage-of-completion method measured by the percentage of cost incurred to date to total estimated costs for each contract. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor and depreciation costs. Provisions for the total estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to costs and income and their effects are recognized in the period in which the revisions are determined. An amount equal to contract costs attributable to claims is included in revenues when realization is probable and the amount can be reliably estimated. The balances billed but not paid by customers pursuant to retainage provisions in construction contracts will be due upon completion of the contracts and acceptance by the customer. Based on the Company's experience with similar contracts in recent years, the retention balance at each balance sheet date will be collected within the subsequent fiscal year. The current asset, "Costs and estimated earnings in excess of billings on uncompleted contracts," represents revenues recognized in excess of amounts billed. The current liability, "Billings in excess of costs and estimated earnings on uncompleted contracts," represents billings in excess of revenues recognized. Income Taxes The Company has elected S Corporation status as defined by the Internal Revenue Code, whereby the Company itself is not subject to taxation for federal purposes. Under S Corporation status, the stockholders report their share of the Company's taxable earnings in their personal tax returns. Consequently, the accompanying financial statements of the Company do not include a provision for current or deferred income taxes. Certain municipalities do not recognize the S Corporation status for purposes of local taxation. The provision for income taxes in the accompanying statement of operations represents the local tax provision related to such municipalities. The Company will terminate its S Corporation status concurrently with the effective date of the merger (see Note 12). Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Realization of Long-Lived Assets The Company has adopted the provision of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." Accordingly, in the event that facts and circumstances indicate that property and equipment or other assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is F-81 207 J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) required, the estimated future undiscounted cash flows associated with the asset are compared to the asset's carrying amount to determine if an impairment of such property is necessary. The effect of any impairment would be to expense the difference between the fair value of such property and its carrying value. Adoption of this standard did not have a material effect on the financial position or results of operations of the Company. Reclassifications Certain reclassifications have been made to the prior year financial statements to conform with the current year presentation. 3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS: Contract receivables consists of the following (in thousands):
SEPTEMBER 30 --------------- MARCH 31, 1997 1998 1999 ------ ------ --------- Trade..................................................... $2,408 $3,289 $3,693 Billed retentions....................................... 190 133 314 Unbilled retentions..................................... 684 891 1,097 ------ ------ ------ 3,282 4,313 5,104 Less -- Allowance for doubtful accounts................. (134) (134) (134) ------ ------ ------ Balance at end of year............................... $3,148 $4,179 $4,970 ====== ====== ======
Plumbing installation contracts in progress are as follows (in thousands):
SEPTEMBER 30 ----------------- MARCH 31, 1997 1998 1999 ------- ------- --------- Costs incurred on contracts in progress................. $33,510 $31,261 $41,005 Estimated earnings, net of losses....................... 3,338 3,666 5,461 ------- ------- ------- 36,848 34,927 46,466 Less -- Billings to date................................ 35,747 34,052 44,596 ------- ------- ------- $ 1,101 $ 875 $ 1,870 ======= ======= ======= Costs and estimated earnings in excess of billings on uncompleted contracts................................. $ 2,318 $ 2,327 $ 2,951 Billings in excess of costs and estimated earnings on uncompleted contracts................................. (1,217) (1,452) (1,081) ------- ------- ------- $ 1,101 $ 875 $ 1,870 ======= ======= =======
Accounts payable and accrued expenses consist of the following (in thousands):
SEPTEMBER 30 --------------- MARCH 31, 1997 1998 1999 ------ ------ --------- Accounts payable, trade................................... $1,800 $1,935 $2,176 Accrued compensation and benefits......................... 1,236 830 637 Payables to related parties............................... 339 17 1 Other..................................................... -- -- 126 ------ ------ ------ Balance at end of year.......................... $3,375 $2,782 $2,940 ====== ====== ======
F-82 208 J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 4. PROPERTY AND EQUIPMENT: Property and equipment, including capital lease assets, consists of the following (in thousands):
ESTIMATED USEFUL SEPTEMBER 30 LIVES IN ----------------- MARCH 31, YEARS 1997 1998 1999 --------- ------- ------- --------- Transportation equipment...................... 5 $ 1,082 $ 1,142 $ 1,193 Machinery and equipment....................... 5 700 868 916 Building and leasehold improvements........... 10-30 1,255 1,143 1,143 Furniture and fixtures........................ 5 243 296 377 ------- ------- ------- 3,280 3,449 3,629 Less -- Accumulated depreciation and amortization................................ (1,651) (1,880) (2,062) ------- ------- ------- Property and equipment, net......... $ 1,629 $ 1,569 $ 1,567 ======= ======= =======
5. LINE OF CREDIT AND LONG-TERM DEBT: The Company has a $1,000,000 line of credit with a bank, bearing interest at the prime rate (7.75% at March 31, 1999) less .5%. Interest on the outstanding balance is due monthly. The Company had a $-0-, $-0- and $800,000 outstanding balance on its line of credit as of September 30, 1997 and 1998, and March 31, 1999, respectively. The line of credit is secured by substantially all of the Company's inventory, accounts receivable, property and equipment. Long-term debt consists of the following (in thousands):
SEPTEMBER 30 ------------ MARCH 31, 1997 1998 1999 ---- ---- --------- Note payable, unsecured, 3-year, $60,000 noninterest bearing agreement with principal payments due quarterly in installments of $5,000................................ $ 45 $ -- $-- Note payable, 7-year, $185,000 noninterest bearing term note (discounted at the Company's incremental borrowing rate of 8.25% at the date of the note) with principal payments due in four installments, $85,000 in 1997, $12,500 in 1999, $12,500 in 2001 and $75,000 in 2003. The note is secured by certain property...................... 68 74 64 ---- ---- --- Total debt....................................... 113 74 64 Current portion............................................ (20) (13) -- ---- ---- --- Long-term portion................................ $ 93 $ 61 $64 ==== ==== ===
The maturities of long-term debt as of September 30, 1998, are as follows (in thousands): 1999........................................................ $ 13 2000........................................................ -- 2001........................................................ 12 2002........................................................ -- 2003........................................................ 75 ---- $100 ====
F-83 209 J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 6. LEASES: Upon the sale of property to its majority stockholder on March 1, 1995, the Company agreed to lease back the property through February 28, 2005. The sale leaseback was recorded as a financing transaction and the obligation is recorded at the present value of future minimum payments of $99,600 per year, discounted at an interest rate of 9%. The Company has also entered into various leases for certain equipment for lease terms through January 2002. Obligations under these capital leases have been recorded in the accompanying financial statements at the present value of future minimum lease payments, discounted at the applicable interest rate. The capitalized cost of $582,831, $755,226 and $806,976, less accumulated depreciation of $243,717, $373,012 and $443,541, is included in property and equipment in the accompanying financial statements as of September 30, 1997 and 1998, and March 31, 1999, respectively. Depreciation expense for this equipment for the years ended September 30, 1996, 1997 and 1998, was $63,608, $91,836 and $129,295, respectively. Depreciation expense for this equipment for the six month period ended March 31, 1999, was $70,529. Future minimum lease payments under the capital leases and the net present value of the future minimum lease payments as of September 30, 1998, and March 31, 1999, are as follows (in thousands):
1998 1999 ----- ----- 1998........................................................ $ 236 $ 174 2000........................................................ 196 175 2001........................................................ 128 123 2002........................................................ 102 100 2003........................................................ 100 100 Thereafter.................................................. 141 141 ----- ----- Total future minimum lease payments............... 903 813 Amount representing interest................................ (152) (134) ----- ----- Present value of future minimum lease payments.... 751 679 Less -- Current portion..................................... (181) (186) ----- ----- Noncurrent........................................ $ 570 $ 493 ===== =====
7. RELATED-PARTY TRANSACTIONS: Croson is a partner in a joint venture with Lincoln T. Mandeville Plumbing (Mandeville). The joint venture subcontracts all work to Croson and Mandeville in amounts such that the joint venture reports minimal net income (loss). The Company periodically receives and advances funds from and to the joint venture. At September 30, 1997 and 1998, and March 31, 1999, the Company owed the joint venture $339,386, $17,000 and $1,600, respectively, which is included in "accounts payables and accrued expenses" in the accompanying balance sheet. The joint venture owed the Company $1,760,765, $1,152,000 and $1,027,530 at September 30, 1997 and 1998, and March 31, 1999, for the Company's billings on contracts performed by the joint venture. The joint venture has receivables from customers, principally governmental organizations, totaling $909,571, $588,840 and $745,543 as of September 30, 1997 and 1998, and March 31, 1999, respectively. The Company recorded revenues for work performed for the joint venture of $1,401,723, $2,172,264 and $3,635,953 for the years ended September 30, 1996, 1997 and 1998, respectively. The Company recorded revenues for work performed for the joint venture of $1,229,234 for the six month period ended March 31, 1999. The Company recorded costs of revenues for work performed for the joint venture totaling $901,021, $1,908,858 and $3,023,871 for the years ended September 30, 1996, F-84 210 J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 1997 and 1998, respectively. The Company recorded costs of revenues for work performed for the joint venture totaling $1,027,870 for the six month period ended March 31, 1999. At March 31, 1999, the Company has a receivable balance of $303,973 from David A. Croson related to an advance for a personal investment, which is included in contract and other-related party on the accompanying combined balance sheet. The noninterest bearing receivable is due upon demand. On March 1, 1995, the Company sold certain property to its majority stockholder approximately equal to the net book value of the property. The Company then entered into a lease with the stockholder for the same property (see Note 6). In 1996, 1997 and 1998, the Company made obligation payments to its majority stockholder in the amount of $99,600. At September 30, 1997 and 1998, and March 31, 1999, the Company owed the majority stockholder $537,743, $484,155 and $455,611, respectively, which is included in other long-term obligations on the accompanying combined balance sheets. 8. EMPLOYEE BENEFIT PLAN: The Company has a 401(k) and profit-sharing plan which covers full-time employees who have met age and service requirements. The plan specifies contributions at the discretion of the Company's management. Expense under the plan amounted to approximately $208,000, $180,500 and $90,000 for the years ended September 30, 1996, 1997 and 1998. Expense under the plan amounted to approximately $26,590 for the six month period ended March 31, 1999. Amounts due to this plan were approximately $177,000, $1,000 and $1,000 at September 30, 1997 and 1998, and March 31, 1999, respectively. 9. FINANCIAL INSTRUMENTS: The Company's financial instruments consist of cash and cash equivalents and debt. The Company's management believes that the carrying value of these instruments on the accompanying combined balance sheets approximates their fair value. 10. COMMITMENTS AND CONTINGENCIES: Litigation The Company is involved in disputes or legal actions arising in the ordinary course of business. Management does not believe the outcome of such legal actions will have a material adverse effect on the Company's financial position or results of operations. Insurance The Company carries a broad range of insurance coverage, including business auto liability, general liability and an umbrella policy. The Company has not incurred significant claims or losses on any of these insurance policies. 11. MAJOR CUSTOMERS AND RISK CONCENTRATION: The Company had revenues of approximately 26.8%, 32.2% and 31.2% of total revenues to one major customer during the years ended September 30, 1996, 1997 and 1998, respectively. The Company had revenues of approximately 35.8% of total revenues to one major customer during the six month period ended March 31, 1999. In general, the Company performs its services under contract terms that entitle it to progress payments and is, by law, granted a lien interest in the work until paid. The Company is exposed to potential credit risk related to changes in business and economic factors within the region. However, F-85 211 J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) management believes that its contract acceptance, billing and collection policies are adequate to minimize the potential credit risk. 12. SUBSEQUENT EVENT: On April 1, 1999, AMPAM acquired through merger all the stock of the Company in exchange for cash and stock of AMPAM, after which the Company is a wholly owned subsidiary of AMPAM. In connection with the merger, the Company sold or distributed certain nonoperating assets and attendant liabilities, if any, to the stockholders. Additionally, the Company made cash distributions which represent the Company's estimated S Corporation accumulated adjustment account. As discussed in Note 2, in connection with the merger, the Company converted from an S Corporation to a C Corporation. Upon conversion to C Corporation status, the Company recorded deferred taxes for which it will be responsible. If the S Corporation had been terminated as of September 30, 1998, the Company would have recorded a deferred tax asset of approximately $99,000 due to differences between book and tax depreciation. If the S Corporation had been terminated as of March 31, 1999, the Company would have recorded a deferred tax liability of approximately $133,000 due to differences between book and tax depreciation. Concurrently with the merger, the Company entered into agreements with the stockholders to lease office space used in the Company's operations for a negotiated amount and term. F-86 212 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of J. A. Croson Company of Florida: We have audited the accompanying balance sheets of J. A. Croson Company of Florida as of December 31, 1997 and 1998, and March 31, 1999, and the related statements of operations, cash flows and stockholders' equity for each of the three years in the period ended December 31, 1998, and for the three months ended March 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of J. A. Croson Company of Florida, as of December 31, 1997 and 1998, and March 31, 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, and for the three months ended March 31, 1999, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Atlanta, Georgia May 26, 1999 F-87 213 J. A. CROSON COMPANY OF FLORIDA BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE INFORMATION) ASSETS
DECEMBER 31, ---------------- MARCH 31 1997 1998 1999 ------ ------ -------- CURRENT ASSETS: Cash and cash equivalents................................. $ 19 $ 71 $ 57 Accounts receivable, net.................................. 3,401 4,688 4,994 Costs and estimated earnings in excess of billings on uncompleted contracts.................................. 657 1,233 1,140 Inventories............................................... 73 40 2 Prepaid expenses and other current assets................. 399 371 539 ------ ------ ------ Total current assets.............................. 4,549 6,403 6,732 PROPERTY AND EQUIPMENT, net................................. 1,293 1,247 996 OTHER LONG-TERM ASSETS...................................... -- 378 -- ------ ------ ------ Total assets...................................... $5,842 $8,028 $7,728 ====== ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt...................... $ 82 $ -- $ -- Line of credit............................................ 739 337 840 Bank overdraft............................................ 89 -- -- Accounts payable and accrued expenses..................... 994 1,692 1,100 Billings in excess of costs and estimated earnings on uncompleted contracts.................................. 1,640 1,724 593 ------ ------ ------ Total current liabilities......................... 3,544 3,753 2,533 LONG-TERM DEBT, net of current maturities................... 23 -- -- NOTE PAYABLE TO STOCKHOLDER................................. 434 -- -- ------ ------ ------ Total liabilities................................. 4,001 3,753 2,533 ------ ------ ------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $1 par value, 7,500 shares authorized, 980 shares issued and outstanding.......................... 1 1 1 Additional paid-in capital................................ 650 650 650 Retained earnings......................................... 1,190 3,624 4,544 ------ ------ ------ Total stockholders' equity........................ 1,841 4,275 5,195 ------ ------ ------ Total liabilities and stockholders' equity........ $5,842 $8,028 $7,728 ====== ====== ======
The accompanying notes are an integral part of these financial statements. F-88 214 J. A. CROSON COMPANY OF FLORIDA STATEMENTS OF OPERATIONS (IN THOUSANDS)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31 MARCH 31 --------------------------- -------------------- 1996 1997 1998 1998 1999 ------- ------- ------- ----------- ------ (UNAUDITED) REVENUES.................................... $11,722 $18,095 $28,142 $6,148 $8,274 COST OF REVENUES (including depreciation)... 9,300 13,916 20,483 4,658 5,482 ------- ------- ------- ------ ------ Gross profit........................... 2,422 4,179 7,659 1,490 2,792 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................................. 1,050 2,213 2,960 718 869 ------- ------- ------- ------ ------ Income from operations................. 1,372 1,966 4,699 772 1,923 ------- ------- ------- ------ ------ OTHER INCOME (EXPENSE): Interest income........................... 10 -- -- -- -- Interest expense.......................... (97) (87) (108) (24) (7) Other..................................... -- (44) -- -- -- ------- ------- ------- ------ ------ Other income (expense), net............ (87) (131) (108) (24) (7) ------- ------- ------- ------ ------ NET INCOME.................................. $ 1,285 $ 1,835 $ 4,591 $ 748 $1,916 ======= ======= ======= ====== ======
The accompanying notes are an integral part of these financial statements. F-89 215 J. A. CROSON COMPANY OF FLORIDA STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31 MARCH 31 --------------------------- --------------------- 1996 1997 1998 1998 1999 ------- ------- ------- ----------- ------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................... $ 1,285 $ 1,835 $ 4,591 $ 748 $ 1,916 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation.............................. 73 173 182 23 45 Loss on sale of property and equipment.... -- 44 40 Changes in operating assets and liabilities: (Increase) decrease in: Accounts receivable.................. 416 (1,623) (1,287) (641) (306) Costs and estimated earnings in excess of billings on uncompleted contracts.......................... 135 (448) (576) (675) 93 Inventories.......................... 2 (58) 33 71 38 Prepaid expenses and other assets.... (200) (183) (350) (327) 210 Increase (decrease) in: Bank overdraft....................... -- 89 (89) 682 -- Accounts payable and accrued expenses........................... 122 309 698 (67) (378) Billings in excess of costs and estimated earnings on uncompleted contracts.......................... 105 951 84 367 (1,131) ------- ------- ------- ----- ------- Net cash provided by operating activities...................... 1,938 1,089 3,326 181 487 ------- ------- ------- ----- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment.......... (165) (992) (352) (108) (8) Proceeds from the sale of property and equipment................................. -- -- 176 -- -- ------- ------- ------- ----- ------- Net cash used in investing activities...................... (165) (992) (176) (108) (8) ------- ------- ------- ----- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings of long-term debt................. 250 -- -- -- -- Payments of long-term debt................... (302) (96) (105) (7) -- Net borrowings (payments) on line of credit.................................... (146) 739 (402) (70) 503 Borrowings from (payments to) stockholder.... (273) -- (434) Proceeds from issuance of common stock....... 197 325 -- Distribution to stockholders................. (1,065) (1,521) (2,157) -- (996) ------- ------- ------- ----- ------- Net cash used in financing activities...................... (1,339) (553) (3,098) (77) (493) ------- ------- ------- ----- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................. 434 (456) 52 (4) (14) CASH AND CASH EQUIVALENTS, beginning of period....................................... 41 475 19 19 71 ------- ------- ------- ----- ------- CASH AND CASH EQUIVALENTS, end of period....... $ 475 $ 19 $ 71 $ 15 $ 57 ======= ======= ======= ===== ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for: Interest.................................. $ 116 $ 44 $ 108 $ 24 $ 7 ======= ======= ======= ===== =======
The accompanying notes are an integral part of these financial statements. F-90 216 J. A. CROSON COMPANY OF FLORIDA STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE INFORMATION)
ADDITIONAL TOTAL PAID-IN RETAINED STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS EQUITY ------ ------ ---------- -------- ------------- BALANCE, December 31, 1995................... 714 $1 $128 $ 656 $ 785 Issuance of Common Stock................... 119 -- 197 -- 197 Distributions to stockholders.............. -- -- -- (1,065) (1,065) Net income................................. -- -- -- 1,285 1,285 --- -- ---- ------- ------- BALANCE, December 31, 1996................... 833 1 325 876 1,202 Issuance of Common Stock................... 147 -- 325 -- 325 Distributions to stockholders.............. -- -- -- (1,521) (1,521) Net income................................. -- -- -- 1,835 1,835 --- -- ---- ------- ------- BALANCE, December 31, 1997................... 980 1 650 1,190 1,841 Distributions to stockholders.............. -- -- -- (2,157) (2,157) Net income................................. -- -- -- 4,591 4,591 --- -- ---- ------- ------- BALANCE, December 31, 1998................... 980 1 650 3,624 4,275 Distributions to stockholders.............. -- -- -- (996) (996) Net income................................. -- -- -- 1,916 1,916 --- -- ---- ------- ------- BALANCE, March 31, 1999...................... 980 $1 $650 $ 4,544 $ 5,195 === == ==== ======= =======
The accompanying notes are an integral part of these financial statements. F-91 217 J. A. CROSON COMPANY OF FLORIDA NOTES TO FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION J. A. Croson Company of Florida (the Company), a Florida corporation, focuses on providing plumbing contractor services primarily for multi-family housing developers. The Company performs the majority of its contract work under fixed-price contracts, with contract terms generally less than one year. The Company performs the majority of its work in Central Florida. The Company and its stockholders intend to enter into a definitive agreement with American Plumbing & Mechanical, Inc. (AMPAM), pursuant to which all outstanding shares of the Company's common stock will be exchanged for cash and shares of AMPAM common stock concurrently with the consummation of the related financing. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Interim Financial Information The interim financial statements for the three months ended March 31, 1998, are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company's management, the unaudited interim financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Provision for Doubtful Accounts The Company provides an allowance for doubtful accounts based upon an estimate of uncollectable balances. Inventories Inventory purchases have historically been charged to jobs when purchased. Inventories consist of parts and supplies held for use in the ordinary course of business and are stated at the lower of cost or market using the first-in, first-out (FIFO) method. Property and Equipment Property and equipment are stated at cost, and depreciation is computed using the straight-line method over the estimated useful lives of the assets, net of any salvage values. Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments, which extend the useful lives of existing equipment, are capitalized and depreciated. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statements of operations. F-92 218 J. A. CROSON COMPANY OF FLORIDA NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Revenue Recognition The Company recognizes revenue when services are performed except when work is being performed under a construction contract. Revenues from construction contracts are recognized on the percentage-of-completion method measured by the percentage of cost incurred to date to total estimated costs for each contract. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor and depreciation costs. Provisions for the total estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to costs and income and their effects are recognized in the period in which the revisions are determined. An amount equal to contract costs attributable to claims is included in revenues when realization is probable and the amount can be reliably estimated. The balances billed but not paid by customers pursuant to retainage provisions in construction contracts will be due upon completion of the contracts and acceptance by the customer. Based on the Company's experience with similar contracts in recent years, the retention balance at each balance sheet date will be collected within the subsequent fiscal year. The current asset, "Costs and estimated earnings in excess of billings on uncompleted contracts," represents revenues recognized in excess of amounts billed. The current liability, "Billings in excess of costs and estimated earnings on uncompleted contracts," represents billings in excess of revenues recognized. Warranty Costs For most contracts, the Company warrants labor and materials for one year after completion of the job. Income Taxes The Company has elected S corporation status, as defined by the Internal Revenue Code, whereby the Company itself is not subject to taxation for federal purposes. Under S corporation status, the stockholders report their shares of the Company's taxable earnings or losses in their personal tax returns. Consequently, the accompanying financial statements of the Company do not include a provision for current or deferred federal taxes. The Company terminated its S corporation status concurrently with the effective date (April 1, 1999) of the merger discussed in Note 13. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Realization of Long-Lived Assets The Company has adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in the event that facts and circumstances indicate that property and equipment or other assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset's carrying amount to determine if an impairment of such property is necessary. The effect of any impairment would be to expense the difference between F-93 219 J. A. CROSON COMPANY OF FLORIDA NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) the fair value of such property and its carrying value. Adoption of this standard did not have a material effect on the financial position or results of operations of the Company. 3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS Accounts receivables consist of the following at December 31, 1997 and 1998 and March 31, 1999 (in thousands):
DECEMBER 31, ---------------- MARCH 31, 1997 1998 1999 ------ ------ --------- Billed.................................................. $2,445 $3,422 $3,528 Retainage............................................... 956 1,266 1,507 Allowance for doubtful accounts......................... 0 0 (41) ------ ------ ------ Balance at end of period...................... $3,401 $4,688 $4,994 ====== ====== ======
Plumbing installation contracts in progress are as follows at December 31, 1997 and 1998 and March 31, 1999 (in thousands):
DECEMBER 31, ------------------ MARCH 31, 1997 1998 1999 ------- ------- --------- Costs incurred on contracts in progress............... $ 6,620 $12,031 $11,968 Estimated earnings, net of losses..................... 1,965 3,934 4,234 ------- ------- ------- 8,585 15,965 16,202 Less: Billings to date................................ 9,568 16,456 15,655 ------- ------- ------- $ (983) $ (491) $ 547 ======= ======= ======= Costs and estimated earnings in excess of billings on uncompleted contracts............................... $ 657 $ 1,233 $ 1,140 Billings in excess of costs and estimated earnings on uncompleted contracts............................... (1,640) (1,724) (593) ------- ------- ------- $ (983) $ (491) $ 547 ======= ======= =======
Accounts payable and accrued expenses consist of the following at December 31, 1997 and 1998 and March 31, 1999 (in thousands):
DECEMBER 31, -------------- MARCH 31, 1997 1998 1999 ---- ------ --------- Accounts payable, trade.................................. $596 $ 975 $ 848 Accrued compensation and benefits........................ 227 356 187 Other accrued expenses................................... 171 361 65 ---- ------ ------ Balance at end of period....................... $994 $1,692 $1,100 ==== ====== ======
F-94 220 J. A. CROSON COMPANY OF FLORIDA NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following at December 31, 1997 and 1998 and March 31, 1999 (in thousands):
ESTIMATED USEFUL DECEMBER 31, LIVES --------------- MARCH 31, IN YEARS 1997 1998 1999 --------- ------ ------ --------- Transportation equipment........................ 5 $ 913 $1,063 $1,066 Machinery and equipment......................... 7 125 150 154 Office and storage trailers..................... 5 96 103 103 Building and improvements....................... 39 390 231 -- Furniture and fixtures.......................... 5 103 175 175 ------ ------ ------ 1,627 1,722 1,498 Less: accumulated depreciation.................. (334) (475) (502) ------ ------ ------ Property and equipment, net..................... $1,293 $1,247 $ 996 ====== ====== ======
5. LINE OF CREDIT AND LONG-TERM DEBT Line of Credit The Company has a $1,500,000 line of credit agreement with a bank to be drawn upon as needed, with variable interest payable monthly at the bank's prime rate, as defined, plus 1.25% (9.0% at March 31, 1999). The line is secured by accounts receivable, inventory, and a personal guarantee by a principal shareholder of the Company. At December 31, 1997 and 1998 and March 31, 1999, $739,000, $337,000 and $840,000 was outstanding under the line of credit, which is due June 1999. Long-Term Debt Long-term debt at December 31, 1997 and 1998 and March 31, 1999, consists of the following (in thousands):
DECEMBER 31, ------------- MARCH 31, 1997 1998 1999 ----- ----- --------- Notes payable to a financial institution, due monthly, payable in 19 payments of $3,943 including interest at a rate of 8.66% paid off in 1998............................ $ 26 $ -- $ -- Notes payable to a financial institution, due monthly, payable in 31 payments of $5,337 including interest at a rate of 9.55%, paid off in 1998........................... 79 -- -- ---- ---- ---- Total debt........................................ 105 -- -- Less: Current maturities of long-term debt................ (82) -- -- ---- ---- ---- Total long-term debt.............................. $ 23 $ -- -- ==== ==== ====
6. LEASES The Company leases certain property and office space from its stockholders under noncancellable operating leases, expiring in September 2002 and December 2004. Rent expense under these related-party leases were approximately $32,000 for the years ended December 31, 1996 and 1997, $24,000 for the year ended December 31, 1998 and $13,000 for the three months ended March 31, 1999. F-95 221 J. A. CROSON COMPANY OF FLORIDA NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) In May 1998, the Company entered into a noncancellable operating lease with a third party for property to be utilized as a prefabrication work location, expiring in May 2001. Rent expense under this lease was approximately $22,000 for the year ended December 31, 1998 and $7,000 for the three months ended March 31, 1999. In 1997, the Company entered into a lease for a warehouse and office facility with a third party under a noncancellable operating lease, expiring in March 2002. Rent expense under this lease was approximately $33,000 and $57,000 for the years ended December 31, 1997, and 1998, respectively and $14,000 for the these months ended March 31, 1999. Future minimum lease payments under these noncancelable operating leases are as follows (in thousands): Year ending December 31: 1999...................................................... $109 2000...................................................... 111 2001...................................................... 91 2002...................................................... 31 ---- $342 ====
7. STOCKHOLDERS' EQUITY The Company is authorized to issue 7,500 shares of common stock. Of this authorized amount, the Company has issued and outstanding 980 shares at December 31, 1997 and 1998 and March 31, 1999. The Company has also entered into a Stock Redemption Agreement with a principal shareholder, agreeing to repurchase all of his stock over a period of years, with the first redemption date being no earlier than January 1, 1998. The redemption date shall be determined by the mutual agreement of the stockholder and the Company before December 31 of the preceding year. The agreement requires the Company to purchase annually from the stockholder the number of shares equal to 10% (on a fully diluted basis immediately following the redemption) of the total number of issued and outstanding shares as of the redemption date. The purchase price of these shares shall be payable in cash and shall be equal to 10% of the book value of the Company on the redemption date. As of May 26, 1999, no repurchase has occurred. 8. RELATED-PARTY TRANSACTIONS The Company leases CERTAIN property and office space from a stockholder under a noncancelable operating lease (see Note 6). The rent approximates the fair market value of the property. The Company had a Subordinated Note Agreement with a stockholder, with a balance of $434,000 at December 31, 1997. This note was repaid during 1998. At December 31, 1997 and 1998 and March 31, 1999, the Company had $80,000, $179,000 and $4,000, respectively, of advances to employees included in current assets. The 1998 amount includes a balance of $125,000 due from a principal shareholder of the Company. During the years ended December 31, 1996 and 1997, the Company purchased plumbing supplies of $81,000 and $48,000, respectively, from a company affiliated through common ownership. No such purchases have been made since January 1, 1998. No amounts were owed to the Company at December 31, 1997 and 1998, or March 31, 1999. F-96 222 J. A. CROSON COMPANY OF FLORIDA NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 9. EMPLOYEE BENEFIT PLAN The Company has a defined contribution profit-sharing plan. The plan provides for the Company to match 50% of the first $1,200 contributed by each employee. Total contributions by the Company under the plan were approximately $11,000, $23,000, and $26,000 for the years ending December 31, 1996, 1997 and 1998, respectively and $14,000 for the three months ended March 31, 1999. 10. FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash and cash equivalents, a line of credit, notes payable and debt. The Company believes that the carrying value of these instruments on the accompanying balance sheets approximates their fair value. 11. COMMITMENTS AND CONTINGENCIES Litigation The Company is involved in disputes or legal actions arising in the ordinary course of business. Management does not believe the outcome of SUCH legal actions will have a material adverse effect on the Company's financial position or results of operations. Insurance The Company carries a broad range of insurance coverage, including workers' compensation, general liability, and an umbrella policy. The Company has not incurred significant claims or losses on any of these insurance policies. 12. MAJOR CUSTOMERS AND RISK CONCENTRATION The Company had revenues of approximately 29%, 27% and 24% of total revenues to three major customers during the years ended December 31, 1996, 1997, and 1998, respectively and 42% during the three months ended March 31, 1999. In general, the Company performs its services under contract terms that entitle it to progress payments and is, by law, granted a lien interest in the work until paid. The Company is exposed to potential credit risk related to changes in business and economic factors within the region. However, management believes that its contract acceptance, billing and collection policies are adequate to minimize the potential credit risk. The Company's customers are primarily in the construction industry. Accordingly, the Company is exposed to risks of fluctuations in construction in the areas which it operates. 13. SUBSEQUENT EVENTS On April 1, 1999, AMPAM acquired through merger all the stock of the Company in exchange for cash and stock of AMPAM, after which the Company is a wholly owned subsidiary of AMPAM. In connection with the merger, the Company sold or distributed certain non-operating assets and attendant liabilities, if any, to the stockholders. Additionally, the Company made cash distributions which represent the Company's estimated S corporation accumulated adjustments account. As discussed in Note 2, in connection with the merger, the Company converted from an S corporation to a C corporation. Upon conversion to C corporation status, the Company recorded deferred taxes for which it will be responsible. If the S corporation had been terminated as of December 31, 1998, the Company would have recorded a deferred tax asset of approximately $30,000 due to differences between F-97 223 J. A. CROSON COMPANY OF FLORIDA NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) book and tax depreciation. If the S corporation had been terminated as of March 31, 1999, the Company would have recorded a deferred tax asset of approximately $15,600 due to bad debt allowance and a deferred tax liability of approximately $7,500 due to the difference between book and tax depreciation. Concurrently with the merger, the Company entered into agreements with the stockholders to lease land and buildings used in the Company's operations for a negotiated amount and term. F-98 224 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Power Plumbing, Inc.: We have audited the accompanying consolidated balance sheets of Power Plumbing, Inc., and subsidiaries as of December 31, 1997 and 1998, and March 31, 1999, and the related consolidated statements of operations, cash flows and stockholders' equity for the years ended December 31, 1997 and 1998, and for the three months ended March 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Power Plumbing, Inc., and subsidiaries as of December 31, 1997 and 1998, and March 31, 1999, and the results of their operations and their cash flows for the years ended December 31, 1997 and 1998, and for the three months ended March 31, 1999, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Houston, Texas May 21, 1999 F-99 225 POWER PLUMBING, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE INFORMATION) ASSETS
DECEMBER 31 ---------------- MARCH 31, 1997 1998 1999 ------ ------ --------- CURRENT ASSETS: Cash and cash equivalents................................. $ 696 $1,807 $3,083 Accounts receivable -- Contract, net.......................................... 2,918 3,961 3,748 Other.................................................. 219 266 264 Notes receivable -- stockholders.......................... -- -- 396 Costs and estimated earnings in excess of billings on uncompleted contracts.................................. 181 79 239 Prepaid expenses and other current assets................. 3 17 19 ------ ------ ------ Total current assets.............................. 4,017 6,130 7,749 PROPERTY AND EQUIPMENT, net................................. 441 414 79 OTHER ASSETS................................................ 129 74 -- ------ ------ ------ Total assets...................................... $4,587 $6,618 $7,828 ====== ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt...................... $ 5 $ 6 $ -- Accounts payable and accrued expenses..................... 910 963 1,829 Billings in excess of cost and estimated earnings on uncompleted contracts.................................. 692 2,123 1,799 Deferred tax liability, current........................... 613 215 167 ------ ------ ------ Total current liabilities......................... 2,220 3,307 3,795 LONG-TERM DEBT, net of current maturities................... 71 65 -- OTHER LONG-TERM LIABILITIES................................. 20 2 -- DEFERRED INCOME TAXES....................................... 7 4 6 ------ ------ ------ Total liabilities................................. 2,318 3,378 3,801 ------ ------ ------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $1 par value; 1,200 shares authorized, 1,125 shares issued and outstanding.......................... 1 1 1 Retained earnings......................................... 2,268 3,239 4,026 ------ ------ ------ Total stockholders' equity........................ 2,269 3,240 4,027 ------ ------ ------ Total liabilities and stockholders' equity........ $4,587 $6,618 $7,828 ====== ====== ======
The accompanying notes are an integral part of these consolidated financial statements. F-100 226 POWER PLUMBING, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
THREE MONTHS YEAR ENDED ENDED DECEMBER 31 MARCH 31 -------------------- -------------------- 1997 1998 1998 1999 ------- ------- ----------- ------ (UNAUDITED) REVENUES........................................... $17,010 $17,109 $3,501 $5,620 COST OF REVENUES (Including depreciation).......... 14,680 14,371 3,174 4,022 ------- ------- ------ ------ Gross profit.................................. 2,330 2,738 327 1,598 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....... 1,128 1,268 217 346 ------- ------- ------ ------ Income from operations........................ 1,202 1,470 110 1,252 ------- ------- ------ ------ OTHER INCOME (EXPENSE): Interest income.................................. 20 33 5 22 Interest expense................................. -- (3) (3) (3) Other............................................ 84 83 13 4 ------- ------- ------ ------ Other income (expense), net................... 104 113 15 23 ------- ------- ------ ------ INCOME BEFORE PROVISION FOR INCOME TAXES........... 1,306 1,583 125 1,275 PROVISION FOR INCOME TAXES......................... 498 612 50 488 ------- ------- ------ ------ NET INCOME......................................... $ 808 $ 971 $ 75 $ 787 ======= ======= ====== ======
The accompanying notes are an integral part of these consolidated financial statements. F-101 227 POWER PLUMBING, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS YEAR ENDED ENDED DECEMBER 31 MARCH 31 --------------- -------------------- 1997 1998 1998 1999 ----- ------- ----------- ------ (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income........................................... $ 808 $ 971 $ 75 $ 787 Adjustments to reconcile net income to net cash provided by (used in) operating activities -- Depreciation...................................... 35 37 6 7 Loss (gain) on sale of property and equipment..... 2 (3) -- -- Deferred income taxes............................. 266 (401) (247) (46) Changes in operating assets and liabilities -- (Increase) decrease in -- Accounts receivable.......................... (734) (1,090) (342) 215 Costs and estimated earnings in excess of billings on uncompleted contracts.......... (46) 102 68 (160) Prepaid expenses and other current assets.... 8 (14) (22) (2) Other noncurrent assets...................... -- 55 -- -- Increase (decrease) in -- Accounts payable and accrued expenses........ (159) 53 126 878 Billings in excess of costs and estimated earnings on uncompleted contracts.......... (266) 1,431 183 (324) Other liabilities............................ (18) (18) (5) (2) ----- ------- ----- ------ Net cash provided by (used in) operating activities.............................. (104) 1,123 (158) 1,353 ----- ------- ----- ------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment......... 7 3 -- 12 Additions of property and equipment.................. (24) (10) -- (36) Investment transactions, net......................... 11 -- 54 (53) ----- ------- ----- ------ Net cash used in investing activities...... (6) (7) 54 (77) ----- ------- ----- ------ CASH FLOWS FROM FINANCING ACTIVITIES: Payments of long-term debt........................... (89) (5) (1) -- ----- ------- ----- ------ Net cash used in financing activities...... (89) (5) (1) -- ----- ------- ----- ------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... (199) 1,111 (105) 1,276 CASH AND CASH EQUIVALENTS, beginning of period......... 895 696 696 1,807 ----- ------- ----- ------ CASH AND CASH EQUIVALENTS, end of period............... $ 696 $ 1,807 $ 591 $3,083 ===== ======= ===== ====== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for -- Interest.......................................... $ -- $ 3 $ 3 $ 3 Income taxes...................................... 294 666 175 310 Non-cash transactions -- Note receivable received for sale of partnership..................................... -- -- -- 396 Net book value of partnership sold................ -- -- -- (344)
The accompanying notes are an integral part of these consolidated financial statements. F-102 228 POWER PLUMBING, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE INFORMATION)
COMMON STOCK TOTAL --------------- RETAINED STOCKHOLDERS' SHARES AMOUNT EARNINGS EQUITY ------ ------ -------- ------------- BALANCE, December 31, 1996............................. 1,125 $1 $1,460 $1,461 Net income........................................... -- -- 808 808 ----- -- ------ ------ BALANCE, December 31, 1997............................. 1,125 1 2,268 2,269 Net income........................................... -- -- 971 971 ----- -- ------ ------ BALANCE, December 31, 1998............................. 1,125 1 3,239 3,240 ----- -- ------ ------ Net income........................................... -- -- 787 787 ----- -- ------ ------ BALANCE, March 31, 1999................................ 1,125 $1 $4,026 $4,027 ===== == ====== ======
The accompanying notes are an integral part of these consolidated financial statements. F-103 229 POWER PLUMBING, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION: Power Plumbing, Inc., a Delaware corporation, and its subsidiaries (the Company) focus on providing plumbing construction services primarily for multifamily residential buildings. The Company performs the majority of its contract work under fixed-price contracts, with contract terms generally ranging from six to 18 months. The Company performs the majority of its work in Texas. On April 1, 1999, American Plumbing & Mechanical, Inc. (AMPAM) acquired through merger all the stock of the Company in exchange for cash and stock of AMPAM, after which the Company is a wholly owned subsidiary of AMPAM. In connection with the merger, the Company sold or distributed certain nonoperating assets and attendant liabilities, if any, to the stockholders. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation The financial statements through December 31, 1998 include the accounts and results of operations of the Company, its wholly owned subsidiary, Power Plumbing Personnel, Inc., and an affiliated company, Bingle Partners, Ltd. (see Note 8), which is under common control and management. Effective January 1, 1999, the Company sold its interest in Bingle Partners, Ltd. to the stockholders of the Company; therefore the financial statements for periods presented subsequent to December 31, 1998 include only the accounts and results of operations of the Company and its wholly owned subsidiary, Power Plumbing Personnel, Inc. All significant intercompany transactions and balances have been eliminated in consolidation. Interim Financial Information The interim financial statements for the three months ended March 31, 1998, are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company's management, the unaudited interim financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. The results of operations for the interim period are not necessarily indicative of the results for the entire fiscal year. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Accounts Receivable and Allowance for Doubtful Accounts The Company provides an allowance for doubtful accounts based upon an estimate of uncollectable balances. Property and Equipment Property and equipment are stated at cost, and depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized over the lesser of the life lease or the estimated useful life of the asset (see Note 4). Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments, which extend the useful lives of existing equipment, are capitalized and depreciated over the remaining useful life. Upon retirement or disposition of property and equipment, the F-104 230 POWER PLUMBING, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in accompanying consolidated statements of operations. Revenue Recognition The Company recognizes revenue when services are performed except when work is being performed under a construction contract. Revenues from construction contracts are recognized on the percentage-of-completion method measured by the percentage of cost incurred to date to total estimated costs for each contract. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor and depreciation costs. Provisions for the total estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to costs and income and their effects are recognized in the period in which the revisions are determined. The balances billed but not paid by customers pursuant to retainage provisions in construction contracts will be due upon completion of the contracts and acceptance by the customer. Based on the Company's experience with similar contracts in recent years, the Company anticipates that the retention balance at each balance sheet date will be collected within the subsequent fiscal year. The current asset "Costs and estimated earnings in excess of billing on uncompleted contracts" represents revenues recognized in excess of amounts billed. The current liability "Billings in excess of costs and estimated earnings on uncompleted contracts" represents billings in excess of revenues recognized. Warranty Costs The Company warrants labor and materials for the first year after completion of plumbing construction. A reserve for warranty costs is recorded based upon the historical level of warranty claims and management's estimate of future costs. Income Taxes The Company, which is a C Corporation, follows the liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under this method, deferred assets and liabilities are recorded for future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rules and laws that will be in effect when the underlying assets or liabilities are recovered or settled. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Realization of Long-Lived Assets The Company has adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in the event that facts and circumstances indicate that property and equipment or other assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash F-105 231 POWER PLUMBING, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) flows associated with the asset are compared to the asset's carrying amount to determine if an impairment of such property is necessary. The effect of any impairment would be to expense the difference between the fair value of such property and its carrying value. The adoption of this standard did not have a material effect on the financial position or results of operations of the Company. 3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS: Contract receivables consist of the following (in thousands):
DECEMBER 31 --------------- MARCH 31, 1997 1998 1999 ------ ------ --------- Billed.................................................... $1,418 $2,031 $1,971 Retainage................................................. 1,525 1,967 1,880 Allowance for uncollectible accounts...................... (25) (37) (103) ------ ------ ------ Balance at end of year.......................... $2,918 $3,961 $3,748 ====== ====== ======
Plumbing installation contracts in progress are as follows (in thousands):
DECEMBER 31 ------------------- MARCH 31, 1997 1998 1999 -------- -------- --------- Costs incurred on contracts in progress.............. $ 10,472 $ 9,110 $ 11,347 Estimated earnings, net of losses.................... 1,766 1,974 3,050 -------- -------- -------- 12,238 11,084 14,397 Less -- Billings to date............................. (12,749) (13,128) (15,957) -------- -------- -------- $ (511) $ (2,044) $ (1,560) ======== ======== ======== Costs and estimated earnings in excess of billings on uncompleted contracts.............................. $ 181 $ 79 $ 239 Billings in excess of costs and estimated earnings on uncompleted contracts.............................. (692) (2,123) (1,799) -------- -------- -------- $ (511) $ (2,044) $ (1,560) ======== ======== ========
Accounts payable and accrued expenses consist of the following (in thousands):
DECEMBER 31 ----------- MARCH 31, 1997 1998 1999 ---- ---- --------- Accounts payable, trade..................................... $669 $553 $1,089 Accrued compensation and benefits........................... 33 40 82 Retainage payable........................................... 49 58 76 Other accrued expenses...................................... 134 115 151 Income taxes payable........................................ 25 197 431 ---- ---- ------ Balance at end of year............................ $910 $963 $1,829 ==== ==== ======
F-106 232 POWER PLUMBING, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. PROPERTY AND EQUIPMENT: Property and equipment consists of the following (in thousands):
ESTIMATED DECEMBER 31 USEFUL LIVES ------------ MARCH 31, IN YEARS 1997 1998 1999 ------------ ---- ----- --------- Transportation.................................. 5 $ 94 $ 76 $ 78 Machinery and equipment......................... 7 78 76 82 Land and building............................... 30 363 377 -- Furniture and fixtures.......................... 5-7 3 1 5 ---- ----- ---- 538 530 165 Less -- Accumulated depreciation................ (97) (116) (86) ---- ----- ---- Property and equipment, net........... $441 $ 414 $ 79 ==== ===== ====
5. LINE OF CREDIT AND LONG-TERM DEBT: The Company has a $150,000 revolving line of credit with a bank which is due on demand or, if no demand, expires May 1, 1999, and bears interest at 0.5 percent above the bank's base lending rate. At December 31, 1997 and 1998 and March 31, 1999, no balance was outstanding under this line of credit. This line of credit is collateralized by the Company's accounts receivable and equipment as well as insurance on its president and a personal unlimited guarantee from the president. The line of credit was cancelled subsequent to March 31, 1999. Long-term debt at December 31, 1998, consisted of a note payable with a balance of approximately $71,000 to a bank for the purchase of property by Bingle Partners, Ltd. The note was included in the Company's sale of its interest in Bingle Partners, Ltd. interest; therefore, the Company has no long-term debt at March 31, 1999. 6. LEASES: During 1998, the Company leased two vehicles for stockholders, which expire in April 2001 and September 2001. Expense for the vehicle leases was $4,980, $11,113 and $12,490 for the years ended December 31, 1997 and 1998 and the three months ended March 31, 1999, respectively. The Company has an agreement with Bingle Partners, Ltd., that as of January 1, 1999 was owned by stockholders of the Company, to lease office space at a rate that, in management's opinion, approximated market. The lease expires August 31, 2003. Expense for the lease was $7,950 for the three months ended March 31, 1999. Future minimum lease payments under these noncancelable operating leases are as follows (in thousands): Year ending December 31 -- 1999...................................................... $ 46 2000...................................................... 46 2001...................................................... 39 2002...................................................... 32 2003...................................................... 21 ---- $184 ====
F-107 233 POWER PLUMBING, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. INCOME TAXES: Federal and state income taxes are as follows (in thousands):
DECEMBER 31 ------------ MARCH 31, 1997 1998 1999 ---- ----- --------- Federal -- Current................................................... $242 $ 887 $470 Deferred.................................................. 197 (348) (40) State -- Current................................................... 26 126 63 Deferred.................................................. 33 (53) (5) ---- ----- ---- $498 $ 612 $488 ==== ===== ====
Actual income tax expense differs from income tax expense computed by applying the U.S. federal statutory corporate rate of 35 percent to income before provision for income taxes as follows (in thousands):
DECEMBER 31 ----------- MARCH 31, 1997 1998 1999 ---- ---- --------- Provision at the statutory rate............................. $457 $554 $446 Increase resulting from -- State income tax, net of benefit for federal deduction.... 38 47 38 Permanent differences, primarily meals and entertainment.......................................... 3 11 4 ---- ---- ---- $498 $612 $488 ==== ==== ====
Deferred income tax provisions result from temporary differences in the recognition of income and expenses for financial reporting purposes and tax purposes. The tax effects of these temporary differences, representing deferred tax assets and liabilities result principally from the following (in thousands):
DECEMBER 31 ------------- MARCH 31, 1997 1998 1999 ----- ----- --------- Deferred income tax assets -- Investment in partnership................................ $ 15 $ 15 $ 15 Minimum tax credit....................................... 49 -- -- ----- ----- ----- Total deferred income tax asset.................. 64 15 15 ----- ----- ----- Deferred income tax liabilities -- Property and equipment................................... (7) (11) (12) Deferred contract revenue................................ (656) (252) (237) Allowance for doubtful accounts.......................... (8) 15 41 Accrued expenses......................................... (13) 17 23 Other.................................................... -- (3) (3) ----- ----- ----- Total deferred income tax liability.............. (684) (234) (188) ----- ----- ----- Net deferred income tax liability................ $(620) $(219) $(173) ===== ===== =====
F-108 234 POWER PLUMBING, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The net deferred tax assets and liabilities are comprised of the following (in thousands):
DECEMBER 31 -------------- MARCH 31, 1997 1998 1999 ----- ----- --------- Deferred tax assets -- Current................................................ $ 64 $ 15 $ 15 Long-term.............................................. -- -- -- ----- ----- ----- Total.......................................... 64 15 15 ----- ----- ----- Deferred tax liabilities -- Current................................................ (677) (230) (182) Long-term.............................................. (7) (4) (6) ----- ----- ----- Total.......................................... (684) (234) (188) ----- ----- ----- Net deferred income tax liability.............. $(620) $(219) $(173) ===== ===== =====
8. RELATED-PARTY TRANSACTIONS: In December 1996, the Company purchased a 97 percent limited partnership interest in Bingle Partners, Ltd., from a former stockholder for $300,000. A stockholder owns a majority interest in the company that is the 3 percent general partner in Bingle Partners, Ltd. On January 1, 1999, the Company sold its interest in Bingle Partners, Ltd., to the stockholders of the Company in exchange for promissory notes from each stockholder. The notes receivable had a balance of approximately $396,000 at March 31, 1999. Subsequent to March 31, 1999, the Company collected the full amount of the receivable. The Company leases office space from Bingle Partners, Ltd. (see Note 6). In June 1998, the Company entered into a financing arrangement with ICM, Inc., whereby the Company began purchasing materials for and selling them to ICM, Inc., at a nominal markup. One of the Company's stockholders (the ICM Stockholder) has a majority ownership in ICM Notes, Ltd., a company that also provides financing to ICM, Inc. ICM Notes, Ltd., and ICM, Inc., do not have common ownership. The ICM Stockholder has an informal agreement with the other stockholders of the Company which provides that any losses incurred as a result of the financing arrangement between the Company and ICM, Inc., will be funded by the ICM Stockholder. As a result of this arrangement, approximately $200,000 of accounts receivable was included as other accounts receivable in the accompanying balance sheets at December 31, 1998 and March 31, 1999. At the end of 1998, ICM, Inc., ceased operations, and, subsequent to March 31, 1999, the Company collected such receivable from the ICM Stockholder. In June 1998, the Company guaranteed certain long-term obligations of four employees. The long-term obligations consist of four notes payable to Northwest Bank, N.A., for the purchase of vehicles. The notes are secured by the vehicles. 9. EMPLOYEE BENEFIT PLAN: The Company has a defined contribution profit-sharing plan. The plan provides for discretionary contributions by the Company as determined by the stockholders. Total contributions by the Company under the plan were approximately $14,216 and $14,690 for the years ended December 31, 1997 and 1998, respectively. No contributions were made by the Company under the plan for the three months ended March 31, 1999. Such contributions are included in accounts payable and accrued expenses in the accompanying consolidated balance sheets at December 31, 1997 and 1998. F-109 235 POWER PLUMBING, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. FINANCIAL INSTRUMENTS: The Company's financial instruments consist of cash and cash equivalents, a line of credit and debt. The Company believes that the carrying values of these instruments on the accompanying consolidated balance sheets approximate their fair value. 11. COMMITMENTS AND CONTINGENCIES: Litigation The Company is involved in disputes or legal actions arising in the ordinary course of business. Management does not believe the outcome of such legal actions will have a material adverse effect on the Company's financial position or results of operations. Insurance The Company carries a broad range of insurance coverage, including business auto liability, general liability and an umbrella policy. The Company has not incurred significant claims or losses on any of these insurance policies. 12. MAJOR CUSTOMERS AND RISK CONCENTRATION: During the years ended December 31, 1997 and 1998 and the three months ended March 31, 1999, three customers accounted for more than 10 percent of total revenues. Sales to these companies were as follows (in thousands):
YEAR ENDED DECEMBER 31 THREE MONTHS -------------------------------- ENDED MARCH 31, 1997 1998 1999 -------------- -------------- --------------- Customer A....................... $2,552 15.0% $2,204 12.9% $804 14.3% Customer B....................... 2,548 15.0 1,982 11.6 716 12.7 Customer C....................... 1,983 11.7 1,761 10.3 625 11.1
During the year ended December 31, 1997, three vendors accounted for more than 10 percent of the Company's total materials purchases, and for the year ended December 31, 1998 and the three months ended March 31, 1999, two vendors accounted for more than 10 percent. Materials purchases from these vendors were as follows (in thousands):
YEAR ENDED DECEMBER 31 THREE MONTHS -------------------------------- ENDED MARCH 31, 1997 1998 1999 -------------- -------------- --------------- Vendor A....................... $3,092 36.6% $3,180 39.3% $1,272 58.2% Vendor B....................... 1,532 18.1 2,222 27.5 717 32.8 Vendor C....................... 1,411 16.7 -- -- -- --
Management believes that the materials are readily available in the marketplace at prices which approximate those paid to the above vendors. In general, the Company performs its services under contract terms that entitle it to progress payments and is, by law, granted a lien interest in the work until paid. The Company is exposed to potential credit risk related to changes in business and economic factors in Texas. However, management believes that its contract acceptance, billing and collection policies are adequate to minimize the potential credit risk. The Company's customers are primarily in the construction industry. Accordingly, the Company is exposed to risks of fluctuations in construction in the areas which it operates. F-110 236 POWER PLUMBING, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 13. SUBSEQUENT EVENT On April 1, 1999, AMPAM acquired through merger all the stock of the Company in exchange for cash and stock of AMPAM, after which the Company is a wholly owned subsidiary of AMPAM. In connection with the merger, the Company sold or distributed certain nonoperating assets and attendant liabilities, if any, to the stockholders. Concurrently with the merger, the Company entered into agreements with the stockholders to lease office space used in the Company's operations for a negotiated amount and term. F-111 237 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Nelson Mechanical Contractors, Inc.: We have audited the accompanying balance sheets of Nelson Mechanical Contractors, Inc. as of April 30, 1998, and March 31, 1999, and the related statements of operations, cash flows, and stockholders' equity for the years ended April 30, 1997 and 1998, and for the eleven months ended March 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nelson Mechanical Contractors, Inc. as of April 30, 1998, and March 31, 1999, and the results of its operations and its cash flows for the years ended April 30, 1997 and 1998, and for the eleven months ended March 31, 1999, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Atlanta, Georgia June 1, 1999 F-112 238 NELSON MECHANICAL CONTRACTORS, INC. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE INFORMATION) ASSETS
APRIL 30, MARCH 31, 1998 1999 ---------- --------- CURRENT ASSETS: Cash and cash equivalents................................. $ 683 $ 601 Accounts receivable: Contract............................................... 1,477 2,034 Other.................................................. 238 123 Costs and estimated earnings in excess of billings on uncompleted contracts.................................. 1,445 1,055 Inventories............................................... 581 400 Prepaid expenses and other current assets................. 155 613 Current portion of notes receivable....................... 25 -- Loans to stockholders..................................... 170 -- ------ ------ Total current assets.............................. 4,774 4,826 LONG-TERM NOTES RECEIVABLE.................................. 85 -- PROPERTY AND EQUIPMENT, net................................. 1,630 1,018 OTHER ASSETS................................................ 530 -- ------ ------ Total assets...................................... $7,019 $5,844 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Accounts payable, accrued expenses, and other............. $1,349 $ 308 Billings in excess of costs and estimated earnings on uncompleted contracts.................................. 127 205 Loans from stockholders................................... 99 4,788 Income taxes payable...................................... -- -- ------ ------ Total liabilities................................. 1,575 5,301 ------ ------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $10 par value; 200 shares authorized, 50 shares issued and outstanding.......................... 1 1 Additional paid-in capital................................ 1,088 1,088 Retained earnings (deficit)............................... 4,355 (546) ------ ------ Total stockholders' equity........................ 5,444 543 ------ ------ Total liabilities and stockholders' equity........ $7,019 $5,844 ====== ======
The accompanying notes are an integral part of these financial statements. F-113 239 NELSON MECHANICAL CONTRACTORS, INC. STATEMENTS OF OPERATIONS (IN THOUSANDS)
YEAR ENDED APRIL 30 ELEVEN MONTHS ENDED ------------------- MARCH 31, 1997 1998 1999 -------- -------- ------------------- REVENUES............................................... $12,507 $14,240 $14,039 COST OF REVENUES (including depreciation).............. 9,110 9,641 9,349 ------- ------- ------- Gross profit...................................... 3,397 4,599 4,690 SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES.......... 2,408 2,458 1,914 ------- ------- ------- Income from operations............................ 989 2,141 2,776 ------- ------- ------- OTHER INCOME (EXPENSE): Interest income...................................... 54 48 51 Interest expense..................................... (11) (20) (134) Other................................................ 45 50 416 ------- ------- ------- Other income (expense), net....................... 88 78 333 ------- ------- ------- NET INCOME............................................. $ 1,077 $ 2,219 $ 3,109 ======= ======= =======
The accompanying notes are an integral part of these financial statements. F-114 240 NELSON MECHANICAL CONTRACTORS, INC. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED APRIL 30 ELEVEN MONTHS ENDED ------------------- MARCH 31, 1997 1998 1999 ------- ------- ------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................ $ 1,077 $ 2,219 $ 3,109 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization....................... 396 382 336 Gain on sale of property and equipment.............. (23) (5) (414) Changes in operating assets and liabilities: (Increase) decrease in: Accounts receivable............................ (26) 44 (425) Costs and estimated earnings in excess of billings on uncompleted contracts............ 14 (1,144) 390 Inventories.................................... (66) (66) 180 Prepaid expenses and other current assets...... (8) 3 81 Increase (decrease) in: Accounts payable, accrued expenses, and other........................................ (14) 179 (1,042) Billings in excess of costs and estimated earnings on uncompleted contracts............ 50 (32) 78 Other, net....................................... -- (57) -- ------- ------- ------- Net cash provided by operating activities...... 1,400 1,523 2,293 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment.......... 48 24 1,052 Additions of property and equipment................... (427) (725) (361) Collections on notes receivable....................... 4 7 85 Additions to notes receivable......................... -- (30) -- Collections on loans to stockholders.................. 159 212 262 Additions to loans to stockholders.................... (227) (172) (92) ------- ------- ------- Net cash provided by (used in) investing activities................................... (443) (684) 946 ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings of short-term debt......................... 300 250 500 Payments of short-term debt........................... (300) (250) (500) Proceeds from loans from stockholders................. 420 587 7,162 Payments on loans from stockholders................... (594) (505) (2,473) Distributions to stockholders......................... (859) (1,046) (8,010) ------- ------- ------- Net cash used in financing activities.......... (1,033) (964) (3,321) ------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... (76) (125) (82) CASH AND CASH EQUIVALENTS, beginning of period.......... 884 808 683 ------- ------- ------- CASH AND CASH EQUIVALENTS, end of period................ $ 808 $ 683 $ 601 ======= ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for: Interest............................................ $ 11 $ 20 $ 134 ======= ======= ======= Income taxes........................................ $ -- $ -- $ -- ======= ======= =======
The accompanying notes are an integral part of these financial statements. F-115 241 NELSON MECHANICAL CONTRACTORS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE INFORMATION)
ADDITIONAL TOTAL PAID-IN RETAINED STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS EQUITY ------ ------ ---------- -------- ------------- BALANCE, April 30, 1996...................... 50 $ 1 $1,088 $ 2,964 $ 4,053 Distributions to stockholders.............. -- -- -- (859) (859) Net income................................. -- -- -- 1,077 1,077 --- ---- ------ ------- ------- BALANCE, April 30, 1997...................... 50 1 1,088 3,182 4,271 Distributions to stockholders.............. -- -- -- (1,046) (1,046) Net income................................. -- -- -- 2,219 2,219 --- ---- ------ ------- ------- BALANCE, April 30, 1998...................... 50 1 1,088 4,355 5,444 Distributions to stockholders.............. -- -- -- (8,010) (8,010) Net income................................. -- -- -- 3,109 3,109 --- ---- ------ ------- ------- BALANCE, March 31, 1999...................... 50 $ 1 $1,088 $ (546) $ 543 === ==== ====== ======= =======
The accompanying notes are an integral part of these financial statements. F-116 242 NELSON MECHANICAL CONTRACTORS, INC. NOTES TO FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION Nelson Mechanical Contractors, Inc., (the "Company"), a Florida corporation, focuses on providing plumbing and utility services primarily for general contractors, developers, local governmental agencies, and private institutions. The Company performs the majority of its contract work under fixed-price contracts, with contract terms generally ranging from two months to two years. The Company performs the majority of its work in the southeast United States. The Company and its stockholders intend to enter into a definitive agreement with American Plumbing & Mechanical, Inc. (AMPAM), pursuant to which all outstanding shares of the Company's common stock will be exchanged for cash, notes and shares of AMPAM common stock concurrently with the consummation of the related financing. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition The Company recognizes revenue when services are performed except when work is being performed under a construction contract. Revenues from construction contracts are recognized using the percentage-of-completion method, measured by the percentage of cost incurred to date to total estimated costs for each contract. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor and depreciation costs. Provisions for the total estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability, and final contract settlements may result in revisions to costs and income, and their effects are recognized in the period in which the revisions are determined. An amount equal to contract costs attributable to claims is included in revenues when realization is probable and the amount can be reliably estimated. The balances billed but not paid by customers pursuant to retainage provisions in construction contracts will be due upon completion of the contracts and acceptance by the customer. Based on the Company's experience with similar contracts in recent years, the retention balance at each balance sheet date will be collected within the subsequent fiscal year. Customer retainage is included in accounts receivable from construction contracts in the accompanying balance sheets. The current asset, "Costs and estimated earnings in excess of billings on uncompleted contracts," represents revenues recognized in excess of amounts billed. The current liability, "Billings in excess of costs and estimated earnings on uncompleted contracts," represents billings in excess of revenues recognized. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As noted in Note 5, cash and cash equivalents include $222,000 and $233,000 of restricted cash at April 30, 1998, and March 31, 1999, respectively. Accounts Receivable and Provision for Doubtful Accounts The Company provides an allowance for doubtful accounts based on its historical collection experience with its plumbing and utility services customers. Management believes that an allowance for doubtful accounts is not necessary, based on the status of contracts and their review of accounts. F-117 243 NELSON MECHANICAL CONTRACTORS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Inventories Inventories consist of parts and supplies held for use in the ordinary course of business and are stated at the lower of cost or market using the first-in, first-out (FIFO) method. Property and Equipment Property and equipment are stated at cost, and depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized over the lesser of the life of the lease or the estimated useful life of the asset. Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments, which extend the useful lives of existing equipment, are capitalized and depreciated. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statements of operations. Warranty Costs For most contracts, the Company warrants labor and materials for one year after completion of the job. A reserve for warranty costs is recorded based on the historical level of warranty claims and management's estimate of future costs. Income Taxes The Company has elected S corporation status, as defined by the Internal Revenue Code, whereby the Company itself is not subject to taxation for federal purposes. Under S corporation status, the stockholders report their shares of the Company's taxable earnings or losses in their personal tax returns. The Company will continue to be liable for income tax currently due to states that do not recognize S corporation status. At April 30, 1998, and March 31, 1999, there were no material income taxes due to such states. An S corporation is permitted under the Revenue Act of 1987 to retain its fiscal year, rather than adopting the calendar year, for tax purposes. However, an annual payment approximating the income tax that would be paid on short-period income if there had been a switch to a calendar year must be paid. This tax deposit is reported as "other assets" in the accompanying financial statements, is adjusted annually and amounts to $530,024 at April 30, 1998, and March 31, 1999. The tax deposit is realized when the entity switches to a calendar year, liquidates, terminates its S status or is considered not to have any deferred taxable income. The Company terminated its S corporation status on April 1, 1999, which is the effective date of the merger discussed in Note 11. At April 30, 1998, and March 31, 1999, the Company had available for state income tax purposes net operating loss carryforwards of approximately $550,000 which expire through 2011. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-118 244 NELSON MECHANICAL CONTRACTORS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Realization of Long-Lived Assets The Company has adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in the event that facts and circumstances indicate that property and equipment or other assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset's carrying amount to determine whether an impairment of such property is necessary. The effect of any impairment would be to expense the difference between the fair value of such property and its carrying value. Adoption of this standard did not have a material effect on the financial position or results of operations of the Company. 3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS Contract receivables consist of the following at April 30, 1998, and March 31, 1999 (in thousands):
1998 1999 ------ ------ Billed...................................................... $1,083 $1,385 Retainage................................................... 394 649 ------ ------ Balance at end of period.................................... $1,477 $2,034 ====== ======
Plumbing installation contracts in progress are as follows at April 30, 1998, and March 31, 1999 (in thousands):
1998 1999 ------ ------- Costs incurred on contracts in progress..................... $3,445 $ 5,711 Estimated earnings, net of losses........................... 5,279 8,051 ------ ------- 8,724 13,762 Less billings to date....................................... 7,406 12,912 ------ ------- $1,318 $ 850 ====== ======= Costs and estimated earnings in excess of billings on uncompleted contracts..................................... $$1,445 $ 1,055 Billings in excess of costs and estimated earnings on uncompleted contracts..................................... (127) (205) ------ ------- $1,318 $ 850 ====== =======
Accounts payable and accrued expenses consist of the following at April 30, 1998, and March 31, 1999 (in thousands):
1998 1999 ------ ------ Accounts payable, trade..................................... $ 726 $ 216 Accrued compensation and benefits........................... 154 -- Insurance payable........................................... 442 42 Other accrued expenses...................................... 27 50 ------ ------ Balance at end of period.................................... $1,349 $ 308 ====== ======
F-119 245 NELSON MECHANICAL CONTRACTORS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following at April 30, 1998, and March 31, 1999 (in thousands):
ESTIMATED USEFUL LIVES IN YEARS 1998 1999 ------------ ------- ------- Land.................................................. $ 323 $ -- Transportation equipment.............................. 5.0 1,529 1,332 Machinery and equipment............................... 5.0 2,974 2,715 Computer and telephone equipment...................... 5.0 97 110 Building and leasehold improvements................... 31.5 114 -- Furniture and fixtures................................ 7.0 21 39 ------- ------- 5,058 4,196 Less accumulated depreciation and amortization........ (3,428) (3,178) ------- ------- Property and equipment, net........................... $ 1,630 $ 1,018 ======= =======
5. REVOLVING LINE OF CREDIT, LETTER OF CREDIT, AND DEBT The Company has a $500,000 revolving line of credit with a financial institution, secured by all owned equipment. The line of credit matures on January 8, 2000, with the outstanding balance being due at this time. The line of credit bears interest at the prime rate, which was 7.75% at March 31, 1999, and is paid quarterly on the outstanding balance during the period. At April 30, 1998, and March 31, 1999, the Company did not have an outstanding balance on the line of credit. The line of credit was terminated subsequent to March 31, 1999. The Company has a $250,000 letter of credit with a financial institution, secured by assignment of a certificate of deposit in the amount of $222,000 and $233,000 at April 30, 1998, and March 31, 1999, respectively. The letter of credit was reduced to $150,000 subsequent to March 31, 1999. The Company occasionally borrows from its stockholders, as discussed in Note 7. These notes are payable on demand and bear interest at 7%. At April 30, 1998, and March 31, 1999, the outstanding balance on loans from its stockholders was $99,000 and $4,788,000, respectively. The Company does not have any long-term debt instruments. 6. LEASES The Company leases office space from a stockholder on a month-to-month basis (Note 7). Rent expense for each of the years ended April 30, 1997 and 1998, and the eleven months ended March 31, 1999, was $45,000, $45,000 and $41,000, respectively. On occasion, the Company leases apartment space for extended jobs outside of the southeast United States and certain office equipment under operating leases from third parties. Rent expense under operating leases for the years ended April 30, 1997 and 1998, and the eleven months ended March 31, 1999, was $33,000, $42,000 and $51,000, respectively. F-120 246 NELSON MECHANICAL CONTRACTORS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Future minimum lease payments under the noncancelable operating lease are as follows (in thousands):
YEAR ENDING APRIL 30, ----------- 1999........................................................ $ 7 2000........................................................ 54 2001........................................................ 46 2002........................................................ 48 2003........................................................ 49 Thereafter.................................................. 47 ---- $251 ====
7. RELATED-PARTY TRANSACTIONS The Company occasionally loans money to its stockholders, which is payable on demand. The loans bear interest at the applicable federal rate (5.51% at April 30, 1998). There were no such loans at March 31, 1999. The Company occasionally borrows money from its stockholders, which is payable on demand. The loans bear interest at 7%. The Company rents certain real property from its majority stockholder on a month-to-month basis (see Note 6). Management believes the rent paid approximates the fair market value of the property. The Company loaned $90,000 to a stockholder under an installment agreement on April 1, 1996. The note bears interest at 7% and is payable in monthly installations of $809, including interest through April 2011. Current maturities of the loan at April 30, 1998, was $4,000. The loan was paid in full on September 30, 1998. 8. FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash and cash equivalents, notes receivable and notes payable. The Company believes that the carrying value of these instruments on the accompanying balance sheets approximates their fair value. 9. COMMITMENTS AND CONTINGENCIES Litigation The Company is involved in disputes or legal actions arising in the ordinary course of business. Management does not believe that the outcome of such legal actions will have a material adverse effect on the Company's financial position or results of operations. Insurance The Company carries a broad range of insurance coverage, including business auto liability, general liability, and an umbrella policy. The Company has not incurred significant claims or losses on any of these insurance policies. 10. MAJOR CUSTOMERS AND RISK CONCENTRATION The Company had sales of approximately 17.8 percent and 11.5 percent of total sales to one major customer during the year ended April 30, 1997. The Company had sales of approximately 23.0 percent and F-121 247 NELSON MECHANICAL CONTRACTORS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 33.3 percent of total sales to another major customer during the year ended April 30, 1998, and the eleven months ended March 31, 1999, respectively. In general, the Company performs its services under contract terms that entitle it to progress payments, and the Company is, by law, granted a lien interest in the work until paid. The Company is exposed to potential credit risk related to changes in business and economic factors within the market. However, management believes that its contract acceptance, billing, and collection policies are adequate to minimize the potential credit risk. The Company's customers are primarily in the construction industry. Accordingly, the Company is exposed to risks of fluctuations in construction in the areas which it operates. 11. SUBSEQUENT EVENTS On April 1, 1999, AMPAM acquired through merger all the stock of the Company in exchange for cash, notes and stock of AMPAM, after which the Company is a wholly owned subsidiary of AMPAM. In connection with the merger, the Company sold or distributed certain non-operating assets and attendant liabilities, if any, to the stockholders. Additionally, the Company made cash distributions which represent the Company's estimated S Corporation accumulated adjustment account. As discussed in Note 2, in connection with the merger, the Company converted from an S corporation to a C corporation. Upon conversion to C corporation status, the Company recorded deferred taxes for which it will be responsible. If the S corporation had been terminated as of April 30, 1998, the Company would have recorded a deferred tax asset of approximately $4,500 due to bad debt allowance and a deferred tax liability of approximately $47,000 due to differences between book and tax depreciation. Concurrently with the merger, the Company entered into agreements with the stockholder(s) to lease land and buildings used in the Company's operations for a negotiated amount and term. F-122 248 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Sherwood Mechanical, Inc.: We have audited the accompanying balance sheets of Sherwood Mechanical, Inc. (a California corporation), as of September 30, 1997 and 1998, and the related statements of operations, cash flows and stockholder's equity for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sherwood Mechanical, Inc. as of September 30, 1997 and 1998 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Phoenix, Arizona, March 10, 1999 F-123 249 SHERWOOD MECHANICAL, INC. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE INFORMATION) ASSETS
SEPTEMBER 30, --------------- MARCH 31, 1997 1998 1999 ------ ------ ----------- (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents................................. $ 49 $ 98 $ 11 Contracts receivable, net................................. 1,954 3,024 2,467 Costs and estimated earnings in excess of billings on uncompleted contracts.................................. 471 903 825 Inventories............................................... 143 272 274 Prepaid expenses and other current assets................. 8 21 -- Due from stockholder...................................... 63 83 455 Land held for sale........................................ -- 554 -- ------ ------ ------ Total current assets.............................. 2,688 4,955 4,032 LAND UNDER DEVELOPMENT...................................... 528 -- -- PROPERTY AND EQUIPMENT, net................................. 364 387 439 DEFERRED INCOME TAXES....................................... 216 30 -- OTHER ASSETS................................................ 10 7 13 ------ ------ ------ Total assets...................................... $3,806 $5,379 $4,484 ====== ====== ====== LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Lines of credit........................................... $ 645 $ 972 $ 750 Current maturities of long-term debt...................... 293 258 64 Accounts payable and accrued expenses..................... 763 2,137 1,595 Billings in excess of costs and estimated earnings on uncompleted contracts.................................. 389 78 229 Income taxes payable...................................... 19 156 78 Deferred income taxes..................................... 505 369 160 ------ ------ ------ Total current liabilities......................... 2,614 3,970 2,876 LONG-TERM DEBT, net of current maturities................... 107 52 98 DEFERRED INCOME TAXES....................................... -- -- 157 ------ ------ ------ Total liabilities................................. 2,721 4,022 3,131 COMMITMENTS AND CONTINGENCIES STOCKHOLDER'S EQUITY: Common stock, no par value 1,000 shares authorized, issued and outstanding........................................ 26 26 26 Capital contribution...................................... -- 258 258 Retained earnings......................................... 1,059 1,073 1,069 ------ ------ ------ Total stockholder's equity........................ 1,085 1,357 1,353 ------ ------ ------ Total liabilities and stockholder's equity........ $3,806 $5,379 $4,484 ====== ====== ======
The accompanying notes are an integral part of these financial statements. F-124 250 SHERWOOD MECHANICAL, INC. STATEMENTS OF OPERATIONS (IN THOUSANDS)
SIX MONTHS YEAR ENDED ENDED SEPTEMBER 30, MARCH 31, ----------------- -------------------- 1997 1998 1998 1999 ------- ------- ----------- ------ (UNAUDITED) REVENUES............................................. $11,482 $13,556 $6,607 $7,690 COST OF REVENUES (including depreciation)............ 9,867 11,066 5,372 6,446 ------- ------- ------ ------ Gross profit.................................... 1,615 2,490 1,235 1,244 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......... 1,505 2,189 850 1,198 ------- ------- ------ ------ Income from operations.......................... 110 301 385 46 ------- ------- ------ ------ OTHER INCOME (EXPENSE): Interest expense................................... (53) (83) (40) (51) Other.............................................. 18 3 -- 1 ------- ------- ------ ------ Other income (expense), net..................... (35) (80) (40) (50) ------- ------- ------ ------ INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES...... 75 221 345 (4) PROVISION FOR INCOME TAXES........................... 40 207 148 -- ------- ------- ------ ------ NET INCOME (LOSS).................................... $ 35 $ 14 $ 197 $ (4) ======= ======= ====== ======
The accompanying notes are an integral part of these financial statements. F-125 251 SHERWOOD MECHANICAL, INC. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS YEAR ENDED ENDED SEPTEMBER 30, MARCH 31, --------------- ------------- 1997 1998 1998 1999 ----- ------- ----- ----- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)........................................ $ 35 $ 14 $ 197 (4) Adjustments to reconcile net income to net cash provided by (used in) operating activities -- Depreciation.......................................... 80 107 47 65 Deferred income taxes................................. 22 50 (4) (22) Changes in operating assets and liabilities: (Increase) decrease in -- Contracts receivable............................. 349 (1,070) (594) 557 Costs and estimated earnings in excess of billings on uncompleted contracts.............. (25) (432) (297) 78 Inventories...................................... (36) (129) (23) (2) Prepaid expenses and other assets................ 6 (10) (51) 15 Increase (decrease) in -- Accounts payable and accrued expenses............ (250) 1,632 886 (542) Billings in excess of costs and estimated earnings on uncompleted contracts.............. 178 (311) (61) 151 Income taxes payable............................. 19 137 (22) (78) ----- ------- ----- ----- Net cash provided by (used in) operating activities..................................... 378 (12) 78 218 ----- ------- ----- ----- CASH FLOWS FROM INVESTING ACTIVITIES: Development of land, capitalized costs................... (108) (26) (19) 554 Additions of property and equipment...................... (146) (120) (74) (117) ----- ------- ----- ----- Net cash provided by (used in) investing activities..................................... (254) (146) (93) 437 ----- ------- ----- ----- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in bank overdraft............................... -- -- 153 -- Advances to shareholder.................................. (63) (29) -- (372) Payments of borrowings from stockholder.................. (20) 9 -- -- Payments of long-term debt............................... (63) (100) (34) (148) Proceeds on borrowings of long-term debt................. 19 -- -- -- Borrowings on lines of credit, net....................... (47) 327 (153) (222) ----- ------- ----- ----- Net cash provided by (used in) financing activities..................................... (174) 207 (34) (742) ----- ------- ----- ----- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... (50) 49 (49) (87) CASH AND CASH EQUIVALENTS, beginning of period............. 99 49 49 98 ----- ------- ----- ----- CASH AND CASH EQUIVALENTS, end of period................... $ 49 $ 98 $ -- 11 ===== ======= ===== ===== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for -- Interest.............................................. $ 55 $ 82 $ 12 46 ===== ======= ===== ===== Income taxes.......................................... $ -- $ 1 $ -- 100 ===== ======= ===== ===== Non cash investing and financing activities -- Property and equipment acquired by incurring notes payable............................................. $ 121 $ 10 $ -- -- ===== ======= ===== ===== Liabilities assumed by the sole shareholder of the Company............................................. $ -- $ 258 $ -- -- ===== ======= ===== =====
The accompanying notes are an integral part of these financial statements. F-126 252 SHERWOOD MECHANICAL, INC. STATEMENTS OF STOCKHOLDER'S EQUITY (IN THOUSANDS, EXCEPT SHARE INFORMATION)
COMMON STOCK --------------- CAPITAL RETAINED STOCKHOLDER'S SHARES AMOUNT CONTRIBUTIONS EARNINGS EQUITY ------ ------ ------------- -------- ------------- BALANCE, September 30, 1996................ 1,000 $26 $ -- $1,024 $1,050 Net income............................... -- -- -- 35 35 ----- --- ---- ------ ------ BALANCE, September 30, 1997................ 1,000 26 -- 1,059 1,085 Capital contribution..................... -- -- 258 -- 258 Net income............................... -- -- -- 14 14 ----- --- ---- ------ ------ BALANCE, September 30, 1998................ 1,000 26 258 1,073 1,357 Net loss (Unaudited)..................... -- -- -- (4) (4) ----- --- ---- ------ ------ BALANCE, March 31, 1999 (Unaudited)........ 1,000 $26 $258 $1,069 $1,353 ===== === ==== ====== ======
The accompanying notes are an integral part of these financial statements. F-127 253 SHERWOOD MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS (1) BUSINESS AND ORGANIZATION: Sherwood Mechanical, Inc., a California corporation (the Company), focuses on installation of plumbing, mechanical, and site utilities for commercial and industrial construction projects. The Company performs the majority of its contract work under fixed price contracts with contract terms generally ranging from 12 to 24 months. The Company performs the majority of its work in California, Arizona and Nevada. The Company and its stockholder intend to enter into a definitive agreement with American Plumbing & Mechanical, Inc. (AMPAM), pursuant to which all outstanding shares of the Company's common stock will be exchanged for cash, notes and shares of AMPAM common stock concurrently with the consummation of the related financing. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Interim Financial Information The interim financial statements as of March 31, 1999 and for the six months ended March 31, 1998 and 1999, are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company's management, the unaudited interim financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Accounts Receivable and Allowance for Doubtful Accounts The Company provides an allowance for doubtful accounts based upon an estimate of uncollectable balances. Inventories Inventories consist of parts and supplies held for use in the ordinary course of business and are stated at the lower of cost or market using the first-in, first-out (FIFO) method. Property and Equipment Property and equipment are stated at cost, and depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized over the lesser of the life of the lease or the estimated useful life of the asset. Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments, which extend the useful lives of existing equipment, are capitalized and depreciated. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statements of operations. F-128 254 SHERWOOD MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Revenue Recognition The Company recognizes revenues when services are performed, except when work is being performed under a construction contract. Revenues from construction contracts are recognized on the percentage-of-completion method measured by the percentage of cost incurred to date to total estimated costs for each contract. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor and depreciation costs. Provisions for the total estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to costs and income and their effects are recognized in the period in which the revisions are determined. An amount equal to contract costs attributable to claims is included in revenues when realization is probable and the amount can be reliably estimated. The balances billed but not paid by customers pursuant to retainage provisions in construction contracts will be due upon completion of the contracts and acceptance by the customer. Based on the Company's experience with similar contracts in recent years, the retention balance at each balance sheet date will be collected within the subsequent fiscal year. The current asset, "Costs and estimated earnings in excess of billings on uncompleted contracts," represents revenues recognized in excess of amounts billed. The current liability, "Billings in excess of costs and estimated earnings on uncompleted contracts," represents billings in excess of revenues recognized under the percentage of completion. Warranty Costs The Company warrants labor for generally one year after construction is complete. A reserve for warranty costs is recorded based upon the historical level of warranty claims and management's estimate of future costs, which are not expected to be material. Income Taxes The Company, which is a C Corporation, follows the liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under this method, deferred assets and liabilities are recorded for future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the underlying assets or liabilities are recovered or settled. Historically, the Company used the completed-contract method of reporting for income tax purposes, under which all contract revenues and expenses are recognized in the accounting period in which the contract is completed. The Company changed to the percentage of completion method for income tax purposes for the year beginning October 1, 1997. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Realization of Long-Lived Assets The Company has adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Accordingly, in the event that facts and F-129 255 SHERWOOD MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) circumstances indicate that property and equipment or other assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset's carrying amount to determine if an impairment of such property is necessary. The effect of any impairment would be to expense the difference between the fair value of such property and its carrying value. Adoption of this standard did not have a material effect on the financial position or results of operations of the Company. (3) DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS: Contract receivables consist of the following (in thousands):
SEPTEMBER 30, --------------- 1997 1998 ------ ------ Billed...................................................... $1,470 $2,487 Claims...................................................... 118 118 Retainage................................................... 391 444 Allowance for doubtful accounts............................. (25) (25) ------ ------ Balance at end of period.......................... $1,954 $3,024 ====== ======
Contracts in progress are as follows (in thousands):
SEPTEMBER 30, ----------------- 1997 1998 ------- ------- Costs incurred on contracts in progress..................... $11,403 $ 8,500 Estimated earnings, net of losses........................... 2,251 2,152 ------- ------- 13,654 10,652 Less -- billings to date.................................... 13,572 9,827 ------- ------- $ 82 $ 825 ======= ======= Costs and estimated earnings in excess of billings on uncompleted contracts..................................... $ 471 $ 903 Billings in excess of costs and estimated earnings on uncompleted contracts..................................... (389) (78) ------- ------- $ 82 $ 825 ======= =======
Accounts payable and accrued expenses consist of the following (in thousands):
SEPTEMBER 30, ------------- 1997 1998 ---- ------ Accounts payable, trade..................................... $498 $1,832 Accrued compensation and benefits........................... 195 236 Other accrued expenses...................................... 70 69 ---- ------ Balance at end of period............................... $763 $2,137 ==== ======
F-130 256 SHERWOOD MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (4) PROPERTY AND EQUIPMENT: Property and equipment consist of the following (in thousands, except year information):
ESTIMATED SEPTEMBER 30, USEFUL LIVES --------------- IN YEARS 1997 1998 ------------ ------ ------ Transportation equipment................................ 3-5 $ 498 $ 515 Machinery and equipment................................. 3-7 396 379 Leasehold improvements.................................. 7-10 211 233 Office furniture and equipment.......................... 5-7 123 180 ------ ------ 1,228 1,307 Less -- accumulated depreciation........................ 864 920 ------ ------ Property and equipment, net................... $ 364 $ 387 ====== ======
(5) LAND HELD FOR SALE AND LAND UNDER DEVELOPMENT: The Company purchased land in April 1992 with plans to subdivide and resell it at a future date. Included in the net book value is capitalized interest of approximately $5,000 and $8,000 at September 30, 1997 and 1998, respectively. The land is carried at the lower of cost or net realizable value. In March 1999, the sole stockholder of the Company acquired the land for carrying value and assumed the related outstanding debt. (6) LINES OF CREDIT AND LONG-TERM DEBT: The Company has two lines of credit with a bank with $750,000 and $250,000 of available credit. The lines of credit expire May 1999 and bear interest at 9.5% to 9.25%. The lines of credit are collateralized by the Company's assets and are personally guaranteed by the sole stockholder. Aggregate borrowings outstanding at September 30, 1997 and 1998 were approximately $645,000 and $972,000, respectively. Long-term debt consists of the following:
SEPTEMBER 30, -------------- 1997 1998 ----- ----- (IN THOUSANDS) Note payable, due in monthly installments of $944 including interest at 7.75% to 13.4% through March 2000, collateralized by equipment and vehicle with a net book value of $22,608 and $15,215 at September 30, 1997 and 1998, respectively........................................ $ 21 $ 11 Notes payable, due in monthly installments of $385 including interest at 4.9% through June 1999. Notes are collateralized by vehicles with a net book value of $21,710 and $11,977 at September 30, 1997 and 1998, respectively.............................................. 15 3 Notes payable, due in monthly installments of $2,774 at interest rates ranging from 8.5% to 9.25%, maturity dates ranging from December 1999 to March 2001. Notes are collateralized by vehicles with a net book value of $97,433 and $76,347 at September 30, 1997 and 1998, respectively.............................................. 84 58 Note payable, due in monthly installments of $1,268, including interest at 9.2%, through October 1998, collateralized by equipment with a net book value of $23,882 and $15,922 at September 30, 1997 and 1998, respectively.............................................. 16 1
F-131 257 SHERWOOD MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, -------------- 1997 1998 ----- ----- (IN THOUSANDS) Note payable, due in monthly installments of $1,561 including interest at 6.9%, through August 2000, collateralized by equipment with a net book value of $48,953 and $38,825 at September 30, 1997 and 1998, respectively.............................................. 49 34 Note payable, due in monthly installments of $331, including interest at 9.77%, through February 2001, collateralized by equipment with a net book value of $9,345 at September 30, 1998.................................................. -- 8 Note payable, balance due in July 1999. Collateralized by land with a book value of $528,000 and $554,000 at September 30, 1997 and 1998, respectively. (Also see Note 5.)....................................................... 215 195 ----- ----- Total debt.................................................. 400 310 Less -- current maturities.................................. (293) (258) ----- ----- Total long-term debt........................................ $ 107 $ 52 ===== =====
The maturities of long-term debt are as follows (in thousands):
YEAR ENDING SEPTEMBER 30, - ------------- 1999........................................................... $258 2000........................................................... 47 2001........................................................... 5 ---- $310 ====
(7) LEASES: The Company leases a building under an operating lease agreement with the sole stockholder. The rent paid under this related party lease was approximately $78,000 and $97,000 for the year ended September 30, 1997 and 1998, respectively. The lease expires in May 2003. Future minimum lease payments under noncancelable operating leases are as follows (in thousands):
YEAR ENDING SEPTEMBER 30, - ------------- 1999................................................................ $126 2000................................................................ 129 2001................................................................ 133 2002................................................................ 137 2003................................................................ 129 ---- $654 ====
F-132 258 SHERWOOD MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (8) INCOME TAXES: Federal and state income taxes are as follows (in thousands):
SEPTEMBER 30, ------------- 1997 1998 ----- ----- Federal -- Current................................................... $ 13 $106 Deferred.................................................. 18 43 State -- Current................................................... 6 51 Deferred.................................................. 3 7 ---- ---- $ 40 $207 ==== ====
At September 30, 1997 and 1998, actual income tax expense differs from income tax expense computed by applying the U.S. federal statutory corporate rate of 35% and 34%, respectively, to income before provision for income taxes as follows (in thousands):
SEPTEMBER 30, ------------- 1997 1998 ----- ----- Provision at the statutory rate............................. $ 26 $ 75 Increase resulting from -- Permanent differences, primarily meals and entertainment......................................... 9 7 Benefit of lower marginal tax rates.................... (1) -- State income tax, net of benefit for federal deduction............................................. 6 40 Non deductible expense................................. -- 85 ---- ---- $ 40 $207 ==== ====
The Company had federal and state alternative minimum tax credits of $48,000 available to offset future regular tax at September 30, 1997, and no credits available at September 30, 1998. Deferred income taxes result from temporary differences in the recognition of income and expenses for financial reporting purposes and for tax purposes. The tax effects of these temporary differences, representing deferred tax assets and liabilities, result principally from the following (in thousands):
SEPTEMBER 30, ------------- 1997 1998 ----- ----- Deferred income tax assets -- Allowance for bad debts................................... $ 10 $ 10 Reserves and accrued expenses............................. 27 30 Property and equipment.................................... 49 30 Alternative minimum tax credit............................ 48 -- Net operating loss........................................ 119 -- ----- ----- Total deferred income tax asset................... 253 70 ----- ----- Deferred income tax liabilities -- Deferred contract revenue................................. (522) (409) Accrued expenses.......................................... (20) -- ----- ----- Total deferred income tax liability............... (542) (409) ----- ----- Net deferred income tax liability................. $(289) $(339) ===== =====
F-133 259 SHERWOOD MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The net deferred tax assets and liabilities are comprised of the following (in thousands):
SEPTEMBER 30, ------------- 1997 1998 ----- ----- Deferred tax assets -- Current................................................... $ 37 $ 40 Long-term................................................. 216 30 ----- ----- Total............................................. 253 70 ----- ----- Deferred tax liabilities -- Current................................................... (542) (409) Long-term................................................. -- -- ----- ----- Total............................................. (542) (409) ----- ----- Net deferred income tax liability................. $(289) $(339) ===== =====
(9) RELATED-PARTY TRANSACTIONS: The Company entered into a construction contract with a partnership in which the partners are executive officers and a stockholder of the Company. The total contract receivable balance as of September 30, 1997 and 1998 was approximately $302,000 and $88,000, respectively. The Company recorded construction revenue and gross margin for this contract of approximately $457,000 and $23,000 for 1997, and approximately $475,000 and $(112,000) for 1998, respectively. (10) EMPLOYEE BENEFIT PLAN: The Company has a defined contribution profit-sharing plan. The plan provides for the Company to match an unspecified percent contributed by each employee at the discretion of the Board of Director. Total cash contributions by the Company under the plan were approximately $68,000 and $100,000 for the year ended September 30, 1997 and 1998, respectively. Vesting is 100% at date of contribution for employee contributions and employer contributions generally vest over a period of one to six years. (11) FINANCIAL INSTRUMENTS: The Company's financial instruments consist of cash and cash equivalents, contracts receivable, accounts payable, lines of credit, notes payable and long-term debt. The Company believes that the carrying value of these instruments on the accompanying balance sheets approximates their fair value. (12) COMMITMENTS AND CONTINGENCIES: Litigation The Company was named as a defendant in an action filed by the trustee of a union apprenticeship committee in December 1997, alleging the Company violated the State's prevailing wage law and is seeking damages totaling approximately $269,000. Related to the same matter, the Division of Labor Standards Enforcement has sued an unaffiliated third party (Ray Wilson Company) seeking the wages stated above of $269,000 plus penalties of $293,000. Ray Wilson Company is seeking indemnification from the Company. The two cases overlap and the collective potential loss totals $562,000. Subsequent to year end, the sole stockholder of the Company personally guaranteed any liability to the Company related to this matter. In March of 1999, the Department of Labor Standards Enforcement offered a settlement of approximately $400,000. In April 1999, the sole stockholder of the Company offered a settlement of approximately $270,000. F-134 260 SHERWOOD MECHANICAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Company is involved in disputes or legal actions arising in the ordinary course of business. Management does not believe the outcome of such legal actions will have a material adverse effect on the Company's financial position or results of operations. Insurance The Company carries a broad range of insurance coverage, including business auto liability, general liability and an umbrella policy. The Company has not incurred significant claims or losses on any of these insurance policies. (13) MAJOR CUSTOMERS AND RISK CONCENTRATION: The Company had revenue greater than 10 percent of total revenues from three major customers during the year ended September 30, 1997 and one major customer during the year ended September 30, 1998, as follows (in thousands):
1997 1998 -------------------- -------------------- PERCENTAGE PERCENTAGE OF OF REVENUE REVENUE REVENUE REVENUE ------- ---------- ------- ---------- Customer A..................................... $1,870 16.3% $4,134 30.5% Customer B..................................... 1,857 16.2 -- -- Customer C..................................... 1,546 13.5 -- --
For the year ended September 30, 1997, contracts receivable from the three customers were approximately $133,000, $131,000 and $77,000 for customers A, B and C, respectively. Contracts receivable at September 30, 1998, from Customer A was approximately $1,020,000. In general, the Company performs its services under contract terms that entitle it to progress payments and is granted a lien interest in the work until paid. The Company is exposed to potential credit risk related to changes in business and economic factors within the market. However, management believes that its contract acceptance, billing and collection policies are adequate to minimize the potential credit risk. The Company's customers are primarily in the construction industry. Accordingly, the Company is exposed to risks of fluctuations in construction in the areas which it operates. (14) EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS (UNAUDITED): On April 1, 1999, AMPAM acquired through merger all the stock of the Company in exchange for cash, notes and stock of AMPAM, after which the Company is a wholly owned subsidiary of AMPAM. In connection with the merger, the Company distributed certain assets to the shareholder, consisting of land, buildings and automobiles, at carrying value. Concurrently with the merger, the Company entered into agreements with the stockholder to lease land and buildings used in the Company's operations for a negotiated amount and term. F-135 261 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Miller Mechanical Contractors, Inc.: We have audited the accompanying balance sheets of Miller Mechanical Contractors, Inc., as of September 30, 1997 and 1998, and as of March 31, 1999, and the related statements of operations, cash flows and stockholders' equity for the years ended September 30, 1997 and 1998, and for the six months ended March 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Miller Mechanical Contractors, Inc., as of September 30, 1997 and 1998, and as of March 31, 1999, and the results of its operations and its cash flows for the years ended September 30, 1997 and 1998, and for the six months ended March 31, 1999, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Houston, Texas May 26, 1999 F-136 262 MILLER MECHANICAL CONTRACTORS, INC. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE INFORMATION) ASSETS
SEPTEMBER 30, --------------- MARCH 31, 1997 1998 1999 ------ ------ --------- CURRENT ASSETS: Cash and cash equivalents................................. $1,040 $1,872 $1,985 Accounts receivable -- Contract............................................... 1,255 1,650 1,284 Other.................................................. 123 86 127 Due from affiliate........................................ 195 8 -- Costs and estimated earnings in excess of billings on uncompleted contracts.................................. 55 74 72 Inventories............................................... 481 344 532 Prepaid expenses and other current assets................. 21 11 22 Deferred income taxes..................................... 85 -- -- ------ ------ ------ Total current assets.............................. 3,255 4,045 4,022 PROPERTY AND EQUIPMENT, net................................. 297 326 225 OTHER ASSETS................................................ 49 21 -- ------ ------ ------ Total assets...................................... $3,601 $4,392 $4,247 ====== ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt...................... $ 61 $ 65 $ 26 Note payable -- officer................................... 41 -- -- Accounts payable and accrued expenses..................... 1,222 1,024 772 Billings in excess of costs and estimated earnings on uncompleted contracts.................................. 1,072 1,044 866 Income taxes payable...................................... -- 332 120 ------ ------ ------ Total current liabilities......................... 2,396 2,465 1,784 LONG-TERM DEBT, net of current maturities................... 61 48 37 DEFERRED INCOME TAXES....................................... -- 10 12 ------ ------ ------ Total liabilities................................. 2,457 2,523 1,833 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $1 par value; 100,000 shares authorized, 73,781 shares issued and outstanding................... 74 74 74 Retained earnings......................................... 1,070 1,795 2,340 ------ ------ ------ Total stockholders' equity........................ 1,144 1,869 2,414 ------ ------ ------ Total liabilities and stockholders' equity........ $3,601 $4,392 $4,247 ====== ====== ======
The accompanying notes are an integral part of these financial statements. F-137 263 MILLER MECHANICAL CONTRACTORS, INC. STATEMENTS OF OPERATIONS (IN THOUSANDS)
YEAR ENDED SIX MONTHS ENDED SEPTEMBER 30 MARCH 31 ---------------- -------------------- 1997 1998 1998 1999 ------ ------- ----------- ------ (UNAUDITED) REVENUES.................................................. $8,042 $11,346 $5,369 $5,158 COST OF REVENUES (Including depreciation)................. 5,806 7,675 3,713 3,346 ------ ------- ------ ------ Gross profit......................................... 2,236 3,671 1,656 1,812 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.............. 2,023 2,531 1,224 892 ------ ------- ------ ------ Income from operations............................... 213 1,140 432 920 ------ ------- ------ ------ OTHER INCOME (EXPENSE): Interest income......................................... 20 47 22 40 Interest expense........................................ (49) (12) (9) (2) Other................................................... 9 13 12 25 ------ ------- ------ ------ Other income, net.................................... (20) 48 25 63 ------ ------- ------ ------ INCOME BEFORE PROVISION FOR INCOME TAXES.................. 193 1,188 457 983 PROVISION FOR INCOME TAXES................................ 56 463 183 438 ------ ------- ------ ------ NET INCOME................................................ $ 137 $ 725 $ 274 $ 545 ====== ======= ====== ======
The accompanying notes are an integral part of these financial statements. F-138 264 MILLER MECHANICAL CONTRACTORS, INC. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED SIX MONTHS ENDED SEPTEMBER 30 MARCH 31 --------------- --------------------- 1997 1998 1998 1999 ------ ------ ----------- ------ (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income........................................... $ 137 $ 725 $ 274 $ 545 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation...................................... 108 116 18 81 Loss (gain) on sale of property and equipment..... 2 (12) (11) (25) Deferred income taxes............................. 8 95 -- 2 Changes in operating assets and liabilities (Increase) decrease in -- Accounts receivable.......................... (495) (172) 8 333 Costs and estimated earnings in excess of billings on uncompleted contracts.......... 37 (18) (81) 2 Inventories.................................. 137 137 (22) (188) Prepaid expenses and other assets............ (6) 10 (32) (11) Increase (decrease) in -- Accounts payable and accrued expenses........ 127 (197) 170 (253) Billings in excess of costs and estimated earnings on uncompleted contracts.......... 642 (28) (245) (178) Income taxes payable......................... -- 332 232 (212) Other current liabilities.................... (53) -- -- -- ------ ------ ------ ------ Net cash provided by operating activities.............................. 644 988 311 96 ------ ------ ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment......... 7 14 15 71 Additions to property and equipment.................. (87) (147) (35) (26) (Increase) decrease in cash value of life insurance......................................... (10) 28 -- 21 ------ ------ ------ ------ Net cash provided by (used in) investing activities.............................. (90) (105) (20) 66 ------ ------ ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on long-term debt......................... -- 68 26 -- Payments of long-term debt........................... (489) (119) (94) (49) ------ ------ ------ ------ Net cash used in financing activities...... (489) (51) (68) (49) ------ ------ ------ ------ NET INCREASE IN CASH AND CASH EQUIVALENTS.............. 65 832 223 113 CASH AND CASH EQUIVALENTS, beginning of period......... 975 1,040 1,040 1,872 ------ ------ ------ ------ CASH AND CASH EQUIVALENTS, end of period............... $1,040 $1,872 $1,263 $1,985 ====== ====== ====== ====== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for -- Interest.......................................... $ 49 $ 12 $ 11 $ 4 Income taxes...................................... 60 28 13 234
The accompanying notes are an integral part of these financial statements. F-139 265 MILLER MECHANICAL CONTRACTORS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE INFORMATION)
COMMON STOCK TOTAL --------------- RETAINED STOCKHOLDERS' SHARES AMOUNT EARNINGS EQUITY ------ ------ -------- ------------- BALANCE, September 30, 1996........................... 73,781 $74 $ 933 $1,007 Net income.......................................... -- -- 137 137 ------ --- ------ ------ BALANCE, September 30, 1997........................... 73,781 74 1,070 1,144 Net income.......................................... -- -- 725 725 ------ --- ------ ------ BALANCE, September 30, 1998........................... 73,781 74 1,795 1,869 Net income.......................................... -- -- 545 545 ------ --- ------ ------ BALANCE, March 31, 1999............................... 73,781 $74 $2,340 $2,414 ====== === ====== ======
The accompanying notes are an integral part of these financial statements. F-140 266 MILLER MECHANICAL CONTRACTORS, INC. NOTES TO FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION: Miller Mechanical Contractors, Inc. (the Company), a Georgia corporation, is a plumbing subcontractor primarily for extended-stay motels and large upscale apartment complexes. The Company performs the majority of its contract work under fixed-price contracts, with contract terms generally ranging from six to 18 months. The Company performs the majority of its work in Georgia, Florida, North Carolina, South Carolina and Tennessee. The Company and its stockholders intend to enter into a definitive agreement with American Plumbing & Mechanical, Inc. (AMPAM), pursuant to which all outstanding shares of the Company's common stock will be exchanged for cash, notes and shares of AMPAM common stock concurrently with the consummation the related financing. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Interim Financial Information The interim financial statements for the six months ended March 31, 1998, are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company's management, the unaudited interim financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Accounts Receivable and Provisions for Doubtful Accounts The Company provides an allowance for doubtful accounts based upon an estimate of uncollectable balances. Management believes that an allowance for doubtful accounts is not necessary, based on the status of contracts and review of accounts. Inventories Inventories consist of parts and supplies held for use in the ordinary course of business and are stated at the lower of cost or market using the weighted-average method. Property and Equipment Property and equipment are stated at cost, and depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized over the lesser of the life of the lease or the estimated useful life of the assets (see Note 4). Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments, which extend the useful lives of existing equipment, are capitalized and depreciated. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statement of operations. F-141 267 MILLER MECHANICAL CONTRACTORS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Revenue Recognition The Company recognizes revenue when services are performed, except when work is being performed under a construction contract. Revenues from construction contracts are recognized using the percentage-of-completion method measured by the percentage of cost incurred to date to total estimated costs for each contract. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor and depreciation costs. Provisions for the total estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to costs and income, and their effects are recognized in the period in which the revisions are determined. An amount equal to contract costs attributable to claims is included in revenues when realization is probable and the amount can be reliably estimated. The balances billed but not paid by customers pursuant to retainage provisions in construction contracts will be due upon completion of the contracts and acceptance by the customer. Based on the Company's experience with similar contracts in recent years, the retention balance at each balance sheet date will be collected within the subsequent fiscal year. The current asset "Costs and estimated earnings in excess of billings on uncompleted contracts" represents revenues recognized in excess of amounts billed. The current liability "Billings in excess of costs and estimated earnings on uncompleted contracts" represents billings in excess of revenues recognized. Income Taxes The Company, which is a C Corporation, follows the liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under this method, deferred assets and liabilities are recorded for future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the underlying assets and liabilities are recovered or settled. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. Realization of Long-Lived Assets The Company has adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in the event that facts and circumstances indicate that property and equipment or other assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset's carrying amount to determine whether an impairment of such property is necessary. The effect of any impairment would be to expense the difference between the fair value of such property and its carrying value. Adoption of this standard did not have a material effect on the financial position or results of operations of the Company. F-142 268 MILLER MECHANICAL CONTRACTORS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS: Contract receivables consist of the following (in thousands):
SEPTEMBER 30 ---------------- MARCH 31 1997 1998 1999 ------ ------ ---------- Completed contracts.................................... $ 544 $ 30 $ 24 Contracts in progress.................................. 560 1,260 985 Retainage.............................................. 151 360 275 ------ ------ ------ Balance at end of period............................. $1,255 $1,650 $1,284 ====== ====== ======
Plumbing installation contracts in progress are as follows (in thousands):
SEPTEMBER 30 ------------------ MARCH 31 1997 1998 1999 ------- ------- ---------- Cost incurred on contracts in progress............... $ 2,735 $ 8,352 $5,097 Estimated earnings, net of losses.................... 1,115 4,096 2,615 ------- ------- ------ 3,850 12,448 7,712 Less -- Billing to date.............................. 4,867 13,418 8,506 ------- ------- ------ $(1,017) $ (970) $ (794) ======= ======= ====== Cost and estimated earnings in excess of billings on uncompleted contracts.............................. $ 55 $ 74 $ 72 Billing in excess of costs and estimated earnings on uncompleted contracts.............................. (1,072) (1,044) (866) ------- ------- ------ $(1,017) $ (970) $ (794) ======= ======= ======
Accounts payable and accrued expenses consist of the following (in thousands):
SEPTEMBER 30 ---------------- MARCH 31 1997 1998 1999 ------ ------ -------- Accounts payable, trade................................. $ 570 $ 374 $475 Accrued compensation and benefits....................... 391 587 229 Other accrued expenses.................................. 261 63 68 ------ ------ ---- Balance at end of period.............................. $1,222 $1,024 $772 ====== ====== ====
4. PROPERTY AND EQUIPMENT: Property and equipment consist of the following (in thousands):
ESTIMATED SEPTEMBER 30 USEFUL LIVES ------------- MARCH 31 IN YEARS 1997 1998 1999 ------------ ----- ----- -------- Vehicles......................................... 5 $434 $472 $400 Machinery and equipment.......................... 5-7 139 218 282 Property under capital lease..................... 5 26 -- -- Leasehold improvements........................... 31.5-39 128 130 35 ---- ---- ---- 727 820 717 Less -- Accumulated depreciation and amortization................................... 430 494 492 ---- ---- ---- Property and equipment, net............ $297 $326 $225 ==== ==== ====
F-143 269 MILLER MECHANICAL CONTRACTORS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 5. LINE OF CREDIT AND LONG-TERM DEBT: The Company has available a $300,000 line of credit with a bank. Outstanding borrowings under the line of credit bear interest at the banks prime rate plus 1 percent. The line of credit is secured by substantially all of the assets of the Company and is personally guaranteed by the stockholders. At September 30, 1997 and 1998, and March 31, 1999, no amount was outstanding on the line of credit. The line of credit included an annual renewal option and was not renewed during the six months ended March 31, 1999. The Company has various notes payable with several financial institutions. These notes have monthly payments ranging from $291 to $872, including interest, and total $112,570 in the aggregate at September 30, 1998. Interest rates on the notes vary from 1.9 percent to 10.4 percent and are due from February 1999 through June 2001. All of the notes payable are secured by the respective vehicles and equipment. The maturities of long-term debt as of September 30, 1998, are as follows (in thousands): Year ending September 30 -- 1999...................................................... $ 65 2000...................................................... 33 2001...................................................... 15 ---- $113 ====
6. LEASES: The Company leases all of its operating facilities from the majority stockholder under a lease agreement that expires on September 30, 2005. Monthly lease payments aggregate $7,500 for the land and buildings through September 30, 2005. Under the agreement, the Company is responsible for all property taxes, maintenance and insurance on the property. Future minimum lease payments under the agreement are $90,000 per year through September 30, 2005. Rent expense was $90,000 for the years ended September 30, 1997 and 1998 and $45,000 for the six months ended March 31, 1999. 7. INCOME TAXES: Federal and state income tax provisions are as follows (in thousands):
SIX MONTHS SEPTEMBER 30 ENDED ------------ MARCH 31 1997 1998 1999 ---- ----- ---------- Federal -- Current.................................... $38 $310 $376 Deferred................................... 7 81 2 State -- Current.................................... 10 58 59 Deferred................................... 1 14 1 --- ---- ---- $56 $463 $438 === ==== ====
F-144 270 MILLER MECHANICAL CONTRACTORS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Actual income tax expense differs from income tax expense computed by applying the U.S. federal statutory corporate rate of 35 percent to income before provision for income taxes as follows (in thousands):
SIX MONTHS SEPTEMBER 30 ENDED ------------- MARCH 31 1997 1998 1999 ----- ----- ---------- Provisions at the statutory rate............ $ 68 $415 $344 Increase (decrease) resulting from -- State income tax, net of benefit for federal deduction...................... 7 47 39 Benefit of lower marginal rates........... (16) (4) -- Resolution of prior year uncertainties...... -- -- 53 Other, net................................ (3) 5 2 ---- ---- ---- $ 56 $463 $438 ==== ==== ====
Deferred income tax provisions result from temporary differences in the recognition of income and expenses for financial reporting purposes and for tax purposes. The tax effects of these temporary differences, representing deferred tax assets and liabilities, result principally from the following (in thousands):
SEPTEMBER 30 ------------ MARCH 31 1997 1998 1999 ---- ----- -------- Deferred income tax assets -- Net operating loss carryforward........................... $74 -- -- Accrued related-party interest............................ 11 -- -- --- ---- ---- Total deferred income tax asset................... 85 -- -- --- ---- ---- Deferred income tax liabilities -- Property and equipment.................................... -- $(10) $(12) --- ---- ---- Total deferred income tax liability............... -- $(10) $(12) --- ---- ---- Net deferred income tax assets (liabilities)...... $85 $(10) $(12) === ==== ====
8. RELATED-PARTY TRANSACTIONS: The Company has purchased certain materials and supplies from an affiliate. The Company also bills certain salaries, insurance and office supplies to the affiliate. The Company and the affiliate have a common stockholder. For the years ended September 30, 1997 and 1998 and the six months ended March 31, 1999, the Company purchased approximately $1,940,000, $3,048,000 and $1,044,000, respectively, of material and supplies from the affiliate. At September 30, 1997 and 1998 and March 31, 1999, the Company had receivables of $195,334, $8,241 and $63, respectively due from the affiliate. The Company leases all of its operating facilities from the majority stockholder (see Note 6). 9. EMPLOYEE BENEFIT PLAN: The Company has a defined contribution profit-sharing plan qualifying under Section 401(a) of the Internal Revenue Code. The plan covers all eligible employees. The Company can elect to contribute specified amounts to the plan, as determined by the board of directors. Participants' vested interests in the Company's contributions are based on years of service, as defined, with the Company. The Company contributed $240,000, $130,000 and $65,000 to the plan for the years ended September 30, 1997 and 1998, F-145 271 MILLER MECHANICAL CONTRACTORS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) and for the six months ended March 31, 1999, respectively, which is included in accounts payable and accrued expenses in the accompanying balance sheets. 10. FINANCIAL INSTRUMENTS: The Company's financial instruments consist of cash and cash equivalents, a line of credit and debt. The Company believes that the carrying value of these instruments on the accompanying balance sheet approximates their values. 11. COMMITMENTS AND CONTINGENCIES: Litigation The Company is involved in disputes or legal actions arising in the ordinary course of business. Management does not believe the outcome of such legal actions will have a material adverse effect on the Company's financial position or results of operations. Insurance The Company carries a broad range of insurance coverage, including business auto liability, general liability and an umbrella policy. The Company has not incurred significant claims or losses on any of these insurance policies. 12. MAJOR CUSTOMERS AND RISK CONCENTRATION: The Company had sales of approximately 54 percent of total sales to one major customer during the year ended September 30, 1997. The Company had sales of approximately 63 percent and 13 percent, respectively to two major customers during the year ended September 30, 1998 and sales of approximately 56 percent and 11 percent to two major customers during the six months ended March 31, 1999. In general, the Company performs its services under contract terms that entitle it to progress payments and is, by law, granted a lien interest in the work until paid. The Company is exposed to potential credit risk related to changes in business and economic factors within the southeastern United States. However, management believes that its contract acceptance, billing and collection policies are adequate to minimize the potential credit risk. The Company's customers are primarily in the construction industry. Accordingly, the Company is exposed to risks of fluctuations in construction in the areas which it operates. 13. SUBSEQUENT EVENT: On April 1, 1999, AMPAM acquired through merger all the stock of the Company in exchange for cash, notes and stock of AMPAM, after which the Company is a wholly owned subsidiary of AMPAM. In connection with the merger, the Company sold or distributed certain nonoperating assets and attendant liabilities, if any, to the stockholders. F-146 272 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [American Plumbing & Mechanical, Inc. Logo] AMERICAN PLUMBING & MECHANICAL, INC. OFFER TO EXCHANGE 11 5/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B FOR ALL EXISTING 11 5/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A -------------------- PROSPECTUS -------------------- , 1999 No dealer, salesperson or other person has been authorized to give any information or to make any representations other than those contained in this prospectus, and, if given or made, the information or representations must not be relied upon as having been authorized by American Plumbing & Mechanical, Inc. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the securities to which it relates or any offer to sell or the solicitation of an offer to buy securities of that type in any circumstances in which an offer or solicitation is unlawful. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of American Plumbing & Mechanical, Inc. since the date hereof or that the information contained in this prospectus is correct as of any time subsequent to its date. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 273 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Subsection (a) of section 145 of the General Corporation Law of the State of Delaware empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Subsection (b) of Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been made to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 145 further provides that to the extent a director or officer of a corporation has been successful on the merits or otherwise in the defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145 in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith; that indemnification provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; that indemnification provided for by Section 145 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of such person's heirs, executors and administrators; and empowers the corporation to purchase and maintain insurance on behalf of a director or officer of the corporation against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such whether or not the corporation would have the power to indemnify him against such liabilities under Section 145. Section 102(b)(7) of the General Corporation Law of the State of Delaware provides that a certificate of incorporation may contain a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director provided that such provision shall not eliminate or limit the liability of a director (1) for any breach of the director's duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Section 174 of the Delaware General Corporation Law, or (4) for any transaction from which the director derived an improper personal benefit. II-1 274 Section 7(d) of the Company's Amended and Restated Certificate of Incorporation states that: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. Any repeal or modification of this Section 7(d) by the stockholders of the Corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or modification. In addition, Article IX of the Company's Bylaws further provides that the Company shall indemnify its officers, directors and employees to the fullest extent permitted by law. The Company has or will be entering into indemnification agreements with each of its executive officers and directors. These limitations on liability would apply to violations of the federal securities laws. However, the registrant has been advised that in the opinion of the SEC, indemnification for liabilities under the Securities Act of 1933 is against public policy and therefore unenforceable. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits *3.1 -- Amended and Restated Certificate of Incorporation *3.2 -- Amended and Restated Bylaws *3.3 -- Certificate of Designations of 10% Cumulative Redeemable Convertible Preferred Stock, Series A *4.1 -- Indenture, dated May 19, 1999, by and among American Plumbing & Mechanical, Inc. and the subsidiaries named therein and State Street Bank and Trust Company covering up to $125,000,000 11 5/8% Senior Subordinated Notes due 2008 *4.2 -- Registration Rights Agreement dated May 19, 1999 by and among American Plumbing & Mechanical, Inc., Fleet Securities, Inc., Merrill Lynch & Co., Banc One Capital Markets, Inc. and Credit Lyonnais Securities (USA), Inc. *4.3 -- Form of American Plumbing & Mechanical, Inc. 11 5/8% Senior Subordinated Note due 2008 (Included in Exhibit A to Exhibit 4.1) *5.1 -- Opinion of Andrews & Kurth L.L.P. +10.1 -- Form of Officer and Director Indemnification Agreement *10.2 -- American Plumbing & Mechanical, Inc. 1999 Stock Plan +10.3 -- $95 Million Senior Secured Credit Agreement dated March 31, 1999 among American Plumbing & Mechanical, Inc., First National Bank of Chicago and the other lenders party thereto. *10.4 -- Transfer Restriction and Expense Reimbursement Agreement *10.5 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing & Mechanical, Inc., Christianson Enterprises, Inc, Christianson Service Company, G.G.R. Leasing Corporation and their stockholders *10.6 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing & Mechanical, Inc., J.A. Croson Company and Franklin Fire Sprinkler Company and their stockholders
II-2 275 *10.7 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing & Mechanical, Inc., J.A. Croson Company of Florida and its stockholders *10.8 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing & Mechanical, Inc., Nelson Mechanical Contractors, Inc. and its stockholders *10.9 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing & Mechanical, Inc., Miller Mechanical Contractors, Inc. and its stockholders *10.10 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing & Mechanical, Inc., R.C.R. Plumbing, Inc. and its stockholders *10.11 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing & Mechanical, Inc., Teepe's River City Mechanical, Inc. and its stockholders *10.12 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing & Mechanical, Inc., Keith Riggs Plumbing, Inc. and its stockholders *10.13 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing & Mechanical, Inc., Power Plumbing, Inc. and its stockholders *10.14 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing & Mechanical, Inc., Sherwood Mechanical, Inc. and its stockholder *12 -- Ratio of Earnings to Fixed Charges *23.1 -- Consent of Andrews & Kurth L.L.P. (Included in Exhibit 5.1) *23.2 -- Consent of Arthur Andersen, LLP +25.1 -- Statement of Eligibility of State Street Bank and Trust Company, Trustee on Form T-1 *99.1 -- Form of Letter of Transmittal *99.2 -- Form of Notice of Guaranteed Delivery *99.3 -- Form of Letter to Clients *99.4 -- Form of Letter to Nominees *99.5 -- Form of Instruction to Registered Holder from Beneficial Owner
- --------------- * Filed herewith + To be filed by amendment ITEM 22. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3 276 The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (a) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (b) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (c) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; and (d) To supply all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (5) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class main or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. II-4 277 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-4 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on June 15, 1999. AMERICAN PLUMBING & MECHANICAL, INC. By: /s/ ROBERT A. CHRISTIANSON ------------------------------------- Robert A. Christianson President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and directors of American Plumbing & Mechanical, Inc., hereby constitutes and appoints Robert Christianson and David Baggett (with full power to each of them to act alone) his true and lawful attorney-in-fact and agent, with full power of substitution, for him and on his or her behalf and in his name, place and stead, in any and all capacities, to sign, execute and file this Registration Statement under the Securities Act of 1933, as amended, and any or all amendments (including, without limitation, post-effective amendments), with all exhibits and any and all documents required to be filed with respect thereto, with the Securities and Exchange Commission or any regulatory authority, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same, as fully to all intents and purposes as he himself might or could do, if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done. Pursuant to the requirements of the Securities Act of 1933, this amendment has been signed by the following persons in the capacities indicated on June 15, 1999.
SIGNATURE TITLE --------- ----- /s/ C. BYRON SNYDER Chairman of the Board of Directors - ----------------------------------------------------- C. Byron Snyder /s/ ROBERT A. CHRISTIANSON President, Chief Executive Officer and - ----------------------------------------------------- Director (Principal Executive Officer) Robert A. Christianson /s/ DAVID C. BAGGETT Senior Vice President, Chief Financial - ----------------------------------------------------- Officer, Secretary and Director (Principal David C. Baggett Financial Officer and Principal Accounting Officer) /s/ ROBERT C. RICHEY Senior Vice President, Chief Operating Officer - ----------------------------------------------------- and Director Robert C. Richey
II-5 278
SIGNATURE TITLE --------- ----- /s/ DAVID A. CROSON Director - ----------------------------------------------------- David A. Croson /s/ JAMES A. CROSON Director - ----------------------------------------------------- James A. Croson /s/ JOSEPH E. MILLER Director - ----------------------------------------------------- Joseph E. Miller /s/ ALBERT W. NIEMI, JR. Director - ----------------------------------------------------- Albert W. Niemi, Jr. /s/ SUSAN O. RHENEY Director - ----------------------------------------------------- Susan O. Rheney /s/ ROBERT W. SHERWOOD Director - ----------------------------------------------------- Robert W. Sherwood /s/ SAM B. SHERWOOD Director - ----------------------------------------------------- Sam B. Sherwood /s/ SCOTT W. TEEPE, SR. Director - ----------------------------------------------------- Scott W. Teepe, Sr.
II-6 279 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrants set forth below have duly caused this Registration Statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on June 15, 1999. CHRISTIANSON ENTERPRISES, INC. CHRISTIANSON SERVICE COMPANY G.G.R. LEASING CORPORATION R.C.R. PLUMBING, INC. J.A. CROSON COMPANY FRANKLIN FIRE SPRINKLER COMPANY J.A. CROSON COMPANY OF FLORIDA TEEPE'S RIVER CITY MECHANICAL, INC. KEITH RIGGS PLUMBING, INC. POWER PLUMBING, INC. NELSON MECHANICAL CONTRACTORS, INC. SHERWOOD MECHANICAL, INC. MILLER MECHANICAL CONTRACTORS, INC. By: /s/ DAVID C. BAGGETT ---------------------------------------- David C. Baggett Vice President, Secretary and Treasurer of each of the above listed companies II-7 280 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Robert Christianson and David Baggett (with full power to each of them to act alone) his true and lawful attorney-in-fact and agent, with full power of substitution, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file this Registration Statement under the Securities Act of 1933, as amended, and any or all amendments (including, without limitation, post-effective amendments), with all exhibits and any and all documents required to be filed with respect thereto, with the Securities and Exchange Commission or any regulatory authority, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same, as fully to all intents and purposes as he himself might or could do, if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on June 15, 1999.
SIGNATURE TITLE --------- ----- CHRISTIANSON ENTERPRISES, INC. CHRISTIANSON SERVICE COMPANY G.G.R. LEASING CORPORATION /s/ ROBERT A. CHRISTIANSON President and Director (Principal Executive - ----------------------------------------------------- Officer) Robert A. Christianson /s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial - ----------------------------------------------------- and Accounting Officer) David C. Baggett /s/ BRIAN T. CHRISTIANSON Director - ----------------------------------------------------- Brian T. Christianson R.C.R. PLUMBING, INC. /s/ ROBERT C. RICHEY Chief Executive Officer and Director - ----------------------------------------------------- (Principal Executive Officer) Robert C. Richey /s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial - ----------------------------------------------------- and Accounting Officer) David C. Baggett /s/ ROBERT A. CHRISTIANSON Director - ----------------------------------------------------- Robert A. Christianson J.A. CROSON COMPANY /s/ DAVID A. CROSON President and Director (Principal Executive - ----------------------------------------------------- Officer) David A. Croson /s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial - ----------------------------------------------------- and Accounting Officer) David C. Baggett /s/ ROBERT A. CHRISTIANSON Director - ----------------------------------------------------- Robert A. Christianson
II-8 281
SIGNATURE TITLE --------- ----- FRANKLIN FIRE SPRINKLER COMPANY /s/ JOHN L. BOYLE President and Director (Principal Executive - ----------------------------------------------------- Officer) John L. Boyle /s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial - ----------------------------------------------------- and Accounting Officer) David C. Baggett /s/ ROBERT A. CHRISTIANSON Director - ----------------------------------------------------- Robert A. Christianson J.A. CROSON COMPANY OF FLORIDA /s/ JAMES A. CROSON Chief Executive Officer and Director - ----------------------------------------------------- (Principal Executive Officer) James A. Croson /s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial - ----------------------------------------------------- and Accounting Officer) David C. Baggett /s/ ROBERT A. CHRISTIANSON Director - ----------------------------------------------------- Robert A. Christianson TEEPE'S RIVER CITY MECHANICAL, INC. /s/ SCOTT TEEPE President and Director (Principal Executive - ----------------------------------------------------- Officer) Scott Teepe /s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial - ----------------------------------------------------- and Accounting Officer) David C. Baggett /s/ ROBERT A. CHRISTIANSON Director - ----------------------------------------------------- Robert A. Christianson KEITH RIGGS PLUMBING, INC. /s/ GERALD RIGGS President and Director (Principal Executive - ----------------------------------------------------- Officer) Gerald Riggs /s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial - ----------------------------------------------------- and Accounting Officer) David C. Baggett /s/ ROBERT A. CHRISTIANSON Director - ----------------------------------------------------- Robert A. Christianson POWER PLUMBING, INC. /s/ JAMES N. POWER President and Director (Principal Executive - ----------------------------------------------------- Officer) James N. Power /s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial - ----------------------------------------------------- and Accounting Officer) David C. Baggett /s/ ROBERT A. CHRISTIANSON Director - ----------------------------------------------------- Robert A. Christianson
II-9 282
SIGNATURE TITLE --------- ----- NELSON MECHANICAL CONTRACTORS, INC. /s/ GILBERT NELSON President and Director (Principal Executive - ----------------------------------------------------- Officer) Gilbert Nelson /s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial - ----------------------------------------------------- and Accounting Officer) David C. Baggett /s/ ROBERT A. CHRISTIANSON Director - ----------------------------------------------------- Robert A. Christianson SHERWOOD MECHANICAL, INC. /s/ ROBERT SHERWOOD President and Director (Principal Executive - ----------------------------------------------------- Officer) Robert Sherwood /s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial - ----------------------------------------------------- and Accounting Officer) David C. Baggett /s/ ROBERT A. CHRISTIANSON Director - ----------------------------------------------------- Robert A. Christianson MILLER MECHANICAL CONTRACTORS, INC. /s/ JOSEPH E. MILLER President and Director (Principal Executive - ----------------------------------------------------- Officer) Joseph E. Miller /s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial - ----------------------------------------------------- and Accounting Officer) David C. Baggett /s/ ROBERT A. CHRISTIANSON Director - ----------------------------------------------------- Robert A. Christianson
II-10 283 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ------- ----------- *3.1 -- Amended and Restated Certificate of Incorporation *3.2 -- Amended and Restated Bylaws *3.3 -- Certificate of Designations of 10% Cumulative Redeemable Convertible Preferred Stock, Series A *4.1 -- Indenture, dated May 19, 1999, by and among American Plumbing & Mechanical, Inc. and the subsidiaries named therein and State Street Bank and Trust Company covering up to $125,000,000 11 5/8% Senior Subordinated Notes due 2008 *4.2 -- Registration Rights Agreement dated May 19, 1999 by and among American Plumbing & Mechanical, Inc., Fleet Securities, Inc., Merrill Lynch & Co., Banc One Capital Markets, Inc. and Credit Lyonnais Securities (USA), Inc. *4.3 -- Form of American Plumbing & Mechanical, Inc. 11 5/8% Senior Subordinated Note due 2008 (Included in Exhibit A to Exhibit 4.1) *5.1 -- Opinion of Andrews & Kurth L.L.P. +10.1 -- Form of Officer and Director Indemnification Agreement *10.2 -- American Plumbing & Mechanical, Inc. 1999 Stock Plan +10.3 -- $95 Million Senior Secured Credit Agreement dated March 31, 1999 among American Plumbing & Mechanical, Inc., First National Bank of Chicago and the other lenders party thereto. *10.4 -- Transfer Restriction and Expense Reimbursement Agreement *10.5 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing & Mechanical, Inc., Christianson Enterprises, Inc, Christianson Service Company, G.G.R. Leasing Corporation and their stockholders *10.6 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing & Mechanical, Inc., J.A. Crosan Company and Franklin Fire Sprinkler Company and their stockholders *10.7 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing & Mechanical, Inc., J.A. Croson Company of Florida and its stockholders *10.8 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing & Mechanical, Inc., Nelson Mechanical Contractors, Inc. and its stockholders *10.9 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing & Mechanical, Inc., Miller Mechanical Contractors, Inc. and its stockholders *10.10 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing & Mechanical, Inc., R.C.R. Plumbing, Inc. and its stockholders *10.11 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing & Mechanical, Inc., Teepe's River City Mechanical, Inc. and its stockholders *10.12 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing & Mechanical, Inc., Keith Riggs Plumbing, Inc. and its stockholders *10.13 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing & Mechanical, Inc., Power Plumbing, Inc. and its stockholders *10.14 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing & Mechanical, Inc., Sherwood Mechanical, Inc. and its stockholder *12 -- Ratio of Earnings to Fixed Charges
284
EXHIBIT NO. DESCRIPTION ------- ----------- *23.1 -- Consent of Andrews & Kurth L.L.P. (Included in Exhibit 5.1) *23.2 -- Consent of Arthur Andersen, LLP +25.1 -- Statement of Eligibility of State Street Bank and Trust Company, Trustee on Form T-1 *99.1 -- Form of Letter of Transmittal *99.2 -- Form of Notice of Guaranteed Delivery *99.3 -- Form of Letter to Clients *99.4 -- Form of Letter to Nominees *99.5 -- Form of Instruction to Registered Holder from Beneficial Owner
- --------------- * Filed herewith + To be filed by amendment EX-3.1 2 AMENDED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AMERICAN PLUMBING & MECHANICAL, INC. American Plumbing & Mechanical, Inc. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware ("DGCL"), hereby certifies as follows pursuant to Sections 242 and 245 of the DGCL: 1. The original Certificate of Incorporation of the Corporation was filed in the Office of the Secretary of State of the State of Delaware (the "Secretary of State") on June 18, 1998, and the original name of the Corporation was American Plumbing & Mechanical Systems, Inc. A Certificate of Amendment was filed with the Secretary of State on June 25, 1998 changing the name of the Corporation to American Plumbing & Mechanical, Inc. 2. The Board of Directors and the stockholders of the Corporation, in accordance with Sections 242 and 245 of the DGCL, adopted and approved this Amended and Restated Certificate of Incorporation (including the amendments to the Corporation's Certificate of Incorporation effected hereby). 3. Effective immediately upon the filing of this Amended and Restated Certificate of Incorporation in the office of the Secretary of State, each outstanding share of previously existing Common Stock, par value $0.01 per share of the Corporation, shall be and hereby is converted into and reclassified as 1,683.0537 shares of Common Stock, par value $0.01 per share. Certificates representing reclassified shares are hereby canceled and upon presentation of the canceled certificates to the Corporation, the holders thereof shall be entitled to receive certificate(s) representing the new shares into which such canceled shares have been converted. 4. The Certificate of Incorporation of the Corporation is hereby amended and restated to read in its entirety as follows: 1. The name of the Corporation is American Plumbing & Mechanical, Inc. 2. The address of its registered office in the State of Delaware is 1209 Orange Street, Wilmington County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. 3. The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the DGCL. 4. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 115,000,000 consisting of 10,000,000 shares of preferred stock, par value $0.01 per share (hereinafter called "Preferred Stock"), 100,000,000 shares of common stock, par value 2 $0.01 per share (hereinafter called "Common Stock"), and 5,000,000 shares of restricted common stock, par value $0.01 per share (hereinafter called "Restricted Common Stock"). (a) The Preferred Stock may be issued from time to time in one or more series and in such amounts as may be determined by the Board of Directors. The voting powers, designations, preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations, or restrictions thereof, if any, of the Preferred Stock of each series shall be such as are fixed by the Board of Directors, authority so to do being hereby expressly granted, and as are stated and expressed in a resolution or resolutions adopted by the Board of Directors providing for the issue of such series of Preferred Stock (herein called the "Directors' Resolution"). The Directors' Resolution as to any series shall (1) designate the series, (2) fix the dividend rate, if any, of such series, establish whether dividends shall be cumulative or non-cumulative, fix the payment dates for dividends on shares of such series and the date or dates, or the method of determining the date or dates, if any, from which dividends on shares of such series shall be cumulative, (3) fix the amount or amounts payable on shares of such series upon voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, and (4) state the price or prices or rate or rates, and adjustments, if any, at which, the time or times and the terms and conditions upon which, the shares of such series may be redeemed at the option of the Corporation or at the option of the holder or holders of shares of such series or upon the occurrence of a specified event, and state whether such shares may be redeemed for cash, property or rights, including securities of the Corporation or another entity; and such Directors' Resolutions may (i) limit the number of shares of such series that may be issued, (ii) provide for a sinking fund for the purchase or redemption of shares of such series and specify the terms and conditions governing the operations of any such fund, (iii) grant voting rights to the holders of shares of such series, (iv) impose conditions or restrictions upon the creation of indebtedness of the Corporation or upon the issuance of additional Preferred Stock or other capital stock ranking on a parity therewith, or prior thereto, with respect to dividends or distributions of assets upon liquidation, (v) impose conditions or restrictions upon the payment of dividends upon, or the making of other distributions to, or the acquisition of, shares ranking junior to the Preferred Stock or to any series thereof with respect to dividends or distributions of assets upon liquidation, (vi) state the time or times, the price or prices or the rate or rates of exchange and other terms, conditions and adjustments upon which shares of any such series may be made convertible into, or exchangeable for, at the option of the holder or the Corporation or upon the occurrence of a specified event, shares of any other series of Preferred Stock or any other class or classes of stock or other securities of the Corporation, and (vii) grant such other special rights and impose such qualifications, limitations or restrictions thereon as shall be fixed by the Board of Directors, to the extent not inconsistent with this Section 4 and to the full extent now or hereafter permitted by the laws of the State of Delaware. Except as by law expressly provided, or except as may be provided in any Directors' Resolution, the Preferred Stock shall have no right or power to vote on any question or in any proceeding or to be represented at, or to receive notice of, any meeting of stockholders of the Corporation. -2- 3 Preferred Stock that is redeemed, purchased or retired by the Corporation shall assume the status of authorized but unissued Preferred Stock and may thereafter, subject to the provisions of any Directors' Resolution providing for the issue of any particular series of Preferred Stock, be reissued in the same manner as authorized but unissued Preferred Stock. (b) Subject to the preferred rights of the holders of shares of any series of Preferred Stock as provided by the Board of Directors with respect to any such series of Preferred Stock, the holders of the Common Stock shall be entitled to receive, as and when declared by the Board of Directors out of the funds of the Corporation legally available therefor, such dividends (payable in cash, stock or otherwise) as the Board of Directors may from time to time determine, payable to stockholders of record on such dates, not exceeding 60 days preceding the dividend payment dates, as shall be fixed for such purpose by the Board of Directors in advance of payment of each particular dividend. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after the distribution or payment to the holders of shares of any series of Preferred Stock as provided by the Board of Directors with respect to any such series of Preferred Stock, the remaining assets of the Corporation available for distribution to stockholders shall be distributed among and paid to the holders of Common Stock. Except as otherwise required by law, each holder of shares of Common Stock shall be entitled to one vote for each share of Common Stock standing in such holder's name on the books of the Corporation on all matters submitted to a vote of the stockholders of the Corporation (other than the election of one director by the holders of the Restricted Common Stock as provided for herein). (c) The holders of the Restricted Common Stock shall not be entitled to receive dividends (payable in cash, stock or otherwise). In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntarily or involuntarily, after the distribution or payment to the holders of shares of any series of Preferred Stock as provided by the Board of Directors with respect to any such series of Preferred Stock, the remaining assets of the Corporation available for distribution to stockholders, if any, shall be distributed among and paid to the holders of Common Stock ratably in proportion to the number of shares of Common Stock held by them respectively. The holders of Restricted Common Stock shall have no distribution rights in the event of a liquidation, dissolution or winding up of the Corporation. -3- 4 Holders of Restricted Common Stock voting as a class shall be entitled to elect one member of the Board of Directors, but shall not otherwise be entitled to vote in the election of directors of the Corporation. For purposes of electing one member of the Board of Directors, each holder of shares of Restricted Common Stock shall be entitled to one vote for each share of Restricted Common Stock. Subject to the foregoing, and except as otherwise required by law, each holder of shares of Restricted Common Stock shall be entitled to one-fourth of one vote for each share of Restricted Common Stock standing in such holder's name on the books of the Corporation on all other matters submitted to a vote of the stockholders of the Corporation. (d) If the Restricted Common Stock has not been converted into Common Stock pursuant to paragraph (e) below on or prior to the third anniversary of April 1, 1999, the Corporation may, at its sole option, at any time and from time to time upon prior written notice (the "Redemption Notice," such Redemption Notice stating the date on which the redemption shall occur (the "Redemption Date")), redeem all of the shares of Restricted Common Stock then outstanding. Upon any such redemption, the Corporation shall pay, out of funds legally available therefor, a price per share of Restricted Common Stock of $.01 (the "Redemption Price"). The Corporation shall be obligated on the Redemption Date to pay to the holder of each share of Restricted Common Stock (upon surrender by such holder at the Corporation's principal office of the certificate representing such share) the total Redemption Price for the number of shares of Restricted Common Stock being redeemed. The Corporation shall mail the Redemption Notice to each record holder thereof not more than 90 days nor less than 30 days prior to the Redemption Date. The Redemption Notice shall include (i) the Redemption Date for such redemption, and (ii) the place where share certificates are to be surrendered for payment of the Redemption Price. Any shares of Restricted Common Stock which are redeemed or otherwise acquired by the Corporation shall be canceled and retired to authorized but unissued shares and shall not be reissued, sold or transferred. On or prior to April 1, 2002, upon approval of a majority of the Corporation's Board of Directors, the Corporation's right to redeem the Restricted Common Stock shall be suspended for a period not to exceed one year. On or prior to April 1, 2003, upon approval of a majority of the Corporation's Board of Directors, the Corporation's right to redeem the Restricted Common Stock may be suspended for a period not to exceed one year. The Corporation's Board of Directors shall not have the ability to suspend the right of the Corporation to redeem the Restricted Common Stock beyond April 1, 2004. The conversion right set forth below in paragraph (e) shall remain in full force and effect during such extension periods and thereafter but shall be extinguished on the Redemption Date. (e) Each share of Restricted Common Stock will automatically convert into one share of Common Stock (as adjusted proportionately to give effect to any stock dividends, combinations, splits or other similar events with respect to the Common Stock) in the event the Corporation consummates any of the following events: (i) an initial public offering of the -4- 5 Corporation's Common Stock, (ii) any sale of all or substantially all of the Corporation's assets in one transaction or series of related transactions, (iii) any merger or consolidation which involves the Corporation in which the Corporation is not the surviving entity, or (iv) any transaction after which the shares of the Corporation's Common Stock, if any, which are then held by persons other than the holders of the Corporation's Common Stock as of the April 1, 1999 constitute (after giving effect to the exercise of any outstanding options or warrants which are convertible into the Corporation's Common Stock or the conversion of any of the Corporation's securities (equity, debt or otherwise) which are by their terms convertible into the Corporation's Common Stock) 50% or more of the Corporation's Common Stock outstanding as of the date of the consummation of such transaction. (f) The Corporation shall be entitled to treat the person in whose name any share of its stock is registered as the owner thereof for all purposes and shall not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person, whether or not the Corporation shall have notice thereof, except as expressly provided by applicable laws. 5. The Board of Directors is hereby authorized to create and issue, whether or not in connection with the issuance and sale of any of its stock or other securities, rights (the "Rights") entitling the holders thereof to purchase from the Corporation shares of capital stock or other securities. The times at which and the terms upon which the Rights are to be issued will be determined by the Board of Directors and set forth in the contracts or instruments that evidence the Rights. The authority of the Board of Directors with respect to the Rights shall include, but not be limited to, determination of the following: (a) The initial purchase price per share of the capital stock or other securities of the Corporation to be purchased upon exercise of the Rights; (b) Provisions relating to the times at which and the circumstances under which the Rights may be exercised or sold or otherwise transferred, either together with or separately from, any other securities of the Corporation; (c) Provisions that adjust the number or exercise price of the Rights or amount or nature of the securities or other property receivable upon exercise of the Rights in the event of a combination, split or recapitalization of any capital stock of the Corporation, a change in ownership of the Corporation's securities or a reorganization, merger, consolidation, sale of assets or other occurrence relating to the Corporation or any capital stock of the Corporation, and provisions restricting the ability of the Corporation to enter into any such transaction absent an assumption by the other party or parties thereto of the obligations of the Corporation under such Rights; -5- 6 (d) Provisions that deny the holder of a specified percentage of the outstanding securities of the Corporation the right to exercise the Rights and/or cause the Rights held by such holder to become void; (e) Provisions that permit the Corporation to redeem the Rights; and (f) The appointment of a Rights Agent with respect to the Rights; and such other provisions relating to the Rights as may be determined by the Board of Directors. 6. No holder of stock of the Corporation shall be entitled as of right to purchase or subscribe for any part of any unissued stock of the Corporation or any additional stock to be issued whether or not by reason of any increase of the authorized capital stock of the Corporation, or any bonds, certificates of indebtedness, debentures or other securities convertible into stock or such additional authorized issuance of new stock, but rather such stock, bonds, certificates of indebtedness, debentures and other securities may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of their discretion. 7. The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation, and for creating, defining, limiting and regulating the powers of the Corporation, the directors and the stockholders. (a) Subject to any limitation contained in the bylaws, the Board of Directors may make bylaws, and from time to time may alter, amend or repeal any bylaws, but any bylaws made by the Board of Directors may be altered, amended or repealed by the stockholders at any meeting of stockholders by the affirmative vote of at least 66 2/3% of the aggregate number of votes entitled to be cast thereon, provided notice that an amendment is to be considered and acted upon is inserted in the notice or waiver of notice of such meeting. (b) Any vote or votes authorizing liquidation of the Corporation or proceedings for its dissolution may provide, subject to (i) any agreements among and between stockholders, (ii) the rights of creditors and (iii) rights expressly provided for particular classes or series of stocks, for the distribution pro rata among the stockholders of the Corporation of the assets of the Corporation, wholly or in part in kind, whether such assets be in cash or other property, and may authorize the Board of Directors of the Corporation to determine the value of the different assets of the Corporation for the purpose of such liquidation and may divide such assets or any part thereof among the stockholders of the Corporation in such manner that every stockholder will receive a proportionate amount in value (determined as aforesaid) of cash or property of the Corporation upon such liquidation or dissolution even though each stockholder may not receive a strictly proportionate part of each such asset. -6- 7 (c) The Corporation shall, to the maximum extent permitted from time to time under the DGCL, indemnify and upon request shall advance expenses to any person who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit, proceeding or claim, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was or has agreed to be a director or officer of the Corporation, or while a director or officer is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorneys' fees and expenses), judgments, fines, penalties and amounts paid in settlement or incurred in connection with the investigation, preparation to defend or defense of such action, suit, proceeding, claim or counterclaim initiated by or on behalf of such person. Such indemnification shall not be exclusive of other indemnification rights arising under any bylaw, agreement, vote of directors or stockholders or otherwise and shall inure to the benefit of the heirs and legal representatives of such person. Any repeal or modification of this Section 7(c) shall be prospective only, and shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification. (d) A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. Any repeal or modification of this Section 7(d) by the stockholders of the Corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or modification. 8. Subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specific circumstances: (a) after an initial public offering of the Corporation's Common Stock, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing of such stockholders; (b) special meetings of the stockholders of the Corporation may be called only by the Chairman of the Board of Directors and shall be called within ten (10) days after receipt of the written request of the Board of Directors, pursuant to a resolution approved by a majority of the whole Board of Directors; and -7- 8 (c) the business permitted to be conducted at any special meeting of the stockholders is limited to the business brought before the meeting by the Chairman or by the Secretary at the request of a majority of the Board of Directors. 9. The number of directors which shall constitute the whole board shall be such as from time to time shall be fixed by, or in the manner provided in, the bylaws, but in no case shall the number be less than three nor more than 15. The directors shall be classified with respect to the time for which they shall severally hold office by dividing them into three classes which classes shall consist of an equal, or as near to equal as possible, number of directors. As to the initial election, the director or directors of the first class shall be elected for a term expiring at the next annual meeting of stockholders to be held following the end of the 2000 fiscal year; the director or directors of the second class for a term expiring at the annual meeting to be held following the end of the 2001 fiscal year; and the director or directors of the third class for a term expiring at the annual meeting to be held following the end of the 2002 fiscal year. At each annual meeting, commencing with the annual meeting in 2001, the successor or successors to the class of directors whose term shall expire in that year shall be elected to hold office for a term of three years, so that the term of office of one class of directors shall expire in each year. Any increase or decrease in the number of directors constituting the Board shall be apportioned among the classes so as to maintain the number of directors in each class as near as possible to one-third the whole number of directors as so adjusted. Any director elected or appointed to fill a vacancy shall hold office for the remaining term of the class to which such directorship is assigned. No decrease in the number of directors constituting the Corporation's Board of Directors shall shorten the term of any incumbent director. Any vacancy in the Board of Directors, whether arising through death, resignation or removal of a director, or through an increase in the number of directors of any class, shall be filled by the majority vote of the remaining directors, although less than a quorum, or by a sole remaining director, provided that any vacancy in the Board of Directors arising through death, resignation or removal of the director elected by the Restricted Common Stock shall be filled only by a special meeting of the holders of the Restricted Common Stock called for the purpose of electing a director to fill such vacancy. The bylaws may contain any provision regarding classification of the Corporation's directors not inconsistent with the terms hereof. The right to cumulate votes in the election of directors is expressly prohibited. A director of the Corporation may be removed only for cause and only upon the affirmative vote of the holders of 66 2/3 percent of the outstanding capital stock of the Corporation entitled to vote at an election of such director, subject to further restrictions on removal, not inconsistent with this Section 9, as may be contained in the bylaws. Notwithstanding the foregoing, the holders of Restricted Common Stock voting as a class shall be entitled to elect one member of the Board of Directors, and only the holders of the Restricted Common Stock shall be entitled to remove such member from the Board of Directors. -8- 9 Notwithstanding the foregoing, whenever the holders of any one or more series of Preferred Stock issued by the Corporation shall have the right, voting separately by series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the Directors' Resolutions applicable thereto, and such directors so elected shall not be subject to the provisions of this Section 9 unless expressly provided by such terms. 10. Election of directors need not be by written ballot unless the bylaws of the Corporation shall so provide. Meetings of stockholders may be held within or without the State of Delaware, as the bylaws may provide. The books of the Corporation may be kept (subject to any provisions contained in the statutes of the State of Delaware) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or the bylaws of the Corporation. 11. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation in the manner set forth below, and all rights and conferred upon the directors or stockholders of the Corporation herein or in any amendment hereof are granted subject to this reservation. The affirmative vote of at least 75% of the aggregate number of votes entitled to be cast thereon and the affirmative vote of the holders of at least 75% of the then outstanding shares of each class of stock of the Corporation voting separately as a class, shall be required to adopt any amendment to Sections 5, 7, 8, 9 and 11 of this Amended and Restated Certificate of Incorporation of the Corporation, provided that holders of shares of any series of Preferred Stock shall not be entitled to vote with respect to any such amendment unless (i) specifically required by the Directors' Resolution providing for the issue of such series of Preferred Stock or (ii) otherwise required by the DGCL. The affirmative vote of at least a majority of the aggregate number of votes entitled to be cast thereon and the affirmative vote of the holders of at least a majority of the then outstanding shares of each class of stock of the Corporation voting separately as a class, shall be required to adopt any amendment to any other Section of this Amended and Restated Certificate of Incorporation of the Corporation, provided that holders of shares of any series of Preferred Stock shall not be entitled to vote with respect to any such amendment unless (i) specifically required by the Directors' Resolution providing for the issue of such series of Preferred Stock or (ii) otherwise required by the DGCL. IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been executed for and on behalf of the Corporation by its officers thereunto duly authorized as of ______ day of March, 1999. /s/ C. Byron Snyder ------------------------------------------ C. Byron Snyder, President -9- EX-3.2 3 AMENDED BYLAWS 1 EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF AMERICAN PLUMBING & MECHANICAL, INC. 2 ARTICLE I OFFICES Section 1. The registered office of American Plumbing & Mechanical, Inc. (the "Corporation") shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. The Corporation may also have offices at such other places both within and without the state of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. All meetings of the stockholders for the election of Directors shall be held at such place as may be fixed from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meetings of stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. At the annual meeting, the stockholders shall elect by a plurality vote the Directors pursuant to Article III of these Bylaws, and transact such other business as may properly be brought before the meeting. Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to a vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (iii) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed to and received at the principal executive offices of the Corporation not less than 120 days nor more than 150 days prior to the anniversary of the date of the proxy statement for the previous year's annual meeting; provided, however, that if no annual meeting was held in the previous year or the date of the annual meeting of stockholders has been changed by more than 30 calendar days from the date contemplated at the 3 time of the previous year's proxy statement, the notice must be received by the Corporation at least 60 days prior to the date the Corporation intends to distribute its proxy statement with respect to such meeting. A stockholder's notice to the Secretary shall set forth, as to each matter a stockholder proposes to bring before the annual meeting, (i) the nature of the proposed business with reasonable particularity, including the exact text of any proposal to be presented for adoption and any supporting statement, which proposal and supporting statement shall not in the aggregate exceed 500 words, and his reasons for conducting such business at the annual meeting, (ii) any material interest of such stockholder in such business, (iii) the name, principal occupation and record address of such stockholder, (iv) the class and number of shares of the Corporation which are held of record or beneficially owned by such stockholder, (v) the dates upon which such stockholder acquired such shares of stock and documentary support for any claims of beneficial ownership and (vi) such other matters as may be required by the Certificate of Incorporation as amended or restated from time to time (the "Certificate of Incorporation"). Notwithstanding any other provision in these Bylaws, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 3. The presiding officer of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with this Section 3, and if the presiding officer should so determine, the presiding officer shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. At any special meeting of stockholders, only such business shall be conducted as shall have been specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors. In accordance with Section 5 of this Article II, nothing in this Section 3 shall entitle any stockholder to propose business for consideration at any special meeting of stockholders. Notwithstanding any other provision of these Bylaws, the Corporation shall be under no obligation to include any stockholder proposal in its proxy statement or otherwise present any such proposal to stockholders at a meeting of stockholders if the Board of Directors reasonably believes that the proponents thereof have not complied with Sections 13 and 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and the Corporation shall not be required to include in its proxy statement to stockholders any stockholder proposal not required to be included in its proxy statement to stockholders in accordance with the Exchange Act and such rules or regulations; provided, however, nothing in this Section 3 shall be deemed to affect the rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. Section 4. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list -2- 4 shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 5. Special meetings of the stockholders for any purpose may be called only by the Chairman of the Board of Directors and shall be called within 10 days after receipt of the written request of the Board of Directors, pursuant to a resolution approved by a majority of the entire Board of Directors. The business permitted to be conducted at any special meeting of the stockholders is limited to the business brought before the meeting by the Chairman or by the Secretary at the request of a majority of the entire Board of Directors. Section 6. Written notice of a special meeting stating the place, date and hour of the meeting, and the purpose or purposes for which the meeting is called, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting, to each stockholder entitled to vote at such meeting. Section 7. The holders of a majority of the stock issued, outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. Section 8. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting, except as otherwise required by this Section 8, if the time and place thereof are announced at the meeting at which the adjournment is taken. At such adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. If a quorum exists, action on a matter (other than the election of directors) shall be approved if the votes cast in favor of the matter exceed the votes cast opposing the matter. In determining the number of votes cast, shares abstaining from voting or not voted on a matter will not be treated as votes cast. The provisions of this paragraph will govern with respect to all votes of stockholders except as otherwise provided for in these Bylaws or in the Certificate of Incorporation or by a specific statutory provision superseding the provisions contained in these Bylaws or the Certificate of Incorporation. -3- 5 Section 10. Each stockholder shall at every meeting of the stockholders, subject to any restriction or qualification set forth in the Certificate of Incorporation, be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted after three years from its date, unless the proxy provides for a longer period. Section 11. After an initial public offering of the Corporation's Common Stock, any action required or permitted to be taken by the stockholders of the Corporation must be affected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing of such stockholders. Section 12. At each meeting of stockholders, the Chairman or Vice-Chairman of the Board of Directors shall preside, and the secretary shall keep records, and in the absence of either such officer, his duty shall be performed by a person appointed at the meeting. ARTICLE III DIRECTORS Number, Nomination, Removal Section 1. The number of Directors shall be fixed from time to time by the Board of Directors, but shall not be less than 3 nor more than 15 persons. The Directors shall be elected at the annual meeting of the stockholders in accordance with the provisions of Section 2 of this Article and Section 9 of the Certificate of Incorporation, and each Director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. Section 2. Subject to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, nominations for the election of Directors may be made by the Board of Directors or a committee appointed by the Board of Directors or by any stockholder entitled to vote in the election of Directors generally. Any stockholder entitled to vote in the election of Directors generally may nominate one or more persons for election as Directors at a meeting only if written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not less than 120 days nor more than 150 days prior to the anniversary of the date of the proxy materials for the previous year's annual meeting; provided, however, that if no annual meeting was held in the previous year or the date of the annual meeting of stockholders has been changed by more than 30 calendar days from the date contemplated at the time of the previous year's proxy statement, the notice must be received by the Corporation at least 60 days prior to the date the Corporation intends to distribute its proxy statement with respect to such meeting. Each such notice given by a stockholder shall set forth the following information, in addition to any other information or matters required by the Certificate of Incorporation: -4- 6 (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the exact name of such person, (ii) such person's age, principal occupation, business address and telephone number and residence address and telephone number, (iii) the number of shares (if any) of each class of stock of the Corporation owned directly or indirectly by such person and (iv) such other information regarding each nominee proposed by such stockholder as would be required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Exchange Act or any successor regulation thereto (including such person's notarized written acceptance of such nomination, consent to being named in the proxy statement as a nominee and statement of intention to serve as a director if elected) had the nominee been nominated, or intended to be nominated, by the Board of Directors; and (b) as to the stockholder giving the notice, (i) his name and record address, (ii) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, (iii) the class and number of shares of the Corporation which are held of record or beneficially owned by him and the dates upon which he acquired such shares of stock and documentary support for any claims of beneficial ownership, and (iv) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder. If the presiding officer of the meeting for the election of Directors determines that a nomination of any candidate for election as a Director at such meeting was not made in accordance with the applicable provisions of these Bylaws, such nomination shall be void. Section 3. Subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional Directors under specified circumstances, newly created directorships resulting from any increase in the number of Directors and any vacancy on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of a majority of the remaining Directors then in office, even though less than a quorum of the Board of Directors. or by a sole remaining Director, provided that any vacancy in the Board of Directors arising through death, resignation or removal of the director elected by the Restricted Common Stock shall be filled only by a special meeting of the holders of the Restricted Common Stock called for the purpose of electing a director to fill such vacancy. Any Director elected or chosen as provided herein shall hold office until the sooner of the following events: (i) the expiration of the term of the directorship to which he is appointed, (ii) such time as his successor is elected and qualified or (iii) his resignation or removal. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of an incumbent Director. Section 4. Subject to the rights of the holders of any class or series of stock having preference over the Common Stock as to dividends or upon liquidation to elect additional Directors under -5- 7 specified circumstances, any Director may be removed from office only for cause by the stockholders in the manner provided in this Section 4. At any annual meeting of the stockholders of the Corporation or at any special meeting of the stockholders of the Corporation, the notice of which shall state that the removal of a Director or Directors is among the purposes of the meeting, a Director may be removed for cause by the affirmative vote of the holders of at least 662/3 percent of the capital stock of the Corporation entitled to vote at an election of such Director. Section 5. The business of the Corporation shall be managed by its Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. Advisory Member of the Board of Directors Section 6. The holders of a majority of the outstanding shares of the Company's Restricted Common Stock may appoint one individual to serve as an advisory member of the Board of Directors (the "Advisory Member"). Such Advisory Member will be entitled to attend all meetings of the Board of Directors and meetings of committees thereof and to speak at such meetings. Such Advisory Member shall also be entitled to receive copies of any and all materials delivered to the Board of Directors; provided, however, such Advisory Member will not be entitled to a vote at any meeting of the Board of Directors or committee thereof and shall not have any duties or responsibilities of a Director. Other than reimbursement for expenses, if any, related to attendance at each meeting of the Board of Directors, the Advisory Member will not be paid for attendance at such meetings. Meetings of the Board of Directors Section 7. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 8. Meetings of the Board of Directors may be held at such time and place as shall be specified in a notice given in the manner hereinafter provided, or as shall be specified in a written waiver signed by all of the Directors. Section 9. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors. Section 10. Special meetings of the Board of Directors may be called by the Chairman of the Board on 24 hours' notice to each Director, either personally or by telecopy or telegram; special meetings shall be called by the president, chief executive officer or secretary in like manner and on like notice on the written request of three Directors. -6- 8 Section 11. Except as provided in these Bylaws to the contrary, at all meetings of the board a majority of the total number of Directors shall constitute a quorum for the transaction of business and the vote of a majority of the Directors entitled to vote and present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless the Certificate of Incorporation shall require a vote of a greater number. If a quorum shall not be present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 12. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 13. At all meetings of the Board of Directors, business shall be transacted in such order as from time to time the Board of Directors may determine. At all meetings of the Board of Directors, the Chairman or Vice-Chairman of the Board of Directors shall preside, and in the absence of either such Director a person shall be chosen by the board from among the Directors present to act as chairman of the meeting. The secretary of the Corporation shall act as secretary of the meeting of the Board of Directors, but in the absence of the secretary, the presiding officer may appoint any person to act as secretary of the meeting. Executive Committee; Committees of Directors Section 14. The Board of Directors may, by resolution adopted by a majority of the whole Board of Directors, designate one (1) or more committees, each committee to consist of one (1) or more Directors. The Board of Directors may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member, and the alternate or alternates, if any, designated for such member, of any committee, the member or members thereof present at the meetings and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another Director to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority -7- 9 in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the Delaware General Corporation Law to be submitted to stockholders for approval or (ii) adopting, amending or repealing any bylaw of the Corporation. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Section 15. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors. Compensation of Directors Section 16. The Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary or retainer as Director. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. ARTICLE IV NOTICES Section 1. Whenever notice is required to be given to any Director or stockholder pursuant to a statutory provision or the Certificate of Incorporation or these Bylaws, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such Director or stockholder, at his address as it appears in the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to Directors may also be given personally or by telegram or telecopy. Section 2. Whenever notice is required to be given pursuant to a statutory provision or the Certificate of Incorporation or Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS Section 1. The officers of the Corporation shall be chosen by the Board of Directors and shall be the Chairman of the Board of Directors, a chief executive officer, a president, a secretary and a treasurer. The Board of Directors may also appoint one or more chief operating officers, one or more vice presidents and one or more assistant secretaries and assistant treasurers. Any number of offices -8- 10 may be held by the same person, unless the Certificate of Incorporation or these Bylaws otherwise provide. Section 2. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a Chairman of the Board of Directors, a chief executive officer, a president, a secretary and a treasurer and may choose one or more one or more chief operating officers, one or more vice presidents and such other officers as the Board of Directors shall determine in its sole discretion. Section 3. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. Section 4. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors. Section 5. The officers of the Corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The Chairman of the Board of Directors Section 6. The Chairman of the Board of Directors of the Corporation shall preside at all meetings of stockholders and the Board of Directors. He shall perform such duties and have such powers as usually appertain to the office or as the Board of Directors may from time to time prescribe. The Chief Executive Officer Section 7. The Chief Executive Officer shall be a senior officer of the Corporation and shall perform such duties and have such powers as usually appertain to the office or as the Board of Directors may from time to time prescribe. He shall have the authority to execute all documents and instruments necessary to carry out the management of the business of the Corporation. He shall report to the Board of Directors. The President Section 8. The president of the Corporation shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall have the authority to execute all documents and instruments necessary to carry out the management of the business of the Corporation. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution -9- 11 thereof shall be expressly delegated by the Board of Directors to some other officer or agent of this Corporation. He shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. He shall report to the Board of Directors. The Chief Operating Officer Section 9. The chief operating officer of the Corporation shall be responsible for the day-to-day operations of the Corporation and shall have the authority to execute all documents and instruments necessary to carry out such operations. The chief operating officer shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. The chief operating officer shall report to the chief executive officer of the Corporation. The Chief Financial Officer Section 10. The chief financial officer of the Corporation shall be responsible for the finances of the Corporation and shall have the authority to execute all documents and instruments necessary with respect to financial matters, including, without limitation, loan agreements, indentures, promissory notes, mortgage instruments, security agreements and financing statements. The chief financial officer shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. The chief financial officer shall report to the chief executive officer of the Corporation. The Vice Presidents Section 11. In the absence of the president or in the event of his inability or refusal to act, the vice president (or in the event there is more than one, the vice presidents in the order determined by the Board of Directors, or, if there be no such determination, then in the order of their election), shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions imposed upon the president. The vice presidents shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. The Secretary and the Assistant Secretary Section 12. The secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or president, under whose supervision he shall be. He shall have custody of the corporate seal of the Corporation, if any such seal be adopted by resolution of the Board of Directors, and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give -10- 12 general authority to any other officer to affix the seal of the Corporation and to attest the affirming thereof by his signature. Section 13. The assistant secretary (or if there be more than one, the assistant secretaries in the order determined by the Board of Directors, or, if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. The Treasurer and Assistant Treasurer Section 14. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as treasurer and of the financial condition of the Corporation. Section 15. The assistant treasurer (or, if there shall be more than one, the assistant treasurers in the order determined by the Board of Directors, or, if there be no such determination, then in the order of their election) shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. ARTICLE VI CERTIFICATES OF STOCK Section 1. Every holder of stock in the Corporation shall be entitled to a certificate, signed by, or in the name of the Corporation by, the Chairman of the Board, the president or a vice president and the secretary or an assistant secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Any signature on the certificate may be a facsimile. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class of stock, the designations, preferences. and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, -11- 13 optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Where a certificate is countersigned (1) by a transfer agent other than the Corporation or its employee or, (2) by a registrar other than the Corporation or its employee, any signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Lost Certificates Section 3. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Transfers of Stock Section 4. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by a proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Fixing Record Date Section 5. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting prior to an initial public offering of the Corporation's Common Stock, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. -12- 14 Registered Stock Holders Section 6. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII GENERAL PROVISIONS Dividends Section 1. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meetings, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Directors shall think conducive to the interest of the Corporation, and the Directors may modify or abolish any such reserve in the manner in which it was created. Checks Section 3. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Fiscal Year Section 4. The fiscal year of the Corporation shall begin on the first day of January of each year and end on the last day of December of each year, unless otherwise determined by the Board of Directors. Seal Section 5. The corporate seal, if any such seal be adopted by resolution of the Board of Directors, will be in such form as the Board of Directors may prescribe. The seal may be used by -13- 15 causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise placed thereon. Interested Directors and Officers Section 6. (a) No contract or transaction between the Corporation and one or more of its Directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its Directors or officers are Directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the Director or officer is present at or participates in the meeting of the board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purposes, if; (1) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested Directors, even though the disinterested Directors be less than a quorum; or (2) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. (b) Common or interested Directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE VIII AMENDMENTS These Bylaws may be altered, amended or repealed, or new Bylaws may be adopted by the affirmative vote of a majority of the entire Board of Directors at any meeting and without the consent or vote of the stockholders. These Bylaws may be altered, amended or repealed, or new Bylaws may be adopted by the stockholders at any annual meeting of the stockholders or at any special meeting of the stockholders, if notice of such alteration, amendment, repeal or adoption of new Bylaws is contained in the notice of such meeting, by the affirmative vote of at least 75% of the aggregate number of votes entitled to be cast thereon and the affirmative vote of the holders of at least 75% -14- 16 of the then outstanding shares of each class of stock of the Corporation voting separately as a class, provided that holders of shares of any series of Preferred Stock shall not be entitled to vote with respect to any such amendment unless (i) specifically required by the Directors' Resolution providing for the issue of such series of Preferred Stock, (ii) provided in the Certificate of Designation for the applicable series of Preferred Stock or (iii) otherwise required by the DGCL. ARTICLE IX INDEMNIFICATION AND INSURANCE Section 1. The Corporation shall, to the full extent permitted by Section 145 of Title 8 of the General Corporation Law of the State of Delaware, as amended from time to time, indemnify all officers and directors of the Corporation whom it may indemnify pursuant thereto. The provisions of this Article IX shall apply to acts or omissions occurring before or after the adoption hereof. The right of indemnification herein provided for shall not be exclusive of any other right to which any Director or officer may now or hereafter be entitled under any statute, bylaw, agreement, vote of stockholders or disinterested Directors or otherwise, shall continue as to a person who has ceased to be such Director or officer entitled to indemnification pursuant to this Article IX and shall inure to the benefit of the heirs, executors and administrators of such Director or officer. Section 2. The Corporation may purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, Advisory Member, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article IX or of Section 145 of the General Corporation Law of the State of Delaware. Section 3. The indemnification provided by this Article IX shall be subject to all valid and applicable laws, and, in the event this Article IX or any of the provisions hereof or the indemnification contemplated hereby are found to be inconsistent with or contrary to any such valid laws, the latter shall be deemed to control, and this Article IX shall be regarded as modified accordingly and, as so modified, shall continue in full force and effect. -15- EX-3.3 4 CERTIFICATE OF DESIGNATIONS OF 10% SERIES A 1 EXHIBIT 3.3 CERTIFICATE OF DESIGNATIONS OF 10% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED STOCK, SERIES A (PAR VALUE $0.01 PER SHARE) OF AMERICAN PLUMBING & MECHANICAL, INC. --------------------------------------------- PURSUANT TO SECTION 151(g) OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE -------------------------------------------- The undersigned does hereby certify that the following resolutions were duly adopted by the Board of Directors of American Plumbing & Mechanical, Inc., a Delaware corporation (the "Corporation"), in accordance with the provisions of Section 151 of the Delaware General Corporation Law, at a meeting duly convened and held on March , 1999, at which a quorum was present and acting throughout: WHEREAS, the Amended and Restated Certificate of Incorporation of the Corporation (the "Charter"), authorizes a total of 115,000,000 shares of capital stock, consisting of (i) 100,000,000 shares of common stock, par value $0.01 per share (the "Common Stock"), issuable from time to time; (ii) 5,000,000 shares of restricted common stock, par value $0.01 per share, issuable from time to time and (iii) 10,000,000 shares of preferred stock, par value $0.01 per share (the "Preferred Stock"), issuable from time to time in one or more series; and WHEREAS, the Corporation has entered into acquisition agreements (the "Acquisition Agreements"), dated February 11, 1999, with each of the following entities: Christianson Enterprises, Inc., GGR Leasing Corporation and Christianson Services, Inc., R.C.R. Plumbing, Inc., Teepe's River City Mechanical, Inc., Keith Riggs Plumbing, Inc., J.A. Croson Company and Franklin Fire Sprinkler Company, J. A. Croson Company of Florida, Power Plumbing Inc., Nelson Mechanical Contractors, Inc., Sherwood Mechanical, Inc. and Miller Mechanical Contractors, Inc., and the shareholders of each of those entities; RESOLVED, that pursuant to the authority conferred on the Board of Directors by the Charter, the Series A Preferred, be, and it hereby is, established, created and approved, and that the designation and number of shares thereof and the voting and other powers, preferences and relative, participating, optional and other rights of the shares of such series, 2 and the qualifications, limitations and restrictions thereof, be, and they hereby are, as set forth on Exhibit A attached hereto and incorporated herein by reference for all purposes; and FURTHER RESOLVED, that the proper officers be, and each hereby is, authorized, empowered and directed, by and on behalf of the Corporation and in its name, to prepare, execute and deliver, and file with the Secretary of State of the State of Delaware, a certificate of designations of the terms, limitations, rights and preferences of the Series A Preferred Stock (the "Certificate of Designations"), with the designations, voting and other powers, preferences, relative, participating, optional and other rights, and the qualifications, limitations and restrictions, set forth on Exhibit A. -2- 3 IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed this 31 day of March, 1999. American Plumbing & Mechanical, Inc. By: /s/ C. BYRON SNYDER ---------------------------------------- C. Byron Snyder Director and Secretary -3- 4 EXHIBIT A Section 1. Number of Shares and Designation. This series of preferred stock shall be designated as "10% Cumulative Redeemable Convertible Preferred Stock, Series A" and the number of shares which shall constitute such series shall not be more than 1,048,820 shares, par value $.01 per share. For the purpose of this Certificate of Designations, the 10% Cumulative Redeemable Convertible Preferred Stock, Series A, shall be referred to as the "Series A Preferred." Section 2. Dividends. (a) General Obligation. When, as and if declared by the Board of Directors and to the extent permitted under the Delaware law, the Corporation shall pay preferential dividends in cash to the holders of the Series A Preferred as provided in this Section 2. Dividends on each share of the Series A Preferred shall accrue on a daily basis at the rate of 10% per annum of the sum of the Liquidation Value (as defined in Section 3(f) hereof) thereof plus all accumulated and unpaid dividends thereon from and including the date of issuance of such share to and including the first to occur of (i) the date on which the Liquidation Value of such share (plus all accrued and unpaid dividends thereon) is due and payable to the holder thereof in connection with the liquidation of the Corporation or the redemption of such share by the Corporation, (ii) the date on which such share is converted into shares of Common Stock as provided hereunder or (iii) the fortieth (40th) day immediately following the IPO Prospectus Delivery Termination Date (as defined in Section 6(a) hereof.) Dividends shall accrue whether or not they have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends. (b) Dividend Payment Dates. All dividends which have accrued on the Series A Preferred shall be payable on June 30 and December 31 of each year, beginning June 30,1999 (the "Dividend Payment Dates"). All dividends which have accrued on each share of Series A Preferred outstanding during the six-month period (or other period in the case of an initial Dividend Payment Date) ending upon such Dividend Payment Date shall be accumulated and shall remain accumulated dividends with respect to such shares until paid to the holder thereof. If a Dividend Payment Date falls on any date other than a business day, the dividend payment due on such Dividend Payment Date shall be paid on the business day immediately following such Dividend Payment Date, with the same effect as if paid on the Dividend Payment Date without any additional accrual of dividends payable in respect of such delay. Dividends payable on each Dividend Payment Date shall be paid to record holders of the shares of Series A Preferred as they appear on the books of the Corporation at the close of business on a date (the "Dividend Record Date") fixed by the Board of Directors not more than 60 nor less than 30 days immediately preceding the applicable Dividend Payment Date. (c) Distribution of Partial Dividend Payments. Except as otherwise provided herein, if at any time the Corporation pays less than the total amount of dividends then accrued with respect to the Series A Preferred, such payment shall be distributed pro rata among the holders thereof based upon the aggregate accrued but unpaid dividends on the shares of Series A Preferred held by each such holder. -4- 5 (d) Participation in Dividends with Common Stock. The Series A Preferred shall be entitled to receive dividends, in addition to the dividends otherwise payable pursuant to paragraph (a) above, on the same basis and in the same amount as any dividend declared and paid on the Common Stock, on a per share basis, (i) when, as and if declared by the Board of Directors, (ii) to the extent permitted by Delaware law and (iii) if, after taking into account all dividends declared and paid on the Common Stock from and after the first date of issuance of the Series A Preferred, the Corporation has paid to the holders of Common Stock cumulative dividends equal to the amount determined by applying, for each share of Common Stock outstanding at the time such determination is made, the rate of 10% per annum of the Common Stock Base Amount (as defined below) for the period commencing from (x) with respect to each share of Common Stock outstanding on the date of the first issuance of shares of Series A Preferred, the date of the first issuance of shares of Series A Preferred and (y) with respect to each share of Common Stock issued thereafter, the date of such issuance. The "Common Stock Base Amount", as of any particular date, shall be equal to $13.00 per share (as adjusted proportionately for any stock dividends, combinations, splits or other similar events with respect to such shares). (e) The holders of shares of Series A Preferred shall not be entitled to receive any dividends or other distributions except as provided herein. Section 3. Liquidation. (a) Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (a "Liquidation"), each holder of Series A Preferred shall be entitled to receive, out of the assets of the Corporation available for distribution to stockholders, after any distribution of payment is made upon any securities of the Corporation senior in ranking to the Series A Preferred (the "Senior Securities"), and before any distribution or payment is made upon any securities of the Corporation junior in ranking to the Series A Preferred (the "Junior Securities"), an amount in cash equal to the aggregate Liquidation Value of all shares of Series A Preferred held by such holder (plus all accrued and unpaid dividends thereon through the effective date of the Liquidation). If, upon any Liquidation and after payment or distribution is made upon any Senior Securities, the Corporation's assets to be distributed among the holders of the Series A Preferred are insufficient to permit payment to such holders of the Series A Preferred of the aggregate amount which they are entitled to be paid under this Section 3(a), then the entire assets available to be distributed to the holders of the Series A Preferred shall be distributed pro rata among such holders based upon the aggregate Liquidation Value (plus all accrued and unpaid dividends thereon through the effective date of the Liquidation) of the Series A Preferred held by each such holder. (b) After the payment or distribution to the holders of Series A Preferred in full of the preferential amount provided in Section 3(a), the holders of Common Stock shall be entitled to receive ratably an amount per share equal to the Common Stock Base Amount plus an amount equal to the cumulative dividend amount with respect to such share computed in accordance with clause (iii) of Section 2(d) hereof. If, upon any Liquidation and after payment or distribution in full of the preferential amount specified in Section 3(a), the Corporation's assets to be distributed among the holders of the Common Stock are insufficient to permit payment to such holders of the Common -5- 6 Stock of the aggregate amount to which they are entitled to be paid under this Section 3(b), then the entire remaining assets available to be distributed shall be distributed pro rata among the holders of Common Stock. (c) After the payment or distribution to the holders of the Series A Preferred and the holders of the Common Stock as provided in Section 3(a) and Section 3(b), the holders of Series A Preferred and the holders of the Common Stock shall be entitled to receive ratably, on a per share basis, all remaining assets of the Corporation to be paid or distributed. (d) Prior to a Liquidation, the Series A Preferred shall be convertible into Common Stock only in accordance with the provisions of Section 6 below. (e) Neither the consolidation or merger of the Corporation into or with any other entity or entities (whether or not the Corporation is the surviving entity), or the sale, conveyance, exchange or transfer (for cash, securities or other consideration) by the Corporation of all or any part of its assets, or the reduction of the capital stock of the Corporation nor any other form of recapitalization or reorganization affecting the Corporation shall be deemed to be a Liquidation within the meaning of this Section 3. (f) The "Liquidation Value" of any share of Series A Preferred, as of any particular date, shall be equal to $13.00 (as adjusted proportionately for any stock dividends, combinations, splits or other similar events with respect to such shares). Section 4. Redemptions. (a) Redemption at the Option of the Holders. (i) Effective upon the occurrence of the third anniversary of the issuance of the shares of Series A Preferred, each holder of such shares shall have the right (a "Put Right"), but not the obligation, to require the Corporation to purchase the shares of Series A Preferred then owned by such holder. The purchase price for such redemption, which shall be paid out of funds legally available therefor, shall be the Liquidation Value of such shares plus all accrued and unpaid dividends thereon to the date of redemption (the "Redemption Date"). (ii) The holders may exercise their Put Right by giving written notice (a "Put Notice") to the Corporation. Upon receipt of a Put Notice, the Corporation shall promptly mail a Redemption Notice (as defined below) to the holders exercising their Put Right which includes the information set forth in Section 4(c) hereof. The Redemption Date with respect to the shares of Series A Preferred to be redeemed upon exercise of a Put Right shall in no event be later than 90 days after the date the Corporation first receives the Put Notice. -6- 7 (b) Redemption at the Option of the Corporation. (i) The Corporation may, in its sole discretion, at any time and from time to time upon prior written notice redeem all or any portion of shares of Series A Preferred then outstanding. The purchase price for each share of Series A Preferred to be redeemed pursuant to this Section 4(b), which shall be paid out of funds legally available therefor, shall be the greater of (i) the Liquidation Value of a share of Series A Preferred and (ii) the Fair Market Value (as defined below) of a share of Series A Preferred as of the Redemption Record Date (as defined below) plus, in the case of each of clauses (i) and (ii), all accrued and unpaid dividends thereon to the Redemption Date. The Corporation shall mail a Redemption Notice which includes the information set forth in Section 4(c) hereof for each redemption to each holder of record thereof as of a date (the "Redemption Record Date") not more than 90 days nor less than 30 days prior to the Redemption Date. (ii) For the purpose of any computation under clause (i) above, the "Fair Market Value" of a share of Series A Preferred on any date shall be deemed to be, if the Common Stock is then listed or admitted for trading on the New York Stock Exchange ("NYSE"), the National Association of Securities Dealers Automated Quotation National Market ("NASDAQ"), or any over-the -counter market, the average of the daily Closing Prices for the Common Stock for the thirty (30) consecutive business days commencing forty-five (45) business days before such date or, if the Common Stock is not then listed or admitted for trading on the NYSE, NASDAQ or any over-the-counter market, the fair market value thereof as determined in good faith by the Corporation's Board of Directors. Where used herein, the "Closing Price" for each day shall be the reported last sale price regular way or in the case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case as reported on the New York Stock Exchange Composite Transactions reporting system or, if not so quoted, on the NYSE or, if at any time the Common Stock is not listed or admitted to trading on the NYSE, on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or if the Common Stock is not listed or admitted to trading on any national securities exchange, on the NASDAQ, or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on NASDAQ, the average of the closing bid and asked prices in the over-the-counter market as furnished by any NYSE member firm selected from time to time by the Board of Directors for such purposes. (iii) In the event the Corporation elects to redeem less than the total number of shares of Series A Preferred outstanding as of the Redemption Record Date, the number of shares of Series A Preferred to be redeemed from each holder thereof in redemptions pursuant to this Section 4(b) shall be the number of shares determined by multiplying (A) the total number of shares to be redeemed by the Corporation times (B) a fraction, the numerator of which shall be the total amount of Liquidation Value (plus aggregate accrued and unpaid dividends) represented by the shares held by such holder as of the Redemption Record Date, and the denominator of which shall be the total amount of Liquidation Value (plus aggregate accrued and unpaid dividends) represented by the all of the shares outstanding as of the Redemption Record Date. (c) Redemption Notice. The "Redemption Notice" sent to holders of shares of Series A Preferred pursuant to Section 4(a)(ii) or Section 4(b)(i) hereof shall set forth (A) the Redemption -7- 8 Date for such redemption, (B) the total number of shares of Series A Preferred to be redeemed and (C) if fewer than all of the shares held by such holder are to be redeemed, the number of shares to be redeemed from such holder, (D) the purchase price for shares to be redeemed and (E) the place and time of day where share certificates are to be surrendered for payment of the redemption price. Upon mailing any Redemption Notice which relates to redemption at the option of the Corporation pursuant to Section 4(b) hereof, the Corporation shall become obligated to redeem the total number of shares specified in such notice on the Redemption Date specified therein. (d) Closing on the Redemption Date. Any closing of the sale of shares of Series A Preferred redeemed pursuant this Section 4 shall take place on the Redemption Date specified in the Redemption Notice at the time and place specified therein, unless mutually agreed to in writing by the Corporation and the redeeming holder. At such closing the Corporation shall make payment for the shares of Series A Preferred to be repurchased by wire transfer of immediately available funds to a bank account designated by such holder for such purpose and such holder shall deliver to the Corporation certificates, duly endorsed for transfer, representing the shares of Series A Preferred to be redeemed. In the case where fewer than the total number of shares represented by any certificate are redeemed, upon surrender at the closing of the certificate representing the redeemed shares, a new certificate representing the number of unredeemed shares of Series A Preferred shall be issued to the holder thereof without cost to the holder on the Redemption Date. (e) No Dividends after Redemption Date. No shares of Series A Preferred to be redeemed shall be entitled to any dividends accruing after the Redemption Date with respect to such shares. On such date, all rights attributable to such shares shall cease and such shares shall no longer be deemed to be issued and outstanding. Section 5. Voting Rights. (a) Except as set forth below or as otherwise provided by Delaware law, holders of shares of Series A Preferred shall not be entitled to vote as a separate class, but shall vote together with the holders of shares of all other classes of capital stock of the Corporation having general voting powers as one class, on all matters submitted to a vote of the Corporation's stockholders. Each holder of shares of Series A Preferred shall be entitled to the number of votes equal to the number of full shares of Common Stock into which all shares of Series A Preferred Stock held by such holder would be converted pursuant to the provisions of Section 6(a)(i) hereof (as adjusted proportionately for any stock dividends, combinations, splits or other similar events with respect to such shares), at the record date for the determination of the stockholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is first executed (assuming, for purposes of determining the number of votes if such shares of Series A Preferred were converted pursuant to Section 6, a price to the public of a share of Common Stock in an IPO (as defined in Section 6(a) hereof) of $13.00 per share). In all cases where the holders of shares of Series A Preferred have the right to vote separately as a class as provided elsewhere herein or otherwise by Delaware law, such holders shall be entitled to one vote for each such share held by them respectively. (b) Without the affirmative vote of the holders of not less than a majority of the shares of Series A Preferred, voting together as a single class, the Corporation shall not: -8- 9 (i) authorize the issuance of any new class or series of stock or reclassify any existing stock into stock having rights and preferences on parity with or prior and superior to the Series A Preferred as to dividends or amounts payable upon liquidation or dissolution; (ii) increase or decrease the total number of authorized shares of Series A Preferred; (iii) purchase, redeem or otherwise acquire for value (or pay into or set aside as a sinking fund for such purpose) any of the Common Stock; provided, that this provision shall not apply to the repurchase of shares of Common Stock under the terms of the Acquisition Agreements; or (iv) make any amendment to the Certificate of Incorporation of the Corporation that would adversely change the rights, preferences, privileges or restrictions of or on the holders of the Series A Preferred set forth in this Certificate of Designations. (c) At any time and for so long as either (i) the Corporation has failed to punctually pay when due any redemption payment pursuant to Section 4 hereof or (ii) dividends payable on the Series A Preferred pursuant to Section 2 hereof have been in arrears and unpaid for a period of forty days following the applicable Dividend Payment Date, the Corporation shall not, without the affirmative vote of the holders of not less than a majority of the shares of Series A Preferred, voting together as a single class: (i) incur any additional indebtedness for borrowed money other than borrowings under any credit facility to which the Corporation is a party at such time and as in effect when any redemption payment becomes due and is unpaid or at the time any Dividend Payment becomes due and is unpaid; (ii) effect (or make any agreement or become obligated to effect) any (a) sale, lease, assignment, transfer or other conveyance of the assets of the Corporation or its Subsidiaries which individually or in the aggregate would constitute a Significant Subsidiary, (b) consolidation or merger involving the Corporation or any of its Subsidiaries, or (c) dissolution, liquidation or winding-up of the Corporation or any of its Subsidiaries; provided however that in no event shall the Corporation effect any sale, lease, assignment, transfer or other conveyance of the assets of the Corporation or its Subsidiaries to Affiliates of the Corporation; (iii) make (or permit any Subsidiary to make) any loan or advance to, or own any stock or other securities of, any Subsidiary or other corporation, partnership, or other entity unless it is wholly owned by the Corporation and except for any such loans and advances which do not in the aggregate exceed $250,000; (iv) make any loan or advance to any person, including, without limitation, any employee or director of the Corporation or any Subsidiary, except advances and similar expenditures in the ordinary course of business; or -9- 10 (v) acquire, by purchase, exchange, merger or otherwise, all of substantially all of the properties or assets of any other corporation or entity. (d) Definitions. For purposes of this Section 5, the following terms shall have the means ascribed to them herein: "Affiliates" means with respect to any person or entity, any other person or entity that directly or indirectly, controls, is controlled by, or is under common control with such person or entity. "Person" means any individual, corporation, partnership, limited liability company, joint venture, incorporated or unincorporated association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof or other entity of any kind. "Significant Subsidiary" means any Subsidiary of the Corporation that would be a "Significant Subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "Subsidiary" of any Person means (i) any corporation of which at least a majority of the aggregate voting power of all classes of the Voting Stock is owned by such Person directly or through one or more other Subsidiaries of such Person and (ii) any entity other than a corporation in which such Person, directly or indirectly, owns at least a majority of the Voting Stock of such entity entitling the holder thereof to vote or otherwise participate in the selection of the governing body, partners, managers or others that control the management and policies of such entity. Unless otherwise specified, "Subsidiary" means a Subsidiary of the Corporation. "Voting Stock" with respect to any Person, means securities of any class of capital stock of such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock or other relevant equity interest has voting power by reason of any contingency) to vote in the election of members of the board of directors or other governing body, partners, managers or others that control the management and policies of such Person. Section 6. Conversion. (a) Conversion at Election of Corporation (i) Upon and at any time and from time to time after the consummation of a firm commitment underwritten initial public offering of the Common Stock managed by one or more nationally recognized national investment banking firms which is registered under the Securities Act of 1933 (an "IPO"), the Corporation may convert all or any portion of the issued and outstanding shares of Series A Preferred at a conversion ratio of one share of Common Stock for each share of Series A Preferred to be converted (the "Equivalent Basis Conversion Ratio"), provided, however, that if the Equivalent Basis Conversion Ratio results in a lesser number of shares of Common Stock upon conversion of a share of Series A Preferred than the Floating Conversion Ratio (as defined in -10- 11 Section 6(c) hereof), then the conversion of the Series A Preferred pursuant to this Section 6(a) shall be made utilizing the Floating Conversion Ratio. (ii) In the event that the Corporation elects to convert shares of Series A Preferred, the Corporation shall mail a Conversion Notice (as defined below) which includes the information set forth in paragraph 6(b) hereof for each conversion to each holder of record thereof as of a date (the "Conversion Record Date") not more than 90 days nor less than 30 days prior to the date of conversion specified in the Conversion Notice (the "Corporation-Elected Conversion Date"). In the event the Corporation elects to convert less than the total number of shares of Series A Preferred outstanding as of the Conversion Record Date, the number of shares of Series A Preferred of each holder to be converted pursuant to this Section 6(a) shall be the number of shares of Series A Preferred determined by multiplying the total number of shares of Series A Preferred to be converted by the Corporation times a fraction, the numerator of which shall be the total amount of Liquidation Value (plus aggregate accrued and unpaid dividends) represented by the shares held by such holder as of the Conversion Record Date, and the denominator of which shall be the total amount of Liquidation Value (plus aggregate accrued and unpaid dividends), determined as of the applicable Conversion Date, represented by all of the shares outstanding as of the Conversion Record Date. (iii) The "Conversion Notice" sent to holders of shares of Series A Preferred pursuant to Section 6(a)(ii) hereof shall set forth (A) the Corporation-Elected Conversion Date for such conversion, (B) the total number of shares of Series A Preferred to be converted, (C) the number of shares of Series A Preferred held by such holder, (D) the conversion ratio applicable to such conversion and (E) the time of day and place where Series A Preferred share certificates are to be surrendered on the Corporation-Elected Conversion Date in exchange for certificates representing shares of Common Stock. Upon mailing any Conversion Notice which relates to conversion at the option of the Corporation, the Corporation shall become obligated to convert the total number of shares of Series A Preferred specified in such notice into shares of Common Stock on the Corporation-Elected Conversion Date specified therein. (iv) The holders of Series A Preferred shall surrender certificates representing the number of shares of Series A Preferred specified in the Conversion Notice at the time and place specified therein on the Corporation-Elected Conversion Date, duly endorsed for transfer. (b) Conversion at Election of Holder. (i) At any time and from time to time prior to the filing by the Corporation of a registration statement with the Securities and Exchange Commission (the "SEC") relating to a proposed IPO (the "IPO Registration Statement"), a holder of Series A Preferred may convert all or any portion of the issued and outstanding shares of Series A Preferred owned by such holder at the Equivalent Basis Conversion Ratio. In the event that the Corporation determines to file an IPO Registration Statement, the Corporation shall give written notice to each holder of Series A Preferred not less than 30 days prior to filing the IPO Registration Statement with the SEC. -11- 12 (ii) Each conversion of shares of Series A Preferred pursuant to Section 6(b) shall be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing the shares of such Series A Preferred to be converted, together with properly executed conversion instructions or powers, have been surrendered for conversion at the principal office of the Corporation (the "Holder-Elected Conversion Date"). (iii) Notwithstanding anything to the contrary in this Section 6(b), from and after the receipt by a holder of Series A Preferred of a Redemption Notice from the Corporation pursuant to Section 4(b) through 5:00 p.m. New York time on the business day immediately preceding the Redemption Date related thereto, a holder of Series A Preferred may convert all or a portion of the issued and outstanding shares of Series A Preferred owned by such holder at the Equivalent Basis Conversion Ratio. (c) Conversion Following IPO. (i) Not later than the 25th day following the date of the final prospectus filed with the SEC in connection with the IPO (the "IPO Prospectus Delivery Termination Date"), the Corporation shall give written notice to each holder of Series A Preferred stating that (i) the IPO has been completed and (ii) the Series A Preferred then outstanding will convert, without any further action on the part of the Corporation or the holder of Series A Preferred, into shares of Common Stock at the Floating Conversion Ratio (as defined below) unless, on the fortieth (40th) day immediately following the IPO Prospectus Delivery Termination Date, unless on or prior to such fortieth (40th) day such holder gives written notice (a "Non-Conversion Notice") to the Corporation that such holder desires that such holder's shares of Series A Preferred not be converted into shares of Common Stock pursuant to Section 6(c)(ii). (ii) In the event that the Corporation does not receive a Non-Conversion Notice from a holder of Series A Preferred on or prior to the fortieth (40th) day immediately following the IPO Prospectus Delivery Termination Date, then the shares of Series A Preferred owned by such holder will convert, without any further action on the part of the Corporation or such holder, into shares of Common Stock at the Floating Conversion Ratio. (iii) The Floating Conversion Ratio shall mean, with respect to each share of Series A Preferred, a number of shares of Common Stock determined by multiplying one by a fraction, the numerator of which is the Liquidation Value (without the inclusion of any accrued but unpaid dividends), determined as of the applicable Conversion Date (as defined below), and the denominator of which is the price to the public of a share of the Common Stock in the IPO. (iv) Nothing in this Section 6(c) shall prevent a holder of Series A Preferred from giving a Put Notice pursuant to Section 4(a) hereof prior to the effectiveness of the conversion of Series A Preferred into Common Stock pursuant to Section 6(c)(ii), and, in the event that a holder of Series A Preferred gives a Put Notice prior to the effectiveness of such conversion, the Corporation will be obligated to redeem the Series A Preferred subject to such Put Notice in accordance with the provisions of Section 4(a). -12- 13 (d) Closing on the Conversion Date. (i) As promptly as possible after a Corporation-Elected Conversion Date or a Holder-Elected Conversion Date or the date of a conversion effected in accordance with Section 6(c) hereof (each, a "Conversion Date"), but in any event within five business days thereafter, the Corporation shall deliver or cause to be delivered to or for the account of the holders of the converted shares of Series A Preferred: (A) payment in cash, out of funds legally available therefor, in an amount equal to all accrued dividends (whether or not declared or currently payable) with respect to each share converted which have not been paid prior to the applicable Conversion Date; (B) in lieu of any fractional shares to which the holder would otherwise be entitled, payment in cash, out of funds legally available therefor, in an amount equal to such fraction of a share multiplied by the price to the public of a share of the Common Stock in the IPO; (C) a certificate or certificates representing the number of shares of Common Stock issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified; and (D) a certificate representing any shares of Series A Preferred which were represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not converted. (ii) If the Corporation is not permitted under applicable law to make the cash payment under subparagraph (ii) above, the Corporation shall make such payments to the converting holder as soon thereafter as funds of the Corporation are legally available for such payment. At the request of any such converting holder in such case, the Corporation shall provide such holder with written evidence of its obligation to such holder. (iii) The issuance or delivery of certificates for shares of Common Stock upon conversion of Series A Preferred shall be made without charge to the holders of such Series A Preferred for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Common Stock; provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificate in a name other than that of the holder of shares of Series A Preferred converted. (e) No Dividends After Conversion Date. No shares of Series A Preferred to be converted shall be entitled to any dividends accruing after the applicable Conversion Date with respect to such shares. On such date, all rights attributable to such shares shall cease, such shares shall no longer be deemed to be issued and outstanding and the persons or persons in whose name or names any certificate or certificates for shares of Common Stock are to be issued upon such conversion will be deemed to have become the holder or holders of record of the shares of Common Stock represented thereby. In the event certificates representing the shares of Series A Preferred to be converted are not delivered on the applicable Conversion Date, such certificates will thereafter represent only the right to receive shares of Common Stock upon their surrender. (f) Subdivision or Combination of Common Stock. If the Corporation at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Equivalent Basis Conversion Ratio and the Floating Conversion Ratio (each, a "Conversion Ratio") in effect -13- 14 immediately prior to such subdivision shall be proportionately increased, and if the Corporation at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, each Conversion Ratio in effect immediately prior to such combination shall be proportionately decreased; provided, however, the issuance by the Corporation of additional shares of Common Stock in an IPO or otherwise (including without limitation (i) upon the exercise of any options to purchase Common Stock which may have been granted from time to time by the Corporation or (ii) as dividends on any series of Preferred Stock) for cash, property or services shall not result in any adjustment of either Conversion Ratio. Promptly following any such adjustment of either Conversion Ratio, the Corporation shall give written notice thereof to all holders of Series A Preferred, setting forth in reasonable detail and certifying the calculation and the effective date of such adjustment. (g) Sale of Assets, Merger, Consolidation or Change of Control. In the event of (i) any sale of all or substantially all of the Corporation's assets in one transaction or series of transactions, (ii) any merger or consolidation which involves the Corporation in which the Corporation is not the surviving entity or (iii) any transaction after which the combined voting power of the Corporation then held by persons other than the holders of voting stock as of the date of the closing of Acquisition Agreements constitute 50% or more of the combined voting power of the Corporation outstanding as of the date of the consummation of such transaction (a "Reorganization Transaction"), prior to the consummation of such Reorganization Transaction, the Corporation shall make appropriate provisions to insure that each of the holders of Series A Preferred shall thereafter have the right to acquire and receive, such shares of stock, securities or assets as such holder would have received in connection with such Reorganization Transaction if such holder had converted its Series A Preferred immediately prior thereto. (h) Reservation of Common Stock. So long as any shares of the Series A Preferred remain outstanding, the Corporation will at all times reserve from its authorized Common Stock a sufficient number of shares to provide for the conversion rights herein set forth and will take such corporate action, in the event of an adjustment in either Conversion Ratio, as may be necessary in order that it may validly and legally issue fully paid and nonassessable shares of Common Stock upon conversion of the Series A Preferred. Section 7. Lost Share Certificates. In the event a holder of shares of Series A Preferred is unable to deliver physical certificates representing such shares for redemption or conversion, such holder, in lieu of delivering such certificates, must notify the Corporation, and any transfer agent that the Corporation may request, that such certificates have been lost, stolen, or destroyed and execute an agreement reasonably satisfactory to the Corporation in its sole discretion to indemnify the Corporation from any loss incurred by it in connection therewith. In such event, such notice and agreement must be received by the Corporation not less than ten days in advance of the applicable Redemption Date or Conversion Date, as the case may be. Section 8. Registration Books; Record Holders. The Corporation will keep, or cause to be kept, at its principal office (or at the office of its agent for such purpose) proper books in which the names and addresses of the holders of shares of Series A Preferred issued by the Corporation shall -14- 15 be registered and in which transfers of such shares may be registered. The Corporation may treat the registered holder of any shares of Series A Preferred as the absolute owner thereof for the purpose of receiving all dividends and redemption payments thereon and for all other purposes, and the Corporation shall not be affected by any notice or knowledge to the contrary. Section 9. No Consent for Certain Actions. Except as provided in Section 5 hereof, no consent, approval or vote of the holders of Series A Preferred shall be required for (i) the creation of any indebtedness of any kind of the Corporation, (ii) the creation of any class of Junior Securities or Senior Securities, (iii) the authorization of additional shares of any Junior Security or Senior Securities, (iv) the issuance of shares of Junior Securities or Senior Securities or (v) the repurchase or redemption of shares of Common Stock pursuant to the provisions of the Acquisition Agreements. Section 10. No Preemptive Rights. The holders of Series A Preferred shall not have preemptive rights to acquire additional, unissued or treasury shares of capital stock of the Corporation. Section 11. Amendment and Waiver. The Corporation may not amend this Certificate of Designations or waive compliance with any of the provisions hereof without, in either instance, the affirmative vote (at a meeting) or the written consent (with or without a meeting) of the holders of a majority of the shares of Series A Preferred then outstanding. Section 12. Severability of Provisions. Whenever possible, each provision hereof shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision hereof is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions hereof. If a court of competent jurisdiction should determine that a provision hereof would be valid or enforceable if a period of time were extended or shortened or a particular percentage were increased or decreased, then such court may make such change as shall be necessary to render the provision in question effective and valid under applicable law. Section 13. Notices. Except as otherwise expressly provided hereunder, all notices referred to herein shall be in writing and shall be delivered by first class mail or by reputable overnight courier service, charges prepaid, and shall be deemed to have been given when so mailed or sent (i) to the Corporation (attention: Secretary) at its principal executive offices and (ii) to any stockholder, at such holder's address as it appears in the stock records of the Corporation or to such other address as the Corporation or holder, as the case may be, shall have designated by notice similarly given. * * * * -15- 16 IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designations to be signed and attested this _____ day of March, 1999. AMERICAN PLUMBING & MECHANICAL, INC. By: --------------------------------------- David Baggett Chief Financial Officer Attest: By: ----------------------------- C. Byron Snyder Secretary -16- EX-4.1 5 INDENTURE DATED MAY 19,1999 1 EXHIBIT 4.1 ================================================================================ AMERICAN PLUMBING & MECHANICAL, INC. AS THE COMPANY AND THE SUBSIDIARIES NAMED HEREIN AS GUARANTORS TO STATE STREET BANK AND TRUST COMPANY AS TRUSTEE INDENTURE DATED AS OF MAY 19, 1999 UP TO $250,000,000 11 5/8% SENIOR SUBORDINATED NOTES DUE 2008 ================================================================================ 2 CROSS-REFERENCE TABLE (NOTE - this table is not part of the Indenture)
TIA Indenture Section Section - ------- ------- 310(a)(1)..................................................................................... 6.9 310(a)(2)..................................................................................... 6.9 310(a)(3)..................................................................................... N.A. 310(a)(4)..................................................................................... N.A. 310(a)(5)..................................................................................... N.A. 310(b)........................................................................................ 6.8; 6.10 310(c)........................................................................................ N.A. 311(a)........................................................................................ 6.13 311(b)........................................................................................ 6.13 311(c)........................................................................................ N.A. 312(a)........................................................................................ 7.1; 7.2 312(b)........................................................................................ 7.2 312(c)........................................................................................ 7.2 313(a)........................................................................................ 7.3 313(b)........................................................................................ 7.3 313(c)........................................................................................ 1.6 313(d)........................................................................................ 7.3 314(a)........................................................................................ 7.4 314(b)........................................................................................ N.A. 314(c)(1)..................................................................................... 1.2 314(c)(2)..................................................................................... 1.2 314(c)(3)..................................................................................... N.A. 314(d)........................................................................................ N.A. 314(e)........................................................................................ 1.2 314(f)........................................................................................ N.A. 315(a)........................................................................................ 6.1 315(b)........................................................................................ 6.2 315(c)........................................................................................ 6.1 315(d)........................................................................................ 6.1 315(e)........................................................................................ 5.14 316(a)(1)(A).................................................................................. 5.12 316(a)(1)(B).................................................................................. 5.13 316(a)(2)..................................................................................... N.A. 316(a)(last sentence)......................................................................... 1.1 316(b)........................................................................................ 5.7; 5.8 316(c)........................................................................................ 1.4 317(a)(1)..................................................................................... 5.3 317(a)(2)..................................................................................... 5.4 317(b)........................................................................................ 10.3 317(a)........................................................................................ 1.7
3 TABLE OF CONTENTS
Page ---- ARTICLE I Definitions and Other Provisions of General Application SECTION 1.1. Definitions...............................................................................1 SECTION 1.2. Compliance Certificates and Opinions.....................................................24 SECTION 1.3. Form of Documents Delivered to Trustee...................................................25 SECTION 1.4. Acts of Holders; Record Dates............................................................25 SECTION 1.5. Notices to Trustee, the Company or a Guarantor...........................................27 SECTION 1.6. Notice to Holders; Waiver................................................................28 SECTION 1.7. Conflict with Trust Indenture Act........................................................28 SECTION 1.8. Effect of Headings and Table of Contents.................................................28 SECTION 1.9. Successors and Assigns...................................................................28 SECTION 1.10. Separability Clause......................................................................28 SECTION 1.11. Benefits of Indenture....................................................................29 SECTION 1.12. Governing Law............................................................................29 SECTION 1.13. Legal Holidays...........................................................................29 ARTICLE II Security Forms SECTION 2.1. Forms Generally..........................................................................29 ARTICLE III The Securities SECTION 3.1. Title and Terms..........................................................................29 SECTION 3.2. Denominations............................................................................30 SECTION 3.3. Execution, Authentication, Delivery and Dating...........................................31 SECTION 3.4. Temporary Securities.....................................................................32 SECTION 3.5. Registration; Registration of Transfer and Exchange......................................32 SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Securities.........................................33 SECTION 3.7. Payment of Interest; Rights Preserved....................................................34 SECTION 3.8. Persons Deemed Owners....................................................................35 SECTION 3.9. Cancellation.............................................................................35 SECTION 3.10. Computation of Interest..................................................................36 SECTION 3.11. CUSIP and CINS Numbers...................................................................36 SECTION 3.12. Deposits of Monies.......................................................................36 SECTION 3.13. Book-Entry Provisions for Global Securities..............................................36 SECTION 3.14. Special Transfer Provisions..............................................................37
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Page ---- ARTICLE IV Satisfaction and Discharge SECTION 4.1. Satisfaction and Discharge of Indenture..................................................38 SECTION 4.2. Application of Trust Money...............................................................40 ARTICLE V Remedies SECTION 5.1. Events of Default........................................................................40 SECTION 5.2. Acceleration of Maturity; Rescission and Annulment.......................................42 SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee..........................43 SECTION 5.4. Trustee May File Proofs of Claim.........................................................44 SECTION 5.5. Trustee May Enforce Claims Without Possession of Securities..............................44 SECTION 5.6. Application of Money Collected...........................................................44 SECTION 5.7. Limitation on Suits......................................................................45 SECTION 5.8. Unconditional Right of Holders To Receive Principal, Premium and Interest..............................................................................46 SECTION 5.9. Restoration of Rights and Remedies.......................................................46 SECTION 5.10. Rights and Remedies Cumulative...........................................................46 SECTION 5.11. Delay or Omission Not Waiver.............................................................46 SECTION 5.12. Control by Holders.......................................................................46 SECTION 5.13. Waiver of Past Defaults..................................................................47 SECTION 5.14. Undertaking for Costs....................................................................47 SECTION 5.15. Waiver of Stay or Extension Laws.........................................................47 ARTICLE VI The Trustee SECTION 6.1. Certain Duties and Responsibilities......................................................48 SECTION 6.2. Notice of Defaults.......................................................................48 SECTION 6.3. Certain Rights of Trustee................................................................49 SECTION 6.4. Not Responsible for Recitals or Issuance of Securities...................................50 SECTION 6.5. May Hold Securities......................................................................50 SECTION 6.6. Money Held in Trust......................................................................50 SECTION 6.7. Compensation and Reimbursement...........................................................50 SECTION 6.8. Conflicting Interests....................................................................51 SECTION 6.9. Corporate Trustee Required; Eligibility..................................................51 SECTION 6.10. Resignation and Removal; Appointment of Successor........................................52
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Page ---- SECTION 6.11. Acceptance of Appointment by Successor...................................................53 SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business..............................53 SECTION 6.13. Preferential Collection of Claims Against the Company or a Guarantor.....................54 SECTION 6.14. Appointment of Authenticating Agent......................................................54 ARTICLE VII Holders' Lists and Reports by Trustee and Company SECTION 7.1. Company To Furnish Trustee Names and Addresses of Holders................................55 SECTION 7.2. Preservation of Information; Communications to Holders...................................55 SECTION 7.3. Reports by Trustee.......................................................................56 SECTION 7.4. Reports by Company.......................................................................56 ARTICLE VIII Consolidation, Merger, Conveyance, Transfer or Lease SECTION 8.1. Company May Merge, Consolidate, Etc., Only on Certain Terms..............................56 SECTION 8.2. Successor Substituted....................................................................58 ARTICLE IX Amendments; Waivers; Supplemental Indentures SECTION 9.1. Amendments, Waivers and Supplemental Indentures Without Consent of Holders...............................................................................58 SECTION 9.2. Modifications, Amendments and Supplemental Indentures with Consent of Holders...............................................................59 SECTION 9.3. Execution of Supplemental Indentures.....................................................60 SECTION 9.4. Effect of Supplemental Indentures........................................................60 SECTION 9.5. Conformity with Trust Indenture Act......................................................60 SECTION 9.6. Reference in Securities to Supplemental Indentures.......................................61 SECTION 9.7. Waiver of Certain Covenants..............................................................61 SECTION 9.8. No Liability for Certain Persons.........................................................61 ARTICLE X Covenants SECTION 10.1. Payment of Principal, Premium and Interest...............................................61 SECTION 10.2. Maintenance of Office or Agency..........................................................62 SECTION 10.3. Money for Security Payments To Be Held in Trust..........................................62 SECTION 10.4. Existence; Activities....................................................................63 SECTION 10.5. Maintenance of Properties................................................................63
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Page ---- SECTION 10.6. Payment of Taxes and Other Claims........................................................64 SECTION 10.7. Maintenance of Insurance.................................................................64 SECTION 10.8. Limitation on Indebtedness...............................................................64 SECTION 10.9. Limitation on Restricted Payments........................................................64 SECTION 10.10. Limitation on Issuances and Sales of Restricted Subsidiary Stock.........................67 SECTION 10.11. Limitation on Transactions with Affiliates...............................................68 SECTION 10.12. Limitation on Liens......................................................................69 SECTION 10.13. Change of Control........................................................................69 SECTION 10.14. Disposition of Proceeds of Asset Sales...................................................70 SECTION 10.15. Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries...............................................................72 SECTION 10.16. Limitation on Issuance of Subordinated Indebtedness......................................73 SECTION 10.17. Additional Subsidiary Guarantees.........................................................73 SECTION 10.18. Limitations on Designation of Unrestricted Subsidiaries..................................73 SECTION 10.19. Provision of Financial Information.......................................................74 SECTION 10.20. Statement by Officers as to Default; Compliance Certificates.............................75 ARTICLE XI Redemption of Securities SECTION 11.1. Right of Redemption......................................................................75 SECTION 11.2. Applicability of Article.................................................................75 SECTION 11.3. Election to Redeem; Notice to Trustee....................................................75 SECTION 11.4. Selection by Trustee of Securities To Be Redeemed........................................76 SECTION 11.5. Notice of Redemption.....................................................................76 SECTION 11.6. Deposit of Redemption Price..............................................................77 SECTION 11.7. Securities Payable on Redemption Date....................................................77 SECTION 11.8. Securities Redeemed in Part..............................................................77 ARTICLE XII Defeasance and Covenant Defeasance SECTION 12.1. Company's Option To Effect Defeasance or Covenant Defeasance.............................78 SECTION 12.2. Defeasance and Discharge.................................................................78 SECTION 12.3. Covenant Defeasance......................................................................78 SECTION 12.4. Conditions to Defeasance or Covenant Defeasance..........................................79 SECTION 12.5. Deposited Money and U.S. Government Obligations To Be Held in Trust; Miscellaneous Provisions..............................................................81 SECTION 12.6. Reinstatement............................................................................81
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Page ---- ARTICLE XIII Guaranty SECTION 13.1. Guaranty.................................................................................82 SECTION 13.2. Limitation on Liability..................................................................84 SECTION 13.3. Execution and Delivery of Guarantees; Supplemental Indentures............................84 SECTION 13.4. Guarantors May Consolidate, Etc., on Certain Terms.......................................84 SECTION 13.5. Release of Guarantors....................................................................85 SECTION 13.6. Successors and Assigns...................................................................85 SECTION 13.7. No Waiver, etc...........................................................................85 SECTION 13.8. Modification, etc........................................................................85 SECTION 13.9. Subordination of Guarantees..............................................................86 ARTICLE XIV Subordination SECTION 14.1. Securities Subordinate to Senior Indebtedness and Senior to Subordinated Indebtedness..........................................................86 SECTION 14.2. Payment Over of Proceeds upon Dissolution, Etc...........................................86 SECTION 14.3. No Payment When Designated Senior Indebtedness in Default................................87 SECTION 14.4. Subrogation to Rights of Holders of Senior Indebtedness..................................88 SECTION 14.5. Provisions Solely To Define Relative Rights..............................................88 SECTION 14.6. Trustee To Effectuate Subordination......................................................88 SECTION 14.7. No Waiver of Subordination Provisions....................................................88 SECTION 14.8. Notice to Trustee........................................................................89 SECTION 14.9. Reliance on Judicial Order or Certificate of Liquidating Agent...........................89 SECTION 14.10. Trustee Not Fiduciary for Holders of Senior Indebtedness.................................90 SECTION 14.11. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights......................................................................90 SECTION 14.12. Article Applicable to Paying Agents......................................................90 Schedule A List of Guarantors Exhibit A-1 Form of Security Exhibit A-2 Form of Series B Security Exhibit B Global Securities Legend Exhibit C Form of Supplemental Indenture
-v- 8 INDENTURE, dated as of May 19, 1999, among AMERICAN PLUMBING & MECHANICAL, INC., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), the Subsidiaries of the Company named in Schedule A as of the date of issuance (herein called the "Initial Guarantors") and STATE STREET BANK AND TRUST COMPANY, as trustee (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of 11 5/8% Senior Subordinated Notes due 2008, Series A, and 11 5/8% Senior Subordinated Notes due 2008, Series B (together, the "Securities"), of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. Each Guarantor desires to make the Guaranty provided herein and has duly authorized the execution and delivery of this Indenture. All things necessary to make the Securities, when executed by the Company, authenticated and delivered hereunder and duly issued by the Company, and the Guarantees, when executed and delivered hereunder by each Guarantor, the valid obligations of the Company and each Guarantor, and to make this Indenture a valid agreement of the Company and each Guarantor, in accordance with their and its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders (as defined herein) thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP (whether or not such is indicated herein); 9 (4) unless the context otherwise requires, any reference to an "Article" or a "Section" refers to an Article or Section, as the case may be, of this Indenture; (5) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and (6) each reference herein to a rule or form of the Commission shall mean such rule or form and any rule or form successor thereto, in each case as amended from time to time. Whenever this Indenture requires that a particular ratio or amount be calculated with respect to a specified period after giving effect to certain transactions or events on a pro forma basis, such calculation shall be made as if the transactions or events occurred on the first day of such period, unless otherwise specified. "Acquired Indebtedness" means Indebtedness of a Person (a) assumed in connection with an Asset Acquisition from such Person or (b) existing at the time such Person becomes or is merged into a Subsidiary of any other Person. "Acquisition Agreements" means, collectively, the acquisition agreements dated February 11, 1999 between the Company and each of the stockholders of the founding companies pursuant to which the Company acquired the founding companies. "Act," when used with respect to any Holder, has the meaning specified in Section 1.4. "Affiliate" means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of Voting Stock, by agreement or otherwise; provided, however, that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. "Agent Members" has the meaning specified in Section 3.13. "Alternative Offer" has the meaning specified in Section 10.13. "Asset Acquisition" means (a) an Investment by the Company or any Restricted Subsidiary in any other Person pursuant to which such Person shall become a Restricted Subsidiary, or shall be merged with or into the Company or any Restricted Subsidiary, or (b) the acquisition by the Company or any Restricted Subsidiary of the assets of any Person which constitute all or substantially all of the assets of such Person, any division or line of business of such Person or, other than in the ordinary course of business, any other properties or assets of such Person. -2- 10 "Asset Sale" means any sale, issuance, conveyance, transfer, lease or other disposition by the Company or any Restricted Subsidiary to any Person other than the Company or a Restricted Subsidiary, of (a) any Capital Stock of any Restricted Subsidiary; (b) all or substantially all of the properties and assets of any division or line of business of the Company or any Restricted Subsidiary; or (c) any other properties or assets of the Company or any Restricted Subsidiary outside of the ordinary course of business, other than (i) sales of obsolete, damaged or used equipment or other equipment or inventory sales in the ordinary course of business, (ii) sales of assets in one or a series of related transactions for an aggregate consideration of less than $2.0 million and (iii) sales of accounts receivable for financing purposes. For the purposes of Section 10.14, the term "Asset Sale" shall not include (i) any sale, issuance, conveyance, transfer, lease or other disposition of properties or assets that is governed by the provisions of Article VIII or (ii) a Restricted Payment that is permitted under Section 10.9 or (iii) the trade or exchange by the Company or any Restricted Subsidiary of any property or assets owned or held by the Company or such Restricted Subsidiary for any property or assets owned or held by another Person, provided that the Fair Market Value of the properties traded or exchanged by the Company or such Restricted Subsidiary (including any cash or Cash Equivalents to be delivered by the Company or such Restricted Subsidiary) is reasonably equivalent to the Fair Market Value of the properties (together with any cash or Cash Equivalents) to be received by the Company or such Restricted Subsidiary, and provided further that any such cash or Cash Equivalents shall be deemed to constitute Net Cash Proceeds of an Asset Sale for purposes of Section 10.14. "Asset Sale Deficiency" has the meaning specified in Section 10.14. "Asset Sale Offer" has the meaning specified in Section 10.14. "Asset Sale Offer Amount" has the meaning specified in Section 10.14. "Asset Sale Purchase Date" means the Purchase Date relating to an Asset Sale Offer. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 6.14 hereof to act on behalf of the Trustee to authenticate Securities. "Average Life to Stated Maturity" means, with respect to any Indebtedness, as at any date of determination, the quotient obtained by dividing (i) the sum of the products of (a) the number of years (and any portion thereof) from such date of such determination to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund or mandatory redemption payment requirements) of such Indebtedness, and (b) the amount of each such principal payment by (ii) the sum of all such principal payments. -3- 11 "Board of Directors" means the board of directors of a company or its equivalent, including managers of a limited liability company, general partners of a partnership or trustees of a business trust, or any duly authorized committee thereof. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of a company to have been duly adopted by the Board of Directors of such company and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in the Borough of Manhattan, The City of New York are authorized or obligated by law or executive order to close. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations, rights in or other equivalents (however designated) of such Person's capital stock or equity participations, and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock and, including, without limitation, with respect to partnerships, limited liability companies or business trusts, ownership interests (whether general or limited) and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, such partnerships, limited liability companies or business trusts. "Capitalized Lease Obligation" means any obligation to pay rent or other amounts under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP, and, for the purpose of this Indenture, the amount of such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP. "Cash Equivalents" means, at any time, (a) any evidence of Indebtedness, maturing not more than two years after such time, issued or guaranteed by the United States Government or any agency thereof (provided that the full faith and credit of the United States of America is pledged in support thereof), (b) commercial paper, maturing not more than 270 days from the date of issue, rated at least A-2 by Standard & Poor's Ratings Group or P-2 by Moody's Investors Service, Inc., (c) any certificate of deposit (or time deposits represented by such certificates of deposit) or bankers acceptance, maturing not more than one year after such time, or overnight Federal Funds transactions that are issued or sold by a banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500 million, (d) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (a) above entered into with any bank meeting the specifications of clause (c) above, and (e) investments in funds investing primarily in investments of the types described in clauses (a) through (d) above. "Change of Control" means the occurrence of any of the following events: (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have "beneficial ownership" of all securities that such Person has the right to -4- 12 acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total Voting Stock of the Company; (b) the Company consolidates with, or merges with or into, another Person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where (i) the outstanding Voting Stock of the Company is converted into or exchanged for Voting Stock (other than Redeemable Capital Stock) of the surviving or transferee corporation and (ii) immediately after such transaction no "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have "beneficial ownership" of any securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total Voting Stock of the surviving or transferee corporation; (c) during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of 66 2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (d) the Company is liquidated or dissolved or adopts a plan of liquidation. "Change of Control Date" has the meaning specified in Section 10.13. "Change of Control Offer" has the meaning specified in Section 10.13. "Change of Control Purchase Date" has the meaning specified in Section 10.13. "Change of Control Purchase Price" has the meaning specified in Section 10.13. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations thereunder. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" means the common stock of the Company, par value $0.01 per share. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its Chief Executive Officer, its Chief Financial -5- 13 Officer, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee or Paying Agent, as applicable. "Consolidated Cash Flow Available for Fixed Charges" as of any date of determination means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus, to the extent deducted from Consolidated Net Income during such period, the sum of, without duplication, the amounts for such period, taken as a single accounting period, of (a) Consolidated Non-cash Charges, (b) Consolidated Interest Expense, and (c) Consolidated Income Tax Expense (other than income tax expense (either positive or negative) attributable to extraordinary gains or losses) less all cash payments during such period relating to non-cash charges that were added back in determining Consolidated Cash Flow Available for Fixed Charges in any prior period. "Consolidated Fixed Charge Coverage Ratio" as of any date of determination means, with respect to any Person, the ratio of the aggregate amount of Consolidated Cash Flow Available for Fixed Charges of such Person for the four full fiscal quarters, treated as one period, for which financial information in respect thereof is available immediately preceding the date of the transaction (the "Transaction Date") giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter period being referred to herein as the "Four Quarter Period") to the aggregate amount of Consolidated Fixed Charges of such Person for the Four Quarter Period. For purposes of making the computation referred to above, Consolidated Cash Flow Available for Fixed Charges and Consolidated Fixed Charges shall be calculated giving pro forma effect (in a manner consistent with Rule 11-02 of Regulation S-X) to the following events (without duplication): (i) any Asset Sale or Asset Acquisition occurring since the first day of the Four Quarter Period (including to the date of calculation) as if such acquisition or disposition occurred at the beginning of the Four Quarter Period (including giving effect to (A) the amount of any reduction in expenses related to any compensation, remuneration or other benefit paid or provided to any employee, consultant, Affiliate or equity owner of the entity involved in any such Asset Sale or Asset Acquisition to the extent such costs are eliminated or reduced (or public announcement has been made of the intent to eliminate or reduce such costs) prior to the date of such calculation and not replaced and (B) the amount of any reduction in general, administrative or overhead costs of the entity involved in any such Asset Sale or Asset Acquisition), (ii) the incurrence of Indebtedness giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio and (if applicable) the application of the net proceeds therefrom, including to refinance other Indebtedness, as if such Indebtedness were incurred at the beginning of the Four Quarter Period, (iii) the incurrence, repayment or retirement of any other Indebtedness by the Company and its Restricted Subsidiaries since the first day of the Four Quarter Period and prior to the date of making this calculation as if such Indebtedness or obligations were incurred, repaid or retired at the beginning of the Four Quarter Period (except that in making such computation, the amount of Indebtedness under any revolving Credit Facility shall be computed based upon the average daily balance of such Indebtedness during the Four Quarter Period) and (iv) elimination of Consolidated Cash Flow Available for Fixed Charges and Consolidated Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, but, with respect to Consolidated Fixed Charges, only to the extent that the obligations giving rise to such Consolidated Fixed Charges will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Transaction Date. In calculating Consolidated Fixed Charges for purposes of determining the denominator (but not the numerator) of the Consolidated Fixed Charge Coverage Ratio, (i) interest on -6- 14 outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; and (ii) if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a Eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the above provisions shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or such Subsidiary had directly incurred or otherwise assumed such guaranteed Indebtedness. "Consolidated Fixed Charges" means, with respect to any Person for any period, the sum of, without duplication, the amounts for such period of (i) Consolidated Interest Expense and (ii) the product of (x) the aggregate amount of dividends and other distributions paid, accrued or scheduled to be paid during such period in respect of Redeemable Capital Stock or Preferred Stock of such Person and its Restricted Subsidiaries on a consolidated basis (other than dividends or distributions paid solely in shares of Capital Stock (other than Redeemable Capital Stock)) times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local tax rate of such Person, expressed as a decimal. "Consolidated Income Tax Expense" means, with respect to any Person for any period, the provision for federal, state, local and foreign income taxes of such Person and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, with respect to any Person for any period, without duplication, the sum of (i) the interest expense of such Person and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, including, without limitation, (a) an amortization of debt discount, capitalized debt issuance costs and original issue discount, (b) the net cost under Interest Rate Protection Obligations (including any amortization of discounts), (c) the interest portion of any deferred payment obligation, (d) all commissions, discounts and other fees and charges owed with respect to letters of credit, bankers' acceptance financing or similar facilities, (e) all accrued interest and (f) imputed interest with respect to Attributable Debt; and (ii) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person, for any period, the consolidated net income (or loss) of such Person and its Restricted Subsidiaries for such period as determined in accordance with GAAP, adjusted, to the extent included in calculating such net income, by excluding, without duplication, (i) all items classified as extraordinary gains or losses (net of fees and expenses relating to the transaction giving rise thereto) on an after-tax basis, (ii) net income (or loss) of any Person combined with such Person or one of its Restricted Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination, (iii) gains or losses in respect of any Asset Sales by such Person or one of its Restricted Subsidiaries (net of fees and expenses relating to the transaction giving rise thereto), on an after-tax basis, (iv) the net income of any Restricted -7- 15 subsidiary of such Person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, (v) any gain or loss realized as a result of the cumulative effect of a change in accounting principles, (vi) the net income of any Person, other than a Restricted Subsidiary of the referent Person, except to the extent of cash dividends or distributions paid to the referent Person or to a Restricted Subsidiary of the referent Person by such Person, (vii) any restoration to income of any contingency reserve in excess of $100,000 in the aggregate for any one fiscal quarter, except to the extent that provision for such reserve was made out of Consolidated Net Income accrued at any time following the Issue Date and reflected on the financial statements of such Person, (viii) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets and (ix) one-time non-cash charges reducing net income resulting from stock issued to management of the Company in connection with the Company's organization. "Consolidated Non-cash Charges" means, with respect to any Person for any period, the aggregate depreciation, amortization (including amortization of goodwill and other intangibles) and other non-cash charges of such Person and its Restricted Subsidiaries to the extent reducing Consolidated Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP excluding non-cash charges (other than any non-cash charge reflected on the financial statements of such Person on the Issue Date) which require an accrual of or a reserve for cash charges for any future period. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be administered, which address as of the date of this Indenture is located at Goodwin Square, 23rd Floor, 225 Asylum Street, Hartford, CT 06103, Attention: Corporate Trust, Administration. "Covenant Defeasance" has the meaning specified in Section 12.3. "Credit Facility" means the Credit Agreement dated as of March 31, 1999 among the Company, First National Bank of Chicago, as Agent, LC Issuer and Lender, Credit Lyonnais, New York Branch, as Documentation Agent, and the Lenders named therein, including any notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended (including any amendment and restatement thereof), modified, extended, renewed, refunded, substituted or replaced or refinanced from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder or adding Subsidiaries of the Company as additional borrowers or Guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agents, creditor, lender or group of creditors or lenders. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. -8- 16 "Defaulted Interest" has the meaning specified in Section 3.7. "Defeasance" has the meaning specified in Section 12.2. "Depository" means The Depository Trust Company, or its successor. "Designated Guarantor Senior Indebtedness" means, with respect to a Guarantor, amounts owing by such Guarantor under the Credit Facility and guarantees by such Guarantor of Designated Senior Indebtedness. "Designated Senior Indebtedness" means (i) all Senior Indebtedness under the Credit Facility and (ii) any other Senior Indebtedness which (a) at the time of the determination is equal to or greater than $25,000,000 in aggregate principal amount and (b) is specifically designated by the Company in the instrument evidencing such Senior Indebtedness as "Designated Senior Indebtedness." "Designation" has the meaning specified in Section 10.18. "Designation Amount" has the meaning specified in Section 10.18. "Disinterested Member of the Board of Directors of the Company" means, with respect to any transaction or series of related transactions, a member of the Board of Directors of the Company other than a member who has any material direct or indirect financial interest in or with respect to such transaction or series of related transactions or is an Affiliate, or an officer, director or an employee of any Person (other than the Company) who has any direct or indirect financial interest in or with respect to such transaction or series of related transactions (in each case other than an interest arising solely from the beneficial ownership of Capital Stock of the Company). "Distribution Compliance Period" has the meaning set forth in Section 3.14. "Event of Default" has the meaning specified in Section 5.1. "Excess Proceeds" has the meaning specified in Section 10.14. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Securities" means the 11 5/8% Senior Subordinated Notes due 2008, Series B, of the Company, to be offered in exchange for the Initial Securities in accordance with the Registration Rights Agreement or, with respect to Initial Securities issued under this Indenture subsequent to the Issue Date pursuant to Section 3.1, a registration rights agreement substantially identical to the Registration Rights Agreement. "Expiration Date" shall have the meaning set forth in the definition of "Offer to Purchase." "Fair Market Value" means, with respect to any asset, the price (after taking into account any liabilities relating to such assets) which could be negotiated in an arm's length free market transaction between a willing seller and a willing buyer, neither of which is under pressure or compulsion to -9- 17 complete the transaction. Fair Market Value shall be determined by the Disinterested Members of the Board of Directors of the Company in good faith. "Federal Bankruptcy Code" means Title 11, U.S. Code. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States of America, which are in effect from time to time. "Global Securities" means a permanent global security in registered form representing the aggregate principal amount of Securities sold in reliance on Rule 144A under the Securities Act. "guarantee" means, as applied to any obligation, (i) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (ii) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of nonperformance) of all or any part of such obligation, including, without limiting the foregoing, the payment of amounts available to be drawn down under letters of credit of another Person. When used as a verb, "guarantee" shall have a corresponding meaning. The term "guarantor" shall mean any Person providing a guarantee of any obligation. "Guarantor Senior Indebtedness" of a Guarantor means the principal of, premium, if any, and interest on any Indebtedness of such Guarantor, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to such Guarantor's guarantee. Without limiting the generality of the foregoing, (x) "Guarantor Senior Indebtedness" shall include all monetary obligations of every nature under the Credit Facility including the principal of, premium, if any, and interest on all obligations of every nature of such Guarantor from time to time owed to the lenders under the Credit Facility, including, without limitation, principal of and interest on, reimbursement obligations under letters of credit and all fees, indemnities and expenses payable under, the Credit Facility, and (y) in the case of amounts owing under the Credit Facility and Guarantees of Designated Senior Indebtedness, "Guarantor Senior Indebtedness" shall include interest accruing thereon subsequent to the occurrence of any Event of Default specified in clause (7) or (8) of Section 5.1 relating to such Guarantor, whether or not the claim for such interest is allowed under any applicable Bankruptcy Code. Notwithstanding the foregoing, "Guarantor Senior Indebtedness" shall not include (a) Indebtedness evidenced by the Securities or the guarantees, (b) Indebtedness that is expressly subordinate or Junior in right of payment to any other Indebtedness of such Guarantor, (c) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is by its terms without recourse to such Guarantor, (d) Indebtedness which is represented by Redeemable Capital Stock, (e) to the extent it constitutes Indebtedness, any liability for federal, state, local or other taxes owed or owing by such Guarantor, (f) Indebtedness of such Guarantor to the Company or a Subsidiary of the Company or any other Affiliate of the Company or any of such Affiliate's -10- 18 subsidiaries, (g) that portion of any Indebtedness which is incurred by such Guarantor in violation of this Indenture and (h) trade payables. "Guarantor Subordinated Indebtedness" means, with respect to a Guarantor, indebtedness and other obligations of such Guarantor which are expressly subordinated in right of payment to such Guarantor's Guaranty. "Guarantors" shall mean each Initial Guarantor and each future Subsidiary designated a Guarantor in accordance with Section 10.17 herein. "Guaranty" means each guaranty of the Securities contained in Article XIII given by each Guarantor. "Guaranty Obligations" means, with respect to each Guarantor, the obligations of such Guarantor under Article XIII. "Holder" means a Person in whose name a Security is registered in the Security Register. "Indebtedness" means, with respect to any Person, without duplication, (a) all liabilities of such Person for borrowed money or for the deferred purchase price of property or services, excluding any trade payables and other accrued current liabilities incurred in the ordinary course of business, but including, without limitation, all obligations, contingent or otherwise, of such Person in connection with any letters of credit, bankers' acceptance or other similar credit transaction, if, and to the extent, any of the foregoing would appear as a liability on a balance sheet of such Person prepared in accordance with GAAP, (b) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments, if, and to the extent, any of the foregoing would appear as a liability on a balance sheet of such Person prepared in accordance with GAAP, (c) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding consignments and trade accounts payable arising in the ordinary course of business that are not overdue by 90 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, (d) all Capitalized Lease Obligations of such Person, (e) all Indebtedness referred to in the preceding clauses of other Persons and all dividends of other Persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness (the amount of such obligation being deemed to be the lesser of the Fair Market Value of such property or asset or the amount of the obligation so secured), (f) all guarantees of Indebtedness referred to in this definition by such Person, (g) all Redeemable Capital Stock of such Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued dividends, (h) all Interest Rate Protection Obligations of such Person and (i) all Attributable Debt in respect of sale and leaseback transactions of such Person; provided, however, that Indebtedness shall not include (i) Indebtedness arising from agreements of the Company or any Restricted Subsidiary providing for indemnification, adjustment or holdback of purchase -11- 19 price or similar obligations, in each case, incurred or assumed in connection with the acquisition or disposition of any business, assets or a Subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition, or (ii) obligations under performance bonds, performance guarantees, surety bonds, appeal bonds or similar obligations incurred in the ordinary course of business and consistent with past practices. For purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Redeemable Capital Stock, such fair market value shall be approved in good faith by the board of directors of the issuer of such Redeemable Capital Stock; provided, however, that if such Redeemable Capital Stock is not at the date of determination permitted or required to be repurchased, the "maximum fixed repurchase price" shall be the book value of such Redeemable Capital Stock. In the case of Indebtedness issued with original issue discount, the amount of such Indebtedness shall be the accreted value thereof as of such date. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. "Initial Guarantors" has the meaning set forth in the introduction to this Indenture. "Initial Purchasers" means Fleet Securities, Inc., Merrill Lynch, Banc One Capital Markets Inc. and Credit Lyonnais Securities (USA) Inc. "Initial Securities" means, collectively, (i) the 11 5/8% Senior Subordinated Notes due 2008, Series A, of the Company issued on the Issue Date and (ii) one or more series of 11 5/8% Senior Subordinated Notes due 2008 that are issued under this Indenture subsequent to the Issue Date pursuant to Section 3.1, in each case for so long as such securities constitute Restricted Securities. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Interest Rate Protection Agreement" means, with respect to any Person, any arrangement with any other Person whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements or arrangements designed to protect against or manage such Person's exposure to fluctuations in interest rates. "Interest Rate Protection Obligations" means the net obligations of any Person pursuant to any Interest Rate Protection Agreements. -12- 20 "Investment" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other Person, provided, however, that the term "Investment" shall not include (a) extensions of trade credit on commercially reasonable terms in accordance with normal trade practices and (b) Interest Rate Protection Obligations entered into in the ordinary course of business. "Issue Date" means the original date of issuance of the Initial Securities. "Lien" means any mortgage, charge, pledge, lien (statutory or other), security interest, hypothecation, assignment for security, claim or other encumbrance upon or with respect to any property of any kind. A Person shall be deemed to own subject to a Lien any property which such Person has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. "Maturity Date" means October 15, 2008. "Merrill Lynch" means Merrill Lynch, Pierce, Fenner & Smith Incorporated. "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds thereof received by the Company or any Restricted Subsidiary in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary) net of (i) brokerage commissions and other fees and expenses (including, without limitation, fees and expenses of legal counsel and investment bankers, recording fees, transfer fees and appraisers' fees) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale, (iii) amounts required to be paid to any Person (other than the Company or any Restricted Subsidiary) owning a beneficial interest in the assets subject to the Asset Sale, (iv) payments made to permanently retire Indebtedness where payment of such Indebtedness is secured by the assets or properties the subject of such Asset Sale, and (v) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve required in accordance with GAAP against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale; provided, however, that any amounts remaining after adjustments, revaluations or liquidations of such reserves shall constitute Net Cash Proceeds. "Non payment Default" has the meaning specified in Section 14.3. "Notice of Default" means a written notice of the kind specified in Section 5.2. -13- 21 "Offer" means a Change of Control Offer or an Asset Sale Offer. "Offer to Purchase" means an Offer, sent by or on behalf of the Company by first-class mail, postage prepaid, to each Holder of Securities at its address appearing in the register for the Securities on the date of the Offer, offering to purchase up to the principal amount of Securities specified in such Offer at the purchase price specified in such Offer (as determined pursuant to this Indenture). Unless otherwise provided in Section 10.13 or 10.14 or otherwise required by applicable law, the Offer shall specify an expiration date (the "Expiration Date") of the Offer to Purchase, which shall be not less than 20 Business Days nor more than 60 days after the date of such Offer (or such later date as may be necessary for the Company to comply with the Exchange Act), and a settlement date (the "Purchase Date") for purchase of Securities to occur no later than five Business Days after the Expiration Date. The Company shall notify the Trustee at least 15 Business Days (or such shorter period as is acceptable to the Trustee) prior to the mailing of the Offer of the Company's obligation to make an Offer to Purchase, and the Offer shall be mailed by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. The Offer shall contain all the information required by applicable law to be included therein. The Offer shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Offer to Purchase. The Offer shall also state: (1) the Section of this Indenture pursuant to which the Offer to Purchase is being made; (2) the Expiration Date and the Purchase Date; (3) the purchase price to be paid by the Company for each $1,000 aggregate principal amount of Securities accepted for payment (as specified pursuant to this Indenture) (the "Purchase Price") and the amount of accrued and unpaid interest to be paid; (4) that the Holder may tender all or any portion of the Securities registered in the name of such Holder and that any portion of a Security tendered must be tendered in an integral multiple of $1,000 principal amount; (5) the place or places where Securities are to be surrendered for tender pursuant to the Offer to Purchase; (6) that interest on any Security not tendered or tendered but not purchased by the Company pursuant to the Offer to Purchase will continue to accrue; (7) that on the Purchase Date the Purchase Price will become due and payable upon each Security being accepted for payment pursuant to the Offer to Purchase and that interest thereon shall cease to accrue on and after the Purchase Date; (8) that each Holder electing to tender all or any portion of a Security pursuant to the Offer to Purchase will be required to surrender such Security at the place or places specified in the Offer prior to the close of business on the Expiration Date (such Security being, if the Company or the Trustee so requires, duly endorsed by, or accompanied by a written -14- 22 instrument of transfer in form satisfactory to the Company and the Trustee duly executed by the Holder thereof or his attorney duly authorized in writing); (9) that Holders will be entitled to withdraw all or any portion of Securities tendered if the Company (or its Paying Agent) receives, not later than the close of business on the fifth Business Day next preceding the Expiration Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security the Holder tendered, the certificate number of the Security the Holder tendered and a statement that such Holder is withdrawing all or a portion of his tender; (10) that (a) if Securities purchasable at an aggregate Purchase Price less than or equal to the Purchase Amount are duly tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase all such Securities and (b) if Securities purchasable at an aggregate Purchase Price in excess of the Purchase Amount are tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase Securities on a pro rata basis based on the Purchase Price therefor (subject in each case to applicable rules of the Depository and any securities exchange upon which the Securities may then be listed), with such adjustments as may be deemed appropriate so that only Securities in denominations of $1,000 principal face amount or integral multiples thereof shall be purchased; and (11) that in the case of a Holder whose Security is purchased only in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in an aggregate principal amount equal to and in exchange for the unpurchased portion of the Security so tendered. An Offer to Purchase shall be governed by and effected in accordance with the provisions of this Indenture pertaining to the type of Offer to which it relates. "Offered Price" has the meaning specified in Section 10.14. "Offering Memorandum" means the Offering Memorandum dated May 12, 1999 pursuant to which the Securities were offered, and any supplement thereto. "Officer's Certificate" means a certificate signed by the Chairman of the Board, the Chief Executive Officer, the President or a Vice President, the Chief Financial Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. One of the officers signing an Officer's Certificate given pursuant to Section 10.20 shall be the principal executive, financial or accounting officer of the Company. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, and who shall be acceptable to the Trustee. "Outstanding," when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: -15- 23 (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Securities which have been paid pursuant to Section 3.6 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; and (iv) Securities as to which Defeasance has been effected pursuant to Section 12.2; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given, made or taken any request, demand, authorization, direction, notice, consent, waiver or other action hereunder as of any date, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding (it being understood that Securities to be acquired by the Company pursuant to an Offer or other offer to purchase shall not be deemed to be owned by the Company until legal title to such Securities passes to the Company), except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, waiver or other action, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Pari Passu Indebtedness" means any Indebtedness of the Company that is pari passu in right of payment to the Securities. "Pari Passu Indebtedness Amount" has the meaning specified in Section 10.14. "Pari Passu Offer" has the meaning specified in Section 10.14. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. "Payment Blockage Period" has the meaning specified in Section 14.3. "Permitted Indebtedness" means, without duplication: -16- 24 (a) Indebtedness of the Company and the Guarantors evidenced by the Securities issued on the date of this Indenture, the Exchange Securities and the Guarantees; (b) Indebtedness of the Company and any Guarantor under the Credit Facility in an aggregate principal amount at any one time outstanding not to exceed $125 million, less any amounts permanently repaid in accordance with Section 10.14; (c) Indebtedness of the Company or any Guarantor outstanding on the Issue Date; (d) Indebtedness of the Company or any Restricted Subsidiary incurred in respect of bankers' acceptances and letters of credit in the ordinary course of business, including Indebtedness evidenced by letters of credit issued in the ordinary course of business to support the insurance or self-insurance obligations of the Company or any of its Restricted Subsidiaries (including to secure workers' compensation and other similar insurance coverages), in an aggregate amount not to exceed $5.0 million at any time, but excluding letters of credit issued in respect of or to secure money borrowed; (e) (i) Interest Rate Protection Obligations of the Company or a Guarantor covering Indebtedness of the Company or a Guarantor and (ii) Interest Rate Protection Obligations of any Restricted Subsidiary covering Permitted Indebtedness or Acquired Indebtedness of such Restricted Subsidiary; provided, however, that, in the case of either clause (i) or (ii), (x) any Indebtedness to which any such Interest Rate Protection Obligations correspond bears interest at fluctuating interest rates and is otherwise permitted to be incurred under Section 10.8 and (y) the notional principal amount of any such Interest Rate Protection Obligations that exceeds 105% of the principal amount of the Indebtedness to which such Interest Rate Protection Obligations relate shall not constitute Permitted Indebtedness; (f) Indebtedness of a Restricted Subsidiary owed to and held by the Company or another Restricted Subsidiary, except that (i) any transfer of such Indebtedness by the Company or a Restricted Subsidiary (other than to the Company or another Restricted Subsidiary), (ii) the sale, transfer or other disposition by the Company or any Restricted Subsidiary of Capital Stock of a Restricted Subsidiary which is owed Indebtedness of another Restricted Subsidiary such that it shall no longer be a Restricted Subsidiary, and (iii) the Designation of a Restricted Subsidiary which is owed Indebtedness of another Restricted Subsidiary as an Unrestricted Subsidiary shall, in each case, be an incurrence of Indebtedness by such Restricted Subsidiary subject to the other provisions of this Indenture; (g) Indebtedness of the Company owed to and held by a Restricted Subsidiary which is unsecured and expressly subordinated in right of payment to the payment and performance of the obligations of the Company under this Indenture and the Securities, except that (i) any transfer of such Indebtedness by a Restricted Subsidiary (other than to another Restricted Subsidiary), (ii) the sale, transfer or other disposition by the Company or any Restricted Subsidiary of Capital Stock of a Restricted Subsidiary which is owed Indebtedness of the Company such that it shall no longer be a Restricted Subsidiary and (iii) the Designation -17- 25 of a Restricted Subsidiary which is owed Indebtedness of the Company shall, in each case, be an incurrence of Indebtedness by the Company, subject to the other provisions of this Indenture; (h) Indebtedness of the Company or any Guarantor represented by Capitalized Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Guarantor, in an aggregate principal amount not to exceed $15 million at any time outstanding; (i) Subordinated Indebtedness of the Company, in an aggregate principal amount not to exceed $10 million at any time outstanding, that is convertible into Common Stock and issued in connection with an Asset Acquisition of a business engaged in the plumbing and mechanical contracting and maintenance services businesses and any other businesses reasonably related thereto; (j) Indebtedness of the Company, in addition to that described in clauses (a) through (i) of this definition, in an aggregate principal amount not to exceed $15 million at any time outstanding; (k) (i) Indebtedness of the Company the proceeds of which are used solely to refinance (whether by amendment, renewal, extension or refunding) Indebtedness of the Company or any of the Guarantors incurred pursuant to the Consolidated Fixed Charge Coverage Ratio test of the proviso of Section 10.8 or clause (a) or (c) of this definition and (ii) Indebtedness of any Guarantor the proceeds of which are used solely to refinance (whether by amendment, renewal, extension or refunding) Indebtedness of such Guarantor incurred pursuant to the Consolidated Fixed Charge Coverage Ratio test of the proviso of Section 10.8 or clause (c) or (k) of this definition; provided, however, that (x) the principal amount of Indebtedness incurred pursuant to this clause (k) (or if such Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of maturity thereof, the original issue price of such Indebtedness) shall not exceed the sum of the principal amount of Indebtedness so refinanced, plus the amount of any premiums and fees required to be paid in connection with such refinancing pursuant to the terms of such Indebtedness, and (y) any Indebtedness incurred pursuant to this clause (k) (A) has an Average Life to Stated Maturity greater than the remaining Average Life to Stated Maturity of the Securities and (B) is subordinated to the Securities or the Guarantees, as the case may be, at least to the same extent that the Indebtedness being refinanced is subordinated to the Securities or the Guarantees, as the case may be; (l) Indebtedness of any Restricted Subsidiary that constitutes Acquired Indebtedness not incurred in contemplation of the acquisition of such Restricted Subsidiary; provided, however, that such Indebtedness is repaid within 90 days following the consummation of the Asset Acquisition in which the Company acquired such Restricted Subsidiary; and -18- 26 (m) Guarantees by the Company or guarantees by a Guarantor of Indebtedness that was permitted to be incurred under this Indenture. For purposes of determining compliance with Section 10.8, (A) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described in the clauses of the preceding paragraph or is entitled to be incurred pursuant to Section 10.8, the Company, in its sole discretion, shall classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one such clause, and (B) the amount of Indebtedness issued at a price that is either less than or greater than the principal amount thereof shall be equal to the amount of the liability in respect thereof determined in conformity with GAAP. "Permitted Investments" means any of the following: (i) Investments in the Company or in a Restricted Subsidiary; (ii) Investments in another Person, if as a result of such Investment (A) such other Person becomes a Restricted Subsidiary or (B) such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all of its assets to the Company or a Restricted Subsidiary; (iii) Investments representing Capital Stock or obligations issued to the Company or any of its Restricted Subsidiaries in settlement of debts created in the ordinary course of business or claims against any other Person by reason of a composition or readjustment of debt or a reorganization of any debtor of the Company or such Restricted Subsidiary or in satisfaction of judgments; (iv) Investments in Interest Rate Protection Agreements on commercially reasonable terms entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business in connection with the operations of the business of the Company or its Restricted Subsidiaries to hedge against fluctuations in interest rates on its outstanding Indebtedness; (v) Investments in the Securities; (vi) Investments in Cash Equivalents; (vii) Investments acquired by the Company or any Restricted Subsidiary in connection with an Asset Sale permitted under Section 10.14 to the extent such Investments are non-cash proceeds as permitted under Section 10.14; (viii) any Investment to the extent that the consideration therefor is Capital Stock (other than Redeemable Capital Stock) of the Company; (ix) any loans or other advances made pursuant to any employee benefit plans (including plans for the benefit of directors) or employment agreements or other compensation arrangements (including for the purchase of Capital Stock by such employees), in each case as approved by the Board of Directors of the Company in its good faith judgment, not to exceed $1,000,000 at any one time outstanding; and (x) other Investments not to exceed $2,000,000 at any time outstanding. "Permitted Junior Securities" means Capital Stock of the Company or debt securities that are subordinated to all Senior Indebtedness (and any debt securities issued in exchange for Senior Indebtedness) to at least the same extent as the Securities are subordinated to Senior Indebtedness. "Permitted Liens" means the following types of Liens: (a) any Lien existing as of the date of this Indenture; (b) any Lien securing Acquired Indebtedness created prior to (and not created in connection with, or in contemplation of) the incurrence of such Indebtedness by the Company or any Restricted Subsidiary, if such Lien does not attach to any property or assets of the -19- 27 Company or any Restricted Subsidiary other than the property or assets subject to the Lien prior to such incurrence; (c) Liens in favor of the Company or a Guarantor; (d) Liens on and pledges of the Capital Stock of any Unrestricted Subsidiary securing any Indebtedness of such Unrestricted Subsidiary; (e) Liens for taxes, assessments or governmental charges or claims, to the extent any such changes or claims constitute Indebtedness, either (i) not delinquent or (ii) contested in good faith by appropriate proceedings and as to which the Company or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP; (f) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance or other kinds of social security, old age pension or public liability obligations; (g) Liens to secure Indebtedness (including Capitalized Lease Obligations) permitted by clause (h) under the definition of "Permitted Indebtedness" covering only the assets acquired with such indebtedness; (h) Liens securing Interest Rate Protection Obligations permitted to be entered into pursuant to Section 10.8; (i) judgment and attachment Liens not giving rise to an Event of Default or Liens created by or existing from any litigation or legal proceeding that are currently being contested in good faith by appropriate proceedings and for which adequate reserves have been made; (j) Liens in favor of collecting or payor banks having a right of setoff, revocation, refund or chargeback with respect to money or instruments of the Company or any Subsidiary on deposit with or in possession of such bank; and (k) Liens not otherwise permitted by clauses (a) through (j) that are incurred in the ordinary course of business of the Company or any Restricted Subsidiary with respect to Indebtedness that does not exceed $5 million at any one time outstanding. "Person" means any individual, corporation, partnership (general or limited), limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Stock," as applied to any Person, means Capital Stock of any class or series (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class or series of such Person. -20- 28 "Private Exchange Securities" has the meaning set forth in the Registration Rights Agreement. "Private Placement Legend" shall mean the legend initially set forth on the Securities in the form set forth on Exhibit A-1. "Public Equity Offering" means any public sale of Common Stock of the Company pursuant to a registration statement filed with the Commission in accordance with the Securities Act (other than any public offerings with respect to the Company's Common Stock registered on Form S-8 or Form S-4). "Purchase Amount" means, with respect to an Offer to Purchase, the maximum aggregate amount payable by the Company for Securities under the terms of such Offer to Purchase, if such Offer to Purchase were accepted in respect of all Securities. "Purchase Date" shall have the meaning set forth in the definition of "Offer to Purchase." "Qualified Institutional Buyer" or "QIB" has the meaning specified in Rule 144A under the Securities Act. "Record Expiration Date" has the meaning specified in Section 1.4. "Redeemable Capital Stock" means any class or series of Capital Stock that, either by its terms, by the terms of any security into which it is convertible or exchangeable or by contract or otherwise, is or upon the happening of an event or passage of time would be required to be redeemed prior to the 91st day after the Maturity Date or is redeemable at the option of the holder thereof at any time prior to the 91st day after the Maturity Date, or is convertible into or exchangeable for debt securities at any time prior to the 91st day after the Maturity Date; provided that (i) Capital Stock will not constitute Redeemable Capital Stock solely because the holders thereof have the right to require the Company to repurchase or redeem such Capital Stock upon the occurrence of a Change of Control or an Asset Sale and (ii) the Common Stock of the Company will not constitute Redeemable Capital Stock solely because of the redemption trigger features contained in the Acquisition Agreements. "Redemption Date," when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price," when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Registrable Securities" has the meaning set forth in the Registration Rights Agreement. "Registration Rights Agreement" means the Registration Rights Agreement relating to the Securities dated as of May 19, 1999 by and among the Company, the Guarantors and the Initial Purchasers, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof. -21- 29 "Regular Record Date" for the interest payable on any Interest Payment Date means the April 1 or October 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Replacement Assets" has the meaning specified in Section 10.14. "Required Filing Dates" has the meaning specified in Section 10.19. "Responsible Officer," when used with respect to the Trustee, means any officer within the Corporate Trust Office, including, any vice president, any assistant vice president, any assistant secretary, any assistant treasurer, or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Payments" has the meaning specified in Section 10.9. "Restricted Security" means a Security that constitutes a "restricted security" within the meaning of Rule 144(a)(3) under the Securities Act; provided, however, that the Trustee shall be entitled to request and conclusively rely on an opinion of counsel with respect to whether any Security constitutes a Restricted Security. "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "Revocation" has the meaning set forth in Section 10.18. "Rule 144A" means Rule 144A under the Securities Act. "S&P" means Standard & Poor's Ratings Group, and its successors. "Securities" means, collectively, the Initial Securities, the Private Exchange Securities, if any, and the Unrestricted Securities, treated as a single class of securities, as amended or supplemented from time to time in accordance with the terms hereof, that are issued pursuant to this Indenture. "Securities Act" means the Securities Act of 1933 and any statute successor thereto, in each case as amended from time to time. "Security Register" and "Security Registrar" have the respective meanings specified in Section 3.5. "Seller Preferred Stock" means the 10% Cumulative Redeemable Convertible Preferred Stock, Series A of the Company. "Senior Indebtedness" means the principal of, premium, if any, and interest on any Indebtedness of the Company, whether outstanding on the Issue Date or thereafter created, incurred or -22- 30 assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Securities. Without limiting the generality of the foregoing, (x) "Senior Indebtedness" shall include all monetary obligations of every nature under the Credit Facility including the principal of, premium, if any, and interest on all obligations of every nature of the Company from time to time owed to the lenders under the Credit Facility, including, without limitation, principal of and interest on, reimbursement obligations under letters of credit and all fees, indemnities and expenses payable under, the Credit Facility and (y) in the case of Designated Senior Indebtedness, "Senior Indebtedness" shall include interest accruing thereon subsequent to the occurrence of any Event of Default specified in clause (7) or (8) of Section 5.1 relating to the Company, whether or not the claim for such interest is allowed under any applicable Bankruptcy Code. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a) Indebtedness evidenced by the Securities, (b) Indebtedness that is expressly subordinate or junior in right of payment to any other Indebtedness of the Company, (c) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is by its terms without recourse to the Company, (d) Indebtedness which is represented by Redeemable Capital Stock, (e) to the extent it constitutes Indebtedness, any liability for federal, state, local or other taxes owed or owing by the Company, (f) Indebtedness of the Company to a Subsidiary of the Company or any other Affiliate of the Company or any of such Affiliate's Subsidiaries, (g) that portion of any Indebtedness which is incurred by the Company in violation of this Indenture and (h) trade payables. "Significant Subsidiary" means any Restricted Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such regulation is in effect on the date of this Indenture. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.7. "Stated Maturity" means, when used with respect to any note or any installment of interest thereon, the date specified in such note as the fixed date on which the principal of such note or such installment of interest is due and payable, and when used with respect to any other Indebtedness, means the date specified in the instrument governing such Indebtedness as the fixed date on which the principal of such Indebtedness, or any installment of interest thereon, is due and payable. "Subordinated Indebtedness" means, with respect to the Company, Indebtedness of the Company which is expressly subordinated in right of payment to the Securities. "Subsidiary" means, with respect to any Person, (i) a corporation a majority of whose Voting Stock is at the time, directly or indirectly, owned by such Person, by one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries thereof and (ii) any other Person (other than a corporation), including, without limitation, a partnership, limited liability company, business trust or joint venture, in which such Person, one or more Subsidiaries thereof or such Person and one or more Subsidiaries thereof, directly or indirectly, at the date of determination thereof, have at least majority ownership interest entitled to vote in the election of directors, managers or trustees thereof (or other Person performing similar functions). For purposes of this definition, any directors' qualifying shares -23- 31 or investments by foreign nationals mandated by applicable law shall be disregarded in determining the ownership of a Subsidiary. "Surviving Entity" has the meaning specified in Section 8.1. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Unrestricted Securities" means one or more Securities that do not and are not required to bear the Private Placement Legend, including, without limitation, the Exchange Notes. "Unrestricted Subsidiary" means (i) each Subsidiary of the Company designated as such pursuant to and in compliance with Section 10.18 and (ii) each Subsidiary of any such Subsidiary described in clause (i) of this definition. "U.S. Government Obligation" has the meaning specified in Section 12.4. "Vice President," when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president." "Voting Stock" means any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of any Person. SECTION 1.2. Compliance Certificates and Opinions. Upon any application or request by the Company or a Guarantor to the Trustee to take any action under any provision of this Indenture, the Company or the Guarantor shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officer's Certificate, if to be given by an officer of the Company or a Guarantor, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirement set forth in this Indenture. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (i) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; -24- 32 (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (iii) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.3. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company or a Guarantor may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company or a Guarantor stating that the information with respect to such factual matters is in the possession of the Company or such Guarantor, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.4. Acts of Holders; Record Dates. Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company or a Guarantor, as applicable. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this In- -25- 33 denture and (subject to Section 6.1) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. The ownership of Securities shall be proved by the Security Register. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee, the Company or a Guarantor in reliance thereon, whether or not notation of such action is made upon such Security. The Company may set any day as a record date for the purpose of determining the Holders of Outstanding Securities entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given or taken by Holders of Securities, provided that the Company may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the next paragraph. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to the applicable Record Expiration Date by Holders of the requisite principal amount of Outstanding Securities on such record date. Nothing in this paragraph shall prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect), nor shall anything in this paragraph be construed to render ineffective any action taken pursuant to or in accordance with any other provision of this Indenture by Holders of the requisite principal amount of Outstanding Notes on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Record Expiration Date to be given to the Trustee in writing and to each Holder of Securities in the manner set forth in Section 1.6. The Trustee may but need not set any day as a record date for the purpose of determining the Holders of Outstanding Securities entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration referred to in Section 5.2, (iii) any request to institute proceedings referred to in Section 5.7(ii) or (iv) any direction referred to in Section 5.12. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities on such record date, and no other -26- 34 Holders, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to the applicable Record Expiration Date by Holders of the requisite principal amount of Outstanding Securities on such record date. Nothing in this paragraph shall be construed to prevent the Trustee from setting a new record date for any action (whereupon the record date previously set shall automatically and without any action by any Person be cancelled and of no effect), nor shall anything in this paragraph be construed to render ineffective any action taken pursuant to or in accordance with any other provision of this Indenture by Holders of the requisite principal amount of Outstanding Securities on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company's expense, shall cause notice of such record date, the matter(s) to be submitted for potential action by Holders and the applicable Record Expiration Date to be given to the Company in writing and to each Holder of Securities in the manner set forth in Section 1.6. With respect to any record date set pursuant to this Section, the party hereto that sets such record date may designate any day as the "Record Expiration Date" and from time to time may change the Record Expiration Date to any earlier or later day, provided that no such change shall be effective unless notice of the proposed new Record Expiration Date is given to the other party hereto in writing, and to each Holder of Securities in the manner set forth in Section 1.6, on or before the existing Record Expiration Date. If a Record Expiration Date is not designated with respect to any record date set pursuant to this Section, the party hereto that set such record date shall be deemed to have initially designated the 180th day after such record date as the Record Expiration Date with respect thereto, subject to its right to change the Record Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Record Expiration Date shall be later than the 180th day after the applicable record date. Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. SECTION 1.5. Notices to Trustee, the Company or a Guarantor. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (i) the Trustee by any Holder or by the Company or a Guarantor shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing or mailed, first class postage prepaid, or sent by overnight courier, or sent by telecopier, to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Administration, or (ii) the Company or a Guarantor by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company or such Guarantor addressed to it at -27- 35 the address of the Company's principal office specified in the first paragraph of this instrument, or at any other address previously furnished in writing to the Trustee by the Company. SECTION 1.6. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail or receive such notice, nor any defect in any such notice, to any particular Holder shall affect the sufficiency or validity of such notice. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. SECTION 1.7. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under the Trust Indenture Act to be part of and govern this Indenture, such provision of the Trust Indenture Act shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, such provision shall be deemed to be so modified or excluded, as the case may be. SECTION 1.8. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.9. Successors and Assigns. Without limiting Articles VIII and XIII hereof, all covenants and agreements in this Indenture by each of the Company or the Guarantors shall bind their respective successors and assigns, whether so expressed or not. SECTION 1.10. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. -28- 36 SECTION 1.11. Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders of Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.12. Governing Law. This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of laws principles thereof. SECTION 1.13. Legal Holidays. In any case where any Interest Payment Date, Redemption Date, Purchase Date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect (including with respect to the accrual of interest) as if made on the Interest Payment Date, Redemption Date or Purchase Date, or at the Stated Maturity. ARTICLE II SECURITY FORMS SECTION 2.1. Forms Generally. The Securities and the Trustee's certificates of authentication shall be in substantially the forms set forth or referenced in Exhibit A-1 and Exhibit A-2 annexed hereto, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or the Depository or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution thereof. ARTICLE III THE SECURITIES SECTION 3.1. Title and Terms. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to $250,000,000 principal amount, except for Securities authenticated and -29- 37 delivered upon registration or transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 3.4, 3.5, 3.6, 9.6 or 11.8 or in connection with an Offer pursuant to Section 10.13 or 10.14. The Initial Securities shall be known and designated as the "11 5/8% Senior Subordinated Notes due 2008, Series A" of the Company and the Exchange Securities shall be known and designated as the "11 5/8% Senior Subordinated Notes due 2008, Series B" of the Company. The Stated Maturity for payment of principal of the Securities shall be October 15, 2008. Interest on the Securities shall accrue at the rate of 11 5/8% per annum (subject, in the case of the Initial Securities, to increase in the circumstances contemplated in the Registration Rights Agreement) and shall be payable semi-annually on each April 15 and October 15, commencing October 15, 1999, to the Holders of record of Securities at the close of business on the April 1 and October 1, respectively, immediately preceding such Interest Payment Date. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the Issue Date of such Securities. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The Initial Securities and the Exchange Securities shall be considered collectively as a single class for all purposes of this Indenture. Holders of the Initial Securities and the Exchange Securities will vote and consent together on all matters to which such Holders are entitled to vote or consent as one class, and none of the Holders of the Initial Securities or the Exchange Securities shall have the right to vote or consent as a separate class on any matter to which such Holders are entitled to vote or consent. The principal of (and premium, if any) and interest on the Securities shall be payable at the office or agency of the Trustee in the Borough of Manhattan, The City of New York or such other office maintained by the Trustee for such purpose and at any other office or agency maintained by the Company for such purpose; provided, however, that, at the option of the Company, payment of interest on Securities that are not held in global form may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register subject to the right of any Holder of Securities in the principal amount of $500,000 or more to request payment by wire transfer. The Company may be required to make a Change of Control Offer as provided in Section 10.13, or an Asset Sale Offer as provided in Section 10.14. The Securities shall be redeemable as provided in Article XI and the Securities. The Securities shall be subject to Defeasance and/or Covenant Defeasance as provided in Article XII. The other terms and provisions contained in the Securities shall constitute, and are hereby expressly made, a part of this Indenture. SECTION 3.2. Denominations. The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 principal amount and any integral multiple thereof. -30- 38 SECTION 3.3. Execution, Authentication, Delivery and Dating. The Initial Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A-1 hereto. The Exchange Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A-2 hereto. The terms and provisions contained in the Securities annexed hereto as Exhibits A-1 and A-2 shall constitute, and are hereby expressly, made, a part of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Initial Securities shall be issued initially in the form of one or more Global Securities, substantially in the form set forth in Exhibit A-1, deposited with the Trustee, as custodian for the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided and shall bear the legend set forth in Exhibit B. The aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depository, as hereinafter provided. All Securities shall remain in the form of a Global Security, except as provided herein. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Chief Executive Officer, its President or one of its Vice Presidents or its Chief Financial Officer and attested by its Chief Executive Officer, any of its Senior Vice Presidents, its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities; and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities as in this Indenture provided and not otherwise. The Trustee shall authenticate (i) Initial Securities for original issue in the aggregate principal amount not to exceed $250,000,000 in one or more series, (ii) Private Exchange Securities from time to time only in exchange for a like principal amount of Initial Securities and (iii) Unrestricted Securities from time to time only (x) in exchange for a like principal amount of Initial Securities or (y) in an aggregate principal amount of not more than $250,000,000 over the sum of the aggregate principal amount of (A) Initial Securities then outstanding, (B) Private Exchange Securities then outstanding and (C) Unrestricted Securities issued in accordance with (iii)(x) above. Each Company Order shall specify the amount of Securities to be authenticated and the date on which the Securities are to be authenticated, whether the Securities are to be Initial Securities, Private Exchange Securities or -31- 39 Unrestricted Securities and such other information as the Trustee may reasonably request. In addition, with respect to authentication pursuant to clause (ii) or (iii) of the first sentence of this paragraph, the first such written order from the Company shall be accompanied by an Opinion of Counsel of the Company in a form reasonably satisfactory to the Trustee stating that the issuance of the Private Exchange Securities or the Unrestricted Securities, as the case may be, does not give rise to an Event of Default, complies with this Indenture and has been duly authorized by the Company. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. SECTION 3.4. Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency of the Company designated pursuant to Section 10.2, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations and of a like tenor. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. SECTION 3.5. Registration; Registration of Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 10.2 being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as the Company may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed the initial "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Subject to Sections 3.13 and 3.14 of this Indenture, upon surrender for registration of transfer of any Security at an office or agency of the Company designated pursuant to Section 10.2 for such -32- 40 purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denomination and of a like aggregate principal amount and tenor. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denominations and of a like aggregate principal amount and tenor, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.4, 9.6 or 11.8 or in accordance with any Change of Control Offer pursuant to Section 10.13 or any Asset Sale Offer pursuant to Section 10.14, and in any such case not involving any transfer. The Company shall not be required (i) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities selected for redemption under Section 11.4 and ending at the close of business on the day of such mailing, (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part or (iii) to register the transfer of any Securities other than Securities having a principal amount of $1,000 or integral multiples thereof. SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such Security or indemnity as may be required by them to save each of them and any agent of each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute, and upon its request the Trustee shall authenticate and deliver, in lieu of any such -33- 41 destroyed, lost or stolen Security, a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of, issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 3.7. Payment of Interest; Rights Preserved. Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more predecessor securities) is registered at the close of business on the Regular Record Date for such interest payment. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective predecessor securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest -34- 42 which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 15 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be given to each Holder in the manner specified in Section 1.6, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective predecessor securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 3.8. Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 3.7) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 3.9. Cancellation. All Securities surrendered for payment, redemption, registration of transfer or exchange or tendered and accepted pursuant to any Change of Control Offer pursuant to Section 10.13 or any Asset Sale Offer pursuant to Section 10.14 shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of in the customary manner by the Trustee unless otherwise directed by a Company Order. -35- 43 SECTION 3.10. Computation of Interest. Interest on the Securities shall be computed on the basis of a 360-day year comprised of twelve 30-day months. SECTION 3.11. CUSIP and CINS Numbers. The Company in issuing the Securities may use "CUSIP" and "CINS" numbers (if then generally in use), and, if so, the Trustee shall use the CUSIP or CINS numbers in notices of redemption or repurchase as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption or repurchase and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption or repurchase shall not be affected by any defect in or omission of such numbers. In the event that the Company shall issue and the Trustee shall authenticate any Securities issued under this Indenture subsequent to the Issue Date pursuant to clauses (i) and (iii) of the first sentence of the eighth paragraph of Section 3.3, the Company shall use its best efforts to obtain the same "CUSIP" number for such Securities as is printed on the Securities outstanding at such time; provided, however, that if any series of Securities issued under this Indenture subsequent to the Issue Date is determined, pursuant to an Opinion of Counsel of the Company in a form reasonably satisfactory to the Trustee, to be a different class of security than the Securities outstanding at such time for federal income tax purposes, the Company may obtain a "CUSIP" number for such Securities that is different than the "CUSIP" number printed on the Securities then outstanding. Notwithstanding the foregoing, all Securities issued under this Indenture shall vote and consent together on all matters as one class and no series of Securities will have the right to vote or consent as a separate class on any matter. SECTION 3.12. Deposits of Monies. Except to the extent payment of interest is made by the Company's check or wire transfer pursuant to Section 3.1, prior to 11:00 a.m. New York City time on each Interest Payment Date, Redemption Date, Stated Maturity, and Purchase Date, the Company shall deposit with the Paying Agent in immediately available funds money sufficient to make cash payments, if any, due on such Interest Payment Date, Redemption Date, Stated Maturity and Purchase Date, as the case may be, in a timely manner which permits the Paying Agent to remit payment to the Holders on such Interest Payment Date, Redemption Date, Stated Maturity, and Purchase Date, as the case may be. SECTION 3.13. Book-Entry Provisions for Global Securities. (a) The Global Securities initially shall (i) be registered in the name of the Depository or the nominee of such Depository, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear legends as set forth in Exhibit B hereto. Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depository, or the -36- 44 Trustee as its custodian, or under any Global Security, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Securities for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Security. (b) Transfer of Global Securities shall be limited to transfers in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Securities may not be transferred or exchanged for physical securities, except that physical securities shall be transferred to all beneficial owners in exchange for their beneficial interests in Global Securities if (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for any Global Security, or that it will cease to be a "Clearing Agency" under the Exchange Act, and in either case a successor Depository is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Security Registrar has received a written request from the Depository to issue physical securities. (c) The Holder of any Global Security may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. SECTION 3.14. Special Transfer Provisions. (a) Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of an Initial Security and the transfer of the beneficial interest in an Initial Security to a QIB: the Security Registrar shall register the transfer of any Initial Security, whether or not such Security bears the Private Placement Legend, and the transfer of the beneficial interest in an Initial Security may be made if (x) the requested transfer is after the second anniversary of the Issue Date; provided, however, that neither the Company nor any Affiliate of the Company has held any beneficial interest in such Security, or portion thereof, at any time on or prior to the second anniversary of the Issue Date and such transfer can otherwise be lawfully made under the Securities Act without registering such Initial Security thereunder, (y) in the case of the registration of a transfer by the Security Registrar, such transfer is being made by a proposed transferor who has checked the box provided for on the form of Security stating, or has otherwise advised the Company and the Security Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Security stating, or has otherwise advised the Company and the Security Registrar in writing, that it is purchasing the Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A or (z) in the case of the transfer of the beneficial interest in an Initial Security (other than a transfer by an Agent Member, to which -37- 45 clause (ii) below shall apply), the transfer is made in accordance with Rule 144A under the Securities Act. (b) Private Legend. Upon the registration of transfer, exchange or replacement of Securities not bearing the Private Placement Legend, the Security Registrar shall deliver Securities that do not bear the Private Placement Legend. Upon the registration of transfer, exchange or replacement of Securities bearing the Private Placement Legend, the Security Registrar shall deliver only Securities that bear the Private Placement Legend unless (i) the circumstances contemplated by clause (x) of Section 3.14(a) exists, (ii) there is delivered to the Security Registrar an opinion of counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act or (iii) such Security has been sold pursuant to an effective registration statement under the Securities Act. (c) Other Transfers. If a Holder proposes to transfer a Security constituting a Restricted Security pursuant to any exemption from the registration requirements of the Securities Act other than as provided for by Section 3.14(a) and (b), the Security Registrar shall only register such transfer or exchange if such transferor delivers an opinion of counsel satisfactory to the Company and the Security Registrar that such transfer is in compliance with the Securities Act and the terms of this Indenture. (d) General. By its acceptance of any Security bearing the Private Placement Legend and by its ownership of a beneficial interest therein, each Holder of such a Security and each owner of a beneficial interest therein acknowledges the restrictions on transfer of such Security and of beneficial interests therein set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Security and beneficial interests therein only as provided in this Indenture. The Security Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 3.13 or this Section 3.14. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable prior written notice to the Security Registrar. ARTICLE IV SATISFACTION AND DISCHARGE SECTION 4.1. Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either -38- 46 (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or repaid as provided in Section 3.6 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.3) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee for cancellation (other than Securities which have been destroyed, lost or stolen and which have been replaced or repaid as provided in Section 3.6), (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the serving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company or any Guarantor, in the case of (i), (ii) or (iii) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust an amount sufficient to pay and discharge the entire Indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Securities to the date of deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be, together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at Stated Maturity or redemption, as the case may be; (2) the Company or the Guarantors have paid or caused to be paid all other sums payable hereunder by the Company or the Guarantors; and (3) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, which, taken together, state that all conditions precedent herein relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture pursuant to this Article IV, the obligations of the Company to the Trustee under Section 6.7, the obligations of the Company to any Authenticating Agent under Section 6.14 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of clause (1) of this Section, the obligations of the Trustee under Section 4.2 and the last paragraph of Section 10.3 shall survive. -39- 47 SECTION 4.2. Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.3, all money deposited with the Trustee pursuant to Section 4.1 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee. ARTICLE V REMEDIES SECTION 5.1. Events of Default. "Event of Default," wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of the principal of or premium, if any, when due and payable, on any of the Securities (at Stated Maturity, upon optional redemption, required purchase or otherwise); or (2) default in the payment of an installment of interest on any of the Securities, when due and payable, for 30 days; or (3) default in the performance, or breach, of any covenant or agreement of the Company under this Indenture (other than a default in the performance or breach of a covenant or agreement which is specifically dealt with in clauses (1), (2) or (4)) and such default or breach shall continue for a period of 30 days after written notice has been given, by certified mail, (x) to the Company by the Trustee or (y) to the Company and the Trustee by the holders of at least 25% in aggregate principal amount of the Outstanding Securities; or (4) (a) there shall be a default in the performance or breach of the provisions of Section 8.1 with respect to the Company; (b) the Company shall have failed to make or consummate an Asset Sale Offer in accordance with the provisions of Section 10.14; or (c) the Company shall have failed to make or consummate a Change of Control Offer in accordance with the provisions of Section 10.13; or (5) default or defaults under one or more agreements, instruments, mortgages, bonds, debentures or other evidences of Indebtedness under which the Company or any Restricted Subsidiary then has outstanding Indebtedness in excess of $10,000,000, individually or in the aggregate, and (a) such default or defaults include a failure to make a payment of -40- 48 principal, (b) such Indebtedness is already due and payable in full or (c) such default or defaults have resulted in the acceleration of the maturity of such Indebtedness; provided, however, if any such default is cured or waived or any such acceleration rescinded, or such Indebtedness is repaid, within a period of 10 days from the continuation of such default beyond the applicable grace period or the occurrence of such acceleration, as the case may be, such Event of Default and any consequential acceleration of the Securities shall be automatically rescinded, so long as such rescission does not conflict with any judgment or decree; or (6) one or more judgments, orders or decrees of any court or regulatory or administrative agency of competent jurisdiction for the payment of money in excess of $10,000,000, either individually or in the aggregate (net of applicable insurance coverage which is acknowledged in writing by the insurer or which has been determined to be applicable by a final nonappealable determination by a court of competent jurisdiction), shall be entered against the Company or any Restricted Subsidiary or any of their respective properties and shall not be discharged and there shall have been a period of 60 days after the date on which any period for appeal has expired and during which a stay of enforcement of such judgment, order or decree, shall not be in effect; or (7) the entry of a decree or order by a court having jurisdiction in the premises (A) for relief in respect of the Company or any Significant Subsidiary or one or more Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, in an involuntary case or proceeding under the Federal Bankruptcy Code or any other federal, state or foreign bankruptcy, insolvency, reorganization or similar law or (B) adjudging the Company or any Significant Subsidiary or one or more Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, bankrupt or insolvent, or approving a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Significant Subsidiary or one or more Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, under the Federal Bankruptcy Code or any other similar federal, state or foreign law, or appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of the Company or any Significant Subsidiary or one or more Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary or of any substantial part of any of their properties, or ordering the winding up or liquidation of any of their affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (8) the institution by the Company or any Significant Subsidiary or one or more Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary of a voluntary case or proceeding under the Federal Bankruptcy Code or any other similar federal, state or foreign law or any other case or proceedings to be adjudicated a bankrupt or insolvent, or the consent by the Company or any Significant Subsidiary or one or more Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary to the entry of a decree or order for relief in respect of the Company or such Significant Subsidiary or group of Restricted Subsidiaries in any involuntary case or proceeding under the Federal Bankruptcy Code or any other similar federal, state or foreign law or to the institution of bankruptcy or insolvency proceedings against the Company or such Significant Subsidiary or -41- 49 group of Restricted Subsidiaries, or the filing by the Company or any Significant Subsidiary or one or more Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary of a petition or answer or consent seeking reorganization or relief under the Federal Bankruptcy Code or any other similar federal, state or foreign law, or the consent by it to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of any of the Company or any Significant Subsidiary or one or more Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due or the taking of corporate action by the Company or any Significant Subsidiary or one or more Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary in furtherance of any such action; or (9) any of the Guarantees of any Significant Subsidiary or one or more Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary ceases to be in full force and effect or any of such Guarantees is declared to be null and void and unenforceable or any of such Guarantees is found to be invalid or any of such Guarantors denies its liability under its Guaranty (other than by reason of release of such Guarantor in accordance with the terms of this Indenture). SECTION 5.2. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than those covered by clause (7) or (8) of Section 5.1 with respect to the Company) shall occur and be continuing, the Trustee, by notice to the Company, or the Holders of at least 25% in aggregate principal amount of the Securities then Outstanding, by notice to the Trustee and the Company, may declare the principal of, premium, if any, and accrued and unpaid interest, if any, on all of the Outstanding Securities due and payable immediately, upon which declaration, all amounts payable in respect of the Securities shall be due and payable. If an Event of Default specified in clause (7) or (8) of Section 5.1 occurs and is continuing, then the principal of, premium, if any, and accrued and unpaid interest, if any, on all the Outstanding Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder of Securities. After a declaration of acceleration under this Indenture, but before a judgment or decree for payment of the money due has been obtained by the Trustee, the Holders of a majority in aggregate principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind such declaration if: (1) the Company or any Guarantor has paid or deposited with the Trustee a sum sufficient to pay (A) all sums paid or advanced by the Trustee under this Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, -42- 50 (B) all overdue interest on all Securities, (C) the principal of and premium, if any, on any Securities which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities, and (D) to the extent that payment of such interest is lawful, interest upon overdue interest and overdue principal at the rate set forth in the Securities which has become due otherwise than by such declaration of acceleration; (2) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction; and (3) all Events of Default, other than the nonpayment of principal of, premium, if any, and interest on the Securities that have become due solely by such declaration of acceleration, have been cured or waived. No such rescission shall affect any subsequent default or impair any right consequent thereto. SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company and each Guarantor covenants that if (i) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (ii) default is made in the payment of the principal of (or premium, if any, on) any Security on the due date for payment thereof, including, with respect to any Security required to have been purchased pursuant to a Change of Control Offer or an Asset Sale Offer made by the Company, at the Purchase Date thereof, the Company or such Guarantor will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal (and premium, if any) and interest, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at the rate provided by the Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. In addition to the rights and powers set forth in Section 317(a) of the Trust Indenture Act, the Trustee shall be entitled to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the Holders of the Securities allowed in any judicial proceeding relative to the Company, any Guarantor or any other obligor upon the Securities, its creditors, or its property, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute the same after the deduction of its charges and expenses; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of -43- 51 the Holders to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for compensation and expenses, including counsel fees incurred by it up to the date of such distribution. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 5.4. Trustee May File Proofs of Claim. In case of any judicial proceeding relative to the Company, a Guarantor (or any other obligor upon the Securities), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.7. No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; provided, however, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and be a member of a creditors, or other similar committee. SECTION 5.5. Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, distributions and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 5.6. Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on ac- -44- 52 count of principal (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 6.7; SECOND: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively; THIRD: To the payment of any and all other amounts due under this Indenture, the Securities or the Guarantees; and FOURTH: To the Company (or such other Person as a court of competent jurisdiction may direct). SECTION 5.7. Limitation on Suits. Subject to Section 5.8, no Holder of any Security shall have and right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (i) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (ii) the Holders of not less than 25% in principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (iii) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (iv) the Trustee for 45 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (v) no direction inconsistent with such written request has been given to the Trustee during such 45-day period by the Holders of a majority in principal amount of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. -45- 53 SECTION 5.8. Unconditional Right of Holders To Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 3.7) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date or in the case of a Change of Control Offer or an Asset Sale Offer made by the Company and required to be accepted as to such Security, on the relevant Purchase Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 5.9. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, each Guarantor, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted, subject to the determination in such proceeding. SECTION 5.10. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.11. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 5.12. Control by Holders. The Holders of a majority in principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that (i) such direction shall not be in conflict with any rule of law or with this Indenture, and -46- 54 (ii) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 5.13. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities may on behalf of the Holders of all the Securities waive any past default hereunder and its consequences, except a default (i) in the payment of the principal of (or premium, if any) or interest on any Security (including any Security which is required to have been purchased pursuant to a Change of Control Offer or an Asset Sale Offer which has been made by the Company), or (ii) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Security affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 5.14. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, in the manner and to the extent provided in the Trust Indenture Act; provided, that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Company or a Guarantor, in any suit instituted by the Trustee, in any suit instituted by any Holder or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities, or in any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Security on or after the Stated Maturity expressed in such Security (or, in the case of redemption, on or after the Redemption Date or, in the case of a Change of Control Offer or an Asset Sale Offer, made by the Company and required to be accepted as to such Security, on the applicable Purchase Date, as the case may be). SECTION 5.15. Waiver of Stay or Extension Laws. The Company and each Guarantor covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company and each Guarantor (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any -47- 55 power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE VI THE TRUSTEE SECTION 6.1. Certain Duties and Responsibilities. (a) Except during the continuance of an Event of Default, (i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by the provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture but need not verify the contents thereof. (b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent Person would exercise or use under the circumstances in the conduct of such Person's own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent misconduct, except that no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers under this Indenture, unless the Trustee has received security and indemnity satisfactory to it against any loss, liability or expense. The Trustee shall not be liable for any error of judgment unless it is proved that the Trustee was negligent in the performance of its duties hereunder. (d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 6.1. SECTION 6.2. Notice of Defaults. Within 30 days after the occurrence of any Default, the Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Security Register, notice of such Default -48- 56 hereunder known to the Trustee, unless such Default shall have been cured or waived; provided, however, that, except in the case of a Default in the payment of the principal of, premium, if any, or interest on any Security, the Trustee shall be protected in withholding such notice if and so long as a trust committee of Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders. SECTION 6.3. Certain Rights of Trustee. Subject to the provisions of Section 6.1: (a) the Trustee may conclusively rely as to the truth of the statements and correctness of the opinions expressed therein and shall be fully protected in acting or refraining from acting upon any resolution, Officer's Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors of the Company may be sufficiently evidenced by a Board Resolution of the Company; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officer's Certificate; (d) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled (subject to reasonable confidentiality arrangements as may be proposed by the Company or any Guarantor) to make -49- 57 reasonable examination (upon prior notice and during regular business hours) of the books, records and premises of the Company or a Guarantor, personally or by agent or attorney; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or custodians or nominees and the Trustee shall not be responsible for the supervision of, or any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (h) the Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; and (i) in the event that the Trustee is also acting as Authenticating Agent, Paying Agent or Security Registrar hereunder, the rights and protections afforded to the Trustee pursuant to this Article VI shall also be afforded to such Authenticating Agent, Paying Agent and Security Registrar. SECTION 6.4. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 6.5. May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company or any Guarantor, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.8 and 6.13, may otherwise deal with the Company or a Guarantor with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. SECTION 6.6. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. SECTION 6.7. Compensation and Reimbursement. The Company agrees (1) to pay to the Trustee from time to time such reasonable compensation as the Company and the Trustee shall from time to time agree in writing for all services rendered by -50- 58 it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to promptly reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee, its directors, officers, agents and employees for, and to hold them harmless against, any and all loss, damage, claim, liability or expense incurred without negligence or bad faith on its part, including taxes (other than taxes based upon, measured by or determined by the revenue or income of the Trustee), arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Trustee shall have a lien prior to the Securities as to all property and funds held by it hereunder for any amount owing to it pursuant to this Section 6.7, except with respect to funds held in trust for the benefit of the Holders of particular Securities. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.1(7) or Section 5.1(8), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or State bankruptcy, insolvency or other similar law. The provisions of this Section shall survive any termination of this Indenture. SECTION 6.8. Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. SECTION 6.9. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has, or is a wholly-owned subsidiary of a bank holding company that has, a combined capital and surplus of at least $100,000,000. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of a Federal or State supervising or examining authority, then for the purposes of this Section and to the extent permitted by the Trust Indenture Act, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. -51- 59 SECTION 6.10. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.9. (b) The Trustee may resign at any time by giving written notice thereof to the Company. if an instrument of acceptance by a successor Trustee in accordance with the applicable requirements of Section 6.9 shall not have been delivered to the Company and the resigning Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. (d) If at any time: (i) the Trustee shall fail to comply with Section 6.8 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (ii) the Trustee shall cease to be eligible under Section 6.9 and shall fail to resign after written request therefor by the Company, any Guarantor or by any such Holder, or (iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company or any Guarantor, in each case by a Board Resolution, may remove the Trustee, or (ii) subject to Section 5.14, any Holder who has been a bona fide Holder of a Note for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 6.11, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in accordance with the applicable requirements of Section 6.11, any Holder who has been a bona fide Holder of a Note -52- 60 for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 1.6. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. (g) The resignation or removal of the Trustee pursuant to this Section 6.10 shall not affect the obligation of the Company to indemnify the Trustee pursuant to Section 6.7(3) in connection with the exercise or performance by the Trustee prior to its resignation or removal of any of its powers or duties hereunder. (h) No Trustee under this Indenture shall be liable for any action or omission of any successor Trustee. SECTION 6.11. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. -53- 61 SECTION 6.13. Preferential Collection of Claims Against the Company or a Guarantor. If and when the Trustee shall be or become a creditor of the Company or a Guarantor (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company or such Guarantor (or any such other obligor). SECTION 6.14. Appointment of Authenticating Agent. The Trustee may appoint an Authenticating Agent or Agents which shall be authorized to act on behalf of the Trustee to authenticate Securities issued upon original issue and upon exchange, registration of transfer or partial redemption or partial purchase or pursuant to Section 3.6, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $100,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall give notice of such appointment in the manner provided in Section 1.6, to all Holders as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance -54- 62 of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section. If an appointment is made pursuant to this Section, the Securities may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: This is one of the Securities described in the within-mentioned Indenture. Dated: State Street Bank and Trust Company, As Trustee By: ------------------------------------- As Authenticating Agent By: ------------------------------------- Authorized Signatory ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 7.1. Company To Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee at such times as the Trustee may reasonably request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar. SECTION 7.2. Preservation of Information; Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.1 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar, if so acting. -55- 63 (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company, any Guarantor nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to the names and addresses of Holders made pursuant to the Trust Indenture Act. SECTION 7.3. Reports by Trustee. (a) Within 60 days after May 15 of each year commencing May 15, 2000, the Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture to the extent required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed, with the Commission and with the Company. The Company will promptly notify the Trustee when the Securities are listed on any stock exchange. SECTION 7.4. Reports by Company. The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to the Trust Indenture Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 8.1. Company May Merge, Consolidate, Etc., Only on Certain Terms. (A) The Company will not, in any transaction or series of transactions, merge or consolidate with or into, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets to, any Person or Persons, and (B) the Company will not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions, in the aggregate, would result in a sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company or the Company and its Restricted Subsidiaries, on a consolidated basis, to any other Person or Persons, unless, in each of cases (A) and (B), at the time and after giving effect thereto: -56- 64 (1) either: (x) if the transaction or transactions is a merger or consolidation, the Company or such Restricted Subsidiary, as the case may be, shall be the surviving Person of such merger or consolidation, or (y) the Person formed by such consolidation or into which the Company or such Restricted Subsidiary, as the case may be, is merged or to which the properties and assets of the Company or such Restricted Subsidiary, as the case may be, are disposed of (any such surviving Person or transferee Person being the "Surviving Entity") shall be a corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia and shall expressly assume by a supplemental indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Securities, this Indenture and the Registration Rights Agreement and in each case, this Indenture, the Securities and the Registration Rights Agreement shall remain in full force and effect; (2) immediately after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions), no Default or Event of Default shall have occurred and be continuing; and (3) except in the case of any merger of the Company with any Restricted Subsidiary of the Company or any merger of Guarantors, in each case with no other Person, the Company or the Surviving Entity, as the case may be, after giving effect to such transaction or series of transactions on a pro forma basis on the assumption that the transaction or transactions had occurred on the first day of the period of four fiscal quarters ending immediately prior to the consummation of such transaction or transactions, with the appropriate adjustments with respect to such transaction or transactions being included in such pro forma calculation, could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under Section 10.8 (assuming a market rate of interest with respect to such additional Indebtedness). In connection with any consolidation, merger, transfer, lease, assignment or other disposition contemplated by the foregoing provisions of this Section 8.1, the Company shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officer's Certificate and an Opinion of Counsel, each stating that such consolidation, merger, transfer, lease, assignment, or other disposition and the supplemental indenture in respect thereof (required under clause (1)(y) of this Section 8.1) comply with the requirements of this Indenture. Each such Officer's Certificate shall set forth the manner of determination of the ability to incur Indebtedness in accordance with clause (3) of this Section 8.1. -57- 65 SECTION 8.2. Successor Substituted. Upon any consolidation or merger, or any sale, assignment, conveyance, transfer, lease or disposition subject to and in accordance with Section 8.1, the successor Person formed by such consolidation or into which the Company or Restricted Subsidiary, as the case may be, is merged or the successor Person to which such sale, assignment, conveyance, transfer, lease or disposition is made shall succeed to, and be substituted for, and may exercise every right and power of the Company under the Securities, this Indenture and/or the Registration Rights Agreement, as applicable, with the same effect as if such successor had been named as the Company in the Securities, this Indenture and/or in the Registration Rights Agreement, as the case may be, and, except in the case of a lease, the Company or such Restricted Subsidiary, as the case may be, shall be automatically and unconditionally released and discharged from its obligations thereunder. For all purposes of this Indenture and the Securities (including the provisions of this Article VIII and Sections 10.8, 10.9 and 10.12), Subsidiaries of any Surviving Entity shall, upon consummation of such transaction or series of related transactions, become Restricted Subsidiaries unless and until designated Unrestricted Subsidiaries pursuant to and in accordance with Section 10.18 and all Indebtedness, and all Liens on property or assets, of the Company and the Restricted Subsidiaries in existence immediately prior to such transaction or series of related transactions will be deemed to have been incurred upon consummation of such transaction or series of related transactions. ARTICLE IX AMENDMENTS; WAIVERS; SUPPLEMENTAL INDENTURES SECTION 9.1. Amendments, Waivers and Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company and each Guarantor, when authorized by Board Resolutions, and the Trustee, at any time and from time to time, may together amend, waive or supplement this Indenture, for any of the following purposes: (i) to evidence the succession of another Person to the Company or a Guarantor and the assumption by any such successor of the covenants of the Company or such Guarantor herein and in the Securities and to evidence the assumption of obligations under this Indenture and a Guaranty pursuant to Section 10.17; or (ii) to add to the covenants of the Company or a Guarantor for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company or a Guarantor; or (iii) to secure the Securities pursuant to the requirements of Section 10.12 or otherwise; or -58- 66 (iv) to comply with any requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act; or (v) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, provided that (a) such amendment, waiver or supplement does not adversely affect the rights of any Holder of Securities and (b) the Company shall have delivered to the Trustee an Opinion of Counsel stating that such action pursuant to clauses (i), (ii), (iii), (iv) or (v) above is permitted by this Indenture. The Trustee shall not be obligated to enter into any such amendment or supplemental indenture that adversely affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 9.2. Modifications, Amendments and Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company and the Trustee, the Company and the Guarantors, when authorized by Board Resolutions, and the Trustee may together modify, amend or supplement this Indenture for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such modification, amendment or supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (i) change the Stated Maturity of the principal of, or any installment of interest on, any Security, or reduce the principal amount of (or the premium, if any, on), or interest on, any Securities or alter the redemption provisions of the Securities, (ii) change the currency in which any Securities or any premium or the interest thereon is payable, (iii) reduce the above-stated percentage in principal amount of outstanding Securities that must consent to an amendment or modification of this Indenture or the Securities, (iv) reduce the specified percentage in aggregate principal amount of outstanding Securities necessary to waive compliance with provisions of this Indenture or to waive defaults under this Indenture, (v) impair the right to institute suit for the enforcement of any payment on or with respect to the Securities or any Guaranty, (vi) amend, change or modify the obligation of the Company to make and consummate a Change of Control Offer after the occurrence of a Change of Control or make and -59- 67 consummate an Asset Sale Offer with respect to any Asset Sale that has been consummated or modify any of the provisions or definitions with respect thereto, (vii) modify or change any provision of this Indenture relating to the Guarantees in a manner adverse to the Holders of the Securities, or (viii) modify or change any provision of this Indenture affecting the Subordination or ranking of the Securities or any Guaranty in a manner which adversely affects the holders of Securities. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed amendment or supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. The Trustee shall join with the Company and each Guarantor in the execution of such amended or supplemental indenture unless such amended or supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion but shall not be obligated to enter into such amendment or supplemental indenture. SECTION 9.3. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise; provided that the Trustee shall enter into and execute all other supplemental indentures which satisfy all applicable conditions under this Article IX. SECTION 9.4. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.5. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. -60- 68 SECTION 9.6. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture, provided that any failure by the Trustee to make such notation shall not affect the validity of the matter provided for in such supplemental indenture or any Security or Guaranty hereunder. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee, the Guarantors and the Company, to any such supplemental indenture may be prepared and executed by the Company or Guarantor and authenticated and delivered by the Trustee in exchange for Outstanding Securities. SECTION 9.7. Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any covenant or condition set forth in Section 8.1, any covenant or condition provided pursuant to Section 9.1(ii) or any covenant or condition set forth in Sections 10.4 to 10.12 and 10.15 to 10.18, inclusive, if before the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect. SECTION 9.8. No Liability for Certain Persons. No director, officer, employee, or stockholder of the Company, nor any director, officer or employees of any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Securities, the Guarantees or this Indenture based on, in respect of, or by reason of such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The foregoing waiver and release is an integral part of the consideration for the issuance of the Securities and the Guarantees. ARTICLE X COVENANTS SECTION 10.1. Payment of Principal, Premium and Interest. The Company shall duly and punctually pay the principal of (and premium, if any) and interest on the Securities in accordance with the terms of the Securities, this Indenture and the Registration Rights Agreement. -61- 69 SECTION 10.2. Maintenance of Office or Agency. The Company shall maintain an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company or any Guarantor in respect of the Securities, the Guarantees and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. In the event any such notice or demands are so made or served on the Trustee, the Trustee shall promptly forward copies thereof to the Company. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. Further, if at any time there shall be no such office or agency in the City of New York where the Securities may be presented or surrendered for payment, the Company shall forthwith designate and maintain such an office or agency in the City of New York in order that the Securities shall at all times be payable in the City of New York. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. SECTION 10.3. Money for Security Payments To Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents, the Company will, prior to 11:00 a.m. New York City time on each due date of the principal of (and premium, if any) or interest on any Securities, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company shall cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (i) comply with the provisions of the Trust Indenture Act applicable to it as Paying Agent and (ii) during the continuance of any default by the Company (or any other obligor upon the Securities) in the making of any payment in respect of the Securities, upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent as such. -62- 70 The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by such Paying Agent; and, upon such payment by any Paying Agent (other than the Company) to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 10.4. Existence; Activities. Subject to Article VIII, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and material franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors of the Company in good faith shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 10.5. Maintenance of Properties. The Company shall cause all material properties used in the conduct of its business or the business of any Restricted Subsidiary to be maintained and kept in good condition, repair and working order (regular wear and tear excepted), all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from disposing of any asset (subject to compliance with Section 10.14) or from discontinuing the operation or maintenance of any of such material properties if such discontinuance is, as determined by the Company in good faith, desirable in the conduct of its business or the business of any Restricted Subsidiary and not disadvantageous in any material respect to the Holders. -63- 71 SECTION 10.6. Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company or any of its Restricted Subsidiaries or upon the income, profits or property of the Company or any of its Restricted Subsidiaries, and (2) all lawful material claims for labor, materials and supplies which, if unpaid, might by law become a lien upon property of the Company or any of its Restricted Subsidiaries; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 10.7. Maintenance of Insurance. The Company shall, and shall cause its Restricted Subsidiaries to, keep at all times all of their material properties which are of an insurable nature insured against loss or damage with insurers believed by the Company to be responsible to the extent that property of similar character is usually so insured by corporations similarly situated and owning like properties in accordance with good business practice. The Company shall, and shall cause its Restricted Subsidiaries to, use the proceeds from any such insurance policy to repair, replace or otherwise restore all material properties to which such proceeds relate, provided, however, that the Company shall not be required to repair, replace or otherwise restore any such material property if the Company in good faith determines that such inaction is desirable in the conduct of the business of the Company or any Restricted Subsidiary and not disadvantageous in any material respect to the Holders. SECTION 10.8. Limitation on Indebtedness. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or in any manner become directly or indirectly liable, contingently or otherwise (in each case, to "incur"), for the payment of any Indebtedness (including any Acquired Indebtedness) other than Permitted Indebtedness; provided, however, that the Company and any Guarantor will be permitted to incur Indebtedness (including Acquired Indebtedness) if (A) the Consolidated Fixed Charge Coverage Ratio of the Company is at least 2.0 to 1 and (B) no Default or Event of Default would occur or be continuing. SECTION 10.9. Limitation on Restricted Payments. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (a) declare or pay any dividend or make any other distribution or payment on or in respect of Capital Stock of the Company or any of its Restricted Subsidiaries or make any payment to the direct or indirect holders (in their capacities as such) of Capital Stock of the Company or any of its Restricted Subsidiaries (other than dividends or distributions payable solely in Capital Stock of the Company (other than Redeemable Capital Stock) or in options, warrants or other rights to purchase Capital Stock of the Company (other than Redeemable -64- 72 Capital Stock)) (other than the declaration or payment of dividends or other distributions to the extent declared or paid to the Company or any Guarantor); (b) purchase, redeem, or otherwise acquire or retire for value any Capital Stock of the Company or any of its Restricted Subsidiaries or any options, warrants, or other rights to purchase any such Capital Stock (other than any securities owned by the Company or a Restricted Subsidiary); (c) make any principal payment on, or purchase, defease, repurchase, redeem or otherwise acquire or retire for value, prior to any scheduled maturity, scheduled repayment, scheduled sinking fund payment or other Stated Maturity, any Subordinated Indebtedness (other than any such Subordinated Indebtedness owed by the Company or a Restricted Subsidiary); or (d) make any Investment (other than any Permitted Investment) in any Person (such payments or Investments described in the preceding clauses (a), (b), (c) and (d) are collectively referred to as "Restricted Payments"), unless, after giving effect to the proposed Restricted Payment (the amount of any such Restricted Payment, if other than cash, shall be the Fair Market Value of the asset(s) proposed to be transferred by the Company or such Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment), (A) no Default or Event of Default shall have occurred and be continuing, (B) after giving pro forma effect to such Restricted Payment, the Company would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 10.8 and (C) the aggregate amount of all Restricted Payments declared or made from and after the Issue Date would not exceed the sum of: (1) 50% of the aggregate Consolidated Net Income of the Company accrued on a cumulative basis during the period beginning on April 1, 1999 and ending on the last day of the fiscal quarter of the Company ending immediately prior to the date of such proposed Restricted Payment for which consolidated financial statements are available (or, if such aggregate cumulative Consolidated Net Income of the Company for such period shall be a loss, minus 100% of such loss); (2) the aggregate net cash proceeds received by the Company as capital contributions to the Company after the Issue Date and which constitute shareholders' equity of the Company in accordance with GAAP; (3) the aggregate net cash proceeds received by the Company from the issuance or sale of Capital Stock (excluding Redeemable Capital Stock) of the Company to any Person (other than to a Subsidiary of the Company) after the Issue Date; (4) the aggregate net cash proceeds received by the Company from any Person (other than a Subsidiary of the Company) upon the exercise of any options, warrants or rights to purchase shares of Capital Stock (other than Redeemable Capital Stock) of the Company after the Issue Date; -65- 73 (5) the aggregate net cash proceeds received after the Issue Date by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale of debt securities that have been converted into or exchanged for Capital Stock of the Company (other than Redeemable Capital Stock) to the extent such debt securities were originally sold for cash, plus the aggregate amount of cash received by the Company (other than from a Subsidiary of the Company) at the time of such conversion or exchange; (6) to the extent not otherwise included in the Company's Consolidated Net Income, in the case of the disposition or repayment of any Investment constituting a Restricted Payment after the Issue Date, an amount equal to the lesser of the return of capital with respect to such Investment and the initial amount of such Investment, in either case, less the cost of the disposition of such Investment; (7) so long as the Designation (as defined in Section 10.18) thereof was treated as a Restricted Payment made after the Issue Date, with respect to any Unrestricted Subsidiary that has been redesignated as a Restricted Subsidiary after the Issue Date in accordance with Section 10.18 below, the Fair Market Value of the Company's interest in such Subsidiary at the time of such redesignation, provided, however, that such amount shall not in any case exceed the Designation Amount (as defined in Section 10.18) with respect to such Restricted Subsidiary upon its Designation; and (8) $4,000,000. For purposes of the preceding clause (C)(4), the value of the aggregate net proceeds received by the Company upon the issuance of Capital Stock upon the exercise of options, warrants or rights will be the net cash proceeds received upon the issuance of such options, warrants or rights plus the incremental amount received by the Company upon the exercise thereof. None of the foregoing provisions will prohibit, so long as, in the case of clause (v) and (vi) below, there is no Default or Event of Default continuing: (i) the payment of any dividend or distribution within 60 days after the date of its declaration, if at the date of declaration such payment would be permitted by the first paragraph of this covenant; (ii) the redemption, repurchase or other acquisition or retirement of any shares of any class of Capital Stock of the Company in exchange for, or out of the net cash proceeds of a substantially concurrent issue and sale of, other shares of Capital Stock of the Company (other than Redeemable Capital Stock) to any Person (other than to a Subsidiary of the Company); provided, however, that such net cash proceeds are excluded from clause (C) of the first paragraph of this Section 10.9; (iii) any redemption, repurchase or other acquisition or retirement of Subordinated Indebtedness of the Company in exchange for, or out of the net cash proceeds of a substantially concurrent issue and sale of, (1) Capital Stock (other than Redeemable Capital Stock) of the Company to any Person (other than to a Subsidiary of the Company); provided, however, that any such net cash proceeds are excluded from clause (C) of the first paragraph of this Section 10.9; or (2) other Subordinated Indebtedness of the Company which (w) has no scheduled principal payment prior to the 91st day after the Maturity Date, (x) has an Average Life to Stated Maturity greater than the remaining Average Life to Stated Maturity of the Securities and (y) is subordinated to the Securities to at least the same extent as the Subordinated Indebtedness so purchased, exchanged, redeemed, -66- 74 acquired or retired; (iv) payments to purchase Capital Stock of the Company from management or employees of the Company or any of its Subsidiaries, or their authorized representatives, upon the death, disability or termination of employment of such employees, in aggregate amounts under this clause (iv) not to exceed $1.0 million in any fiscal year of the Company; (v) the payment of regularly scheduled semi-annual dividends in respect of the Seller Preferred Stock in an aggregate amount not to exceed $1.4 million in any one year; (vi) the payment of the aggregate liquidation preference of the Seller Preferred Stock at final maturity in an aggregate amount not to exceed $14.0 million; (vii) the application of the net proceeds of the issuance and sale of the Securities issued on the Issue Date as described in the Offering Memorandum; (viii) cash payments in lieu of fractional shares issuable as dividends on preferred securities of the Company or any of its Restricted Subsidiaries, in aggregate amounts under this clause (viii) not to exceed $20,000 in any fiscal year of the Company; (ix) repurchases of Capital Stock deemed to occur upon exercise of stock options if such Capital Stock represents a portion of the exercise price of such options; (x) the payment of the redemption price of rights issued pursuant to any shareholders' rights plan not in excess of $0.05 per right and not in excess of $1.0 million in the aggregate; (xi) the payment of "Additional Consideration" (as defined in the Acquisition Agreements) in the manner and in such amounts as provided in the Acquisition Agreements as in effect on the Issue Date and described in the Offering Memorandum, in an aggregate amount not to exceed $16.2 million; provided, however, that the Company's Consolidated Fixed Charge Coverage Ratio at such time is at least 3.25 to 1; and (xii) the payment of amounts constituting post-closing adjustments to the former stockholders of the founding companies in respect of (A) working capital adjustments for which the Company received assets of comparable value and (B) unpaid cash consideration reflected in the pro forma financial statements of the Company on the Issue Date, in each case, in accordance with the Acquisition Agreements as in effect on the Issue Date. Any payments made pursuant to clauses (i), (iv), (vi), (x) and (xi) of this paragraph shall be taken into account in calculating the amount of Restricted Payments made from and after the Issue Date. In computing Consolidated Net Income of the Company under clause (C)(1) of the first paragraph of this Section 10.9, (1) the Company shall use audited financial statements for the portions of the relevant period for which audited financial statements are available on the date of determination and unaudited financial statements and other current financial data based on the books and records of the Company for the remaining portion of such period and (2) the Company shall be permitted to rely in good faith on the financial statements and other financial data derived from the books and records of the Company that are available on the date of determination. If the Company makes a Restricted Payment which, at the time of the making of such Restricted Payment would in the good faith determination of the Company be permitted under the requirements of this Indenture, such Restricted Payment shall be deemed to have been made in compliance with this Indenture notwithstanding any subsequent adjustments made in good faith to the Company's financial statements affecting Consolidated Net Income of the Company for any period. SECTION 10.10. Limitation on Issuances and Sales of Restricted Subsidiary Stock. The Company (i) will not permit any Restricted Subsidiary to issue any Capital Stock (other than to the Company or a Restricted Subsidiary) and (ii) will not permit any Person (other than the Company and/or one or more Restricted Subsidiaries) to own any Capital Stock of any Restricted -67- 75 Subsidiary; provided, however, that this Section 10.10 shall not prohibit (1) the issuance and sale of all, but not less than all, of the issued and outstanding Capital Stock of any Restricted Subsidiary owned by the Company or any of its Restricted Subsidiaries in compliance with the other provisions of this Indenture, or (2) the ownership by directors of directors' qualifying shares or the ownership by foreign nationals of Capital Stock of any Restricted Subsidiary, to the extent mandated by applicable law. SECTION 10.11. Limitation on Transactions with Affiliates. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into any transaction or series of related transactions (including, without limitation, the sale, transfer, disposition, purchase, exchange or lease of assets, property or services) with, or for the benefit of, any of its Affiliates, except (a) on terms that are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those which could have been obtained at the time in a comparable transaction or series of related transactions from Persons who are not Affiliates of the Company, (b) with respect to a transaction or series of related transactions involving aggregate payments or value equal to or greater than $5.0 million, the Company shall have delivered an Officer's Certificate to the Trustee certifying that such transaction or transactions comply with the preceding clause (a) and have been approved by the Disinterested Members of the Board of Directors of the Company; provided, however, that the Company may, if there are no Disinterested Members of the Board of Directors or at its option, obtain and deliver to the Trustee the written opinion referred to in clause (c) below in lieu of such Officers' Certificate, and (c) with respect to a transaction or series of related transactions involving aggregate payments or value equal to or greater than $10 million, the Company shall have delivered to the Trustee the Officers' Certificate referred to in clause (b) which includes a certification that such transaction or transactions have been approved by a majority of the Disinterested Members of the Board of Directors of the Company or, in the event there are no such Disinterested Members of the Board of Directors, that the Company has obtained a written opinion from an independent nationally recognized investment banking firm, accounting firm or appraisal firm, in each case specializing or having a specialty in the type and subject matter of the transaction or series of transactions at issue, which opinion shall be to the effect set forth in clause (a) above or shall state that such transaction or series of related transactions is fair from a financial point of view to the Company or such Restricted Subsidiary. Notwithstanding the foregoing, the restrictions set forth in this Section 10.11 shall not apply to (i) transactions between or among the Company and its Restricted Subsidiaries, (ii) customary directors' fees, indemnification and similar arrangements, consulting fees, employee salaries, bonuses or employment agreements, compensation or employee benefit arrangements and incentive arrangements with any officer, director or employee of the Company or any Restricted Subsidiary entered into in the ordinary course of business, (iii) any dividends made in compliance with Section 10.9, (iv) loans and advances to officers, directors and employees of the Company or any Restricted Subsidiary made in the ordinary course of business in an aggregate amount not to exceed $1,000,000 outstanding at any one time, (v) transactions pursuant to agreements in effect on the Issue Date, (vi) written agreements assumed in connection with Asset Acquisitions with Persons who were not Affiliates prior to such transactions; provided, however, that any such agreements were not entered into in connection with or in contemplation of such Asset Acquisition, (vii) leases of property or equipment -68- 76 entered into in the ordinary course of business on terms that are substantially similar to those which could have been obtained at the time in a comparable transaction with non-Affiliates or (viii) any sale or other issuance for cash of Capital Stock (other than Redeemable Capital Stock) of the Company. SECTION 10.12. Limitation on Liens. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Liens of any kind securing Indebtedness upon any of its property or assets, or any proceeds therefrom, unless the Securities are equally and ratably secured (except that Liens securing Subordinated Indebtedness shall be expressly subordinate to Liens securing the Securities to the same extent such Subordinated Indebtedness is subordinate to the Securities), except for (a) Liens securing Senior Indebtedness and Guarantor Senior Indebtedness; (b) Liens securing the Securities; (c) Liens securing Indebtedness which is incurred to refinance Indebtedness which has been secured by a Lien (other than a Lien in favor of the Company or a Restricted Subsidiary) permitted under this Indenture and which has been incurred in accordance with the provisions of this Indenture; provided, however, that such Liens do not extend to or cover any property or assets of the Company or any its Restricted Subsidiaries not securing the Indebtedness so refinanced; and (d) Permitted Liens. SECTION 10.13. Change of Control. On or before the 30th day after the date of the occurrence of a Change of Control (the "Change of Control Date"), the Company shall make an Offer to Purchase (a "Change of Control Offer") and shall purchase, on a Business Day (the "Change of Control Purchase Date") not more than 60 nor less than 30 days following the mailing of such Offer to Purchase, all of the then Outstanding Securities tendered at a purchase price in cash (the "Change of Control Purchase Price") equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, thereon to the Change of Control Purchase Date. The Company shall be required to purchase all Securities tendered into the Change of Control Offer and not withdrawn. The Change of Control Offer will be required to remain open for at least 20 Business Days. On the Change of Control Purchase Date, the Company shall (i) accept for payment Securities or portions thereof (not less than $1,000 principal amount and integral multiples thereof) tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent money, in immediately available funds, sufficient to pay the purchase price of all Securities or portions thereof so tendered and accepted and (iii) deliver to the Trustee the Securities so accepted together with an Officer's Certificate setting forth the Securities or portions thereof tendered to and accepted for payment by the Company. The Paying Agent shall promptly mail or deliver to the Holders of Securities so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and make available for delivery to such Holders a new Security of like tenor equal in principal amount to any unpurchased portion of the Security surrendered. Any Securities not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Change of Control Offer not later than the third Business Day following the Change of Control Purchase Date. -69- 77 The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer at the same purchase price, at the same time and otherwise in compliance with the requirements applicable to a Change of Control Offer made by the Company and purchases all Securities validly tendered and not withdrawn under such Change of Control Offer. In addition, the Company shall not be required to make a Change of Control Offer, as provided herein, if, in connection with or in contemplation of any Change of Control, it has made an Offer to Purchase (an "Alternative Offer") any and all Securities validly tendered at a cash price equal to or higher than the Change of Control Purchase Price and has purchased all Securities properly tendered in accordance with the terms of such Alternative Offer. The Company shall comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder, to the extent such laws or regulations are applicable, in the event that a Change of Control occurs and the Company is required to purchase Securities as described above, and any violation of the provisions of this Indenture relating to such Offer to Purchase occurring as a result of such compliance shall not be deemed a Default or an Event of Default. SECTION 10.14. Disposition of Proceeds of Asset Sales. The Company will not, and will not permit any of its Restricted Subsidiaries to, make any Asset Sale unless (a) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the shares or assets sold or otherwise disposed of and (b) at least 75% of the consideration in such Asset Sale, plus all other Asset Sales since the Issue Date on a cumulative basis, consists of cash or Cash Equivalents; provided, however, that the amount of any Indebtedness (as shown on the most recent balance sheet of the Company or such Restricted Subsidiary) of the Company or such Restricted Subsidiary that is assumed by the transferee of such assets as a result of which the Company and its Restricted Subsidiaries are no longer liable thereon, and any securities, notes or other obligations received by the Company or such Restricted Subsidiary from such transferee that are converted within 60 days into cash or Cash Equivalents (to the extent of the cash or Cash Equivalents received) shall be deemed to be cash for the purposes of this provision. To the extent that the Net Cash Proceeds, or portion thereof, of any Asset Sale are not applied to repay, and permanently reduce the commitments under Senior Indebtedness or Guarantor Senior Indebtedness in accordance with the terms thereof, the Company or such Restricted Subsidiary, as the case may be, may apply the Net Cash Proceeds, or portion thereof, from such Asset Sale, within 360 days of such Asset Sale, to an investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets that (as determined in good faith by the Board of Directors of the Company or the Restricted Subsidiary, as the case may be) are used or useful in the business of the Company and its Restricted Subsidiaries conducted at such time or in businesses reasonably related thereto or in Capital Stock of a Person, the principal portion of whose assets consist of such property or assets ("Replacement Assets"). Any Net Cash Proceeds from any Asset Sale that are neither used to repay, and permanently reduce the commitments under, Senior Indebtedness or Guarantor Senior Indebtedness in accordance with the terms thereof nor invested in Replacement Assets within such 360-day period will constitute "Excess Proceeds" subject to disposition as provided below; provided, however, that any Net Cash Proceeds from any Asset Sale which are used to repay Senior Indebtedness or Guarantor Senior -70- 78 Indebtedness but are subsequently invested in Replacement Assets within such 360-day period will not constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds equals or exceeds $10 million, the Company shall make an Offer to Purchase, from all Holders of the Securities and any then outstanding Pari Passu Indebtedness required to be repurchased or repaid on a permanent basis in connection with an Asset Sale, an aggregate principal amount of Securities and any then outstanding Pari Passu Indebtedness equal to such Excess Proceeds as follows: (i) (A) The Company shall make an Offer to Purchase (an "Asset Sale Offer") from all Holders of the Securities the maximum principal amount (expressed as a multiple of $1,000) of Securities that may be purchased out of an amount (the "Asset Sale Offer Amount") equal to the product of such Excess Proceeds, multiplied by a fraction, the numerator of which is the outstanding principal amount of the Securities and the denominator of which is the sum of the outstanding principal amount of the Securities and such Pari Passu Indebtedness, if any (subject to proration in the event such amount is less than the aggregate Offered Price (as defined below) of all Securities tendered), and (B) to the extent required by such Pari Passu Indebtedness and provided there is a permanent reduction in the principal amount of such Pari Passu Indebtedness, the Company shall make an Offer to Purchase Pari Passu Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu Indebtedness Amount") equal to the excess of the Excess Proceeds over the Asset Sale Offer Amount; (ii) The offer price for the Securities shall be payable in cash in an amount equal to 100% of the principal amount of the Securities tendered pursuant to an Asset Sale Offer, plus accrued and unpaid interest, if any, to the date such Asset Sale Offer is consummated (the "Offered Price"), in accordance with the procedures set forth in this Indenture. To the extent that the aggregate Offered Price of the Securities tendered pursuant to an Asset Sale Offer is less than the Asset Sale Offer Amount relating thereto or the aggregate amount of the Pari Passu Indebtedness that is purchased or repaid pursuant to the Pari Passu Offer is less than the Pari Passu Indebtedness Amount (such shortfall constituting an "Asset Sale Deficiency"), the Company may use such Asset Sale Deficiency for general corporate purposes, subject to the limitations in Section 10.9; and (iii) If the aggregate Offered Price of Securities validly tendered and not withdrawn by Holders thereof exceeds the Asset Sale Offer Amount, Securities to be purchased will be selected on a pro rata basis. Upon completion of such Asset Sale Offer and Pari Passu Offer, the amount of Excess Proceeds shall be reset to zero. On the Asset Sale Offer Purchase Date, the Company shall (i) accept for payment (subject to proration as described in the Offer to Purchase) Securities or portions thereof validly tendered pursuant to the Asset Sale Offer, respectively, (ii) deposit with the Paying Agent money, in immediately available funds, sufficient to pay the purchase price of all such Securities or portions thereof so tendered and accepted and (iii) deliver to the Trustee the Securities so accepted together with an Officer's Certificate setting forth the Securities or portions thereof tendered to and accepted for payment by the Company. The Paying Agent shall promptly mail or deliver to the Holders of Securities so -71- 79 accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and make available for delivery to such Holders a new Security of like tenor equal in principal amount to any unpurchased portion of the Security surrendered. Any Securities not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer and Pari Passu Offer not later than the third Business Day following the Asset Sale Offer Purchase Date. Whenever the aggregate amount of Excess Proceeds received by the Company and its Restricted Subsidiaries exceeds $10 million, such Excess Proceeds shall, prior to the purchase of Notes, be set aside by the Company or such Restricted Subsidiary, as the case may be, in a separate account pending (i) deposit with the Paying Agent of the amount required to purchase the Securities tendered in an Asset Sale Offer or (ii) delivery by the Company of the Offered Price to the Holders of the Securities validly tendered and not withdrawn pursuant to an Asset Sale Offer. Such Excess Proceeds may be invested in Cash Equivalents, as directed by the Company, having a maturity date which is not later than the earliest possible date for purchase of Securities pursuant to the Asset Sale Offer. The Company will be entitled to any interest or dividends accrued, earned or paid on such Cash Equivalents. The Company shall comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder, to the extent such laws and regulations are applicable, in the event that an Asset Sale occurs and the Company is required to purchase Securities as described above, and any violation of the provisions of this Indenture relating to such Offer to Purchase occurring as a result of such compliance shall not be deemed a Default or an Event of Default. SECTION 10.15. Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make any other distributions on or in respect of its Capital Stock to the Company or any other Restricted Subsidiary, (b) pay any Indebtedness owed to the Company or any other Restricted Subsidiary, (c) make loans or advances to the Company or any other Restricted Subsidiary, (d) transfer any of its properties or assets to the Company or any other Restricted Subsidiary or (e) guarantee any Indebtedness of the Company or any other Restricted Subsidiary, except for such encumbrances or restrictions existing under or by reason of (i) applicable law or any applicable rule, regulation or order, (ii) customary non-assignment provisions of any contract or any lease governing a leasehold interest of the Company or any Restricted Subsidiary, (iii) customary restrictions on transfers of property subject to a Lien permitted under this Indenture (including purchase money Liens permitted under this Indenture), (iv) any agreement or other instrument of a Person acquired by the Company or any Restricted Subsidiary in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, (v) an agreement entered into for the sale or disposition of Capital Stock or assets of a Restricted Subsidiary or an agreement entered into for the sale of specified assets (in either case, so long as such -72- 80 encumbrance or restriction, by its terms, terminates on the earlier of the termination of such agreement or the consummation of such agreement and so long as such restriction applies only to the Capital Stock or assets to be sold), (vi) any agreement in effect on the Issue Date (including, without limitation, the Credit Facility), (vii) this Indenture and the Guarantees, and (viii) any agreement that amends, extends, refinances, renews or replaces any agreement described in the foregoing clauses; provided, however, that the terms and conditions of any such agreement are not materially less favorable to the Holders of the Securities with respect to such encumbrances or restrictions than those under or pursuant to the agreement amended, extended, refinanced, renewed or replaced. SECTION 10.16. Limitation on Issuance of Subordinated Indebtedness. The Company will not, and will not permit any Guarantor to, directly or indirectly, incur any Indebtedness (including Acquired Indebtedness) that is expressly subordinate or junior in right of payment to any Indebtedness of the Company or such Guarantor and senior in right of payment to the Securities or the Guaranty of such Guarantor, as the case may be. SECTION 10.17. Additional Subsidiary Guarantees. If the Company or any of its Restricted Subsidiaries acquires, creates or designates another Restricted Subsidiary organized under the laws of the United States or any possession or territory thereof, any State of the United States or the District of Columbia, then such newly acquired, created or designated Restricted Subsidiary shall, within 30 days after the date of its acquisition, creation or designation, whichever is later, execute and deliver to the Trustee a supplemental indenture in substantially the form set forth in Exhibit C, pursuant to which such Subsidiary shall become a Guarantor of the Securities in the manner set forth in Article XIII; provided, however, that such Restricted Subsidiary shall not be obligated to become a Guarantor in the manner set forth above if such Restricted Subsidiary is not, either individually or when considered in the aggregate with all other Restricted Subsidiaries that are not Guarantors, a Significant Subsidiary. Thereafter, such Restricted Subsidiary shall be a Guarantor for all purposes of this Indenture. In addition to the foregoing, the Company shall cause any Restricted Subsidiary that is not a Guarantor to become a Guarantor in the manner provided above within 30 days of such time as it becomes, either individually or when considered in the aggregate with all other Restricted Subsidiaries that are not Guarantors, a Significant Subsidiary. The Company at its option may also cause any other Restricted Subsidiary to become a Guarantor in the manner provided in this Section. SECTION 10.18. Limitations on Designation of Unrestricted Subsidiaries. (a) The Company may designate after the Issue Date any Restricted Subsidiary as an "Unrestricted Subsidiary" under this Indenture (a "Designation") only if: (i) no Default shall have occurred and be continuing at the time of or after giving effect to such Designation; (ii) the Company would be permitted to make an Investment (other than a Permitted Investment covered by clause (x) of the definition thereof) at the time of such Designation (assuming the effectiveness of such Designation) pursuant to the first paragraph of -73- 81 Section 10.9 in an amount (the "Designation Amount") equal to the Fair Market Value of the Company's interest in such Subsidiary on such date; and (iii) the Company would be permitted under this Indenture to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 10.8 at the time of such Designation (assuming the effectiveness of such Designation). In the event of any such Designation, the Company shall be deemed to have made an Investment constituting a Restricted Payment pursuant to Section 10.9 for all purposes of this Indenture in the Designation Amount. The Company shall not, and shall not cause or permit any Restricted Subsidiary to, at any time (x) provide credit support for or subject any of its property or assets (other than the Capital Stock of any Unrestricted Subsidiary) to the satisfaction of, any Indebtedness of any Unrestricted Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness), (y) be directly or indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be directly or indirectly liable for any Indebtedness which provides that the holder thereof may (upon notice, lapse of time or both) declare a default thereon or cause the payment thereof to be accelerated or payable prior to its final Stated Maturity upon the occurrence of a default with respect to any Indebtedness of any Unrestricted Subsidiary (including any right to take enforcement action against such Unrestricted Subsidiary). The Designation of any Subsidiary as an Unrestricted Subsidiary shall automatically be deemed to include the Designation of all Subsidiaries of such Subsidiary as Unrestricted Subsidiaries. (b) The Company may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation") if: (i) no Default shall have occurred and be continuing at the time of and after giving effect to such Revocation, and (ii) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if incurred at such time, have been permitted to be incurred under this Indenture. (c) All Designations and Revocations must be evidenced by Board Resolutions of the Company delivered to the Trustee certifying compliance with the foregoing provisions. SECTION 10.19. Provision of Financial Information. For so long as the Securities are outstanding, whether or not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, or any successor provision thereto, the Company shall file with the Commission (if permitted by Commission practice and applicable law and regulations) the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to such Section 13(a) or 15(d) or any successor provision thereto if the Company were so subject, such documents to be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which the Company would have been required so to file such documents if the Company were so subject. The Company shall also in any -74- 82 event within 15 days after each Required Filing Date (whether or not permitted or required to be filed with the Commission) file with the Trustee, copies of the annual reports, quarterly reports and other documents which the Company would be required to file with the Commission if the Securities were then registered under the Exchange Act and to make such information available to Holders of Securities upon request. In addition, if the Company is not subject to the reporting requirements of the Exchange Act, for so long as any Securities remain outstanding, the Company will furnish to the Holders of Securities and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. SECTION 10.20. Statement by Officers as to Default; Compliance Certificates. (a) The Company shall deliver to the Trustee, prior to January 1 in each year commencing January 1, 2000, an Officer's Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder), and if the Company shall be in default, specifying all such defaults and the nature and status thereof of which he may have knowledge. (b) The Company shall deliver to the Trustee, as soon as possible and in any event within five business days after the Company becomes aware of the occurrence of a Default or an Event of Default, an Officer's Certificate setting forth the details of such Default or Event of Default, and the action which the Company proposes to take with respect thereto. ARTICLE XI REDEMPTION OF SECURITIES SECTION 11.1. Right of Redemption. The Securities may be redeemed at the election of the Company, in the amounts, at the times, at the Redemption Prices (together with any applicable accrued and unpaid interest to the Redemption Date), and subject to the conditions specified in the form of Security and hereinafter set forth. SECTION 11.2. Applicability of Article. Redemption of Securities at the election of the Company, as permitted by this Indenture and the provisions of the Securities, shall be made in accordance with such provisions and this Article. SECTION 11.3. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities pursuant to Section 11.1 shall be evidenced by a Board Resolution. In the event of any redemption at the election of the Company pursuant to Section 11.1, the Company shall notify the Trustee, in case of a redemption of less than all the Securities, at least 60 days, and in the case of a redemption of all the Securities, at least 40 days, prior -75- 83 to the Redemption Date fixed by the Company (in each case, unless a shorter notice shall be satisfactory to the Trustee) of such Redemption Date and of the principal amount of Securities to be redeemed. SECTION 11.4. Selection by Trustee of Securities To Be Redeemed. In the event that less than all of the Securities are to be redeemed at any time, selection of such Securities for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Securities are listed or, if the Securities are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate (subject to the rules of the Depository); provided, however, that Securities shall only be redeemable in amounts of $1,000 or an integral multiple of $1,000. The Trustee shall promptly notify the Company and each Security Registrar in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture and of the Securities, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION 11.5. Notice of Redemption. Notice of redemption shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall identify the Securities to be redeemed (including, if used, CUSIP or CINS numbers) and shall state: (i) the Redemption Date, (ii) the Redemption Price, (iii) if less than all the Outstanding Securities are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Securities to be redeemed, (iv) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and that interest thereon will cease to accrue on and after such Redemption Date, (v) the place or places where such Securities are to be surrendered for payment of the Redemption Price, and -76- 84 (vi) if the redemption is being made pursuant to the provisions of the Securities regarding a Public Equity Offering, a brief description of the transaction or transactions giving rise to such redemption, the nature and amount of Capital Stock sold by the Company thereto in such transaction or transactions, the aggregate purchase price thereof and the net cash proceeds therefrom available for such redemption, the date or dates on which such transaction or transactions were completed and the percentage of the aggregate principal amount of Outstanding Securities being redeemed. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company and shall be irrevocable. SECTION 11.6. Deposit of Redemption Price. Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.3) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) any applicable accrued interest on, all the Securities which are to be redeemed on that date. SECTION 11.7. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and any applicable accrued interest) such Securities shall not bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with any applicable accrued and unpaid interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more predecessor Notes, registered as such at the close of business on the relevant record dates according to their terms and the provisions of Section 3.7. If any Security called for redemption in accordance with the election of the Company made pursuant to Section 11.1 shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate provided by the Security. SECTION 11.8. Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at an office or agency of the Company designated for that purpose pursuant to Section 10.2 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination -77- 85 as requested by such Holder, in aggregate principal amount at Stated Maturity equal to and in exchange for the unredeemed portion of the principal amount at Stated Maturity of the Security so surrendered. ARTICLE XII DEFEASANCE AND COVENANT DEFEASANCE SECTION 12.1. Company's Option To Effect Defeasance or Covenant Defeasance. The Company may elect, at its option at any time, to have Section 12.2 or Section 12.3 applied to the Outstanding Securities (as a whole and not in part) upon compliance with the conditions set forth below in this Article. Any such election shall be evidenced by a Board Resolution. SECTION 12.2. Defeasance and Discharge. Upon the Company's exercise of its option to have this Section applied to the Outstanding Securities (as a whole and not in part), the Company shall be deemed to have been discharged from its obligations with respect to such Securities as provided in this Section on and after the date the conditions set forth in Section 12.4 are satisfied (hereinafter called "Defeasance"). For this purpose, such Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by such Securities and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), subject to the following which shall survive until otherwise terminated or discharged hereunder: (1) the rights of Holders of Outstanding Securities to receive, solely from the trust fund described in Section 12.4 and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Securities when payments are due, (2) the Company's obligations with respect to such Securities under Sections 3.4, 3.5, 3.6, 10.2 and 10.3, (3) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (4) this Article. Subject to compliance with this Article, the Company may exercise its option to have this Section applied to the Outstanding Securities (as a whole and not in part) notwithstanding the prior exercise of its option to have Section 12.3 applied to such Securities. SECTION 12.3. Covenant Defeasance. Upon the Company's exercise of its option to have this Section applied to the Outstanding Securities (as a whole and not in part), (i) the Company and the Guarantors shall be released from their obligations under Section 8.1(A)(3), Sections 10.5 through 10.19, inclusive, and any covenant provided pursuant to Section 9.1(ii), (ii) the occurrence of any event specified in Sections 5.1(3) and 5.1(4) (with respect to Section 8.1(A)(3) and any of Sections 10.5 through 10.19, inclusive, and any such covenants provided pursuant to Section 9.1(ii)), shall be deemed not to be or result in an Event of Default, in each case with respect to such Securities as provided in this Section on and after the date the conditions set forth in Section 12.4 are satisfied (hereinafter called "Covenant Defeasance"). -78- 86 For this purpose, such Covenant Defeasance means that, with respect to such Securities, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such specified Section (to the extent so specified in the case of Sections 5.1(3) or 5.1(4)), whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or by reason of any reference in any such Section to any other provision herein or in any other document, but the remainder of this Indenture and such Securities shall be unaffected thereby. SECTION 12.4. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to the application of Section 12.2 or Section 12.3 to the Outstanding Securities: (1) The Company or any Guarantor shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee which satisfies the requirements contemplated by Section 6.9 and agrees to comply with the provisions of this Article applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefits of the Holders of such Securities, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, in each case sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or any such other qualifying trustee) to pay and discharge, the principal of, premium, if any, and any installment of interest on such Securities on the respective Stated Maturities thereof, in accordance with the terms of this Indenture and such Securities. As used herein, "U.S. Government Obligation" means (x) any security which is (i) a direct obligation of the United States of America for the payment of which the full faith and credit of the United States of America is pledged or (ii) an obligation of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case (i) or (ii), is not callable or redeemable at the option of the issuer thereof, and (y) any depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any U.S. Government Obligation which is specified in clause (x) above and held by such bank for the account of the holder of such depositary receipt, or with respect to any specific payment of principal of or interest on any U.S. Government Obligation which is so specified and held, provided (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal or interest evidenced by such depositary receipt. (2) In the event of an election to have Section 12.2 apply to the Outstanding Securities, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the -79- 87 applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of such Securities will not recognize gain or loss for Federal income tax purposes as a result of the deposit, Defeasance and discharge to be effected with respect to such Securities and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit, Defeasance and discharge were not to occur. (3) In the event of an election to have Section 12.3 apply to the Outstanding Securities, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such Securities will not recognize gain or loss for Federal income tax purposes as a result of the deposit and Covenant Defeasance to be effected with respect to such Securities and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit and Covenant Defeasance were not to occur. (4) No Default or Event of Default with respect to the Outstanding Securities shall have occurred and be continuing at the time of such deposit (excluding a Default or Event of Default due to a breach of Section 10.8 which arises solely due to the borrowing of funds entirely and immediately applied to such deposit). (5) Such Defeasance or Covenant Defeasance shall not cause the Trustee to have a conflicting interest with respect to any Securities of the Company or any Guarantor. (6) Such Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which it is bound. (7) The Company shall have delivered to the Trustee an Opinion of Counsel (which opinion may be subject to customary assumptions and exceptions) to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. (8) The Company shall have delivered to the Trustee an Officer's Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the Securities over the other creditors of the Company or any Guarantor with the intent of defeating, hindering, delaying or defrauding creditors of the Company or any Guarantor or others. (9) No event or condition shall exist that would prevent the Company from making payments of the principal of, premium, if any, and interest on the Securities on the date of such deposit or at any time ending on the 91st day after the date of such deposit. (10) The Company shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent under this Indenture to either Defeasance or Covenant Defeasance, as the case may be, have been complied with. -80- 88 SECTION 12.5. Deposited Money and U.S. Government Obligations To Be Held in Trust; Miscellaneous Provisions. Subject to the provisions of the last paragraph of Section 10.3, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee or other qualifying trustee (solely for purposes of this Section and Section 12.6, the Trustee and any such other trustee are referred to collectively as the "Trustee") pursuant to Section 12.4 in respect of the Outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any such Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities, of all sums due and to become due thereon in respect of principal and any premium and interest, but money so held in trust need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 12.4 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of Outstanding Securities. Anything in this Article to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 12.4 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect the Defeasance or Covenant Defeasance, as the case may be, with respect to the Outstanding Securities. SECTION 12.6. Reinstatement. If the Trustee or the Paying Agent is unable to apply any money in accordance with this Article with respect to any Securities by reason of any order or judgment of any court or governmental authority enjoining, restraining, or otherwise prohibiting such application, then the obligations under this Indenture, such Securities and the Guarantees from which the Company and the Guarantors have been discharged or released pursuant to Section 12.2 or 12.3 shall be revived and reinstated as though no deposit had occurred pursuant to this Article with respect to such Securities, until such time as the Trustee or Paying Agent is permitted to apply all money held in trust pursuant to Section 12.5 with respect to such Securities in accordance with this Article; provided, however, that if the Company makes any payment of principal of or any premium or interest on any such Security following such reinstatement of its obligations, the Company shall be subrogated to the rights (if any) of the Holders of such Securities to receive such payment from the money so held in trust. -81- 89 ARTICLE XIII GUARANTY SECTION 13.1. Guaranty. Each Guarantor hereby unconditionally and irrevocably guarantees on a senior subordinated basis, jointly and severally, to each Holder and to the Trustee and its successors and assigns (a) the full and prompt payment (within applicable grace periods) of principal of and interest on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under this Indenture and the Securities and (b) the full and prompt performance within applicable grace periods of all other obligations of the Company under this Indenture and the Securities (all the foregoing being hereinafter collectively called the "Guaranty Obligations"). Each Guarantor further agrees that the Guaranty Obligations may be extended or renewed, in whole or in part, without notice or further assent from such Guarantor, and that such Guarantor will remain bound under this Article XIII notwithstanding any extension or renewal of any Guaranty Obligation. To the extent that any Guarantor shall be required to pay any amounts on account of the Securities pursuant to a Guaranty in excess of an amount calculated as the product of (i) the aggregate amount payable by the Guarantors on account of the Securities pursuant to the Guarantees times (ii) the proportion (expressed as a fraction) that such Guarantor's net assets (determined in accordance with GAAP) at the date enforcement of the Guarantees is sought bears to the aggregate net assets (determined in accordance with GAAP) of all Guarantors at such date, then such Guarantor shall be reimbursed by the other Guarantors for the amount of such excess, pro rata, based upon the respective net assets (determined in accordance with GAAP) of such other Guarantors at the date enforcement of the Guarantees is sought. This paragraph is intended only to define the relative rights of Guarantors as among themselves, and nothing set forth in this paragraph is intended to or shall impair the joint and several obligations of the Guarantors under their respective Guarantees. The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under any Guaranty. Each Guarantor waives presentation to, demand of payment from and protest to the Company of any of the Guaranty Obligations and also waives notice of protest for nonpayment. Each Guarantor waives notice of any default under the Securities or the Guaranty Obligations. The obligations of each Guarantor hereunder shall not be affected by (a) the failure of any Holder or the Trustee to assert any claim or demand or to enforce any right or remedy against the Company or any other Person under this Indenture, the Securities or any other agreement or otherwise; (b) any extension or renewal of any thereof; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of this Indenture, the Securities or any other agreement; (d) the release of any Security held by any Holder or the Trustee for the Guaranty Obligations or any of them; (e) the failure of any Holder or Trustee to exercise any right or remedy against any other guarantor of the Guaranty Obligations; or (f) any change in the ownership of any Guarantor (subject to Section 13.5(b)). -82- 90 Each Guarantor further agrees that its Guaranty herein constitutes a guaranty of payment, performance and compliance when due (and not a guaranty of collection) and waives any right to require that any resort be had by any Holder or the Trustee to any Security held for payment of the Guaranty Obligations. To the fullest extent permitted by law, the obligations of each Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Guaranty Obligations or otherwise. Without limiting the generality of the foregoing, to the fullest extent permitted by law, the obligations of each Guarantor herein shall not be discharged or impaired or otherwise affected by the failure of any Holder or the Trustee to assert any claim or demand or to enforce any remedy under this Indenture, the Securities or any other agreement, by any waiver or modification of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the Guaranty Obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of such Guarantor or would otherwise operate as a discharge of each Guarantor as a matter of law or equity. Each Guarantor further agrees that its Guaranty herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Guaranty Obligation is rescinded or must otherwise be restored by any Holder or the Trustee upon the bankruptcy or reorganization of the Company or otherwise. In furtherance of the foregoing and not in limitation of any other right which any Holder or the Trustee has at law or in equity against each Guarantor by virtue hereof, upon the failure of the Company to pay the principal of or interest on any Guaranty Obligation when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise (within applicable grace periods), or to perform or comply with any other Guaranty Obligation (within applicable grace periods), each Guarantor hereby promises to and shall, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal to the sum of (i) the unpaid principal amount of such Guaranty Obligations (ii) accrued and unpaid interest on such Guaranty Obligations (but only to the extent not prohibited by law) and (iii) all other monetary Guaranty Obligations of the Company to the Holders and the Trustee. Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any Guaranty Obligations guarantied hereby until payment in full of all Guaranty Obligations. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Guaranty Obligations guarantied hereby may be accelerated as provided in Article V for the purposes of its Guaranty herein, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Guaranty Obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such Guaranty Obligations as provided in Article V, such Guaranty Obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purposes of this Section. -83- 91 Each Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys' fees and expenses) incurred by the Trustee or any Holder in enforcing any rights under this Section. SECTION 13.2. Limitation on Liability. Any term or provision of this Indenture to the contrary notwithstanding, the obligations of each Guarantor hereunder are limited to the maximum amount which, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guaranty or pursuant to its contribution obligations under this Indenture, will result in the obligations of such Guarantor under this Indenture or its Guaranty not being voidable as a fraudulent conveyance or fraudulent transfer under federal or state law. SECTION 13.3. Execution and Delivery of Guarantees; Supplemental Indentures. The Guaranty of each Guarantor shall be conclusively evidenced by the execution and delivery by such Guarantor of this Indenture. The execution and delivery of any Restricted Subsidiary of the Company that is required to become a Guarantor pursuant to Section 10.17 shall be conclusively evidenced by its execution and delivery of the supplemental indenture referred to therein. Each Guarantor hereby agrees that its Guaranty shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of such Guaranty. The delivery of any Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Guarantees on behalf of the Guarantors. SECTION 13.4. Guarantors May Consolidate, Etc., on Certain Terms. (a) Except as may be provided in Articles VIII and X, nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor or shall prevent any sale or conveyance of the assets of a Guarantor as an entirety or substantially as an entirety or the Capital Stock of a Guarantor to the Company or another Guarantor. (b) No Guarantor shall consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person (other than the Company or another Guarantor), whether or not affiliated with such Guarantor, unless, (i) subject to Section 13.5, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of such Guarantor pursuant to a supplemental indenture, substantially in the form of Exhibit C hereto, under the Securities and this Indenture; and (ii) immediately after giving effect to such transaction, no Default or Event of Default exists. In the case of any such consolidation or merger and upon the assumption by the successor Person by supplemental indenture of the applicable Guaranty, such successor Person shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. -84- 92 SECTION 13.5. Release of Guarantors. (a) Concurrently with any consolidation or merger of a Guarantor or any sale or conveyance of all or substantially all of the assets of a Guarantor, in each case as permitted by the other provisions of this Indenture (including, without limitation, Sections 10.9, 10.11 and 10.14) and as a result of which such Guarantor ceases to be a Restricted Subsidiary of the Company, upon delivery by the Company to the Trustee of an Officer's Certificate to the effect that such consolidation, merger, sale or conveyance was made in accordance with this Indenture and an Opinion of Counsel to the effect that such transaction is permitted by this Indenture (which opinion may be subject to customary assumptions and limitations), the Trustee shall execute any documents reasonably required in order to evidence the release of such Guarantor from its obligations under its Guaranty under this Article XIII. Any Guarantor not released from its obligations under its Guaranty under this Article XIII shall remain liable for the full amount of principal of and premium, if any, and interest on the Securities and for the other obligations of a Guarantor under its Guaranty under this Article XIII. (b) In the event that the Company designates a Guarantor to be an Unrestricted Subsidiary in accordance with the terms of this Indenture (including Section 10.18), then such Guarantor shall be released and relieved of any obligations under its Guaranty. SECTION 13.6. Successors and Assigns. This Article XIII shall be binding upon each Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges conferred upon that party in this Indenture and in the Securities shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Indenture. SECTION 13.7. No Waiver, etc. Neither a failure nor a delay on the part of either the Trustee or the Holders in exercising any right, power or privilege under this Article XIII shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of the Trustee and the Holders herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Article XIII at law, in equity, by statute or otherwise. SECTION 13.8. Modification, etc. No modification, amendment or waiver of any provision of this Article, nor the consent to any departure by a Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on a Guarantor in any case shall entitle such Guarantor or any other guarantor to any other or further notice or demand in the same, similar or other circumstances. -85- 93 SECTION 13.9. Subordination of Guarantees. The obligations of each Guarantor pursuant to its Guaranty and this Article XIII shall be (a) junior and subordinated in right of payment to the prior payment in full in cash of all Guarantor Senior Indebtedness of such Guarantor and (b) senior in right of payment to all existing and future Guarantor Subordinated Indebtedness of such Guarantor, in each case on the same basis as the Securities and the obligations of the Company hereunder are junior and subordinated to all Senior Indebtedness and senior in right of payment to all Subordinated Indebtedness. For the purposes of this Section 13.9, Article XIV shall apply to the obligations of each Guarantor under its Guaranty, this Article XIII and the other provisions of this Indenture as if references therein to the Company, the Securities, Senior Indebtedness, Subordinated Indebtedness and Designated Senior Indebtedness were references to such Guarantor, such Guarantor's Guaranty, Guarantor Senior Indebtedness, Guarantor Subordinated Indebtedness and Designated Guarantor Senior Indebtedness, respectively. ARTICLE XIV SUBORDINATION SECTION 14.1. Securities Subordinate to Senior Indebtedness and Senior to Subordinated Indebtedness. The Company covenants and agrees, and each Holder of a Security, by his acceptance thereof, likewise covenants and agrees that, to the extent and in the manner hereinafter set forth in this Article XIV, the Indebtedness evidenced by the Securities is hereby expressly made subordinate in right of payment to the prior payment in full in cash of all Senior Indebtedness (including Indebtedness under the Credit Facility) and senior in right of payment to all existing and future Subordinated Indebtedness of the Company. SECTION 14.2. Payment Over of Proceeds upon Dissolution, Etc. In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relating to the Company or its assets, or (b) any liquidation, dissolution or other winding-up of the Company, whether voluntary or involuntary, or (c) any assignment for the benefit of creditors or other marshaling of assets or liabilities of the Company, all Senior Indebtedness (including, in the case of Designated Senior Indebtedness, any interest accruing subsequent to the filing of a petition for bankruptcy (regardless of whether such interest is an allowed claim in the bankruptcy proceeding)) must be paid in full in cash before any direct or indirect payment (other than payments from a trust previously created pursuant to Article XII) by or on behalf of the Company of any kind or character (excluding Permitted Junior Securities) may be made on account of the principal of, premium, if any, or interest on, or the purchase, redemption or other acquisition of, the Securities. -86- 94 SECTION 14.3. No Payment When Designated Senior Indebtedness in Default. During the continuance of any default in the payment of principal, or premium, if any, or interest on any Senior Indebtedness, when the same becomes due, and after receipt by the Trustee and the Company from representatives of holders of such Senior Indebtedness of written notice of such default, no direct or indirect payment (other than payments from trusts previously created pursuant to Article XII) by or on behalf of the Company of any kind or character (excluding Permitted Junior Securities) may be made on account of the principal of, premium, if any, or interest on, or the purchase, redemption or other acquisition of, the Securities unless and until such default has been cured or waived or has ceased to exist or such Senior Indebtedness shall have been paid in full in cash or indefeasibly discharged, after which the Company shall resume making any and all required payments in respect of the Securities, including any missed payments. In addition, during the continuance of any other default with respect to any Designated Senior Indebtedness that permits, or would permit with the passage of time or the giving of notice or both, the maturity thereof to be accelerated (a "Non-payment Default") and upon the earlier to occur of (a) receipt by the Trustee and the Company from the representatives of holders of such Designated Senior Indebtedness of a written notice of such Non-payment Default or (b) if such Non-payment Default results from the acceleration of the maturity of the Securities, the date of such acceleration, no direct or indirect payment (other than payments from trusts previously created pursuant to Article XII) of any kind or character (excluding Permitted Junior Securities) may be made by the Company on account of the principal of, premium, if any, or interest on, or the purchase, redemption, or other acquisition of, the Securities for the period specified below (the "Payment Blockage Period"). The Payment Blockage Period shall commence upon the receipt of notice of a Non-payment Default by the Trustee and the Company from the representatives of holders of Designated Senior Indebtedness or the date of the acceleration referred to in clause (b) of the preceding paragraph, as the case may be, and shall end on the earliest to occur of the following events: (i) 179 days have elapsed since the receipt of such notice or the date of the acceleration referred to in clause (b) of the preceding paragraph (provided the maturity of such Designated Senior Indebtedness shall not theretofore have been accelerated), (ii) such default is cured or waived or ceases to exist or such Designated Senior Indebtedness is paid in full in cash or indefeasibly discharged, or (iii) such Payment Blockage Period shall have been terminated by written notice to the Company or the Trustee from the representatives of holders of Designated Senior Indebtedness initiating such Payment Blockage Period, after which the Company shall promptly resume making any and all required payments in respect of the Securities, including any missed payments. Only one Payment Blockage Period with respect to the Securities may be commenced within any 360 consecutive day period. No Non-payment Default with respect to Designated Senior Indebtedness that existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period will be, or can be, made the basis for the commencement of a second Payment Blockage Period, whether or not within a period of 360 consecutive days, unless such default has been cured or waived for a period of not less than 90 consecutive days. In no event will a Payment Blockage Period extend beyond 179 days from the date of the receipt by the Trustee of the notice or the date of the acceleration initiating such Payment Blockage Period, and there must -87- 95 be a 181 consecutive day period in any 360 day period during which no Payment Blockage Period is in effect. SECTION 14.4. Subrogation to Rights of Holders of Senior Indebtedness. Subject to the payment in full in cash of all Senior Indebtedness, the Holders of the Securities shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article XIV to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of, premium, if any, and interest on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article XIV, and no payments over pursuant to the provisions of this Article XIV to the holders of Senior Indebtedness by Holders of the Securities or the Trustee, shall, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness. SECTION 14.5. Provisions Solely To Define Relative Rights. The provisions of this Article XIV are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article XIV or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of, premium, if any and interest on the Securities as and when the same shall become due and payable in accordance with their terms; (b) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Securities from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article XIV of the holders of Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. SECTION 14.6. Trustee To Effectuate Subordination. Each Holder of a Security by its acceptance thereof authorizes and directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article XIV and appoints the Trustee its attorney-in-fact for any and all such purposes. SECTION 14.7. No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any -88- 96 non-compliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article XIV or the obligations hereunder of the Holders of the Securities to the holders of Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any Person liable in any manner for the collection of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. SECTION 14.8. Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article XIV or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until the Trustee shall have received written notice thereof from the Company or a holder of Senior Indebtedness or from any trustee therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 6.1, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received at its Corporate Trust Office the notice provided for in this Section at least three Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment in cash of the principal of, premium, if any or interest on any Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within three Business Days prior to such date. SECTION 14.9. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article XIV, the Trustee, subject to the provisions of Section 6.1, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and -89- 97 other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XIV. SECTION 14.10. Trustee Not Fiduciary for Holders of Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other Person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article XIV or otherwise, except in the case of gross negligence or wilful misconduct on the part of the Trustee. SECTION 14.11. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article XIV with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article XIV shall apply to claims of, or payments to, the Trustee or its agent or counsel under or pursuant to Section 6.7. SECTION 14.12. Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article XIV shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article XIV in addition to or in place of the Trustee; provided, however, that Section 14.11 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. ============================== This Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. -90- 98 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. AMERICAN PLUMBING & MECHANICAL, INC. By: /s/ DAVID BAGGETT -------------------------------------- Name: David Baggett Title: Senior Vice President, Chief Financial Officer and Secretary STATE STREET BANK AND TRUST COMPANY By: /s/ MICHAEL HOPKINS -------------------------------------- Name: Michael Hopkins Title: Vice President CHRISTIANSON ENTERPRISES, INC. G.G.R. LEASING CORPORATION CHRISTIANSON SERVICE COMPANY R.C.R. PLUMBING, INC. FRANKLIN FIRE SPRINKLER COMPANY J.A. CROSON COMPANY TEEPE'S RIVER CITY MECHANICAL, INC. KEITH RIGGS PLUMBING, INC. J.A. CROSON COMPANY OF FLORIDA POWER PLUMBING, INC. NELSON MECHANICAL CONTRACTORS, INC. SHERWOOD MECHANICAL, INC. MILLER MECHANICAL CONTRACTORS, INC. By: /s/ DAVID BAGGETT -------------------------------------- Name: David Baggett Title: Vice President, Secretary and Treasurer -91- 99 Schedule A LIST OF GUARANTORS Christianson Enterprises, Inc. G.G.R. Leasing Corporation Christianson Service Company R.C.R. Plumbing, Inc. Franklin Fire Sprinkler Company J.A. Croson Company Teepe's River City Mechanical, Inc. Keith Riggs Plumbing, Inc. J.A. Croson Company of Florida Power Plumbing, Inc. Nelson Mechanical Contractors, Inc. Sherwood Mechanical, Inc. Miller Mechanical Contractors, Inc. 100 EXHIBIT A-1 FORM OF SECURITY THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES THAT IT WILL NOT, PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY), OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) THAT PURCHASES THIS SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 (IF AVAILABLE), OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; PROVIDED THAT THE COMPANY, THE TRUSTEE, AND THE SECURITY REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. A-1-1 101 American Plumbing & Mechanical, Inc. 11 5/8% Senior Subordinated Note due 2008, Series A No. 1 $125,000,000 CUSIP NO. 0290SOAA9 American Plumbing & Mechanical, Inc., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company," which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to Cede & Co. or registered assigns, the principal sum of One Hundred Twenty-Five Million Dollars ($125,000,000) on October 15, 2008 and to pay interest thereon from October 15, 1999 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semiannually in arrears on April 15 and October 15, in each year, commencing October 15, 1999 at the rate of 11 5/8% per annum, until the principal hereof is paid or duly provided for, provided that any principal and premium, and any such installment of interest, which is overdue shall bear interest at the rate of 11 5/8% per annum (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or duly provided for. The interest so payable and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the April 1 and October 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and interest on this Security will be made at the office or agency of the Company maintained for that purpose, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that, at the option of the Company, payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register (subject to the right of certain holders to request payment by wire transfer as provided in the Indenture). Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. A-1-2 102 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed and attested. Attest: American Plumbing & Mechanical, Inc. By: - ------------------------------- ----------------------------------- Name: Name Title: Title: A-1-3 103 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY as Trustee Dated: By: ------------------------------------- Authorized Signatory A-1-4 104 FORM OF REVERSE OF SECURITY This Security is one of a duly authorized issue of Securities of the Company designated as 11 5/8% Senior Subordinated Notes due 2008, Series A (herein called the "Initial Securities"), limited in aggregate principal amount at Stated Maturity to $250,000,000 issued and to be issued under an Indenture, dated as of May 19, 1999 (herein called the "Indenture," which term shall have the meaning assigned to it in such instrument), among the Company, the Guarantors named therein and State Street Bank and Trust Company, as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. The Securities include the Initial Securities and the Exchange Securities referred to below, which may be issued in exchange for the Initial Securities pursuant to the Registration Rights Agreement. The Initial Securities and the Exchange securities are treated as a single class of securities under the Indenture. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 7aaa - 77bbbb) (the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and Holders of Securities are referred to the Indenture and the TIA for a statement of such terms. The Securities are unsecured senior subordinated obligations of the Company limited to $250,000,000. This Security is redeemable at the option of the Company, in whole or in part, at any time on or after April 15, 2004, at the Redemption Prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, thereon to the Redemption Date, if redeemed during the 12-month period beginning April 15 of the years indicated below:
Redemption Year Price ---- ---------- 2004.................................................... 106.000% 2005.................................................... 104.000% 2006.................................................... 102.000% 2007 and thereafter..................................... 100.000%
In addition, at any time, or from time to time, on or prior to April 15, 2002, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings to redeem up to an aggregate of 35% of the principal amount of the Securities originally issued, at a Redemption Price equal to 111.625% of the principal amount thereof plus accrued and unpaid interest, if any, thereon to the Redemption Date; provided, however, at least 65% of the originally issued principal amount of Securities remains outstanding immediately after the occurrence of such redemption. In order to effect the foregoing redemption with the proceeds of any Public Equity Offering, the Company must consummate such redemption not later than 60 days after the closing of any such Public Equity Offering. A-1-5 105 The Securities are not subject to any sinking fund. The Indenture provides that the Company is obligated (a) upon the occurrence of a Change in Control to make an offer to purchase all outstanding Securities at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the date of purchase and (b) to make an offer to purchase Securities with a portion of the net cash proceeds of certain sales or other dispositions of assets (not applied as specified in the Indenture within the periods set forth therein) at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. In the event of redemption or purchase of this Security in part only pursuant to a Change of Control Offer or an Asset Sale Offer, a new Security or Securities for the unredeemed or unpurchased portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Security or of certain restrictive covenants and Events of Default with respect to this Security, in each case upon compliance with certain conditions set forth in the Indenture. If an Event of Default shall occur and be continuing, there may be declared due and payable the principal of, premium, if any, and accrued and unpaid interest, if any, on all of the outstanding Securities, in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities, the Holders of not less than 25% in principal amount of the Securities at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of Securities at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to certain suits described in the Indenture, including any suit instituted by the Holder of this Security for the enforcement of A-1-6 106 any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein (or, in the case of redemption, on or after the Redemption Date or, in the case of any purchase of this Security required to be made pursuant to a Change of Control Offer or an Asset Sale Offer, on or after the relevant Purchase Date). No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in the Borough of Manhattan, The City of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. This Security is issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate principal amount of Securities of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. Pursuant to the Registration Rights Agreement by and among the Company and the Initial Purchasers, the Company will be obligated to consummate an exchange offer pursuant to which the Holder of this Security shall have the right to exchange this Security for 11 5/8% Senior Subordinated Notes due 2008, Series B, of the Company (herein called the "Exchange Securities"), which have been registered under the Securities Act, in like principal amount and having identical terms as the Initial Securities (other than as set forth in this paragraph). The Holders of Initial Securities shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. Interest on this Security shall be computed on the basis of a 360-day year of twelve 30-day months. A-1-7 107 The obligations of the Company under the Indenture and this Security are expressly subordinated to all Senior Indebtedness and senior in right of payment to all Subordinated Indebtedness, in each case to the extent set forth in Article XIV of the Indenture, and reference is hereby made to such Indenture for the precise terms of such subordination. As provided in the Indenture and subject to certain limitations therein set forth, the obligations of the Company under the Indenture and this Security are Guaranteed pursuant to Guarantees as provided in the Indenture. Each Holder, by holding this Security, agrees to all of the terms and provisions of said Guarantees. The Indenture provides that each Guarantor shall be released from its Guaranty upon compliance with certain conditions. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. The Indenture and this Security shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of laws principles thereof. A-1-8 108 ASSIGNMENT FORM If you, the Holder, want to assign this Security, fill in the form below and have your signature guaranteed: I (or we) assign and transfer this Security to - -------------------------------------------------------------------------------- (Insert assignee's social security or tax ID number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint - -------------------------------------------------------------------------------- agent to transfer this Security on the books of the Company. The agent may substitute another to act for such agent. In connection with any transfer of this Security occurring prior to the date which is the earlier of (i) the date of the declaration by the Commission of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering resales of this Security (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) the date two years (or such shorter period of time as permitted by Rule 144(k) under the Securities Act or any successor provision thereunder) after the later of the original issuance date appearing on the face of this Security (or any predecessor thereto) or the last date on which the Company or any affiliate of the Company was the owner of this Security (or any predecessor thereto), the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer and that: Please Check [ ] this Security is being transferred in compliance with the exemption from registration under the Securities Act provided by Rule 144A thereunder. If the foregoing box is not checked, the Trustee or Security Registrar shall not be obliged to register this Security in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 3.14 of the Indenture shall have been satisfied. A-1-9 109 Date: Your Signature: --------------- ------------------------------------------ (Sign exactly as your name appears on the other side of this Security) By: ---------------------------------------------- NOTICE: To be executed by an executive officer Signature Guarantee: --------------------------------------- TO BE COMPLETED BY PURCHASER IF THE BOX ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A (including the information specified in Rule 144A(d)(4)) or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Date: --------------- ------------------------------------------ NOTICE: To be executed by an executive officer A-1-10 110 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased in its entirety by the Company pursuant to Section 10.13 or 10.14 of the Indenture, check the applicable box: Section 10.13 __ Section 10.14 __ If you want to elect to have only a part of the principal amount of this Security purchased by the Company pursuant to Section 10.13 or 10.14 of the Indenture, state the portion of such amount: $___________ Date: Your Signature: --------------- ------------------------------------------ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: ---------------------------------------------------------- (Signature must be guaranteed by a financial institution that is a member of the Securities Transfer Agent Medallion Program ("STAMP"), the Stock Exchange Medallion Program ("SEMP"), the New York Stock Exchange, Inc. Medallion Signature Program ("MSP") or such other signature guarantee program as may be determined by the Security Registrar in addition to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the Securities Exchange Act of 1934, as amended.) A-1-11 111 EXHIBIT A-2 American Plumbing & Mechanical, Inc. 11 5/8% Senior Subordinated Note due 2008, Series B No. [ ] $125,000,000 CUSIP NO.__________ American Plumbing & Mechanical, Inc., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company," which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to Cede & Co. or registered assigns, the principal sum of One Hundred Twenty-Five Million Dollars ($125,000,000) on October 15, 2008 and to pay interest thereon from October 15, 1999 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semiannually in arrears on April 15 and October 15 in each year, commencing October 15, 1999 at the rate of 11 5/8% per annum, until the principal hereof is paid or duly provided for, provided that any principal and premium, and any such installment of interest, which is overdue shall bear interest at the rate of 11 5/8% per annum (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or duly provided for. The interest so payable and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the April 1 and October 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and interest on this Security will be made at the office or agency of the Company maintained for that purpose, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that, at the option of the Company, payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register (subject to the right of certain holders to request payment by wire transfer as provided in the Indenture). Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. A-2-1 112 Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed and attested. Attest: American Plumbing & Mechanical, Inc. By: - ------------------------------- ----------------------------------- Name: Name Title: Title: A-2-2 113 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee Dated: By: ---------------------------------------- Authorized Signatory A-2-3 114 FORM OF REVERSE OF SECURITIES This Security is one of a duly authorized issue of Securities of the Company designated as 11 5/8% Senior Subordinated Notes due 2008, Series B (herein called the "Exchange Securities"), limited in aggregate principal amount at Stated Maturity to $250,000,000 issued and to be issued under an Indenture, dated as of May 19, 1999 (herein called the "Indenture," which term shall have the meaning assigned to it in such instrument), among the Company, the Guarantors named therein and State Street Bank and Trust Company, as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. The Securities include the Initial Securities and the Exchange Securities, issued in exchange for the Initial Securities pursuant to the Registration Rights Agreement. The Initial Securities and the Exchange Securities are treated as a single class of securities under the Indenture. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 7aaa - 77bbbb) (the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and Holders of Securities are referred to the Indenture and the TIA for a statement of such terms. The Securities are unsecured senior subordinated obligations of the Company limited to $250,000,000. This Security is redeemable at the option of the Company, in whole or in part, at any time on or after April 15, 2004, at the Redemption Prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, thereon to the Redemption Date, if redeemed during the 12-month period beginning April 15 of the years indicated below:
Redemption Year Price ---- ---------- 2004.................................................. 106.000% 2005.................................................. 104.000% 2006.................................................. 102.000% 2007 and thereafter................................... 100.000%
In addition, at any time, or from time to time, on or prior to April 15, 2002, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings to redeem up to an aggregate of 35% of the principal amount of the Securities originally issued, at a Redemption Price equal to 111.625% of the principal amount thereof plus accrued and unpaid interest, if any, thereon to the Redemption Date; provided, however, at least 65% of the originally issued principal amount of Securities remains outstanding immediately after the occurrence of such redemption. In order to effect the foregoing redemption with the proceeds of any Public Equity Offering, the Company shall consummate such redemption not later than 60 days after the closing of any such Public Equity Offering. A-2-4 115 The Securities are not subject to any sinking fund. The Indenture provides that the Company is obligated (a) upon the occurrence of a Change in Control to make an offer to purchase all outstanding Securities at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the date of purchase and (b) to make an offer to purchase Securities with a portion of the net cash proceeds of certain sales or other dispositions of assets (not applied as specified in the Indenture within the periods set forth therein) at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. In the event of redemption or purchase of this Security in part only pursuant to a Change of Control Offer or an Asset Sale Offer, a new Security or Securities for the unredeemed or unpurchased portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Security or of certain restrictive covenants and Events of Default with respect to this Security, in each case upon compliance with certain conditions set forth in the Indenture. If an Event of Default shall occur and be continuing, there may be declared due and payable the principal of, premium, if any, and accrued and unpaid interest, if any, on all of the outstanding Securities, in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities, the Holders of not less than 25% in principal amount of the Securities at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of Securities at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to certain suits described in the Indenture, including any suit instituted by the Holder of this Security for the enforcement of A-2-5 116 any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein (or, in the case of redemption, on or after the Redemption Date or, in the case of any purchase of this Security required to be made pursuant to a Change of Control Offer or an Asset Sale Offer, on or after the relevant Purchase Date). No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. The obligations of the Company under the Indenture and this Security are expressly subordinated to all Senior Indebtedness, in each case to the extent set forth in Article XIV of the Indenture, and reference is hereby made to such Indenture for the precise terms of such subordination. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in the Borough of Manhattan, The City of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. This Security is issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate principal amount of Securities of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. Interest on this Security shall be computed on the basis of a 360-day year of twelve 30-day months. As provided in the Indenture and subject to certain limitations therein set forth, the obligations of the Company under the Indenture and this Security are Guaranteed pursuant to Guarantees as provided in the Indenture. Each Holder, by holding this Security, agrees to all of the terms and provisions of said Guarantees. The Indenture provides that each Guarantor shall be released from its Guaranty upon compliance with certain conditions. A-2-6 117 All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. The Indenture and this Security shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of laws principles thereof. A-2-7 118 ASSIGNMENT FORM If you, the Holder, want to assign this Security, fill in the form below and have your signature guaranteed: If you, the Holder, want to assign this Security, fill in the form below and have your signature guaranteed: I (or we) assign and transfer this Security to - -------------------------------------------------------------------------------- (Insert assignee's social security or tax ID number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint - -------------------------------------------------------------------------------- agent to transfer this Security on the books of the Company. The agent may substitute another to act for such agent. Date: Your Signature: --------------- ------------------------------------------ (Sign exactly as your name appears on the other side of this Security) By: ---------------------------------------------- NOTICE: To be executed by an executive officer Signature Guarantee: --------------------------------------- A-2-8 119 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased in its entirety by the Company pursuant to Section 10.13 or 10.14 of the Indenture, check the applicable box: Section 10.13 __ Section 10.14 __ If you want to elect to have only a part of the principal amount of this Security purchased by the Company pursuant to Section 10.13 or 10.14 of the Indenture, state the portion of such amount: $_______________ Date: Your Signature: --------------- ------------------------------------------ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: ---------------------------------------------------------- (Signature must be guaranteed by a financial institution that is a member of the Securities Transfer Agent Medallion Program ("STAMP"), the Stock Exchange Medallion Program ("SEMP"), the New York Stock Exchange, Inc. Medallion Signature Program ("MSP") or such other signature guarantee program as may be determined by the Security Registrar in addition to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the Securities Exchange Act of 1934, as amended.) A-2-9 120 EXHIBIT B FORM OF LEGEND FOR BOOK-ENTRY SECURITIES Any Global Security authenticated and delivered hereunder shall bear a legend (which would be in addition to any other legends required in the case of a Restricted Security) in substantially the following form: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("D.T.C."), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF D.T.C. (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF D.T.C.), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. B-1 121 EXHIBIT C FORM OF SUPPLEMENTAL INDENTURE RELATING TO ADDITIONAL GUARANTORS SUPPLEMENTAL INDENTURE This SUPPLEMENTAL INDENTURE, dated as of __________ ___, ____, is among American Plumbing & Mechanical, Inc., a Delaware corporation (the "Company"), each of the parties identified under the caption "Guarantors" on the signature page hereto (the "Guarantors") and State Street Bank and Trust Company, as Trustee. RECITALS WHEREAS, the Company, the subsidiaries of the Company named therein and the Trustee entered into an Indenture, dated as of May 19, 1999 (as amended or supplemented, the "Indenture"), pursuant to which the Company has originally issued $125,000,000 in principal amount of 11 5/8% Senior Subordinated Notes due 2008 (the "Securities"); and WHEREAS, Section 9.1(i) of the Indenture provides that the Company and the Trustee may amend or supplement the Indenture in order to execute and deliver a guarantee (a "Guarantee") to comply with Section 10.17 thereof without the consent of the Holders of the Securities; and WHEREAS, all acts and things prescribed by the Indenture, by law and by the certificate of incorporation and the bylaws (or comparable constituent documents) of the Company, of the Guarantors and of the Trustee necessary to make this Supplemental Indenture a valid instrument legally binding on the Company, the Guarantors and the Trustee, in accordance with its terms, have been duly done and performed; NOW, THEREFORE, to comply with the provisions of the Indenture and in consideration of the above premises, the Company, the Guarantors and the Trustee covenant and agree for the equal and proportionate benefit of the respective Holders of the Securities as follows: ARTICLE 1 Section 1.01. This Supplemental Indenture is supplemental to the Indenture and does and shall be deemed to form a part of, and shall be construed in connection with and as part of, the Indenture for any and all purposes. Section 1.02. This Supplemental Indenture shall become effective immediately upon its execution and delivery by each of the Company, the Guarantors and the Trustee. C-1 122 ARTICLE 2 From this date, in accordance with Section 10.17 and by executing this Supplemental Indenture, the Guarantors whose signatures appear below are Guarantors for all purposes under the Indenture and are subject to the provisions of the Indenture to the extent provided for in Article XIII thereunder. ARTICLE 3 Section 3.01. Except as specifically modified herein, the Indenture and the Securities are in all respects ratified and confirmed (mutatis mutandis) and shall remain in full force and effect in accordance with their terms with all capitalized terms used herein without definition having the same respective meanings ascribed to them as in the Indenture. Section 3.02. Except as otherwise expressly provided herein, no duties, responsibilities or liabilities are assumed, or shall be construed to be assumed, by the Trustee by reason of this Supplemental Indenture. This Supplemental Indenture is executed and accepted by the Trustee subject to all the terms and conditions set forth in the Indenture with the same force and effect as if those terms and conditions were repeated at length herein and made applicable to the Trustee with respect hereto. Section 3.03. THE LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE AND ENFORCE THIS SUPPLEMENTAL INDENTURE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Section 3.04. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of such executed copies together shall represent the same agreement. [NEXT PAGE IS SIGNATURE PAGE] C-2 123 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first written above. AMERICAN PLUMBING & MECHANICAL, INC. By -------------------------------------- Name: Title: GUARANTORS [ ] By -------------------------------------- Name: Title: STATE STREET BANK AND TRUST COMPANY, as Trustee By -------------------------------------- Name: Title: C-3 EX-4.2 6 REGISTRATION RIGHTS AGREEMENT DATED 5/19/99 1 EXHIBIT 4.2 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made and entered into this 19th day of May 1999, among American Plumbing & Mechanical Inc., a Delaware corporation (the "Company"), the Guarantors named on Schedule A hereto (the "Guarantors") and Fleet Securities, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc One Capital Markets, Inc. and Credit Lyonnais Securities (USA) Inc. (collectively, the "Initial Purchasers"). This Agreement is made pursuant to the Purchase Agreement, dated May 12, 1999, among the Company, the Guarantors and the Initial Purchasers (the "Purchase Agreement"), which provides for the sale by the Company and the Guarantors to the Initial Purchasers of an aggregate of $125 million principal amount of the Company's 11 5/8% Senior Subordinated Notes due 2008, Series A (the "Notes"), together with the related guarantees of such Notes by the Guarantors (the Guarantees, and together with the Notes, the "Securities"). In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company and the Guarantors have agreed to provide to the Initial Purchasers and their direct and indirect transferees the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the Purchase Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "1933 Act" shall mean the Securities Act of 1933, as amended from time to time. "1934 Act" shall mean the Securities Exchange Act of l934, as amended from time to time. "Closing Date" shall mean the Closing Time as defined in the Purchase Agreement. "Company" shall have the meaning set forth in the preamble and shall also include the Company's successors. "Depositary" shall mean The Depository Trust Company, or any other depositary appointed by the Company, provided, however, that such depositary must have an address in the Borough of Manhattan, in the City of New York. "Exchange Offer" shall mean the offer by the Company and the Guarantors to exchange Exchange Securities for Registrable Securities pursuant to Section 2.1 hereof. "Exchange Offer Registration" shall mean a registration under the 1933 Act effected pursuant to Section 2.1 hereof. "Exchange Offer Registration Statement" shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, including the Prospectus contained therein, all exhibits thereto and all documents incorporated by reference therein. "Exchange Period" shall have the meaning set forth in Section 2.1 hereof. 2 "Exchange Securities" shall mean the 11 5/8% Senior Subordinated Notes due 2009, Series B and related guarantees issued by the Company and the Guarantors under the Indenture containing terms identical to the Securities in all material respects (except for references to certain interest rate provisions, restrictions on transfers and restrictive legends), to be offered to Holders of Securities in exchange for Registrable Securities pursuant to the Exchange Offer. "Guarantors" has the meaning set forth in the preamble, and shall include any additional guarantors of the Notes added pursuant to the Indenture. "Holder" shall mean an Initial Purchaser, for so long as it owns any Registrable Securities, and each of its successors, assigns and direct and indirect transferees who become registered owners of Registrable Securities under the Indenture and each Participating Broker-Dealer that holds Exchange Securities for so long as such Participating Broker-Dealer is required to deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Securities. "Indenture" shall mean the Indenture relating to the Securities, dated as of May 19, 1999, among the Company, the Guarantors and State Street Bank and Trust Company, as trustee, as the same may be amended, supplemented, waived or otherwise modified from time to time in accordance with the terms thereof. "Initial Purchaser" or "Initial Purchasers" shall have the meaning set forth in the preamble. "Majority Holders" shall mean the Holders of a majority of the aggregate principal amount of Outstanding (as defined in the Indenture) Registrable Securities; provided, however, that whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company and other obligors on the Securities or any Affiliate (as defined in the Indenture) of the Company shall be disregarded in determining whether such consent or approval was given by the Holders of such required percentage amount. "Notes" shall have the meaning set forth in the preamble. "Participating Broker-Dealer" shall mean any of Fleet Securities, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc One Capital Markets, Inc. and Credit Lyonnais Securities (USA) Inc. and any other broker-dealer which makes a market in the Securities and exchanges Registrable Securities in the Exchange Offer for Exchange Securities. "Person" shall mean an individual, partnership (general or limited), corporation, limited liability company, trust or unincorporated organization, or a government or agency or political subdivision thereof. "Private Exchange" shall have the meaning set forth in Section 2.1 hereof. "Private Exchange Securities" shall have the meaning set forth in Section 2.1 hereof. "Prospectus" shall mean the prospectus included in a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including any such prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all other amendments and supplements to a prospectus, including post-effective amendments, and in each case including all information incorporated by reference therein. "Purchase Agreement" shall have the meaning set forth in the preamble. -2- 3 "Registrable Securities" shall mean the Securities and, if issued, the Private Exchange Securities; provided, however, that the Securities and, if issued, the Private Exchange Securities, shall cease to be Registrable Securities when (i) a Registration Statement with respect to such Securities shall have been declared effective under the 1933 Act and such Securities shall have been disposed of pursuant to such Registration Statement, (ii) such Securities have been sold to the public pursuant to Rule l44 under the 1933 Act or have become eligible for resale without restriction pursuant to Rule 144(k) under the 1933 Act (in each case, or any similar provision then in force, but not Rule 144A), (iii) such Securities shall have ceased to be outstanding or (iv) such Securities have been exchanged for freely tradeable Exchange Securities in the Exchange Offer (except in the case of Securities purchased from the Company and continued to be held by the Initial Purchasers). "Registration Expenses" shall mean any and all expenses incident to performance of or compliance by the Company with this Agreement, including without limitation: (i) all SEC, stock exchange or National Association of Securities Dealers, Inc. (the "NASD") registration and filing fees, including, if applicable, the fees and expenses of any "qualified independent underwriter" (and its counsel) that is required to be retained by any holder of Registrable Securities in accordance with the rules and regulations of the NASD, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws and compliance with the rules of the NASD (including reasonable fees and disbursements of counsel for any underwriters or Holders in connection with blue sky qualification of any of the Exchange Securities or Registrable Securities and any filings with the NASD), (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, (iv) all fees and expenses incurred in connection with the listing, if any, of any of the Registrable Securities on any securities exchange or exchanges, (v) all rating agency fees, (vi) the fees and disbursements of counsel for the Company and of the independent public accountants of the Company, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, (vii) the fees and expenses of the Trustee, and any escrow agent or custodian, (viii) the reasonable fees and expenses of the Initial Purchasers in connection with the Exchange Offer, including the reasonable fees and expenses of counsel to the Initial Purchasers in connection therewith, (ix) the reasonable fees and disbursements of one counsel representing the Majority Holders and (x) any reasonable fees and disbursements of the underwriters customarily required to be paid by issuers or sellers of securities and the fees and expenses of any special experts retained by the Company in connection with any Registration Statement, but excluding underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder. "Registration Statement" shall mean any registration statement of the Company which covers any of the Exchange Securities or Registrable Securities pursuant to the provisions of this Agreement, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "SEC" shall mean the Securities and Exchange Commission or any successor agency or government body performing the functions currently performed by the United States Securities and Exchange Commission. "Securities" shall have the meaning set forth in the preamble. "Shelf Registration" shall mean a registration effected pursuant to Section 2.2 hereof. "Shelf Registration Statement" shall mean a "shelf" registration statement of the Company pursuant to the provisions of Section 2.2 of this Agreement which covers all of the Registrable Securities or all of the Private Exchange Securities on an appropriate form under Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. -3- 4 "Suspension Period" shall have the meaning set forth in Section 2.2(b). "Trustee" shall mean the trustee with respect to the Securities under the Indenture. 2. Registration Under the 1933 Act. 2.1 Exchange Offer. The Company and the Guarantors shall, for the benefit of the Holders, at the Company's cost, (A) prepare and, as soon as practicable but not later than 60 days following the Closing Date, file with the SEC an Exchange Offer Registration Statement on an appropriate form under the 1933 Act with respect to a proposed Exchange Offer and the issuance and delivery to the Holders, in exchange for the Registrable Securities (other than Private Exchange Securities), of a like principal amount of Exchange Securities, (B) use their reasonable best efforts to cause the Exchange Offer Registration Statement to be declared effective under the 1933 Act within 150 days of the Closing Date, (C) use their reasonable best efforts to keep the Exchange Offer Registration Statement effective until the closing of the Exchange Offer and (D) use their reasonable best efforts to cause the Exchange Offer to be consummated not later than 180 days following the Closing Date. The Exchange Securities will be issued under the Indenture. Upon the effectiveness of the Exchange Offer Registration Statement, the Company and the Guarantors shall promptly commence the Exchange Offer, it being the objective of such Exchange Offer to enable each Holder eligible and electing to exchange Registrable Securities for Exchange Securities (assuming that such Holder (a) is not an affiliate of the Company within the meaning of Rule 405 under the 1933 Act, (b) is not a broker-dealer tendering Registrable Securities acquired directly from the Company for its own account, (c) acquired the Registrable Securities in the ordinary course of such Holder's business and (d) has no arrangements or understandings with any Person to participate in the Exchange Offer for the purpose of distributing the Exchange Securities) to transfer such Exchange Securities from and after their receipt without any limitations or restrictions under the 1933 Act or under state securities or blue sky laws. In connection with the Exchange Offer, the Company shall: (a) mail as promptly as practicable to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Exchange Offer open for acceptance for a period of not less than 30 calendar days after the date notice thereof is mailed to the Holders (or longer if required by applicable law) (such period referred to herein as the "Exchange Period"); (c) utilize the services of the Depositary for the Exchange Offer; (d) permit Holders to withdraw tendered Registrable Securities at any time prior to 5:00 p.m. (Eastern Time) on the last business day of the Exchange Period, by sending to the institution specified in the notice a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Registrable Securities delivered for exchange, and a statement that such Holder is withdrawing such Holder's election to have such Securities exchanged; (e) notify each Holder that any Registrable Security not tendered will remain outstanding and continue to accrue interest, but will not retain any rights under this Agreement (except in the case of the Initial Purchasers and Participating Broker-Dealers as provided herein); and -4- 5 (f) otherwise comply in all respects with all applicable laws relating to the Exchange Offer. If, prior to consummation of the Exchange Offer, the Initial Purchasers hold any Securities acquired by them and having the status of an unsold allotment in the initial distribution, the Company and the Guarantors upon the request of any Initial Purchaser shall, simultaneously with the delivery of the Exchange Securities in the Exchange Offer, issue and deliver to such Initial Purchaser in exchange (the "Private Exchange") for the Securities held by such Initial Purchaser, a like principal amount of debt securities of the Company and related guarantees by the Guarantors that are identical (except that such securities shall bear appropriate transfer restrictions) to the Exchange Securities (the "Private Exchange Securities"). The Exchange Securities and the Private Exchange Securities shall be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture and which, in either case, has been qualified under the Trust Indenture Act of 1939, as amended (the "TIA"), or is exempt from such qualification and shall provide that the Exchange Securities shall not be subject to the transfer restrictions applicable to the Registrable Securities set forth in the Indenture but that the Private Exchange Securities shall be subject to such transfer restrictions. The Indenture or such indenture shall provide that the Exchange Securities, the Private Exchange Securities and the Securities shall vote and consent together on all matters as one class and that none of the Exchange Securities, the Private Exchange Securities or the Securities will have the right to vote or consent as a separate class on any matter. The Private Exchange Securities shall be of the same series as and the Company shall use all commercially reasonable efforts to have the Private Exchange Securities bear the same CUSIP number as the Exchange Securities. The Company shall not have any liability under this Agreement solely as a result of such Private Exchange Securities not bearing the same CUSIP number as the Exchange Securities. As soon as practicable after the close of the Exchange Offer and/or the Private Exchange, as the case may be, the Company and the Guarantors shall: (i) accept for exchange all Registrable Securities duly tendered and not validly withdrawn pursuant to the Exchange Offer in accordance with the terms of the Exchange Offer Registration Statement and the letter of transmittal which shall be an exhibit thereto; (ii) accept for exchange all Securities properly tendered pursuant to the Private Exchange; (iii) deliver to the Trustee for cancellation all Registrable Securities so accepted for exchange; and (iv) cause the Trustee promptly to authenticate and deliver Exchange Securities or Private Exchange Securities, as the case may be, to each Holder of Registrable Securities so accepted for exchange in a principal amount equal to the principal amount of the Registrable Securities of such Holder so accepted for exchange. Interest on each Exchange Security and Private Exchange Security will accrue from the last date on which interest was paid on the Registrable Securities surrendered in exchange therefor or, if no interest has been paid on the Registrable Securities, from the date of original issuance. The Exchange Offer and the Private Exchange shall not be subject to any conditions, other than (i) that the Exchange Offer or the Private Exchange, or the making of any exchange by a Holder, does not violate applicable law or any applicable interpretation of the staff of the SEC, (ii) the due tendering of Registrable Securities in accordance with the Exchange Offer and the Private Exchange, (iii) that each Holder of Registrable Securities exchanged in the Exchange Offer shall have represented that all Exchange Securities to be received by it shall be acquired in the ordinary course of its business and that at the time of the consummation of the Exchange Offer it shall have no arrangement or understanding -5- 6 with any person to participate in the distribution (within the meaning of the 1933 Act) of the Exchange Securities and shall have made such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to render the use of Form S-4 or other appropriate form under the 1933 Act available and (iv) that no action or proceeding shall have been instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer or the Private Exchange which, in the Company's judgment, would reasonably be expected to impair the ability of the Company to proceed with the Exchange Offer or the Private Exchange. The Company shall inform the Initial Purchasers of the names and addresses of the Holders to whom the Exchange Offer is made, and the Initial Purchasers shall have the right to contact such Holders and otherwise facilitate the tender of Registrable Securities in the Exchange Offer. 2.2 Shelf Registration. (i) If, because of any changes in law, SEC rules or regulations or applicable interpretations thereof by the staff of the SEC, the Company is not permitted to effect the Exchange Offer as contemplated by Section 2.1 hereof, (ii) if for any other reason the Exchange Offer Registration Statement is not declared effective within 150 days following the original issue of the Registrable Securities or the Exchange Offer is not consummated within 180 days after the original issue of the Registrable Securities, (iii) upon the request of any of the Initial Purchasers or (iv) if a Holder is not permitted to participate in the Exchange Offer or does not receive fully tradeable Exchange Securities pursuant to the Exchange Offer, then in case of each of clauses (i) through (iv) the Company and the Guarantors shall, at the Company's cost: (a) As promptly as practicable, file with the SEC, and thereafter shall use their reasonable best efforts to cause to be declared effective as promptly as practicable but no later than 150 days after the date the obligation to file the Shelf Registration Statement arises, a Shelf Registration Statement relating to the offer and sale of the Registrable Securities by the Holders from time to time in accordance with the methods of distribution elected by the Majority Holders participating in the Shelf Registration and set forth in such Shelf Registration Statement. (b) Use their reasonable best efforts to keep the Shelf Registration Statement continuously effective in order to permit the Prospectus forming part thereof to be usable by Holders for a period of two years from the date the Shelf Registration Statement is declared effective by the SEC, or for such shorter period that will terminate when all Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement or cease to be outstanding or otherwise cease to be Registrable Securities (the "Effectiveness Period"); provided, however, that the Effectiveness Period in respect of the Shelf Registration Statement shall be extended to the extent required to permit dealers to comply with the applicable prospectus delivery requirements of Rule 174 under the 1933 Act and as otherwise provided herein; and provided, further, that the Company and the Guarantors shall not be obligated to keep the Shelf Registration Statement effective or to permit the use of any Prospectus forming a part of the Shelf Registration Statement if (A) the Company determines, in its reasonable judgment, upon advice of counsel, that the continued effectiveness and use of the Shelf Registration Statement would (x) require the disclosure of material information which the Company has a bona fide business reason for preserving as confidential, or (y) interfere with any financing, acquisition, corporate reorganization or other material transaction involving the Company or any of its subsidiaries, and provided, further, that the failure to keep the Shelf Registration Statement effective and usable for offers and sales of Registrable Securities for such reasons shall last no longer than an aggregate of 30 days in any consecutive twelve-month period (whereafter a Registration Default, as defined in Section 2.5, shall occur), and (B) the Company promptly thereafter complies with the requirements of Section 3(k) hereof, if applicable (any such period during which the Company is excused from keeping the Shelf Registration Statement effective and usable for offers and sales of Registrable Securities is referred to herein as a "Suspension Period", and a Suspension Period shall commence on and include the date that the Company gives notice to the Holders that the Shelf Registration Statement is no longer effective or the prospectus included therein is no longer usable for offers and sales of Registrable Securities as a result of the foregoing provisions and shall end on the earlier to occur of the date -6- 7 on which each seller of Registrable Securities covered by the Shelf Registration Statement either receives the copies of the supplemented or amended prospectus contemplated by Section 3(k) hereof or is advised in writing by the Company that use of the prospectus may be resumed); and (c) use their reasonable best efforts to ensure that (i) any Shelf Registration Statement and any amendment thereto and any Prospectus forming part thereof and any supplement thereto complies in all material respects with the 1933 Act and the rules and regulations thereunder, (ii) any Shelf Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) subject to Section 2(b) above, any Prospectus forming part of any Shelf Registration Statement, and any supplement to such Prospectus (as amended or supplemented from time to time), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in light of the circumstances under which they were made, not misleading. The Company shall not permit any securities other than Registrable Securities to be included in the Shelf Registration Statement. The Company and the Guarantors further agree, if necessary, to supplement or amend the Shelf Registration Statement, as required by Section 3(b) below, and to furnish to the Holders of Registrable Securities copies of any such supplement or amendment promptly after its being used or filed with the SEC. 2.3 Expenses. The Company shall pay all Registration Expenses in connection with the registration pursuant to Section 2.1 or 2.2. Each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to the Shelf Registration Statement. 2.4 Effectiveness. (a) The Company and the Guarantors will be deemed not to have used their reasonable best efforts to cause the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, to become, or to remain, effective during the requisite period if they voluntarily take any action that would, or omits to take any action which omission would, result in any such Registration Statement not being declared effective or in the Holders of Registrable Securities covered thereby not being able to exchange or offer and sell such Registrable Securities during that period as and to the extent contemplated hereby, unless such action is required by applicable law. (b) An Exchange Offer Registration Statement pursuant to Section 2.1 hereof or a Shelf Registration Statement pursuant to Section 2.2 hereof will not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that if, after it has been declared effective, the offering of Registrable Securities pursuant to an Exchange Offer Registration Statement or a Shelf Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Registration Statement will be deemed not to have become effective during the period of such interference, until the offering of Registrable Securities pursuant to such Registration Statement may legally resume. 2.5 Additional Interest. The Indenture executed in connection with the Securities will provide that in the event that either (a) the Exchange Offer Registration Statement is not filed with the Commission on or prior to the 60th calendar day following the date of original issue of the Securities, (b) the Exchange Offer Registration Statement has not been declared effective on or prior to the 150th calendar day following the date of original issue of the Securities , (c) the Exchange Offer is not consummated on or prior to the 180th calendar day following the date of original issue of the Securities or a Shelf Registration Statement is not declared effective prior to the 150th day following the date the obligation to file such Shelf Registration Statement arises or (d) after the Shelf Registration Statement has been filed and declared effective, the Shelf Registration Statement is -7- 8 unusable by the Holders for any reason during the Effectiveness Period, and the aggregate number of days in any consecutive twelve-month period for which the Shelf Registration Statement shall not be usable exceeds 30 days in the aggregate (each such event referred to in clauses (a) through (d) above, a "Registration Default"), the interest rate borne by the Registrable Securities shall be increased ("Additional Interest") by 0.25% per annum upon the occurrence of each Registration Default, which rate will increase by 0.25% per annum each 90-day period that such Additional Interest continues to accrue under any such circumstance, provided that the maximum aggregate increase in the interest rate will in no event exceed 0.50% per annum. Additional Interest shall be computed based on the actual number of days elapsed in each period in which a Registration Default occurs. Following the cure of all Registration Defaults the accrual of Additional Interest will cease and the interest rate will revert to the original rate. The Company shall notify the Trustee within three business days after each and every date on which an event occurs in respect of which Additional Interest is required to be paid (an "Event Date"). Additional Interest shall be paid by depositing with the Trustee, in trust, for the benefit of the Holders of Registrable Securities, on or before the applicable semiannual interest payment date, immediately available funds in sums sufficient to pay the Additional Interest then due. The Additional Interest due shall be payable on each interest payment date to the record Holder of Securities entitled to receive the interest payment to be paid on such date as set forth in the Indenture. Each obligation to pay Additional Interest shall be deemed to accrue from and including the day following the applicable Event Date. 3. Registration Procedures. In connection with the obligations of the Company with respect to Registration Statements pursuant to Sections 2.1 and 2.2 hereof, the Company (and, as necessary, the Guarantors) shall: (a) prepare and file with the SEC a Registration Statement, within the relevant time period specified in Section 2, on the appropriate form under the 1933 Act, which form (i) shall be selected by the Company, (ii) shall, in the case of a Shelf Registration, be available for the sale of the Registrable Securities by the selling Holders thereof, (iii) shall comply as to form in all material respects with the requirements of the applicable form and include or incorporate by reference all financial statements required by the SEC to be filed therewith or incorporated by reference therein, and (iv) shall comply in all respects with the requirements of Regulation S-T under the 1933 Act, and use its reasonable best efforts to cause such Registration Statement to become effective and remain effective in accordance with Section 2 hereof; (b) prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary under applicable law to keep such Registration Statement effective for the applicable period; and cause each Prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provision then in force) under the 1933 Act and comply with the provisions of the 1933 Act, the 1934 Act and the rules and regulations thereunder applicable to them with respect to the disposition of all securities covered by each Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the selling Holders thereof (including sales by any Participating Broker-Dealer); (c) in the case of a Shelf Registration, (i) notify each Holder of Registrable Securities, at least five business days prior to filing, that a Shelf Registration Statement with respect to the Registrable Securities is being filed and advising such Holders that the distribution of Registrable Securities will be made in accordance with the method selected by the Majority Holders participating in the Shelf Registration; (ii) furnish to each Holder of Registrable Securities and to each underwriter of an underwritten offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, including each preliminary Prospectus, and any amendment or supplement thereto and such other -8- 9 documents as such Holder or underwriter may reasonably request, including financial statements and schedules, in order to facilitate the public sale or other disposition of the Registrable Securities; and (iii) hereby consent to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders of Registrable Securities in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto; (d) use its reasonable best efforts to register or qualify the Registrable Securities under all applicable state securities or "blue sky" laws of such jurisdictions as any Holder of Registrable Securities covered by a Registration Statement and each underwriter of an underwritten offering of Registrable Securities shall reasonably request by the time the applicable Registration Statement is declared effective by the SEC, and do any and all other acts and things which may be reasonably necessary or advisable to enable each such Holder and underwriter to consummate the disposition in each such jurisdiction of such Registrable Securities owned by such Holder; provided, however, that the Company shall not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), or (ii) take any action which would subject it to general service of process or taxation in any such jurisdiction where it is not then so subject; (e) notify promptly each Holder of Registrable Securities included in a Shelf Registration or any Participating Broker-Dealer who has notified the Company that it is utilizing the Exchange Offer Registration Statement as provided in paragraph (f) below and, if requested by such Holder or Participating Broker-Dealer, confirm such advice in writing promptly (i) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (ii) of any request by the SEC or any state securities authority for post-effective amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) of the happening of any event or the discovery of any facts during the period a Shelf Registration Statement is effective which makes any statement made in such Registration Statement or the related Prospectus untrue in any material respect or which requires the making of any changes in such Registration Statement or Prospectus in order to make the statements therein not misleading or to include omitted material information, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities or the Exchange Securities, as the case may be, for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (vi) of any determination by the Company that a post-effective amendment to such Registration Statement would be appropriate; (f) (A) in the case of the Exchange Offer Registration Statement (i) include in the Exchange Offer Registration Statement a section entitled "Plan of Distribution", and which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that holds Registrable Securities acquired for its own account as a result of market-making activities or other trading activities and that will be the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Securities to be received by such broker-dealer in the Exchange Offer, whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies represent the prevailing views of the staff of the SEC, including a statement that any such broker-dealer who receives Exchange Securities for Registrable Securities pursuant to the Exchange Offer may be deemed a statutory underwriter and must deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Securities, (ii) furnish to each Participating Broker-Dealer who has delivered to the Company the notice referred to in Section 3(e), without charge, as many copies of each Prospectus included in the Exchange Offer Registration Statement, including any preliminary prospectus, and any amendment or supplement thereto, as such Participating Broker-Dealer may reasonably request, (iii) hereby consent to the use of the Prospectus forming part of the Exchange Offer Registration Statement or any -9- 10 amendment or supplement thereto, by any Person subject to the prospectus delivery requirements of the SEC, including all Participating Broker-Dealers, in connection with the sale or transfer of the Exchange Securities covered by the Prospectus or any amendment or supplement thereto (except during any Suspension Period), and (iv) include in the transmittal letter or similar documentation to be executed by an exchange offeree in order to participate in the Exchange Offer (x) the following provision: "If the exchange offeree is a broker-dealer holding Registrable Securities acquired for its own account as a result of market-making activities or other trading activities, it will deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of Exchange Securities received in respect of such Registrable Securities pursuant to the Exchange Offer;" and (y) a statement to the effect that by a broker-dealer making the acknowledgment described in clause (x) and by delivering a Prospectus in connection with the exchange of Registrable Securities, the broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the 1933 Act; and (B) in the case of any Exchange Offer Registration Statement, the Company agrees to deliver to the Initial Purchasers on behalf of the Participating Broker-Dealers upon the effectiveness of the Exchange Offer Registration Statement (i) an opinion of counsel or opinions of counsel substantially in the form attached hereto as Exhibit A, (ii) officers' certificates substantially in the form customarily delivered in a public offering of debt securities and (iii) a comfort letter or comfort letters in customary form to the extent permitted by Statement on Auditing Standards No. 72 of the American Institute of Certified Public Accountants (or if such a comfort letter is not permitted, an agreed upon procedures letter in customary form) from the Company's independent certified public accountants (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements are, or are required to be, included in the Registration Statement) at least as broad in scope and coverage as the comfort letter or comfort letters delivered to the Initial Purchasers in connection with the initial sale of the Securities to the Initial Purchasers; (g) (i) in the case of an Exchange Offer, furnish counsel for the Initial Purchasers and (ii) in the case of a Shelf Registration, furnish counsel for the Holders of Registrable Securities copies of any comment letters received from the SEC or any other request by the SEC or any state securities authority for amendments or supplements to a Registration Statement and Prospectus or for additional information; (h) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment; (i) in the case of a Shelf Registration, furnish to each Holder of Registrable Securities, and each underwriter, if any, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment thereto, including financial statements and schedules (without documents incorporated therein by reference and all exhibits thereto, unless requested); (j) in the case of a Shelf Registration, cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations (consistent with the provisions of the Indenture) and registered in such names as -10- 11 the selling Holders or the underwriters, if any, may reasonably request at least three business days prior to the closing of any sale of Registrable Securities; (k) in the case of a Shelf Registration, upon the occurrence of any event or the discovery of any facts, each as contemplated by Sections 3(e)(iv) and 3(e)(v) hereof, as promptly as practicable after the occurrence of such an event, subject to Section 2.2(b), use its reasonable best efforts to prepare a supplement or post-effective amendment to the Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities or Participating Broker-Dealers, such Prospectus will not contain at the time of such delivery any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or will remain so qualified. At such time as such public disclosure is otherwise made or the Company determines that such disclosure is not necessary, in each case to correct any misstatement of a material fact or to include any omitted material fact, the Company agrees promptly to notify each Holder of such determination and to furnish each Holder such number of copies of the Prospectus as amended or supplemented, as such Holder may reasonably request; (l) in the case of a Shelf Registration, a reasonable time prior to the filing of any Registration Statement, any Prospectus, any amendment to a Registration Statement or amendment or supplement to a Prospectus or any document which is to be incorporated by reference into a Registration Statement or a Prospectus after initial filing of a Registration Statement, provide copies of such document to the Initial Purchasers on behalf of such Holders; and make representatives of the Company as shall be reasonably requested by the holders of a majority of the Registrable Securities being sold, or the Initial Purchasers on behalf of such Holders, available for discussion of such document; (m) obtain a CUSIP number for all Exchange Securities, Private Exchange Securities or Registrable Securities, as the case may be, not later than the effective date of a Registration Statement, and provide the Trustee with printed certificates for the Exchange Securities, Private Exchange Securities or the Registrable Securities, as the case may be, in a form eligible for deposit with the Depositary; (n) (i) cause the Indenture to be qualified under the TIA in connection with the registration of the Exchange Securities or Registrable Securities, as the case may be, (ii) cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA and (iii) execute, and use its reasonable best efforts to cause the Trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner; (o) in the case of a Shelf Registration, enter into agreements (including underwriting agreements) and take all other customary and appropriate actions reasonably required in order to expedite or facilitate the disposition of such Registrable Securities: (i) make such representations and warranties to the Holders of such Registrable Securities and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in similar underwritten offerings as may be reasonably requested by them; (ii) if requested by the managing underwriters, obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and the holders of a majority in principal amount of the Registrable Securities being sold) addressed to each selling -11- 12 Holder and the underwriters, if any, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters; (iii) if requested by the managing underwriters, obtain "cold comfort" letters and updates thereof from the Company's independent certified public accountants (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements are, or are required to be, included in the Registration Statement) addressed to the underwriters, if any, and use reasonable efforts to have such letter addressed to the selling Holders of Registrable Securities (to the extent consistent with Statement on Auditing Standards No. 72 of the American Institute of Certified Public Accounts), such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters to underwriters in connection with similar underwritten offerings; (iv) enter into a securities sales agreement with the Holders and an agent of the Holders providing for, among other things, the appointment of such agent for the selling Holders for the purpose of soliciting purchases of Registrable Securities, which agreement shall be in form, substance and scope customary for similar offerings; (v) if an underwriting agreement is entered into, cause the same to set forth indemnification provisions and procedures substantially equivalent to the indemnification provisions and procedures set forth in Section 4 hereof with respect to the underwriters and all other parties to be indemnified pursuant to said Section or, at the request of any underwriters, in the form customarily provided to such underwriters in similar types of transactions; and (vi) deliver such documents and certificates as may be reasonably requested and as are customarily delivered in similar offerings to the Holders of a majority in principal amount of the Registrable Securities being sold and the managing underwriters, if any. The above shall be done at each closing of any sale of Registrable Securities, whether under any underwriting or similar agreement or otherwise; (p) in the case of a Shelf Registration or if a Prospectus is required to be delivered by any Participating Broker-Dealer in the case of an Exchange Offer, make available at reasonable times for inspection by representatives appointed by the Majority Holders, any underwriters participating in any disposition pursuant to a Shelf Registration Statement, any Participating Broker-Dealer and any counsel or accountant retained by any of the foregoing, all financial and other records, pertinent corporate documents and properties of the Company reasonably requested by any such persons, and cause the respective officers, directors, employees, and any other agents of the Company to supply all information reasonably requested by any such representative, underwriter, special counsel or accountant in connection with a Registration Statement, and make such representatives of the Company available for discussion of such documents as shall be reasonably requested by the Initial Purchasers; (q) (i) in the case of an Exchange Offer Registration Statement, a reasonable time prior to the filing of any Exchange Offer Registration Statement, any Prospectus forming a part thereof, any amendment to an Exchange Offer Registration Statement or amendment or supplement to such Prospectus, provide copies of such document to the Initial Purchasers and to counsel to the Majority Holders and make such changes in any such document prior to the filing thereof as the Initial Purchasers may reasonably request and, except as otherwise required by applicable law, not file any such document in a form to which the Initial Purchasers on behalf of the Holders of Registrable Securities and -12- 13 counsel to the Majority Holders shall not have previously been advised and furnished a copy of or to which the Initial Purchasers on behalf of the Holders of Registrable Securities or counsel to the Majority Holders shall reasonably object, and make the representatives of the Company available for discussion of such documents as shall be reasonably requested by the Initial Purchasers; and (ii) in the case of a Shelf Registration, a reasonable time prior to filing any Shelf Registration Statement, any Prospectus forming a part thereof, any amendment to such Shelf Registration Statement or amendment or supplement to such Prospectus, provide copies of such document to the Holders of Registrable Securities, to the Initial Purchasers, to counsel for the Holders and to the underwriter or underwriters of an underwritten offering of Registrable Securities, if any, make such changes in any such document prior to the filing thereof as the Initial Purchasers, the counsel to the Holders or the underwriter or underwriters reasonably request and not file any such document in a form to which the Majority Holders, the Initial Purchasers on behalf of the Holders of Registrable Securities, counsel for the Holders of Registrable Securities or any underwriter shall not have previously been advised and furnished a copy of or to which the Majority Holders, the Initial Purchasers of behalf of the Holders of Registrable Securities, counsel to the Holders of Registrable Securities or any underwriter shall reasonably object, and make the representatives of the Company available for discussion of such document as shall be reasonably requested by the Holders of Registrable Securities, the Initial Purchasers on behalf of such Holders, counsel for the Holders of Registrable Securities or any underwriter; (r) otherwise comply with all applicable rules and regulations of the SEC and make available to its security holders, as soon as reasonably practicable, an earnings statement covering at least 12 months which shall satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder; (s) cooperate and assist in any filings required to be made with the NASD and, in the case of a Shelf Registration, in the performance of any due diligence investigation by any underwriter and its counsel (including any "qualified independent underwriter" that is required to be retained in accordance with the rules and regulations of the NASD); and (t) upon consummation of an Exchange Offer or a Private Exchange, obtain a customary opinion of counsel to the Company and the Guarantors addressed to the Trustee for the benefit of all Holders of Registrable Securities participating in the Exchange Offer or Private Exchange, and which includes an opinion that (i) the Company and the Guarantors have duly authorized, executed and delivered the Exchange Securities and/or Private Exchange Securities, as applicable, and the related indenture, and (ii) each of the Exchange Securities and related indenture constitute a legal, valid and binding obligation of the Company and the Guarantors, enforceable against the Company and the Guarantors in accordance with its respective terms (with customary exceptions). In the case of a Shelf Registration Statement, the Company may (as a condition to such Holder's participation in the Shelf Registration) require each Holder of Registrable Securities to furnish to the Company such information regarding the Holder and the proposed distribution by such Holder of such Registrable Securities as the Company may from time to time reasonably request in writing. In the case of a Shelf Registration Statement, each Holder agrees that, upon receipt of any notice from the Company of (a) the happening of any event or the discovery of any facts, each of the kind described in Section 3(e)(iv) hereof or (b) the Company's election to begin a Suspension Period pursuant to Section 2.2(b), such Holder will forthwith discontinue disposition of Registrable Securities pursuant to a Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(k) hereof or written notice from the Company of termination of such Suspension Period, and, if so directed by the Company, such Holder will deliver to the Company (at the Company's expense) all copies in such Holder's -13- 14 possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. If any of the Registrable Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the underwriter or underwriters and manager or managers that will manage such offering will be selected by the Majority Holders of such Registrable Securities included in such offering and shall be acceptable to the Company. No Holder of Registrable Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 4. Indemnification; Contribution. (a) The Company and the Guarantors jointly and severally agree to indemnify and hold harmless the Initial Purchasers, each Holder, each Participating Broker-Dealer, each Person who participates as an underwriter (any such Person being an "Underwriter") and each Person, if any, who controls any Holder or Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment or supplement thereto) pursuant to which Exchange Securities or Registrable Securities were registered under the 1933 Act, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 4(d) below) any such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by any indemnified party), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) above; provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by the Holder or Underwriter expressly for use in a Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto). -14- 15 (b) Each Holder severally, but not jointly, agrees to indemnify and hold harmless the Company, the Guarantors, the Initial Purchasers, each Underwriter and the other selling Holders, and each of their respective directors and officers, and each Person, if any, who controls the Company, any Guarantor, any Initial Purchaser, any Underwriter or any other selling Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 4(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Shelf Registration Statement (or any amendment thereto) or any Prospectus included therein (or any amendment or supplement thereto) in reliance upon and in conformity with written information with respect to such Holder furnished to the Company by such Holder expressly for use in the Shelf Registration Statement (or any amendment thereto) or such Prospectus (or any amendment or supplement thereto); provided, however, that no such Holder shall be liable for any claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Registrable Securities pursuant to such Registration Statement. (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action or proceeding commenced against it in respect of which indemnity may be sought hereunder, but failure so to notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying party or parties be liable for the fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 4 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 4(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement; provided, however, that an indemnifying party shall not be liable for any such settlement effected without its consent if such indemnifying party, prior to the date of such settlement, (1) reimburses such indemnified party in accordance with such request for the amount of such fees and expenses of counsel as the indemnifying party believes in good faith to be reasonable, and (2) provides written notice to the indemnified party that the indemnifying party disputes in good faith the reasonableness of the unpaid balance of such fees and expenses. (e) If the indemnification provided for in this Section 4 is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, in such proportion as is appropriate to reflect the relative fault of the Company and the Guarantors on the one hand and the Holders and the -15- 16 Initial Purchasers on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative fault of the Company and the Guarantors on the one hand and the Holders and the Initial Purchasers on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company, the Guarantors, the Holders or the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Guarantors, the Holders and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 4 were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 4. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 4 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 4, no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Securities sold by it were offered exceeds the amount of any damages which such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 4, each Person, if any, who controls an Initial Purchaser or Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Initial Purchaser or Holder, and each director of the Company or any Guarantor, and each Person, if any, who controls the Company or any Guarantor within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company and the Guarantors. The Initial Purchasers' respective obligations to contribute pursuant to this Section 4 are several in proportion to the principal amount of Securities set forth opposite their respective names in Schedule A to the Purchase Agreement and not joint. 5. Miscellaneous. 5.1 Rule 144 and Rule 144A. For so long as the Company is subject to the reporting requirements of Section 13 or 15 of the 1934 Act, the Company covenants that it will file the reports required to be filed by it under the 1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules and regulations adopted by the SEC thereunder. If the Company ceases to be so required to file such reports, the Company covenants that it will upon the request of any Holder of Registrable Securities (a) make publicly available such information as is necessary to permit sales pursuant to Rule 144 under the 1933 Act, (b) deliver such information to a prospective purchaser as is necessary to permit sales pursuant to Rule 144A under the 1933 Act and it will take such further action as any Holder of Registrable Securities may reasonably request, and (c) take such further action that is reasonable in the circumstances, in each case, to the extent required from time to time to enable such Holder to sell its Registrable Securities without registration under the 1933 Act within the limitation of the exemptions provided by (i) Rule 144 under the 1933 Act, as such Rule may be amended from time to time, (ii) Rule 144A under the 1933 Act, as such Rule may be amended from time to time, or (iii) any similar rules or regulations -16- 17 hereafter adopted by the SEC. Upon the request of any Holder of Registrable Securities, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. 5.2 No Inconsistent Agreements. The Company has not entered into and the Company will not after the date of this Agreement enter into any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not and will not for the term of this Agreement in any way conflict with the rights granted to the holders of the Company's other issued and outstanding securities under any such agreements. 5.3 Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of the Majority Holders affected by such amendment, modification, supplement, waiver or departure. 5.4 Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, registered first-class mail, telex, telecopier, or any courier guaranteeing overnight delivery (a) if to a Holder, at the most current address given by such Holder to the Company by means of a notice given in accordance with the provisions of this Section 5.4, which address initially is the address set forth in the Purchase Agreement with respect to the Initial Purchasers; and (b) if to the Company or any Guarantor, initially at the Company's address set forth in the Purchase Agreement, and thereafter at such other address of which notice is given in accordance with the provisions of this Section 5.4. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; two business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next business day if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands, or other communications shall be concurrently delivered by the person giving the same to the Trustee under the Indenture, at the address specified in such Indenture. 5.5 Successor and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders; provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such person shall be entitled to receive the benefits hereof. 5.6 Third Party Beneficiaries. The Initial Purchasers (even if the Initial Purchasers are not Holders of Registrable Securities) shall be third party beneficiaries to the agreements made hereunder between the Company and the Guarantors, on the one hand, and the Holders, on the other hand, and shall have the right to enforce such agreements directly to the extent they deem such enforcement necessary or advisable to protect their rights or the rights of Holders hereunder. Each Holder of Registrable Securities shall be a third party beneficiary to the agreements made hereunder between the Company and the Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights hereunder. -17- 18 5.7 Specific Enforcement. Without limiting the remedies available to the Initial Purchasers and the Holders, the Company and the Guarantors acknowledge that any failure by the Company and the Guarantors to comply with their obligations under Sections 2.1 through 2.4 hereof may result in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it would not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the obligations of the Company and the Guarantors under Sections 2.1 through 2.4 hereof. 5.8 Restriction on Resales. Until the expiration of two years after the original issuance of the Securities, the Company and the Guarantors will not resell any Securities which are "restricted securities" (as such term is defined under Rule 144(a)(3) under the 1933 Act) that have been reacquired by any of them and shall immediately upon any purchase of any such Securities submit such Securities to the Trustee for cancellation. 5.9 Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 5.10 Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 5.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME. 5.12 Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. -18- 19 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. AMERICAN PLUMBING & MECHANICAL, INC. By: /s/ DAVID BAGGETT -------------------------------------- David C. Baggett Chief Financial Officer CHRISTIANSON ENTERPRISES, INC. CHRISTIANSON SERVICE COMPANY G.G.R. LEASING COMPANY R.C.R. PLUMBING INC. FRANKLIN FIRE SPINKLER COMPANY J.A. CROSON COMPANY TEEPE'S RIVER CITY MECHANICAL, INC. KEITH RIGGS PLUMBING, INC. J.A. CROSON COMPANY OF FLORIDA POWER PLUMBING INC. NELSON MECHANICAL CONTRACTORS, INC. SHERWOOD MECHANICAL, INC. MILLER MECHANICAL CONTRACTORS, INC. By: /s/ DAVID BAGGETT -------------------------------------- David C. Baggett Vice President, Secretary and Treasurer of each of the above Guarantors. -19- 20 Confirmed and accepted as of the first date first above written: FLEET SECURITIES, INC. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED BANC ONE CAPITAL MARKETS, INC. CREDIT LYONNAIS SECURITIES (USA) INC. BY: FLEET SECURITIES, INC. By: /s/ Mike Browne ------------------------------------- Name: Mike Browne Title: Managing Director BY: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: /s/ Lex Maultsby ------------------------------------- Name: Lex Maultsby Title: Vice President -20- 21 SCHEDULE A LIST OF GUARANTORS Christianson Enterprises, Inc. G.G.R. Leasing Corporation Christianson Service Company R.C.R. Plumbing, Inc. Franklin Fire Sprinkler Company J.A. Croson Company Teepe's River City Mechanical, Inc. Keith Riggs Plumbing, Inc. J.A. Croson Company of Florida Power Plumbing, Inc. Nelson Mechanical Contractors, Inc. Sherwood Mechanical, Inc. Miller Mechanical Contractors, Inc. 22 Exhibit A FORM OF OPINION OF COUNSEL Fleet Securities, Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated Banc One Capital Markets, Inc. Credit Lyonnais Securities (USA) Inc. c/o Fleet Securities, Inc. and Merrill Lynch, Pierce, Fenner & 1185 Avenue of the Americas Smith Incorporated 16th Floor North Tower New York, NY 10036 World Financial Center New York, NY 10036 Ladies and Gentlemen: We have acted as counsel for American Plumbing & Mechanical, Inc., a Delaware corporation (the "Company") and the Guarantors described below in connection with the sale by the Company to the Initial Purchasers (as defined below) of $150,000,000 aggregate principal amount of 11 5/8% Senior Subordinated Notes due 2009 (the "Notes") of the Company together with the related guarantees of the obligation of the Company under such Notes, pursuant to the Purchase Agreement dated May 12, 1999 (the "Purchase Agreement") among the Company, the Guarantors named therein (the "Guarantors") and Fleet Securities, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc One Capital Markets, Inc. and Credit Lyonnais Securities (USA) Inc. (collectively, the "Initial Purchasers") and the filing by the Company and the Guarantors of an Exchange Offer Registration Statement (the "Registration Statement") in connection with an Exchange Offer to be effected pursuant to the Registration Rights Agreement (the "Registration Rights Agreement"), dated May 19, 1999 among the Company, the Guarantors and the Initial Purchasers. This opinion is furnished to you pursuant to Section 3(f)(B) of the Registration Rights Agreement. Unless otherwise defined herein, capitalized terms used in this opinion that are defined in the Registration Rights Agreement are used herein as so defined. We have examined such documents, records and matters of law as we have deemed necessary for purposes of this opinion. In rendering this opinion, as to all matters of fact relevant to this opinion, we have assumed the completeness and accuracy of, and are relying solely upon, the representations and warranties of the Company and the Guarantors set forth in the Purchase Agreement and the statements set forth in certificates of public officials and officers of the Company and the Guarantors, without making any independent investigation or inquiry with respect to the completeness or accuracy of such representations, warranties or statements, other than a review of the certificate of incorporation, by-laws and relevant minute books of the Company and the Guarantors. Based on and subject to the foregoing, we are of the opinion that: 1. The Exchange Offer Registration Statement and the Prospectus (other than the financial statements, notes or schedules thereto and other financial data and supplemental schedules included or incorporated by reference therein or omitted therefrom and the Form T-1, as to which such counsel need express no opinion), comply as to form in all material respects with the requirements of the 1933 Act and the applicable rules and regulations promulgated under the 1933 Act. 23 2. We have participated in the preparation of the Registration Statement and the Prospectus and in the course thereof have had discussions with representatives of the Underwriters, officers and other representatives of the Company and the Company's independent public accountants, during which the contents of the Registration Statement and the Prospectus were discussed. We have not, however, independently verified and are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement and the Prospectus. Based on our participation as described above, nothing has come to our attention that would lead us to believe that the Registration Statement (except for financial statements and schedules and other financial data included therein as to which we make no statement) contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus or any amendment or supplement thereto (except for financial statements and schedules and other financial data included therein, as to which such counsel need make no statement), at the time the Prospectus was issued, at the time any such amended or supplemented Prospectus was issued or at the Closing Time, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. This opinion is being furnished to you solely for your benefit in connection with the transactions contemplated by the Registration Rights Agreement, and may not be used for any other purpose or relied upon by any person other than you. Except with our prior written consent, the opinions herein expressed are not to be used, circulated, quoted or otherwise referred to in connection with any transactions other than those contemplated by the Registration Rights Agreement by or to any other person. Very truly yours, -2- EX-5.1 7 OPINION OF ANDREWS & KURTH L.L.P. 1 EXHIBIT 5.1 , 1999 ----------- Board of Directors American Plumbing and Mechanical, Inc. 1502 Augusta, Suite 425 Houston, Texas 77057 Ladies and Gentlemen: We have acted as counsel to American Plumbing & Mechanical, Inc., a Delaware corporation (the "Company"), and are delivering this opinion in connection with the Company's Registration Statement on Form S-4 (the "Registration Statement") relating to the registration under the Securities Act of 1933, as amended (the "Securities Act"), of the offer by the Company to exchange up to $125,000,000 aggregate principal amount of its 115/8% Senior Subordinated Notes Due 2008, Series B (the "Exchange Notes") for its existing 115/8% Senior Subordinated Notes Due 2008, Series A (the "Existing Notes"). The Exchange Notes are proposed to be issued in accordance with the provisions of the indenture (the "Indenture"), dated as of May 19, 1999, between the Company, the guarantors named therein (the "Guarantors") and State Street Bank and Trust Company, as Trustee. In arriving at the opinions expressed below, we have examined the Registration Statement, the Prospectus contained therein, the Indenture which is filed as an exhibit to the Registration Statement, and the originals or copies certified or otherwise identified to our satisfaction of such other instruments and other certificates of public officials and officers and representatives of the Company. In all such examinations and for purposes of our opinions set forth below, we have, with your approval and without independent investigation, assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity and completeness of all documents submitted to us as originals, the conformity to the authentic original documents of all documents submitted to us as copies and that all documents in respect of which forms were filed with the Securities and Exchange Commission as exhibits to the Registration Statement will conform in all material respects to the forms thereof that we have examined. In addition, as the basis for the opinion hereinafter expressed, we have examined such statutes, regulations, corporate records and documents, certificates of corporate and public officials and other instruments as we have deemed necessary or advisable for the purposes of this opinion. Based on the foregoing, and having due regard for such legal considerations as we deem relevant, and subject to the qualifications and limitations set forth below, we are of the opinion that the Exchange Notes and the guarantee of each of the Guarantors (the "Guarantees"), (a) when 2 Board of Directors American Plumbing and Mechanical, Inc. , 1999 - ------------- Page 2 the Notes have been exchanged in the manner described in the Registration Statement, (b) when the Exchange Notes have been duly executed, authenticated, issued and delivered in accordance with the terms of the Indenture, (c) when the Indenture has been duly qualified under the Trust Indenture Act of 1939, as amended, and (d) when applicable provisions of "blue sky" laws have been complied with, will constitute valid and binding obligations of the Company and the Guarantors, as applicable, enforceable against the Company and the Guarantors, as applicable, in accordance with their terms, under the laws of the State of New York which are expressed to govern the same, except as the enforcement thereof may be limited by (a) bankruptcy, insolvency, reorganization, moratorium (including, without limitation, all laws relating to fraudulent transfers), (b) other similar laws relating to or affecting enforcement of creditors' rights generally, (c) general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law) and (d) limitations on the waiver of rights under usury laws, and will be entitled to the benefits of the Indenture. This opinion is limited in all respects to the laws of the State of Texas, the State of New York and the Delaware General Corporation Law. We express no opinion as to, and for the purposes of the opinions set forth herein, we have conducted no investigation of, and do not purport to be experts on, any other laws. With respect to each Guarantor which was not organized under the laws of the State of Texas or the State of Delaware, we have assumed that the laws of the jurisdiction, organization or formation of such Guarantor with respect to matters of authorization, execution and delivery do not differ in any material respect from the laws of the State of Texas in those regards and have undertaken no investigation of the laws of any jurisdiction or their effect, if any, on any legal conclusion herein expressed other than, the laws of the State of Texas, the State of New York and the Delaware General Corporation Law. We hereby consent to the use of this opinion as an exhibit to the Registration Statement. Very truly yours, EX-10.2 8 AMERICAN PLUMBING & MECHANICAL - 1999 STOCK PLAN 1 EXHIBIT 10.2 AMERICAN PLUMBING & MECHANICAL, INC. 1999 STOCK OPTION PLAN SECTION 1. Purpose of the Plan. The American Plumbing & Mechanical, Inc. 1999 Stock Option Plan (the "Plan") is intended to promote the interests of American Plumbing & Mechanical, Inc., a Delaware corporation (the "Company"), by encouraging officers, employees, directors and consultants of the Company, its subsidiaries and affiliated entities to acquire or increase their equity interest in the Company and to provide a means whereby they may develop a sense of proprietorship and personal involvement in the development and financial success of the Company, and to encourage them to remain with and devote their best efforts to the business of the Company thereby advancing the interests of the Company and its stockholders. The Plan is also contemplated to enhance the ability of the Company, its subsidiaries and affiliated entities to attract and retain the services of individuals who are essential for the growth and profitability of the Company. SECTION 2. Definitions. As used in the Plan, the following terms shall have the meanings set forth below: "Affiliate" shall mean (i) any entity that, directly or through one or more intermediaries, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, as determined by the Committee. "Board" shall mean the Board of Directors of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations thereunder. "Committee" shall mean the committee appointed by the Board. "Consultant" shall mean any individual, other than a Director or an Employee, who renders consulting services to the Company or an Affiliate for a fee. "Director" shall mean a director of the Company who is not also an Employee. "Employee" shall mean any employee of the Company or an Affiliate. 2 "Fair Market Value" shall mean the fair market value of a Share as of the applicable date as determined in good faith by the Committee; provided, however, if the Shares are then publicly traded, Fair Market Value shall mean the closing sales price of a Share on the applicable date (or if there is no trading in the Shares on such date, on the next preceding date on which there was trading) as reported in The Wall Street Journal (or other reporting service approved by the Committee). "Option" shall mean an option to purchase Shares granted under the Plan. "Participant" shall mean any Director, Employee or Consultant granted an Option under the Plan. "Person" shall mean individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity. "Shares" or "Common Shares" or "Common Stock" shall mean the common stock of the Company, $0.01 par value, and such other securities or property as may become the subject of Options under the Plan. SECTION 3. Administration. The Plan shall be administered by the Committee. A majority of the Committee shall constitute a quorum, and the acts of the members of the Committee who are present at any meeting thereof at which a quorum is present, or acts unanimously approved by the members of the Committee in writing, shall be the acts of the Committee. Subject to the following, the Committee, in its sole discretion, may delegate any or all of its powers and duties under the Plan to the Chief Executive Officer of the Company, including the power to grant Options under the Plan, other than to himself, subject to such limitations on such delegated powers and duties as the Committee may impose. Upon any such delegation all references in the Plan to the "Committee", other than in Section 7, shall be deemed to include the Chief Executive Officer; provided, however, that such delegation shall not limit the Chief Executive Officer's right to receive Options under the Plan. Subject to the terms of the Plan and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the number of Shares to be covered by Options; (iii) determine the terms and conditions of any Option; (iv) interpret and administer the Plan and any instrument or agreement relating to an Option made under the Plan; (v) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (vi) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Option shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive, and binding upon all Persons. -2- 3 SECTION 4. Shares Available for Options. (a) Shares Available. Subject to adjustment as provided in Section 4(c), the maximum number of Shares with respect to which Options may be granted under the Plan shall be 3,700,000 shares or 15% of the aggregate number of Shares outstanding determined immediately prior to the grant of such Option. If any Option is forfeited, terminates or is canceled without the delivery of Shares, then the Shares covered by such Option, to the extent of such forfeiture, termination or cancellation, shall again be Shares with respect to which Options may be granted. (b) Sources of Shares Deliverable Under Options. Any Shares delivered pursuant to an Option may consist, in whole or in part, of authorized and unissued Shares or of treasury Shares. (c) Adjustments. In the event that the Committee determines that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or property) with respect to which Options may be granted, (ii) the number and type of Shares (or other securities or property) subject to outstanding Options, and (iii) the grant or exercise price with respect to any Option or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Option; provided, that the number of Shares subject to any Option shall always be a whole number. SECTION 5. Eligibility. Any Director, Employee or Consultant shall be eligible to be designated a Participant by the Committee. SECTION 6. Options. (a) Options. Subject to the provisions of the Plan, the Committee shall have the authority to determine the Participants to whom Options shall be granted from time to time, the number of Shares to be covered by each Option, the exercise price therefor and the terms, conditions and limitations applicable to the exercise of the Option, including the following terms and conditions and such additional terms and conditions as the Committee shall determine are not inconsistent with the provisions of the Plan. (i) Exercise Price. The exercise price per Share purchasable under an Option shall be determined by the Committee. -3- 4 (ii) Time and Method of Exercise. The Committee shall determine the time or times at which an Option may be exercised in whole or in part, and the method or methods by which, and the form or forms in which payment of the exercise price with respect thereto may be made or deemed to have been made, which may include, without limitation, (i) cash or check acceptable to the Company in an amount equal to the relevant exercise price, (ii) Shares already-owned by the Participant having a Fair Market Value on the exercise date equal to the relevant exercise price, (iii) a "cashless-broker" exercise (through procedures approved by the Company) pursuant to which Shares delivered in payment of the exercise price are valued at the Fair Market Value, (iv) a personal note with such terms and security as the Committee deems appropriate or other securities or other property having an aggregate value, as determined in good faith by the Committee, on the exercise date equal to the relevant exercise price or (v) any combination thereof. (iii) Limits on Transfer of Options. (A) Except as provided in (C) below, each Option, and each right under any Option, shall be exercisable only by the Participant during the Participant's lifetime, or by the person to whom the Participant's rights shall pass by will or the laws of descent and distribution. (B) Except as provided in (C) below, no Option and no right under any such Option may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant otherwise than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate. (C) Notwithstanding anything in the Plan to the contrary, to the extent specifically provided by the Committee with respect to a grant, an Option may be transferred to immediate family members or related family trusts, limited partnerships or similar entities or on such terms and conditions as the Committee may establish. (iv) Term of Options, etc. The term of each Option shall be for such period as may be determined by the Committee; provided, that in no event shall the term of any Option exceed a period of 10 years from the date of its grant. The Committee shall have the discretion at any time while an Option remains outstanding to accelerate the vesting of, reduce the exercise price of, and/or to extend the period of time for which the Option is to remain exercisable following the Participant's termination, but in no event may an extension be beyond the expiration of the Option's term. (v) Share Certificates. All certificates for Shares or other securities of the Company or any Affiliate delivered under the Plan pursuant to any Option or the exercise -4- 5 thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of federal or state securities laws, any stock exchange upon which such Shares or other securities are then listed, and any applicable federal or state laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (vi) Delivery of Shares or other Securities and Payment by Participant of Consideration. No Shares or other securities shall be delivered pursuant to any Option until payment in full of any amount required to be paid pursuant to the Plan or the applicable Option agreement (including, without limitation, any exercise price and applicable tax withholding) is received by the Company. Such tax withholding payments may be made by such method or methods and in such form or forms as the Committee shall determine, including, without limitation, cash, Shares, other securities, or property, withholding of Shares, cashless exercise with simultaneous sale, or any combination thereof. (vii) Stockholders' Agreement. The Committee may condition the grant and/or exercise of any Option upon the Participant's already being, or becoming subject to, a stockholders' agreement covering, inter alia, the transferability of the Shares, rights of the Company to repurchase such Shares and such other matters as the Committee deems appropriate. (viii) Securities Laws Compliance. Unless the Stock has been registered under the Securities Act of 1933 (and, in the case of any Participant who may be deemed an affiliate of the Company for securities law purposes, such Stock has been registered under such Act for resale by such Participant), or the Company has determined that an exemption from registration is available, the Company may require prior to and as a condition of the exercise of any Option that (i) the Participant desiring to exercise such Option give the Company written notice of a desire to exercise such Option and that notice of exercise may not be given by the Participant until 45 days thereafter (which time period may be waived by the Committee in its sole discretion) in order to allow the Company the opportunity to provide to such Participant any disclosure materials, or to make such filings, as may be required under federal and state securities laws and (ii) the Participant desiring to exercise such Option furnish the Company with a written representation in a form prescribed by the Board to the effect that such person is acquiring said Stock solely with a view to investment for his or her own account and not with a view to the resale or distribution of all or any part thereof, and that such person will not dispose of any of such Stock otherwise than in accordance with the provisions of Rule 144 under the Act unless and until either the shares of Common Stock are registered under the Act or the Company is satisfied that an exemption from such registration is available. -5- 6 SECTION 7. Amendment and Termination. Except to the extent prohibited by applicable law or the rules of the principal securities market on which the shares are traded and unless otherwise expressly provided in an Option agreement or in the Plan: (i) Amendments to the Plan. The Board or the Committee may amend, alter, suspend, discontinue, or terminate the Plan without the consent of any stockholder, Participant, other holder or beneficiary of an Option, or other Person. (ii) Amendments to Options. The Committee may waive any conditions or rights under, amend any terms of, or alter any Option theretofore granted, provided no change, other than pursuant to Section 7(iii), in any Option shall materially reduce the benefit to Participant without the consent of such Participant. (iii) Adjustment of Options Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee is hereby authorized to make adjustments in the terms and conditions of, and the criteria included in, Options in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4(c) of the Plan) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. SECTION 8. Change in Control. Notwithstanding any other provision of this Plan or an Option agreement to the contrary, in the event of a Change in Control of the Company all outstanding Options automatically shall become fully vested immediately prior to such Change in Control (or such earlier time as set by the Committee). For purposes of this Plan, a "Change in Control" shall be deemed to occur if: (i) any person, entity or group (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Act")), other than persons and entities which owned any capital stock of the Company on the closing date of the transactions contemplated in the acquisition agreements between the Company and certain other entities dated February 11, 1999, the Company or a subsidiary (the "AmPaM Companies") or an employee benefit plan of the AmPaM Companies, acquires, directly or indirectly, the beneficial ownership (as defined in Section 13(d) of the Act) of any voting security of the Company and immediately after such acquisition such person, entity or group is, directly or indirectly, the beneficial owner of voting securities representing 20% or more of the total voting power of all of the then -6- 7 outstanding voting securities of the Company entitled to vote generally in the election of directors; (ii) upon the first purchase of the Company's common stock pursuant to a tender or exchange offer (other than a tender or exchange offer made by the Company); (iii) the stockholders of the Company shall approve a merger, consolidation, recapitalization or reorganization of the Company, or a reverse stock split of outstanding voting securities, or consummation of any such transaction if stockholder approval is not obtained, other than any such transaction which would result in at least 75% of the total voting power represented by the voting securities of the surviving entity outstanding immediately after such transaction being beneficially owned by the holders of all of the outstanding voting securities of the Company immediately prior to the transactions with the voting power of each such continuing holder relative to other such continuing holders not substantially altered in the transaction; (iv) the stockholders of the Company shall approve a plan of complete liquidation or dissolution of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (v) if, at any time during any period of two consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election or nomination for the election by the Company's stockholders of each new director was approved a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. In the event of a Change in Control, the Committee, in its discretion, may (i) provide for the purchase of the Option for an amount of cash or other property that could have been received upon the exercise of the Option, (ii) adjust the terms of the Option in a manner determined by the Committee to reflect the Change in Control, (iii) cause the Option to be assumed, or new rights substituted therefor, by another entity, or (iv) make such other provision as the Committee may consider equitable and in the best interests of the Company, including, without limitation, providing for the termination of the Option to the extent not exercised. SECTION 9. General Provisions. (a) No Rights to Options. No Employee, Consultant or Director shall have any claim to be granted any Option, and there is no obligation for uniformity of treatment of Participants. The terms and conditions of Options need not be the same with respect to each recipient. (b) No Right to Employment. The grant of an Option shall not be construed as giving a Participant the right to be retained in the employ of the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment, free from any -7- 8 liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Option Agreement. (c) Governing Law. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Texas and applicable federal law. (d) Severability. If any provision of the Plan or any Option is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Option, or would disqualify the Plan or any Option under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Option, such provision shall be stricken as to such jurisdiction, Person or Option and the remainder of the Plan and any such Option shall remain in full force and effect. (e) Other Laws. The Committee may refuse to issue or transfer any Shares or other consideration under an Option if, acting in its sole discretion, it determines that the issuance of transfer or such Shares or such other consideration might violate any applicable law or regulation. (f) No Trust or Fund Created. Neither the Plan nor the Option shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Option, such right shall be no greater than the right of any general unsecured creditor of the Company or any Affiliate. (g) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Option, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated. (h) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. SECTION 10. Effective Date of the Plan. The Plan shall be effective as of the date of its approval by the Board. SECTION 11. Term of the Plan. No Option shall be granted under the Plan after the 10th anniversary of the date the Plan is adopted by the Board. However, unless otherwise expressly provided in the Plan or in an applicable Option agreement, any Option granted prior to such termination, and the authority of the Board or -8- 9 the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Option or to waive any conditions or rights under such Option, shall extend beyond such termination date. -9- EX-10.4 9 TRANSFER RESTRICTION AND EXP. REIMBURSEMENT AGMT. 1 EXHIBIT 10.4 TRANSFER RESTRICTION AND EXPENSE REIMBURSEMENT AGREEMENT For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, American Plumbing & Mechanical, Inc., a Delaware corporation (the "Company") and the undersigned, being stockholders of the Company (the "Undersigned") hereby agree as follows: 1. TRANSFER RESTRICTIONS 1.1 TRANSFER RESTRICTIONS. For a period of two years from the date of issuance or, in the event that the Company completes a firm commitment underwritten initial public offering of shares of stock of the Company managed by one or more nationally recognized national investment banking firms (an "IPO"), for a period through the second anniversary of the date of the closing of such IPO (the "Restricted Period"), the Undersigned shall not (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any shares of restricted common stock or common stock of the Company (the "Stock") currently owned or held by the Undersigned or any securities convertible into, exchangeable or exercisable for any shares of Stock, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any shares of Stock currently owned or held by the Undersigned, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of any currently owned or held Stock, whether any such swap or transaction is to be settled by delivery of shares of Stock or other securities, by the delivery or payment of cash or otherwise, except, in the case of clauses (i), (ii) or (iii) above, (A) as otherwise agreed by the Company, (B) for the sale of shares of Stock, and entering into agreements relating to the sale of shares of Stock, pursuant to Section 3 hereof, (C) for transfers to (I) immediate family members of the Undersigned or to equity owners or members of the Undersigned who agree with the Company in writing to be bound by the restrictions set forth in this Section 1.1, (II) trusts, limited partnerships or other estate planning entities for the benefit of the Undersigned or family members of the Undersigned which have agreed with the Company in writing, through action taken by the trustees, partners or other persons having authority to bind the trust, limited partnership or other estate planning entity, to be bound by the restrictions set forth in this Section 1.1, (III) any charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code which agrees with the Company in writing to be bound by the restrictions set forth in this Section 1.1, (D) the sale by the Undersigned in an IPO of shares of Stock, provided that if the Company is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under Section 3.1 that the number of shares to be sold by persons other than the Company is greater than the number of such shares which can be offered without adversely affecting the success of the offering, the Company may reduce pro rata (among the Undersigned and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. During the Restricted Period, the certificates evidencing the Stock owned or held by the Undersigned will bear a legend substantially in the form set forth below: -1- 2 THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF WITHOUT THE WRITTEN CONSENT OF THE COMPANY, AND THE COMPANY SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, PLEDGE OR OTHER DISPOSITION PRIOR TO EXPIRATION OF TWO YEARS. SUCH RESTRICTIONS ON TRANSFER ARE SET FORTH IN A TRANSFER RESTRICTION AGREEMENT, A COPY OF WHICH IS MAINTAINED AT THE PRINCIPAL OFFICES OF THE COMPANY. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE COMPANY AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE. 2. FEDERAL SECURITIES ACT REPRESENTATIONS 2.1 COMPLIANCE WITH LAW. The Undersigned acknowledges that the shares of Stock have not been and will not be registered under the Securities Act of 1933, as amended (the "1933 Act") (except as provided in Section 3 hereof) and therefore may not be sold, assigned, exchanged, transferred, pledged or otherwise disposed of without compliance with the 1933 Act which, among other matters, would require registration under the 1933 Act unless exemption from the registration requirements is available for such transaction. The Stock was being acquired solely for the Undersigned's own account, for investment purposes only, and with no present intention of selling, assigning, exchanging, transferring, pledging, or otherwise disposing of it. The Undersigned covenants, warrants and represents that neither the shares of Stock issued to the Undersigned was offered, sold, assigned, exchanged, pledged, transferred or otherwise disposed of except after full compliance with all of the applicable provisions of the 1933 Act and the rules and regulations of the SEC. All certificates representing the Stock shall bear the following legend in addition to the legend required under Section 1 of this Agreement: THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE FEDERAL AND STATE SECURITIES LAWS. 3. REGISTRATION RIGHTS 3.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the date hereof, whenever the Company proposes to register any Stock for its own or other's account under the 1933 Act for a public offering, other than (i) any shelf or other registration of shares to be used as consideration for acquisitions of additional businesses by the Company and (ii) registrations relating to employee benefit plans, the Company shall give the Undersigned prompt written notice of its intent to do so. Upon the written request of the Undersigned given within 15 calendar days after receipt of such notice, notwithstanding the provisions of Section 1 (except as specified below with respect to an IPO), the Company shall cause to be included in such registration all of the Stock held or owned by -2- 3 the Undersigned (including any stock issued as or issuable upon the conversion or exchange of any convertible security, warrant, right or other security which is issued by the Company as a stock split, dividend or other distribution with respect to, or in exchange for, or in replacement of such Stock) which the Undersigned requests, other than shares of Stock which may then be immediately sold under Rule 144(k) (or any similar or successor provision) promulgated under the 1933 Act, and other than shares of Stock that have been theretofore sold by the Undersigned in accordance with the 1933 Act. In addition, if the Company is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under this Section 3.1 that the number of shares to be sold by persons other than the Company is greater than the number of such shares which can be offered without adversely affecting the success of the offering, the Company may reduce pro rata (among the Undersigned and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. If the Undersigned disapproves of the terms of the underwriting, the Undersigned may elect to withdraw therefrom by written notice to the Company and the managing underwriter. The Undersigned's shares of Stock so withdrawn shall also be withdrawn from registration. 3.2 REGISTRATION PROCEDURES. Whenever the Company is required to register shares of Stock pursuant to Section 3.1, the Company will, as expeditiously as possible: (i) Prepare and file with the Securities and Exchange Commission (the "SEC") a registration statement with respect to such shares and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements or term sheets thereto, the Company will furnish a representative of the Undersigned with copies of all such documents proposed to be filed) as promptly as practical; (ii) Notify the Undersigned of any stop order issued or threatened by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered; (iii) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 120 days, cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the 1933 Act; and comply with the provisions of the 1933 Act applicable to it with respect to the disposition of all securities covered by such registration statement during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement or supplement to the prospectus; (iv) Furnish to the Undersigned upon request such number of copies of such registration statement, each amendment and supplement thereto and the prospectus included -3- 4 in such registration statement (including each preliminary prospectus and any term sheet associated therewith), and such other documents as the Undersigned may reasonably request in order to facilitate the disposition of the relevant shares; (v) Make "generally available to its security holders" (within the meaning of Rule 158) an earnings statement satisfying the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no later than 90 days after the end of the 12-month period beginning with the first day of the Company's first fiscal quarter commencing after the effective date of the registration statement; (vi) Make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible moment; (vii) If requested by the managing underwriter or underwriters, if any, or any participating stockholder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters or any participating stockholder, as the case may be, reasonably requests to be included therein, including, without limitation, information with respect to the number of shares of Stock being sold by participating stockholders to any underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any other terms of an underwritten offering of the shares of Stock to be sold in such offering, and promptly make all required filings of such prospectus by supplement or post-effective amendment; (viii) Make available for inspection by participating stockholders, any underwriter participating in any disposition pursuant to such registration statement, and the counsel retained by the participating stockholders, counsel for the underwriters and any accountant or other agent retained by participating stockholders or any such underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company (the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Inspectors in connection with such registration statement; provided, that records which the Company determines, in good faith, to be confidential and which the Company notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction after delivery of sufficient notice to the Company to enable the Company to contest such subpoena or order; (ix) Take all other steps reasonably necessary to effect the registration of the shares of Stock contemplated hereby; -4- 5 (x) Use its best efforts to register or qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Undersigned, and to keep such registration or qualification effective during the period such registration statement is required to be kept effective, provided that the Company shall not be required to become subject to taxation, to qualify generally to do business or to file a general consent to service of process in any such states or jurisdictions; (xi) Cause all such shares of Stock to be listed or included not later than the date of the first sale of shares of Stock under such registration statement on any securities exchanges or trading systems on which similar securities issued by the Company are then listed or included; and (xii) Notify the Undersigned at any time when a prospectus relating thereto is required to be delivered under the 1933 Act within the period that the Company is required to keep the registration statement effective of the happening of any event as a result of which the prospectus included in such registration statement (as then in effect), together with any associated term sheet, contains an untrue statement of a material fact or omits to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading, and, at the request of the Undersigned, the Company promptly will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of the covered shares, such prospectus will not contain an untrue statement of material fact or omit to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading. All expenses incurred in connection with the registration under this Article 3 and compliance with securities and blue sky laws (including all registration, filing, listing, escrow agent, qualification, legal, printer and accounting fees, but excluding underwriting commissions and discounts), shall be borne by the Company. 3.3 INDEMNIFICATION. (a) In connection with any registration under Section 3.1, the Company shall indemnify, to the extent permitted by law, the Undersigned (an "Indemnified Party") against all losses, claims, damages, liabilities and expenses arising out of or resulting from any untrue or alleged untrue statement of material fact contained or incorporated by reference in any registration statement, prospectus or preliminary prospectus or associated term sheet or any omission or alleged omission to state or incorporated by reference therein a material fact required to be stated or incorporated by reference therein or necessary to make the statements therein not misleading except insofar as the same are caused by or contained in or omitted from any information furnished in writing to the Company by such Indemnified Party expressly for use therein or by any Indemnified Parties' failure -5- 6 to deliver a copy of the registration statement or prospectus or any amendment or supplements thereto after the Company has furnished such Indemnified Party with a sufficient number of copies of the same. (b) In connection with any registration under Section 3.1, the Undersigned shall furnish to the Company in writing such information concerning the Undersigned and his or her proposed offering of shares as is reasonably requested by the Company for use in any such registration statement or prospectus and will indemnify, to the extent permitted by law, the Company, its directors and officers and each person who controls the Company (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of a material fact or any omission or alleged omission to state therein a material fact required to be stated in the registration statement or prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, but only to the extent that such untrue or alleged untrue statement or omission or alleged omission is contained in or omitted from information so furnished in writing to the Company by the Undersigned expressly for use in the registration statement. Notwithstanding the foregoing, the liability of the Undersigned under this Section 3.3 shall be limited to an amount equal to the net proceeds actually received by the Undersigned from the sale of the relevant shares covered by the registration statement. (c) Any person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified parties' reasonable judgment, a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. Any failure to give prompt notice shall deprive a party of its right to indemnification hereunder only to the extent that such failure shall have adversely affected the indemnifying party. If the defense of any claim is assumed, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent shall not be unreasonably withheld). An indemnifying party that is not entitled or elects not, to assume the defense of a claim, will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. 3.4 UNDERWRITING AGREEMENT. In connection with each registration pursuant to Section 3.1 covering an underwritten registered offering, (i) the Undersigned shall execute and deliver to the Company a written power of attorney instrument that (A) appoints an officer of the Company as the Undersigned's attorney-in-fact for purposes of executing and delivering an underwriting agreement among the Company, the underwriters named therein and the Undersigned specifying the terms and conditions applicable to the sale of Stock of the Undersigned in such offering and (B) otherwise is in such form and containing such provisions as are customary in the securities business for such an arrangement in connection with an underwritten registered offering -6- 7 in which one or more stockholders of the issuer are participants, including a provision that authorizes the attorney-in-fact appointed by the Undersigned to execute and deliver such an underwriting agreement in the event that the net price per share to be received by the Undersigned from the sale of the shares of Stock to be sold in such offering is not less than a price specified in such instrument and (iii) the Company and the Undersigned agree to enter into a written agreement with the managing underwriters in such form and containing such provisions as are customary in the securities business for such an arrangement between such managing underwriters and companies of the Company's size and investment stature, including indemnification; provided, however, that (A) the Undersigned shall be exempt and excluded from any indemnification of the managing underwriters other than with respect to information provided by the Undersigned with respect to the Undersigned to the Company or the managing underwriters specifically for inclusion in any such registration statement and (B) the Undersigned shall not be obligated to enter into such an underwriting agreement in the event that the net price per share to be received by the Undersigned from the sale of shares of Stock to be sold in such offering is less than the floor price specified in the power of attorney instrument executed and delivered to the Company pursuant to clause (i) above. 3.5 TRANSFER OF RIGHTS. The right to cause the Company to register shares of Stock under this Agreement may be assigned to a transferee or assignee of the Undersigned to the extent that such transferee or assignee is a member of the immediate family of the Undersigned, a trust, limited partnership or other estate planning entity for the benefit of any such persons or a charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code. 3.6 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the SEC that may permit the sale of stock to the public without registration, following an IPO the Company agrees to use its reasonable efforts, from and after the completion of an IPO, to: (i) make and keep public information regarding the Company available as those terms are understood and defined in Rule 144 under the 1933 Act beginning 90 days following the effective date of a registration statement relating to an IPO; (ii) file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act at any time after it has become subject to such reporting requirements; and (iii) so long as the Undersigned owns any restricted Stock, furnish to the Undersigned forthwith upon written request a written statement by the Company as to its compliance with the current public information requirements of Rule 144 (at any time from and after 90 days following the effective date of a registration statement relating to an IPO), and of the 1933 Act and the 1934 Act (any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as the Undersigned may reasonably request in availing itself of any rule or regulation of the SEC allowing the Undersigned to sell any such shares without registration. -7- 8 4. GENERAL 4.1 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties hereunder may not be assigned (except by operation of law) and shall be binding upon and shall inure to the benefit of the parties hereto, the successors of the Company, and the heirs and legal representatives of the Undersigned. 4.2 NOTICES. All notices or communication required or permitted hereunder shall be in writing and may be given by depositing the same in United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested, or by delivering the same in person to an officer or agent of such party. (a) If to the Company addressed to it at: American Plumbing & Mechanical, Inc. 1502 Augusta, Suite 425 Houston, Texas 77057 Attention: Chief Financial Officer (b) If to the Undersigned, addressed to it at: Sterling City Capital, LLC 1502 Augusta, Suite 425 Houston, Texas 77057 or to such other address or counsel as any party hereto shall specify pursuant to this section from time to time. 4.3 GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of Texas, excluding any conflicts of law, rule or principle that might refer same to the laws of another jurisdiction. 4.4 REFORMATION AND SEVERABILITY. In case any provision of this Agreement shall be invalid, illegal or unenforceable, it shall, to the extent possible, be modified in such manner as to be valid, legal and enforceable but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement, and in either case the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. No provision of this Agreement shall be interpreted or construed against any party solely because that party or its legal representative drafted such provision. -8- 9 5. EXPENSE REIMBURSEMENT. As contemplated by Section 19.6 of the Acquisition Agreements dated February 11, 1999 by and among the Company, the Founding Companies and the Stockholders of the Founding Companies identified therein, (collectively, the "Acquisition Agreements"), the Company hereby agrees to pay the reasonable fees, expenses and disbursements of the Company and its agents, representatives, accountants and counsel incurred in connection with the subject matter of the Acquisition Agreements and any amendments thereto, including all costs and expenses incurred in the performance and compliance with all conditions to be performed by the Company under the Acquisition Agreements, including the fees and expenses of Arthur Andersen LLP, Andrews & Kurth L.L.P., and any other person or entity retained by the Company, and the costs of preparing the Private Placement Memorandum incurred in connection with the subject matter of the Acquisition Agreements and any amendments thereto. In addition, the Company hereby agrees to pay the reasonable fees and expenses of Bracewell & Patterson LLP incurred on behalf of the Founding Companies and the Stockholders in connection with the subject matter of the Acquisition Agreements. The Company hereby agrees to reimburse Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any of the foregoing fees, expenses and disbursements paid by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) and shall repay Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any loans or advances made by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for the purpose of providing the Company funds to pay any such fees, expenses and disbursements, provided that such reimbursement and loan repayment obligation shall be limited to the foregoing fees, expenses, and disbursements which are out-of-pocket expenses of the Company, Sterling City Capital, LLC or any person or entity which is an Affiliate thereof. Sterling City Capital, LLC shall be reimbursed by the Company in the form of AmPaM Notes as described in the Acquisition Agreements. The Company retains the right, within a reasonable period following the Closing Date, to conduct an audit of the expenses for which Sterling City Capital, LLC is reimbursed. If and to the extent such audit reflects that an adjustment should be made to the principal amount of the AmPaM Note issued to Sterling City LLC, the Company and Sterling City Capital, LLC shall use their best efforts to negotiate the amount of any such adjustment. -9- 10 The parties hereto have entered into and executed this Agreement as of April 1, 1999. AMERICAN PLUMBING & MECHANICAL, INC. STERLING CITY CAPITAL, LLC By: /s/ David Baggett By: /s/ C. Byron Snyder --------------------------------- -------------------------------- David Baggett C. Byron Snyder Chief Financial Officer President CONSOLIDATION FINANCIAL CONSULTANTS, LLC By: /s/ T.A. Reppert and T.A. Reppert, personally ------------------------------------------------- Todd Reppert President POLLOCK FAMILY PARTNERSHIP, LTD. By: /s/ Jon Pollock --------------------------------- Jon Pollock - General Partner /s/ Doug Toole --------------------------------- Doug Toole /s/ C. Mark Cummings --------------------------------- C. Mark Cummings /s/ Susan Cannon --------------------------------- Susan Cannon /s/ D. Merril Cummings --------------------------------- D. Merril Cummings /s/ Jim P. Wise --------------------------------- Jim Wise -10- 11 /s/ Mel Payne --------------------------------- Mel Payne /s/ John Wombwell --------------------------------- John Wombwell /s/ Tom Popp --------------------------------- Tom Popp /s/ Larry O'Connell --------------------------------- Larry O'Connell /s/ Jim Thurman --------------------------------- Jim Thurman /s/ Ben Mueller --------------------------------- Ben Mueller /s/ Jerry M. Mills --------------------------------- Jerry Mills /s/ Gary O'Sullivan --------------------------------- Gary O'Sullivan /s/ Charles P. Bagby --------------------------------- Charles Bagby /s/ Tom Daniel --------------------------------- Tom Daniel /s/ Richard Muth --------------------------------- Richard Muth -11- 12 /s/ Paul Muth --------------------------------- Paul Muth /s/ Jeremy O. Brown --------------------------------- Jeremy Brown /s/ Gregg Snyder --------------------------------- Gregg Snyder /s/ Worth Snyder --------------------------------- Worth Snyder /s/ Natalie Snyder --------------------------------- Natalie Snyder /s/ Meredith Snyder --------------------------------- Meredith Snyder /s/ Lane Dilg --------------------------------- Lane Dilg /s/ Mary Dilg --------------------------------- Mary Dilg /s/ Robert Christianson --------------------------------- Robert Christianson /s/ David Baggett --------------------------------- David Baggett /s/ Robert Richey --------------------------------- Robert Richey -12- 13 /s/ Guy Hoffman --------------------------------- Guy Hoffman /s/ Paul Leleux --------------------------------- Paul Leleux /s/ Steve Smith --------------------------------- Steve Smith /s/ Aimee B. Shaw --------------------------------- Aimee Shaw /s/ Michael James --------------------------------- Michael James /s/ Bob Weik --------------------------------- Bob Weik ERICA JANE HOFFMAN 1999 TRUST By: /s/ Molly Vining By: /s/ Peter Bauer ---------------------------------- -------------------------------- Molly Vining, Trustee Peter Bauer, Trustee CLAIRE ELAINE HOFFMAN 1999 TRUST By: /s/ Molly Vining By: /s/ Peter Bauer ---------------------------------- -------------------------------- Molly Vining, Trustee Peter Bauer, Trustee -13- EX-10.5 10 ACQUISITION AGMT. - CHRISTIANSON ENTERPRISES, INC. 1 EXHIBIT 10.5 Execution Copy - -------------------------------------------------------------------------------- ACQUISITION AGREEMENT dated as of the 11th day of February, 1999 by and among AMERICAN PLUMBING & MECHANICAL, INC. CHRISTIANSON ENTERPRISES, INC. CHRISTIANSON SERVICES, INC. AND GGR LEASING CORPORATION and all of the STOCKHOLDERS of CHRISTIANSON ENTERPRISES, INC. CHRISTIANSON SERVICES, INC. AND GGR LEASING CORPORATION - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page RECITALS ....................................................................................1 1. ACQUISITION OF STOCK................................................................5 1.1 Acquisition................................................................5 1.2 Consideration..............................................................5 1.3 Certain Information With Respect to the Capital Stock of the Company and AmPaM..................................................................5 2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY......................................5 2.1 Board of Directors.........................................................5 2.2 Officers...................................................................6 3. DELIVERY OF CONSIDERATION...........................................................6 3.1 Stockholders' Consideration................................................6 3.2 Stockholders' Deliveries...................................................6 4. CLOSING.............................................................................6 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................6 5.1 Due Organization...........................................................7 5.2 Authorization..............................................................7 5.3 Capital Stock of the Company...............................................7 5.4 Transactions in Capital Stock..............................................8 5.5 No Bonus Shares............................................................8 5.6 Subsidiaries; Ownership in Other Entities..................................8 5.7 Predecessor Status; etc....................................................8 5.8 Spin-off by the Company....................................................8 5.9 Financial Statements.......................................................9 5.10 Liabilities and Obligations................................................9 5.11 Accounts and Notes Receivable.............................................10 5.12 Licenses; Intellectual Property...........................................11 5.13 Environmental Matters.....................................................11 5.14 Personal Property.........................................................13 5.15 Significant Customers; Material Contracts and Commitments.................13 5.16 Real Property.............................................................14 5.17 Insurance.................................................................15 5.18 Compensation; Employment Agreements; Labor Matters........................15 5.19 Employee Plans............................................................16 5.20 Compliance with ERISA.....................................................16 5.21 Conformity with Law; Litigation...........................................17
-i- 3 5.22 Taxes.....................................................................18 5.23 No Violations; No Consent Required, Etc...................................18 5.24 Government Contracts......................................................19 5.25 Absence of Changes........................................................19 5.26 Deposit Accounts; Powers of Attorney......................................21 5.27 Validity of Obligations...................................................21 5.28 Relations with Governments................................................21 5.29 Disclosure................................................................21 5.30 No Warranties or Insurance................................................22 5.31 Interest in Customers and Suppliers and Related Party Transactions........22 5.32 Private Placement Memorandum..............................................22 5.33 Authority; Ownership......................................................22 5.34 Preemptive Rights.........................................................23 5.35 No Commitment to Dispose of AmPaM Stock or AmPaM Series A Preferred Stock..................................................23 5.36 Disclosure................................................................23 6. REPRESENTATIONS OF AMPAM...........................................................24 6.1 Due Organization..........................................................24 6.2 Authorization.............................................................24 6.3 Capital Stock of AmPaM....................................................24 6.4 Transactions in Capital Stock.............................................25 6.5 Subsidiaries..............................................................25 6.6 Financial Statements......................................................25 6.7 Liabilities and Obligations...............................................25 6.8 Conformity with Law; Litigation...........................................26 6.9 No Violations.............................................................26 6.10 Validity of Obligations...................................................27 6.11 AmPaM Stock and AmPaM Series A Preferred Stock............................27 6.12 AmPaM Notes...............................................................28 6.13 No Side Agreements........................................................28 6.14 Business; Real Property; Material Agreements..............................29 6.15 Relations with Governments................................................29 6.16 Disclosure................................................................29 6.17 Other Agreements..........................................................29 7. COVENANTS PRIOR TO CLOSING.........................................................29 7.1 Access and Cooperation; Due Diligence; Transfer of Real Estate............29 7.2 Conduct of Business Pending Closing.......................................30 7.3 Prohibited Activities.....................................................31 7.4 No Shop...................................................................32 7.5 Agreements................................................................32 7.6 Notification of Certain Matters...........................................33 7.7 Amendment of Schedules....................................................33 7.8 Further Assurances........................................................33
-ii- 4 7.9 Authorized Capital........................................................34 7.10 Compliance with the Hart-Scott Act........................................34 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY........................................................................34 8.1 Representations and Warranties; Performance of Obligations................34 8.2 Satisfaction..............................................................34 8.3 No Litigation.............................................................35 8.4 Opinion of Counsel........................................................35 8.5 Consents and Approvals....................................................35 8.6 Good Standing Certificates................................................35 8.7 No Material Adverse Change................................................35 8.8 Secretary's Certificate...................................................35 8.9 Tax Matters...............................................................35 8.10 Other Founding Companies..................................................36 8.11 Company Release of Stockholders...........................................36 8.12 Sterling City Capital Transfer Restrictions...............................36 8.13 Election of Chief Executive Officer.......................................36 8.14 Funding Availability......................................................36 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF AMPAM.......................................36 9.1 Representations and Warranties; Performance and Obligations...............36 9.2 No Litigation.............................................................37 9.3 Secretary's Certificate...................................................37 9.4 No Material Adverse Effect................................................37 9.5 Stockholders' Release.....................................................37 9.6 Satisfaction..............................................................37 9.7 Termination of Related Party Agreements...................................38 9.8 Opinion of Counsel........................................................38 9.9 Consents and Approvals....................................................38 9.10 Good Standing Certificates................................................38 9.11 Funding Availability......................................................38 9.12 FIRPTA Certificate........................................................38 9.13 Resignations of Directors and Officers....................................39 10. COVENANTS OF AMPAM AND THE STOCKHOLDERS AFTER CLOSING..............................39 10.1 Release From Guarantees; Repayment of Certain Obligations.................39 10.2 Preservation of Tax and Accounting Treatment..............................39 10.3 Preparation and Filing of Tax Returns; Payment of Taxes...................39 10.4 Directors.................................................................40 10.5 Legal Opinions............................................................40 11. INDEMNIFICATION....................................................................40 11.1 General Indemnification by the Stockholders...............................41 11.2 Indemnification by AmPaM..................................................42
-iii- 5 11.3 Third Person Claims.......................................................42 11.4 Exclusive Remedy..........................................................44 11.5 Limitations on Indemnification............................................44 12. TERMINATION OF AGREEMENT...........................................................45 12.1 Termination...............................................................45 12.2 Procedure and Effect of Termination.......................................46 13. NONCOMPETITION.....................................................................47 13.1 Prohibited Activities.....................................................47 13.2 Damages...................................................................48 13.3 Reasonable Restraint......................................................48 13.4 Severability; Reformation.................................................48 13.5 Independent Covenant......................................................48 13.6 Materiality...............................................................49 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION..........................................49 14.1 Stockholders..............................................................49 14.2 AmPaM.....................................................................49 14.3 Damages...................................................................50 14.4 Survival..................................................................50 14.5 Return of Information.....................................................50 15. TRANSFER RESTRICTIONS..............................................................50 15.1 Transfer Restrictions Relating to AmPaM Stock.............................50 15.2 Transfer Restrictions Relating to Additional Consideration................52 16. FEDERAL SECURITIES ACT REPRESENTATIONS.............................................52 16.1 Compliance with Law.......................................................52 16.2 Economic Risk; Sophistication.............................................53 16.3 Reliance by AmPaM.........................................................53 17. REGISTRATION RIGHTS................................................................54 17.1 Piggyback Registration Rights.............................................54 17.2 Registration Procedures...................................................55 17.3 Indemnification...........................................................57 17.4 Underwriting Agreement....................................................58 17.5 Transfer of Rights........................................................59 17.6 Rule 144 Reporting........................................................59 17.7 Converted Shares of AmPaM Series A Preferred Stock........................59
-iv- 6 18. REDEMPTION OF AMPAM STOCK AND AMPAM SERIES A PREFERRED STOCK....................................................................59 18.1 Redemption Trigger........................................................59 18.2 Minimum Redemption; Limitations...........................................60 18.3 Notice; Exercise..........................................................60 18.4 Additional Redemptions....................................................60 18.5 Termination of Redemption Obligation......................................60 19. GENERAL............................................................................61 19.1 Cooperation...............................................................61 19.2 Successors and Assigns....................................................61 19.3 Entire Agreement..........................................................61 19.4 Counterparts..............................................................61 19.5 Brokers and Agent.........................................................61 19.6 Expenses..................................................................62 19.7 Notices...................................................................62 19.8 Governing Law.............................................................64 19.9 Survival of Representations and Warranties................................64 19.10 Exercise of Rights and Remedies...........................................64 19.11 Time......................................................................64 19.12 Reformation and Severability..............................................64 19.13 Remedies Cumulative.......................................................64 19.14 Captions..................................................................64 19.15 Amendments and Waivers....................................................64 19.16 Mediation and Arbitration.................................................65 19.17 Information Provided for Private Placement Memorandum.....................65 19.18 Effective Date of Agreement...............................................65
-v- 7 ANNEXES Annex I - Consideration to Be Paid to Stockholders Annex II - Amended and Restated Certificate of Incorporation and By-Laws of AmPaM Annex III - Form of Opinion of Counsel to AmPaM Annex IV - Form of Tax Opinion Annex V-1 - Form of Opinion of Counsel to Company and Stockholders Annex V-2 - Form of Opinion of Counsel to Company and Stockholders Annex VI-1 - Form of Employment Agreement Annex VI-2 - Form of Employment Agreement Annex VI-3 - Form of Employment Agreement Annex VI-4 - Form of Employment Agreement Annex VI-5 - Form of Employment Agreement Annex VI-6 - Form of Employment Agreement -vi- 8 SCHEDULES 2.1 Board of Directors 2.2 Officers 5.1 Due Organization 5.2 Authorization 5.3 Capital Stock of the Company 5.4 Transactions in Capital Stock; Organization Accounting 5.5 No Bonus Shares 5.6 Subsidiaries; Ownership in Other Entities 5.7 Predecessor Status; etc 5.8 Spin-off by the Company 5.9 Financial Statements 5.10 Liabilities and Obligations 5.11 Accounts and Notes Receivable 5.12 Licenses; Intellectual Property (Schedules 5.12(a)(1), 5.12(a)(2), 5.12(b)(1) and 5.12(b)(2)) 5.13 Environmental Matters 5.14 Personal Property 5.15 Significant Customers; Material Contracts and Commitments (Schedules 5.15(a), 5.15(b) and 5.15 (c)) 5.16 Real Property 5.17 Insurance 5.18 Compensation; Employment Agreements; Labor Matters 5.19 Employee Plans 5.20 Compliance with ERISA 5.21 Conformity with Law; Litigation 5.22 Taxes (Schedules 5.22(a) and 5.22(b)) 5.23 No Violations, No Consents Required, Etc. (Schedules 5.23(a), 5.23(b), 5.23(c) and 5.23(e)) 5.24 Government Contracts 5.25 Absence of Changes 5.26 Deposit Accounts; Powers of Attorney 5.30 No Warranties or Insurance 5.31 Interest in Customers and Suppliers and Related Party Transactions 5.33 Authority; Ownership (Schedules 5.33(a) and 5.33(b)) 6.9 No Violations 7.1 Access and Cooperation; Due Diligence; Transfer of Real Estate 7.2 Conduct of Business Pending Closing 7.3 Prohibited Activities 7.5 Agreements 8.11 Employment Agreements 9.7 Termination of Related Party Agreements 10.1 Release From Guarantees; Repayment of Certain Obligations 16.2 Non-accredited Investors 18.5 Brokers and Agents
-vii- 9 ACQUISITION AGREEMENT THIS ACQUISITION AGREEMENT (the "Agreement") is made as of the 11th day of February, 1999 by and among AMERICAN PLUMBING & MECHANICAL, INC., a Delaware corporation ("AmPaM"), CHRISTIANSON ENTERPRISES, INC., a Texas corporation, ("CEI"), CHRISTIANSON SERVICES, INC., a Texas corporation ("CSI") and GGR LEASING CORPORATION, a Texas corporation ("GGR"), and the stockholders listed on the signature pages of this Agreement (the "Stockholders"), which are all the stockholders of CEI, CSI and GGR (collectively, the "Company"). RECITALS WHEREAS, the Company is engaged in the plumbing and mechanical services business; WHEREAS, as of the date hereof, the Stockholders own, and as of the Closing Date the Stockholders will own, all of the issued and outstanding capital stock of the Company (the "Company Stock"); WHEREAS, AmPaM is entering into other separate agreements simultaneously with this Agreement that are substantially the same as this Agreement (the "Other Agreements"), each of which is entitled "Acquisition Agreement," with each of the Other Founding Companies (as defined herein) and their respective stockholders in order for AmPaM to acquire additional companies engaged in the plumbing and mechanical services business; WHEREAS, this Agreement and the Other Agreements constitute the "AmPaM Plan of Organization;" WHEREAS, the Stockholders and the boards of directors and the stockholders of AmPaM, and each of the Other Founding Companies that are parties to the Other Agreements, have approved and adopted the AmPaM Plan of Organization as an integrated plan pursuant to which the Stockholders and the stockholders of each of the other Founding Companies will contribute the capital stock of each of the Founding Companies to AmPaM, and the Stockholders and the stockholders of each of the other Founding Companies will acquire the stock of AmPaM (but not cash or other property) as a tax-free transfer of property under Section 351 of the Code; WHEREAS, in consideration of the agreements of the Other Founding Companies pursuant to the Other Agreements, the Stockholders have approved this Agreement as part of the AmPaM Plan of Organization in order to transfer all of the issued and outstanding capital stock of the Company to AmPaM; and NOW, THEREFORE, in consideration of the premises and of the mutual agreements, representations, warranties, provisions and covenants herein contained, the parties hereto hereby agree as follows: 10 Unless the context otherwise requires, capitalized terms used in this Agreement or in any schedule attached hereto and not otherwise defined shall have the following meanings for all purposes of this Agreement: "1933 Act" means the Securities Act of 1933, as amended. "Acquired Party" means the Company, any subsidiary of the Company and any member of a Relevant Group. "Affiliates" means with respect to any person or entity, any other person or entity that directly or indirectly, controls, is controlled by, or is under common control with such person or entity. "AmPaM" has the meaning set forth in the first paragraph of this Agreement. "AmPaM Charter Documents" has the meaning set forth in Section 6.1. "AmPaM Plan of Organization" has the meaning set forth in the recitals of this Agreement. "AmPaM Series A Preferred Stock" means the 10% cumulative redeemable convertible preferred stock, Series A, of AmPaM "AmPaM Stock" means the common stock, par value $.01 per share, of AmPaM. "AmPaM Notes" means those notes issued by AmPaM to the Stockholders as a portion of the consideration to be received hereunder and in substantially the form to Annex I as Appendix A. "Balance Sheet Date" has the meaning set forth in Section 5.9. "Charter Documents" has the meaning set forth in Section 5.1. "Closing" has the meaning set forth in Section 4. "Closing Date" has the meaning set forth in Section 4. "Code" means the Internal Revenue Code of 1986, as amended. "Company" has the meaning set forth in the first paragraph of this Agreement. "Company Stock" has the meaning set forth in the recitals of this Agreement. "Delaware GCL" means the General Corporation Law of the State of Delaware. 2 11 "Environmental Laws" has the meaning set forth in Section 5.13(b). "Expiration Date" has the meaning set forth in Section 5(A) and Section 6, as applicable. "Founding Companies" means the following companies: Christianson Enterprises, Inc., a Texas corporation; Christianson Services, Inc., a Texas corporation; GGR Leasing Corporation, a Texas corporation; J.A. Croson Company of Florida, a Florida corporation; J.A. Croson Company, an Ohio corporation; Franklin Fire Sprinkler Company, an Ohio corporation; Keith Riggs Plumbing, Inc., an Arizona corporation; Miller Mechanical Contractors, Inc., a Georgia corporation; Nelson Mechanical Contractors, Inc., a Florida corporation; Power Plumbing Inc., a Delaware corporation; R.C.R. Plumbing, Inc., a California corporation; Sherwood Mechanical, Inc., a California corporation; and Teepe's River City Mechanical, Inc., an Ohio corporation. "GAAP" means generally accepted accounting principles as consistently applied in the United States. "Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Hazardous Substance" has the meaning set forth in Section 5.13(c). "IPO" means a firm commitment underwritten initial public offering of AmPaM Stock managed by one or more nationally recognized national investment banking firms. "known" or "knowledge," when used in reference to a statement regarding the existence or absence of facts in this Agreement, is intended by the parties to mean that the only information to be attributed to such person is information actually known to (a) the person in the case of an individual, (b) in the case of a corporation or other entity other than the Company, an officer or director of such corporation or entity or (c) in the case of the Company and its Subsidiaries, an officer of the Company listed on Schedule 2.2 hereto, except for David Baggett. "Material Adverse Change" means a material adverse change in the business, operations, properties, assets or condition (financial or otherwise), of the subject entity and its subsidiaries taken as a whole. 3 12 "Material Adverse Effect" means a material adverse effect on the business, operations, properties, assets or condition (financial or otherwise), of the subject entity and its subsidiaries taken as a whole. "Material Documents" has the meaning set forth in Section 5.23. "Ordinary Course of Business" means the ordinary course of business consistent with past customs and practice (including with respect to quantity and frequency). "Other Agreements" has the meaning set forth in the recitals of this Agreement. "Other Founding Companies" means all of the Founding Companies other than the Company. "Plans" has the meaning set forth in Section 5.19. "Private Placement Memorandum" means the Private Placement Memorandum, dated as of February 11, 1999, provided to each Stockholder prior to the execution and delivery of this Agreement which sets forth certain information relating to the transactions contemplated by this Agreement and the Other Agreements. "Qualified Plans" has the meaning set forth in Section 5.20. "Relevant Group" means the Company and any affiliated, combined, consolidated, unitary or similar group of which the Company is or was a member. "Restricted Common Stock" has the meaning set forth in Section 1.3(ii). "Returns" means any returns, reports or statements (including any information returns) required to be filed for purposes of a particular Tax. "Schedule" means each Schedule attached hereto, which shall reference the relevant sections of this Agreement, on which parties hereto disclose information as part of their respective representations, warranties and covenants. "SEC" means the United States Securities and Exchange Commission. "State of Incorporation" means the State of Texas for each of CEI, CSI and GGR. "Stockholders" has the meaning set forth in the first paragraph of this Agreement. "Subsidiaries" means with respect to a person or entity, any corporation or other entity in which such person or entity owns a 5% or greater ownership interest. 4 13 "Tax" or "Taxes" means all federal, state, local or foreign net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value added, franchise, withholding, employment, excise, property, deed, stamp, alternative or add-on minimum, or other taxes, assessments, duties, fees, levies or other governmental charges, whether disputed or not, together with any interest, penalties, additions to tax or additional amounts with respect thereto. 1. ACQUISITION OF STOCK 1.1 ACQUISITION. Upon the terms and subject to the conditions contained in this Agreement and in reliance upon the representations, warranties, covenants and agreements contained in this Agreement, on the Closing Date, the Stockholders shall convey and transfer to AmPaM all of the issued and outstanding shares of Company Stock as set forth in Annex I hereto. 1.2 CONSIDERATION. The consideration for the Company Stock shall be as set forth on Annex I to this Agreement. 1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY AND AMPAM. The respective designations and numbers of outstanding shares and voting rights of each class of outstanding capital stock of the Company and AmPaM as of the date of this Agreement are as follows: (i) as of the date of this Agreement, the authorized and outstanding Company Stock is as set forth on Schedule 5.3 hereto; and (ii) immediately prior to the Closing Date, the authorized capital stock of AmPaM will consist of (A) 100,000,000 shares of AmPaM Stock, of which the number of issued and outstanding shares will be set forth in the Private Placement Memorandum, (B) 10,000,000 shares of redeemable preferred stock, of which the number of issued and outstanding shares will be set forth in the Private Placement Memorandum, and (C) 5,000,000 shares of Restricted Voting Common Stock, $.01 per value (the "Restricted Common Stock"), all of which will be issued and outstanding except as otherwise set forth in the Private Placement Memorandum. 2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY 2.1 BOARD OF DIRECTORS. The Company and the Stockholders shall take action, including solicitation of resignation of directors, necessary so that the Board of Directors of the Company as of the Closing Date shall consist only of the persons identified on Schedule 2.1 hereto. 5 14 2.2 OFFICERS. The Company and the Stockholders shall take action, including solicitation of resignation of officers, necessary so that the officers of the Company as of the Closing Date shall consist only of the persons identified on Schedule 2.2 hereto. 3. DELIVERY OF CONSIDERATION 3.1 STOCKHOLDERS' CONSIDERATION. On the Closing Date, the Stockholders shall, upon surrender of certificates evidencing the Company Stock, receive from AmPaM the respective number of shares of AmPaM Stock, the respective number of shares of AmPaM Series A Preferred Stock, the amount of cash and the principal amount of AmPaM Notes described on Annex I hereto specified with respect to each such Stockholder as payable on the Closing Date. All payments of cash shall be made by certified check or wire transfer of immediately available funds. Consideration consisting of AmPaM Notes shall be substantially in the form of Appendix A to Annex I and the consideration consisting of AmPaM Series A Preferred Stock will have the rights and obligations set forth in a Certificate of Designations substantially in the form of Appendix B to Annex I. 3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at the Closing the certificates representing Company Stock, duly endorsed in blank by the Stockholders, or accompanied by blank stock powers, and with all necessary transfer tax and other revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The Stockholders agree promptly to cure any deficiencies with respect to the endorsement of the stock certificates or other documents of conveyance with respect to such Company Stock or with respect to the stock powers accompanying any Company Stock. 4. CLOSING The consummation of the transactions contemplated by Section 3 (the "Closing") shall take place on March 31, 1999 or such date not later than May 31, 1999 as AmPaM shall determine by giving written notice of such other date as provided in Section 18.7 (the "Closing Date") at the offices of Andrews & Kurth L.L.P., 4200 Chase Tower, 600 Travis, Houston, Texas 77002; provided however, that if the Closing does not occur on or before May 31, 1999, AmPaM shall pay $50,000 to the Company as reimbursement for certain costs and expenses related to the negotiation and execution of this Agreement. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY (A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in the disclosure schedules attached hereto and except as otherwise qualified below, the Company represents and warrants that all of the following representations and warranties in this Section 5(A) are true at the date of this Agreement and, subject to Section 7.7 hereto, shall be true at the time of the Closing, and that such representations and warranties shall survive the Closing Date for a period of eighteen months (the last day of such period being the 6 15 "Expiration Date"), except that the representations and warranties set forth in Sections 5.3, 5.22 and 5.32 hereof shall survive until such time as the applicable statute of limitations period has run, which shall be deemed to be the Expiration Date for the representations and warranties set forth in Sections 5.3, 5.22 and 5.32. For purposes of this Section 5, the term "Company" shall mean and refer to the Company and all of its Subsidiaries, if any, and any reference to a Material Adverse Effect on the Company or Material Adverse Change with respect to the Company shall mean the Company and its Subsidiaries, taken as a whole. Except as expressly set forth in this Agreement, the Company expressly disclaims any representation or warranty (express, implied or otherwise) relating to the Company and any Subsidiary thereof including, without limitation, any warranty of merchantability or fitness for a particular purpose. 5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of Incorporation, and has the requisite power and authority to carry on its business as it is now being conducted. The Company is duly qualified or authorized to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or authorization necessary except where the failure to be so qualified or authorized to do business would not have a Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all states in which the Company is authorized or qualified to do business, which list indicates which of such entities is authorized or qualified to do business in such states. True, complete and correct copies of the Certificate or Articles of Incorporation and By-laws, each as amended, of the Company (the "Charter Documents") are all attached to Schedule 5.1. The Company has delivered to AmPaM complete and correct copies of (i) the stock records of the Company and (ii) all minutes of meetings, written consents and other evidence, if any, of deliberations of or actions taken by the Company's Board of Directors, any committees of the Board of Directors and stockholders during the last five years. 5.2 AUTHORIZATION. (i) The officers or other representatives of the Company executing this Agreement have the authority to enter into and bind the Company to the terms of this Agreement and (ii) the Company has the full legal right, power and authority to enter into this Agreement and consummate the transactions contemplated hereby. Copies of the most recent resolutions adopted by the Board of Directors of the Company and the most recent resolutions adopted by the Stockholders, which approve this Agreement and the transactions contemplated hereby in all respects, certified by the Secretary or an Assistant Secretary of the Company as being in full force and effect on the date hereof, are attached hereto as Schedule 5.2. 5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the Company and each of its Subsidiaries is as set forth on Schedule 5.3(a). All of the issued and outstanding shares of the capital stock of the Company are owned by the Stockholders in the amounts set forth in Schedule 5.3(a). Except as set forth on Schedule 5.3(a), all of the issued and outstanding capital stock of each Subsidiary is owned by the Company. All of the issued and outstanding shares of the capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable, are owned of record by the Stockholders and further, such shares were offered, issued, 7 16 sold and delivered by the Company in compliance with all applicable state and Federal laws concerning the issuance of securities. Further, none of such shares were issued in violation of any preemptive rights of any past or present stockholder. 5.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 5.4(a), the Company has not acquired or redeemed any shares of capital stock of the Company since January 1, 1996. Except as set forth on Schedule 5.4(b), (i) no option, warrant, call, conversion right or commitment of any kind exists which obligates the Company to issue any of its authorized but unissued capital stock; (ii) the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof; and (iii) neither the voting stock structure of the Company nor the relative ownership of shares among any of its Stockholders has been altered or changed in contemplation of the AmPaM Plan of Organization. There are no voting trusts, proxies or other agreements or understandings to which the Company is a party or is bound with respect to the voting of any shares of capital stock of the Company. 5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the shares of Company Stock was issued pursuant to awards, grants or bonuses in contemplation of the AmPaM Plan of Organization. 5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set forth on Schedule 5.6(a), the Company has no Subsidiaries. Except as set forth in Schedule 5.6(b), the Company does not presently own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity nor is the Company, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. 5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7(a) is a list of all predecessor companies of the Company, including the names of any entities acquired by the Company (by stock purchase, merger or otherwise) or owned by the Company or from whom the Company previously acquired material assets, in any case, from the earliest date upon which any Stockholder acquired his or her stock in any Company. Except as disclosed on Schedule 5.7(b), the Company has not been, within such period of time, a subsidiary or division of another corporation or a part of an acquisition which was later rescinded. 5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there has not been any sale, spin-off or split-up of material assets of either the Company or any other person or entity that is an Affiliate of the Company since January 1, 1996. 8 17 5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 is a copy of: (i) the combined balance sheets of the Company as of December 31, 1996 and 1997 and the related statements of combined operations, stockholders' equity and cash flows for the three-year period ended December 31, 1997, together with the related notes and schedules (such balance sheets, the related statements of operations, stockholders' equity and cash flows and the related notes and schedules are referred to herein as the "Year-end Financial Statements"); (ii) the combined balance sheet of the Company as of June 30, 1998 and the related statements of operations, stockholders' equity and cash flows for the six-month periods ended June 30, 1997 and 1998, together with the related notes and schedules (such balance sheets, the related statements of operations, stockholders' equity and cash flows and the related notes and schedules are referred to herein as the "Six-Month Interim Financial Statements"); (iii) the combined balance sheet of the Company as of September 30, 1998 (the "Balance Sheet Date") and the related statements of operations, stockholders' equity and cash flows for the nine-month periods ended September 30, 1997 and 1998 (such balance sheets, the related statements of operations, stockholders' equity and cash flows are referred to herein as the "Nine-Month Interim Financial Statements"); and (iv) the combined income statement of the Company for the 12-month period ended June 30, 1998, together with the related notes and schedules thereto (the "Valuation Income Statement"). The Year-end Financial Statements, the Six-Month Interim Financial Statements, the Nine-Month Interim Financial Statements and the Valuation Income Statement are collectively called the "Financial Statements". The Financial Statements, including those included in the Private Placement Memorandum, have been prepared in accordance with GAAP applied on a consistent basis and fairly present the combined financial position of the Company as of the dates thereof and the results of its operations and changes in financial position for the periods then ended, subject, in the case of the Six-Month Interim Financial Statements and the Nine-Month Interim Financial Statements, to normal year-end audit adjustments and any other adjustments described therein and the absence of certain footnote disclosures. 5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10(a) sets forth an accurate list as of the Balance Sheet Date of (i) all material liabilities of the Company which are not reflected on the combined balance sheet of the Company at the Balance Sheet Date or otherwise reflected in the Company Financial Statements at the Balance Sheet Date which by their nature would be required in accordance with GAAP to be reflected in the balance sheet, and (ii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages, pledges or other security agreements to which the Company is a party or by which its properties may be bound other than bid bonds and performance 9 18 bonds made in the Ordinary Course of Business. Except as set forth on Schedule 5.10(b), since the Balance Sheet Date, the Company has not incurred any material liabilities or obligations of any kind, character or description, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than liabilities incurred in the Ordinary Course of Business. The Company has also delivered to AmPaM, on Schedule 5.10(c), a list of contingent liabilities related to pending litigation or litigation that has been threatened in writing, or other material liabilities which are not fixed or otherwise accrued or reserved. For each such contingent liability of the Company or liability of the Company for which the amount is not fixed or is contested, the Company has provided to AmPaM the following information: (i) a summary description of the liability together with the following: (a) copies of all relevant documentation in the possession of the Company or its directors, officers or stockholders relating thereto; (b) amounts claimed and any other action or relief sought; and (c) name of claimant and all other parties to the claim, suit or proceeding; (ii) the name of each court or agency before which such claim, suit or proceeding is pending; (iii) the date such claim, suit or proceeding was instituted; and (iv) a good faith estimate of the maximum amount, if any, which the Company expects, based on information available, is likely to become payable with respect to each such liability and the amount, if any, accrued or reserved for each such potential liability on the Financial Statements. AmPaM acknowledges that all estimates referred to above and set forth on Schedule 5.10(c) are only good faith estimates, and that the Company and the Stockholders expressly do not represent or warrant that the actual amounts of such liabilities will be equal to, or more or less than, the amounts of such estimates. 5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11(a) sets forth an accurate list, in all material respects, of the accounts and notes receivable of the Company, as of the Balance Sheet Date, including any such amounts which are not reflected in the balance sheet as of the Balance Sheet Date, and including all receivables from and advances to employees and the Stockholders, which are identified as such. Schedule 5.11(a) also sets forth a materially accurate aging of all accounts and notes receivable as of the Balance Sheet Date showing amounts due in 30-day aging categories. Except to the extent reflected on Schedule 5.11(b), such accounts, notes and other receivables are collectible in the amounts shown on Schedule 5.11(a), net of reserves reflected in the balance sheet as of the Balance Sheet Date. 10 19 5.12 LICENSES; INTELLECTUAL PROPERTY. (a) The Company or its employees hold all licenses, franchises, permits and other governmental authorizations ("Licenses") necessary to conduct the business of the Company, the absence of which would cause a Material Adverse Effect on the Company, and the Company has delivered to AmPaM a list that is accurate, in all material respects, and summary description (which is set forth on Schedule 5.12(a)(1)) of all such Licenses. At or prior to the Closing, all such Licenses owned or held by any employee of the Company will be assigned or licensed to the Company for no additional consideration. The Licenses listed on Schedule 5.12(a)(1) are valid, and the Company has not received any notice that any person intends to cancel, terminate or not renew any such License. The Company has conducted and is conducting its business in compliance in all material respects with the requirements, standards, criteria and conditions set forth in the Licenses listed on Schedule 5.12(a)(1) and is not in violation of any of the foregoing in any material respect. Except as specifically provided in Schedule 5.12(a)(2), the consummation by the Company of the transactions contemplated by this Agreement will not result in a default under or a breach or violation of, or adversely affect the rights and benefits afforded to the Company by, any such Licenses. (b) The Company owns or possesses adequate licenses or other rights to use (without making any payment or granting rights to any person in exchange) all patents, patent applications, trademarks, copyrights, service marks and trade names (collectively, the "Intellectual Property") necessary to conduct its business as currently conducted. A description of any Intellectual Property licensed by the Company, including the material terms of any such license, is described on Schedule 5.12(b)(1). Neither the validity of the Intellectual Property nor the title thereto or use thereof by the Company is being questioned in any pending litigation, and the conduct of the Company's business, as currently conducted, does not conflict with licenses, copyrights, uncopyrighted works, trade marks, service marks, trade names, trade name rights, patents, patent rights, unpatented inventions or trade secrets of others. Neither the validity of the Intellectual Property nor the title thereto or use thereof by the Company is being questioned in any pending or, to the knowledge of the Company, threatened infringement claims or litigation, and the conduct of the Company's business, as now conducted, does not conflict with licenses, copyrights, uncopyrighted works, trade marks, service marks, trade names, trade name rights, patents, patent rights, unpatented inventions or trade secrets of others. Except as specifically provided in Schedule 5.12(b)(2), the consummation by the Company of the transactions contemplated by this Agreement will not adversely affect the rights and benefits afforded to the Company by any such Intellectual Property. 5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule 5.13 attached hereto, (i) the Company has conducted its businesses in compliance in all material respects with all applicable Environmental Laws, including, without limitation, having all environmental permits, licenses and other approvals and authorizations necessary for the operation of its business as presently conducted, except where the failure to have such permit, license, approval or authorization would not have a Material Adverse Effect on the Company, (ii) none of the properties owned by the Company contain any Hazardous Substance as a result of any activity of the Company in amounts exceeding the levels permitted by applicable Environmental Laws, except where amounts in excess 11 20 of such levels would not have a Material Adverse Effect on the Company, (iii) the Company has not received any notices, demand letters or requests for information from any Federal, state, local or foreign governmental entity or third party indicating that the Company may be in violation of, or liable under, any Environmental Law in connection with the ownership or operation of its business, (iv) there are no civil, criminal or administrative actions, suits, demands, claims, hearings, investigations or proceedings pending or, to the knowledge of the Company, threatened, against the Company relating to any violation, or alleged violation, of any Environmental Law, except where such violation would not have a Material Adverse Effect on the Company, (v) no reports have been filed, or are required to be filed, by the Company concerning the release of any Hazardous Substance or the threatened or actual violation of any Environmental Law, (vi) no Hazardous Substance has been disposed of, released or transported in violation of any applicable Environmental Law from any properties owned by the Company as a result of any activity of the Company during the time such properties were owned, leased or operated by the Company, (vii) there have been no environmental investigations, studies, audits, tests, reviews or other analyses regarding compliance or non-compliance with any applicable Environmental Law conducted by or which are in the possession of the Company relating to the activities of the Company which are not listed on Schedule 5.13 attached hereto prior to the date hereof, (viii) to the knowledge of the Company, (A) there are no underground storage tanks on, in or under any properties owned by the Company and (B) no underground storage tanks have been closed or removed from any of such properties during the time such properties were owned, leased or operated by the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the Company, (A) there is no asbestos or asbestos-containing material present in any material quantity in any of the properties owned by the Company, and (B) no asbestos has been removed from any of such properties during the time such properties were owned, leased or operated by the Company, and (x) neither the Company nor any of its properties are subject to any material liabilities or expenditures (fixed or contingent) relating to any suit, settlement, court order, administrative order, regulatory requirement, judgment or claim asserted or arising under any Environmental Law. (b) As used herein, "Environmental Law" means, as of the Closing Date, any Federal, state, local or foreign law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction or agreement with any governmental entity to which the Company is a party or subject relating to (x) the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource) or to human health or safety or (y) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances, in each case as amended and as in effect on the Closing Date. The term Environmental Law includes, without limitation, (i) the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Federal 12 21 Occupational Safety and Health Act of 1970, each as amended and as in effect on the Closing Date, and (ii) any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of, effects of or exposure to any Hazardous Substance. (c) As used herein, "Hazardous Substance" means any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive, or dangerous, or otherwise regulated, under any Environmental Law. Hazardous Substance includes any substance to which exposure is regulated by any government authority or any Environmental Law including, without limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste, industrial substance or petroleum or any derivative or by-product thereof, radon, radioactive material, asbestos or asbestos-containing material, urea formaldehyde foam insulation, lead or polychlorinated biphenyls. 5.14 PERSONAL PROPERTY. The Company has delivered to AmPaM an accurate list (which is set forth on Schedule 5.14(a)) of (x) all personal property material to the operations of the Company as of the Balance Sheet Date included in "plant, property and equipment" on the balance sheet of the Company as of such date, (y) all other items of personal property owned by the Company with an individual value in excess of $15,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all material leases and agreements in respect of personal property, including, in the case of each of (x), (y) and (z), (1) true, complete and correct copies of all such leases and (2) an indication as to which assets are currently owned, or were formerly owned, by Stockholders, relatives of Stockholders, or Affiliates of the Company. Except as set forth on Schedule 5.14(b), (i) all personal property material to, and used by, the Company in its business is either owned by the Company or leased by the Company pursuant to a lease included on Schedule 5.14(a), (ii) all of the personal property listed on Schedule 5.14(a) or replacement property thereof is in working order and condition, ordinary wear and tear excepted and (iii) all leases and agreements included on Schedule 5.14(a) are in full force and effect and constitute valid and binding agreements of the Company, in each case in accordance with their respective terms. 5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. (a) The Company has delivered to AmPaM a materially accurate list (which is set forth on Schedule 5.15(a)(1)) of all customers (persons or entities) representing 5% or more of the Company's annual revenues for any period covered by any of the Financial Statements. Except to the extent set forth on Schedule 5.15(a)(2), none of such customers has canceled or, to the knowledge of the Company, are currently threatening to cancel a currently effective contract with the Company. (b) The Company has listed on Schedule 5.15(b) all material contracts, commitments and similar agreements to which the Company is a party or by which it or any of its properties are bound (including, but not limited to, contracts with customers listed on Schedule 5.15(a), joint venture or 13 22 partnership agreements, contracts with any labor organizations, strategic alliances and options to purchase land), other than agreements listed on Schedules 5.10(a), Schedule 5.14(a) or Schedule 5.16(a), (a) in existence as of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and in each case has delivered or made available to AmPaM true, complete and correct copies of such agreements. For purposes of the preceding sentence, a contract, commitment or similar agreement is "material" if it (i) has a term of more than one year (other than contracts, commitments or agreements that are cancelable without liability or penalty within 30 days of notice from the Company of cancellation or that can be terminated by the Company without material penalty upon notice of 30 days or less) or (ii) requires the payment by or to the Company of more than $100,000 during any 12-month period. Except for expenditures in the ordinary course of business, the Company has also indicated on Schedule 5.15(b) a summary description of all plans or projects involving the opening of new operations, expansion of existing operations, or the acquisition of any personal property, business or assets requiring, in any event, the payment of more than $50,000 by the Company during any 12-month period. (c) Except as set forth on Schedule 5.15(c), the Company is not required to provide any bonding or other financial security arrangements in any material amount in connection with any contract listed on Schedule 5.15(b). 5.16 REAL PROPERTY. Schedule 5.16(a) includes a list of all real property owned or leased by the Company at the date hereof and all other real property, if any, used by the Company in the conduct of its business. The Company has good and insurable title to any real property owned by it that is shown on Schedule 5.16(a), other than property intended to be sold or distributed prior to the Closing Date as provided in Section 7.1(c) of this Agreement, and all real property so owned is subject to no mortgage, pledge, lien, conditional sales agreement, encumbrance, lease, possessory rights of third parties or charge, except for: (i) liens reflected on Schedule 5.10(a) or Schedule 5.16(b) as securing specified liabilities (with respect to which no material default by the Company exists); (ii) liens for current taxes not yet payable and assessments not in default; (iii) easements for utilities serving the property; and (iv) easements, covenants and restrictions and other exceptions to title which do not adversely affect the current use of the property. Copies of all leases and agreements in respect of such real property leased by the Company, which are true, complete and correct in all material respects, are attached to Schedule 5.16(a), and an indication as to which such properties, if any, are currently owned, or were formerly owned, by Stockholders or Affiliates of the Company or Stockholders is included in Schedule 5.16(a). Except as set forth on Schedule 5.16(b), all of such leases included on Schedule 5.16(a) are, as to the 14 23 Company, in full force and effect and constitute valid and binding agreements of the Company in accordance with their respective terms. 5.17 INSURANCE. The Company has delivered to AmPaM (i) an accurate list as of the Balance Sheet Date of all insurance policies carried by the Company and (ii) an accurate list of all insurance loss runs or workers compensation claims received for the past three policy years (which lists are set forth on Schedule 5.17). The Company has also delivered or made available to AmPaM true, complete and correct copies of all insurance policies currently in effect that are referred in Schedule 5.17. Such insurance policies evidence all of the insurance the Company is required to carry pursuant to all of its contracts and other agreements and pursuant to all applicable laws. All of such insurance policies are currently in full force and effect except as stated in Schedule 5.17. Since January 1, 1996, no insurance carried by the Company has been canceled by the insurer and the Company has not been denied coverage under any such policy. 5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS. (a) The Company has delivered to AmPaM an accurate list (which is set forth on Schedule 5.18(a)(1)) showing all officers, directors and key employees of the Company, listing all employment agreements with such officers, directors and key employees and the rate of compensation (and the portions thereof attributable to salary, bonus and other compensation, respectively) of each of such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The Company has provided to AmPaM true, complete and correct copies of any employment agreements for persons listed on Schedule 5.18(a)(1). Since the Balance Sheet Date, except as disclosed on Schedule 5.18(a)(2), there have been no increases in the compensation payable or any bonuses to any officer, director, key employee or other employee, except ordinary salary increases implemented on a basis consistent with past practices and except for bonuses paid on a basis consistent with past practices. (b) Except as set forth on Schedule 5.18(b), (i) the Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any arrangement with any labor union, (ii) to the knowledge of the Company, no campaign to establish such arrangement is in progress and (iii) there is no pending or, to the Company's knowledge, threatened labor dispute involving the Company and any group of its employees nor has the Company experienced any labor interruptions over the past three years. The Company believes its relationship with employees to be generally good. (c) Except as set forth in Schedule 5.18(c) attached hereto, (i) there are no claims, actions or proceedings pending or, to the knowledge of the Company, threatened between the Company and any of its employees, (ii) the Company has complied in all material respects with all laws relating to the employment of labor, including, without limitation, any provisions thereof relating to wages, hours, collective bargaining, and the payment of social security and similar taxes, and (iii) the Company has not received written notice from any person asserting that the Company is liable in 15 24 any material amount for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. 5.19 EMPLOYEE PLANS. The Company has delivered to AmPaM accurate schedule (Schedule 5.19(a)) showing all employee benefit plans of the Company, including all employment agreements and other agreements or arrangements containing "golden parachute" or other similar provisions, and deferred compensation agreements, together with true, complete and correct copies of such plans, agreements and any trusts related thereto, and classifications of employees covered thereby as of the Balance Sheet Date and as of the date of this Agreement. Except for the employee benefit plans, if any, described on Schedule 5.19(a), the Company does not sponsor, maintain or contribute to any plan program, fund or arrangement that constitutes an "employee pension benefit plan", and neither the Company nor any Subsidiary has any obligation to contribute to or accrue or pay any benefits under any deferred compensation or retirement funding arrangement on behalf of any employee or employees (such as, for example, and without limitation, any individual retirement account or annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred compensation arrangement). For the purposes of this Agreement, the term "employee pension benefit plan" shall have the same meaning as is given that term in Section 3(2) of ERISA. The Company has not sponsored, maintained or contributed to any employee pension benefit plan other than the plans set forth on Schedule 5.19(a), and, except as described on Schedule 5.19(b), the Company is not or could not be required to contribute to any retirement plan pursuant to the provisions of any collective bargaining agreement establishing the terms and conditions or employment of any of the Company's employees. Except as set forth on Schedule 5.19(c), the Company is not now, or will not as a result of its past activities become, liable to the Pension Benefit Guaranty Corporation or to any multiemployer employee pension benefit plan under the provisions of Title IV of ERISA. All employee benefit plans listed on Schedule 5.19(a) and the administration thereof are in compliance in all material respects with their terms and all applicable provisions of ERISA and the regulations issued thereunder, as well as with all other applicable federal, state and local statutes, ordinances and regulations. All accrued contribution obligations of the Company as of the Balance Sheet Date with respect to any plan listed on Schedule 5.19(a) have either been fulfilled in their entirety or are fully reflected on the balance sheet of the Company as of the Balance Sheet Date. 5.20 COMPLIANCE WITH ERISA. All plans listed on Schedule 5.19(a) that are intended to qualify under Section 401 (a) of the Code (the "Qualified Plans") are, and have been so qualified and have been determined by the Internal Revenue Service to be so qualified, and copies of such determination letters are attached to Schedule 5.19(a). Except as disclosed on Schedule 5.20, all reports and other documents required to be filed with any governmental agency or distributed to plan participants or beneficiaries (including, but not limited to, actuarial reports, audits or tax returns) 16 25 since January 1, 1992 have been timely filed or distributed, and copies thereof have been made available to AmPaM. No such plan listed on Schedule 5.19(a) nor the Company has engaged in any transaction prohibited under the provisions of Section 4975 of the Code or Section 406 of ERISA. No such Plan listed on Schedule 5.19(a) has incurred an accumulated funding deficiency, as defined in Section 412(a) of the Code and Section 302(l) of ERISA; and the Company has not incurred any liability for excise tax or penalty due to the Internal Revenue Service nor any liability to the Pension Benefit Guaranty Corporation. The Company further represents that except as set forth on Schedule 5.20 hereto: (i) there have been no terminations, partial terminations or discontinuations of contributions to any Qualified Plan intended to qualify under Section 401(a) of the Code without notice to and approval by the Internal Revenue Service; (ii) no plan listed on Schedule 5.19(a) subject to the provisions of Title IV of ERISA has been terminated; (iii) there have been no "reportable events" (as that phrase is defined in Section 4043 of ERISA) with respect to any such plan listed in Schedule 5.19(a); (iv) the Company (including any Subsidiaries) has not incurred liability under Section 4062 of ERISA; and (v) no circumstances exist pursuant to which the Company could have any direct or indirect liability whatsoever (including, but not limited to, any liability to any multiemployer plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for any excise tax or penalty, or being subject to any statutory lien to secure payment of any such liability) with respect to any plan now or heretofore maintained or contributed to by any entity other than the Company that is, or at any time was, a member of a "controlled group" (as defined in Section 412(n)(6)(B) of the Code) that includes the Company. 5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on Schedule 5.21 or Schedule 5.13, the Company has not violated within the five years prior to the date of this Agreement and is not currently in violation of any law or regulation or any order of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it other than violations that would not have a Material Adverse Effect on the Company; and except to the extent set forth on Schedule 5.10(c) or Schedule 5.13, there are no claims, actions, suits or proceedings, pending or, to the knowledge of the Company, threatened in writing against the Company, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over the Company and no written notice of any claim, action, suit or proceeding, whether pending or threatened, has been received by the Company, and to the knowledge of the Company there is no valid basis for any such claim, action, suit or proceeding that could reasonably be expected to have a Material Adverse Effect on the Company. 17 26 5.22 TAXES. (a) The Company has timely filed all requisite Federal, state and other Tax Returns or extension requests for all fiscal periods ended on or before the Balance Sheet Date; and except as set forth on Schedule 5.22(a), there are no examinations in progress or claims pending against the Company for federal, state and other Taxes (including penalties and interest) for any period or periods prior to and including the Balance Sheet Date and no notice of any claim for Taxes, whether pending or threatened, has been received. All Tax, including interest and penalties (whether or not shown on any Tax Return), due by the Company has been paid. The amounts shown as accruals for Taxes on the Financial Statements are sufficient for the payment of all Taxes of the kinds indicated (including penalties and interest) for all fiscal periods ended on or before the date of the respective Financial Statements. Copies of (i) any tax examinations, (ii) extensions of statutory limitations and (iii) the federal and local income Tax Returns and franchise Tax Returns of Company for their last three (3) fiscal years, or such shorter period of time as any of them shall have existed, are attached hereto as Schedule 5.22(a) or have otherwise been delivered to AmPaM. The Company has a taxable year ended December 31. Except as set forth on Schedule 5.22(a), the Company uses the accrual method of accounting for income tax purposes, and the Company's methods of accounting have not changed in any material respect in the past five years (except as required to conform to changes in GAAP). The Company is not an investment company as defined in Section 351(e)(1) of the Code. The Company is not and has not during the last five years been a party to any tax sharing agreement or agreement of similar effect. Except as set forth on Schedule 5.22(a), the Company is not and has not during the last five years been a member of any consolidated group for federal tax purposes. The Company has not received, been denied, or applied for any private letter ruling from the IRS during the last ten years. (b) The Stockholders have made a valid election under the provisions of Subchapter S of the Code and, except as set forth on Schedule 5.22(b), the Company has not, within the past five years, been subject to Federal income Taxes under the provisions of Subchapter C of the Code. 5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC. (a) The Company is not in violation of any Charter Document. Except as set forth on Schedule 5.23(a), the Company is not in default under any lease, instrument, agreement, license, or permit set forth on Schedule 5.12(a), Schedule 5.14(a), Schedule 5.15(b) or Schedule 5.16(a) (collectively, the "Material Documents"). (b) Except as set forth on Schedule 5.23(b)(1), the execution and delivery of this Agreement by each of the Company and the Stockholders do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company under any of the terms, conditions or provisions of (i) the Charter Documents of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to the Company or any of its 18 27 properties or assets, or (iii) any Material Document to which the Company is now a party or by which the Company or any of its properties or assets may be bound or affected. The consummation by the Company and the Stockholders of the transactions contemplated hereby will not result in any material violation, conflict, breach, right of termination or acceleration or creation of liens under any of the terms, conditions or provisions of the items described in clauses (i) through (iii) of the preceding sentence, subject, in the case of the terms, conditions or provisions of the items described in clause (iii) above, to obtaining (prior to the Effective Time) such consents as may be required from commercial lenders, lessors or other third parties as listed on Schedule 5.23(b)(2). (c) Except as set forth on Schedule 5.23(c) and except for the Hart-Scott Act, none of the Material Documents requires notice to, or the consent or approval of, any governmental agency or other third party with respect to the consummation by the Company and the Stockholders of any of the transactions contemplated hereby in order to remain in full force and effect, and consummation by the Company and the Stockholders of the transactions contemplated hereby will not give rise to any right to termination, cancellation or acceleration or loss of any material right or benefit under any Material Document. (d) Except for (i) any filings to be made with the SEC pursuant to the 1933 Act or with any state securities authorities in connection with the offer and sale of AmPaM Stock, AmPaM Series A Preferred Stock or AmPaM Notes pursuant to this Agreement and (ii) any filing required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby. (e) Except as set forth on Schedule 5.23(e), none of the Material Documents prohibits the disclosure or publication by the Company or AmPaM of the name of any other party to such Material Document, and none of the Material Documents prohibits or restricts the Company from freely providing services or selling products to any other customer or potential customer of the Company, AmPaM or any Other Founding Company. 5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the Company is not now a party to any governmental contract subject to price redetermination or renegotiation. 5.25 ABSENCE OF CHANGES. (a) Since the Balance Sheet Date, except as set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not been: (i) any Material Adverse Change in the Company; (ii) any damage, destruction or casualty loss (whether or not covered by insurance), alone or in the aggregate, which has caused a Material Adverse Effect on the Company; 19 28 (iii) any change in the authorized capital of the Company or its outstanding securities or any change in its ownership interests or any grant of any options, warrants, calls, conversion rights or commitments; (iv) any declaration or payment of any dividend or distribution in respect of the capital stock or any direct or indirect redemption, purchase or other acquisition of any of the capital stock of the Company except for distributions that would have been permitted after the date hereof under Section 7.3(iii) hereof, (v) any increase in the compensation, bonus, sales commissions or fee arrangement payable or to become payable by the Company to any of its officers, directors, Stockholders, employees, consultants or agents, except for ordinary and customary bonuses and salary increases for employees in accordance with past practice; (vi) any work interruptions, labor grievances or claims filed, or any event or condition of any character, which has caused a Material Adverse Effect on the Company; (vii) any sale or transfer, or any agreement to sell or transfer, any material assets, property or rights of the Company to any person, including, without limitation, the Stockholders and their affiliates, except inventory sold or transferred in the Ordinary Course of Business; (viii) any cancellation, or agreement to cancel, any indebtedness or other obligation owing to the Company, including without limitation any indebtedness or obligation of any Stockholders or any Affiliate thereof; (ix) any plan, agreement or arrangement granting any preferential rights to purchase or acquire any interest in any of the material assets, property or rights of the Company or requiring consent of any party to the transfer and assignment of any such assets, property or rights; (x) any purchase or acquisition of, or agreement, plan or arrangement to purchase or acquire, any property, rights or assets outside of the Ordinary Course of Business; (xi) any waiver of any material rights or claims of the Company; (xii) any amendment or termination of any Material Document to which the Company is a party except for the termination of a Material Document in accordance with its terms without any action on the part of the Company; (xiii) any transaction by the Company outside the Ordinary Course of Business; 20 29 (xiv) any cancellation or termination of a material contract with a customer or client listed on Schedule 5.15(a) prior to the scheduled termination date thereof; or (xv) any other distribution of property or assets by the Company other than in the Ordinary Course of Business, other than (a) distributions of nonoperating assets specifically identified on Schedule 5.25, (b) distributions of real estate required by Section 7.1(c) of this Agreement and (c) distributions of cash or promissory notes permitted by Annex I hereto. (b) Except as set forth on Schedule 5.25, the Company has not, between the Balance Sheet Date and the date hereof, taken any of the actions set forth in Section 7.3. 5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to AmPaM an accurate schedule (which is set forth on Schedule 5.26) as of the date of the Agreement of: (i) the name of each financial institution in which the Company has an account or safe deposit box; (ii) the names in which the accounts or boxes are held; (iii) the type of account and account number; and (iv) the name of each person authorized to draw thereon or have access thereto. Schedule 5.26 also sets forth the name of each person, corporation, firm or other entity holding a general or special power of attorney from the Company and a description of the terms of such power. 5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement by the Company and the performance of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of the Company and this Agreement has been duly and validly authorized by all necessary corporate action and is a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. 5.28 RELATIONS WITH GOVERNMENTS. The Company has not, and to the knowledge of the Company none of the Stockholders or any Affiliate of any of them has, given or offered anything of value to any governmental official, political party or candidate for government office or otherwise taken any action which would cause the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. 5.29 DISCLOSURE. This Agreement, including the Annexes and Schedules hereto, and the completed questionnaire related to the Hart-Scott Act furnished to AmPaM by the Company, do not contain an untrue statement of a material fact concerning the Company or omit to state a material fact concerning the Company necessary to make the statements herein and therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing 21 30 does not apply to statements contained in or omitted from any of such documents made or omitted in reliance upon information furnished in writing by AmPaM. 5.30 NO WARRANTIES OR INSURANCE. Except for warranty liability under applicable law and except for warranty liability under the warranties issued by the Company of the types described on Schedule 5.30, the Company has no liability to any person under any warranty and the Company does not offer or sell insurance or consumer protection plans or other arrangements that could result in the Company being required to make any payment to or perform any service for any person. 5.31 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY TRANSACTIONS. Except as described on Schedule 5.31 or in Section 8.11, no Stockholder, officer, director or Affiliate of the Company (i) owns, directly or indirectly, any financial interest in, or is a director, officer, employee or affiliate of, any corporation, firm, association or business organization that is a client, supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or will be a party to an agreement or relationship with the Company other than through a customary "at will" employment relationship. 5.32 PRIVATE PLACEMENT MEMORANDUM. None of the information supplied or to be supplied by the Company in writing specifically for inclusion in the Private Placement Memorandum contained or, as of the Closing Date, will contain any untrue statement of a material fact concerning the Company or omitted or will omit to state any material fact required to be stated therein or necessary in order to make the statements contained in such information supplied or to be supplied by the Company concerning the Company, in light of the circumstances under which they are made, not misleading. (B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS. Each Stockholder severally represents and warrants that the representations and warranties set forth below are true as of the date of this Agreement and, subject to Section 7.7 hereof, shall be true at the time of Closing, and that the representations and warranties set forth in this Section 5(B) shall survive the Closing Date. 5.33 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right, power and authority to enter into this Agreement, and this Agreement is a legal, valid and binding obligation of such Stockholder, enforceable against the Stockholder in accordance with its terms. Except as set forth on Schedule 5.33(a), the execution and delivery of this Agreement by such Stockholder does not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of such Stockholder under any of the terms, conditions or provisions of (i) the Charter Documents of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to such Stockholder or any of such Stockholder's properties or assets, or (iii) any lease, 22 31 instrument, agreement, license or permit to which such Stockholder is now a party or by which such Stockholder or any of such Stockholder's properties or assets may be bound or affected. Except for (i) any filings to be made with the SEC pursuant to the 1933 Act and any state securities authorities in connection with the offer and sale of AmPaM Stock, AmPaM Series A Preferred Stock and AmPaM Notes pursuant to this Agreement, (ii) any filing required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by such Stockholder or the consummation by such Stockholder of the transactions contemplated hereby. Except as set forth on Schedule 5.33(b), such Stockholder owns beneficially and of record all of the shares of the Company Stock identified on Annex I hereto as being owned by such Stockholder, and, such Company Stock is owned free and clear of all liens, security interests, pledges, charges, voting trusts, voting agreements, restrictions, encumbrances and claims of every kind. 5.34 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby waives, any preemptive or other right to acquire shares of Company Stock, AmPaM Stock or AmPaM Series A Preferred Stock that such Stockholder has or may have had. Nothing herein, however, shall limit or restrict the rights of any Stockholder to acquire AmPaM Stock or AmPaM Series A Preferred Stock pursuant to (i) this Agreement, (ii) any option granted or to be granted by AmPaM to such Stockholder, (iii) a purchase through a broker in a regular stock market transaction or (iv) a purchase from a stockholder of a Founding Company (subject to compliance with any contractual restrictions or securities law restrictions applicable thereto specified in Section 15 hereof). 5.35 NO COMMITMENT TO DISPOSE OF AMPAM STOCK OR AMPAM SERIES A PREFERRED STOCK. No Stockholder is under any binding commitment or contract to sell, exchange or otherwise dispose of shares of AmPaM Stock or AmPaM Series A Preferred Stock received pursuant to this Agreement. 5.36 DISCLOSURE. The completed Director and Officer Questionnaires with respect to such Stockholder (if any), the completed investor questionnaire furnished to AmPaM by such Stockholder in connection with the proposed acquisition by such Stockholder of AmPaM Stock, AmPaM Series A Preferred Stock or AmPaM Notes and any other information provided to AmPaM in writing by such Stockholder relating specifically to such Stockholder for inclusion in the Private Placement Memorandum do not contain an untrue statement of a material fact concerning such Stockholder or omit to state a material fact concerning such Stockholder necessary to make the statements herein and therein, in light of the circumstances under which they were made, not misleading. 23 32 6. REPRESENTATIONS OF AMPAM Except as otherwise qualified below, AmPaM represents and warrants that all of the following representations and warranties in this Section 6 are true at the date of this Agreement and, subject to Section 7.7 hereof, shall be true at the time of Closing, and that such representations and warranties shall survive the Closing Date for a period of eighteen months (the last day of such period being the "Expiration Date" for purposes of the representations and warranties set forth in this Section 6), except that the representations and warranties set forth in Section 6.3, 6.11 and 6.15 shall survive until such time as the applicable statute of limitations period has run, which shall be deemed to be the Expiration Date for the representations and warranties set forth in Sections 6.3, 6.11 and 6.15. AmPaM acknowledges that in purchasing the shares of Company Stock, it is relying upon its own independent investigation as well as the representations and warranties of the Company and the Stockholders as set forth in this Agreement. 6.1 DUE ORGANIZATION. AmPaM is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of Delaware, and has the requisite power and authority to carry on its business as it is now being conducted and as contemplated by the Private Placement Memorandum. AmPaM is duly qualified or authorized to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or authorization necessary, except where the failure to be so qualified or authorized to do business would not have a Material Adverse Effect. True, complete and correct copies of the Certificate of Incorporation and By-laws, each as proposed to be amended and as such documents shall be in effect as of the Closing Date, of AmPaM (the "AmPaM Charter Documents") are attached hereto as Annex II. 6.2 AUTHORIZATION. (i) The officers of AmPaM executing this Agreement have the authority to enter into and bind AmPaM to the terms of this Agreement and (ii) AmPaM has the full legal right, power and authority to enter into this Agreement and consummate the transactions contemplated hereby. All corporate acts and other proceedings required to have been taken by AmPaM to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and properly taken. 6.3 CAPITAL STOCK OF AMPAM. The authorized capital stock of AmPaM is as set forth in Section 1.3(ii). Immediately prior to the Closing Date, all of the issued and outstanding shares of the capital stock of AmPaM will be as set forth in the Private Placement Memorandum, free and clear of all liens, security interests, pledges, charges, voting trusts, restrictions, encumbrances and claims of every kind other than any restrictions described in the Private Placement Memorandum. All of the issued and outstanding shares of the capital stock of AmPaM have been duly authorized and validly issued, are fully paid and nonassessable and such shares were offered, issued, sold and delivered by AmPaM in compliance with all applicable state and Federal laws concerning the issuance of securities. Further, none of such shares were issued in violation of the preemptive rights 24 33 of any past or present stockholder of AmPaM. Upon the Closing Date, the authorized, issued and outstanding shares of capital stock of AmPaM will be as set forth in the Private Placement Memorandum under the caption "Capitalization." Upon the Closing Date, the aggregate number of shares of AmPaM Stock issued and outstanding on the Closing Date that are owned by Sterling City Capital, LLC, any Affiliates of Sterling City Capital, LLC and the officers and directors of AmPaM will not be greater than the number of shares of AmPaM Stock reflected in the Private Placement Memorandum as the aggregate number of shares of AmPaM Stock to be issued and outstanding and owned by Sterling City Capital, LLC, any Affiliates of Sterling City Capital, LLC and the officers and directors of AmPaM. 6.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth in this Agreement, the Other Agreements and except as set forth in the Private Placement Memorandum, (i) no option, warrant, call, conversion right or commitment of any kind exists as of the date of this Agreement which obligates AmPaM to issue any of its authorized but unissued capital stock; and (ii) AmPaM has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof. The material terms of any options, warrants or other rights to acquire shares of the stock of AmPaM referred to in the preceding sentence will be as described in the Private Placement Memorandum. 6.5 SUBSIDIARIES. As of the date of this Agreement, AmPaM has no subsidiaries. As of the date of this Agreement, AmPaM does not own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity, and AmPaM is not, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. 6.6 FINANCIAL STATEMENTS. The historical financial statements of AmPaM included in the Private Placement Memorandum (the "AmPaM Financial Statements") have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except as noted thereon), and the balance sheet included therein presents fairly the financial position of AmPaM as of its date. Management of AmPaM believes that the assumptions underlying the pro forma adjustments utilized in the preparation of such pro forma financial statements are reasonable, and such pro forma adjustments have been properly applied to the historical financial amounts in the compilation of the pro forma financial statements. Based on the representations in Section 5.9 of this Agreement and in Section 5.9 of each of the Other Agreements, the pro forma financial information of AmPaM fairly presents the pro forma financial position, results of operations and other information purported to be shown therein at the respective dates and for the respective periods specified. 6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Private Placement Memorandum, as of the date of this Agreement, AmPaM has no material liabilities or obligations of any kind, character or description, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than liabilities incurred in the ordinary course of business and consistent with past practices, liabilities or obligations set forth in or contemplated by this Agreement and the Other 25 34 Agreements and except for fees incurred in connection with the transactions contemplated hereby and thereby. 6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the Private Placement Memorandum, AmPaM is not in violation of any law or regulation or any order of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it and its stockholders and, there are no claims, actions, suits or proceedings, pending or, to the knowledge of AmPaM, threatened against or affecting, AmPaM, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it and no notice of any claim, action, suit or proceeding, whether pending or threatened, has been received. AmPaM has conducted and is conducting its businesses in compliance in all material respects with the requirements, standards, criteria and conditions set forth in applicable Federal, state and local statutes, ordinances, permits, licenses, orders, approvals, variances, rules and regulations and is not in violation, in any material respect, of any of the foregoing. 6.9 NO VIOLATIONS. (a) AmPaM is not in violation of any AmPaM Charter Document. AmPaM is not in default under any lease, instrument, agreement, license, or permit to which AmPaM is a party or by which AmPaM or any of its properties are bound (collectively, the "AmPaM Documents"). (b) The execution and delivery of this Agreement by AmPaM do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of AmPaM under any of the terms, conditions or provisions of (i) the AmPaM Charter Documents, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to AmPaM or any of its properties or assets, or (iii) any AmPaM Document; provided that the representations and warranties specified in clause (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. The consummation by AmPaM of the transactions contemplated hereby will not result in any material violation, conflict, breach, right of termination or acceleration or creation of liens under any of the terms, conditions or provisions of the items described in clauses (i) through (iii) of the preceding sentence, subject, in the case of the terms, conditions or provisions of the items described in clause (iii) above, to obtaining (prior to the Closing Date) (x) such approvals, consents or orders from the SEC, state blue sky authorities and 26 35 authorities administering the Hart-Scott Act and (y) such other consents as may be required from commercial lenders, lessors or other third parties which are listed on Schedule 6.9. (c) Except for (i) any filings to be made with the SEC pursuant to the 1933 Act and filings with various state securities authorities in connection with the transactions contemplated by this Agreement, and (ii) any filings required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, none of the AmPaM Documents requires notice to, or the consent or approval of, any governmental agency or other third party with respect to the consummation by AmPaM of any of the transactions contemplated hereby in order to remain in full force and effect, and consummation by AmPaM of the transactions contemplated hereby will not give rise to any right to termination, cancellation or acceleration or loss of any material right or benefit under the AmPaM Documents; provided that the representations and warranties specified in clauses (i) and (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. (d) Except for (i) any filings with the SEC pursuant to the 1933 Act and filings with various state securities authorities in connection with the transactions contemplated by this Agreement and (ii) any filings required under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by AmPaM or the consummation by AmPaM of the transactions contemplated hereby; provided that the representations and warranties specified in clauses (i) and (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. 6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement by AmPaM and the performance of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of AmPaM and this Agreement has been duly and validly authorized by all necessary corporate action and is a legal, valid and binding obligation of AmPaM, enforceable against AmPaM in accordance with its terms. 27 36 6.11 AmPaM STOCK AND AmPam SERIES A PREFERRED STOCK. At the time of issuance thereof and delivery to the Stockholders, (a) the AmPaM Stock and AmPaM Series A Preferred Stock to be delivered to the Stockholders pursuant to this Agreement will constitute valid, duly authorized and legally issued shares of AmPaM, fully paid and nonassessable, and (b) with the exception of restrictions upon resale set forth in Sections 15 and 16 hereof, the AmPaM Stock will be identical in all substantive respects (which do not include the form of certificate upon which it is printed or the presence or absence of a CUSIP number on any such certificate) to the AmPaM Stock issued and outstanding as of the date hereof, other than the Restricted Common Stock. The AmPaM Stock and AmPaM Series A Preferred Stock issued and delivered to the Stockholders shall at the time of such issuance and delivery be free and clear of any liens, claims or encumbrances of any kind or character. The offer and sale of the shares of AmPaM Stock and AmPaM Series A Preferred Stock to be issued to the Stockholders pursuant to this Agreement are not required to be registered under the 1933 Act; provided that the representations and warranties specified in this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. 6.12 AmPaM NOTES. The AmPaM Notes have been duly authorized and, at the Closing Date, will have been duly executed by AmPaM and, when authenticated, issued and delivered, will constitute valid and binding obligations of AmPaM, enforceable against AmPaM in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers) reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). 6.13 NO SIDE AGREEMENTS. AmPaM has not entered into any agreement with any of the Founding Companies or any of the Stockholders of the Founding Companies other than this Agreement, the Other Agreements, the agreements referred to in this Agreement and in the Other Agreements and the Private Placement Memorandum. AmPaM has not entered into any agreements providing for rights to register shares of AmPaM Stock, AmPaM Series A Preferred Stock or AmPaM Notes under the 1933 Act except as provided in Section 17 of this Agreement, in Section 17 of the Other Agreements and in an agreement with Sterling City Capital, LLC, its Affiliates and officers and directors of AmPaM having terms substantially similar to those set forth in Section 17 hereof. 28 37 6.14 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. AmPaM was formed in June 1998 and has conducted no material business since the date of its inception except for activities related to the transaction contemplated by this Agreement, the Other Agreements and the Private Placement Memorandum. Except as described in the Private Placement Memorandum, as of the date of this Agreement, AmPaM does not own any real property or any material personal property and is not a party to any other material agreement other than this Agreement, the Other Agreements and the agreements contemplated hereby and thereby. 6.15 RELATIONS WITH GOVERNMENTS. Neither AmPaM nor any of its directors, officers or Affiliates has given or offered anything of value to any government official, political party or candidate for government office, nor has AmPaM, any of its directors, officers or Affiliates of any of them otherwise taken any action, which would cause AmPaM to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. 6.16 DISCLOSURE. The Private Placement Memorandum delivered to the Company and the Stockholders does not as of the date hereof contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing does not apply to statements contained in or omitted from any of such documents made or omitted in reliance upon, and in conformity with, information furnished to AmPaM by the Company or the Stockholders in writing specifically for inclusion in the Private Placement Memorandum. 6.17 OTHER AGREEMENTS. The Other Agreements have been duly authorized, executed and delivered by AmPaM and constitute the legal, valid and binding obligation of AmPaM enforceable against AmPaM in accordance with their respective terms. The terms and conditions of the Other Agreements (excluding the terms relating to the consideration payable by AmPaM thereunder) are identical in all material respects to the terms and conditions in this Agreement. 7. COVENANTS PRIOR TO CLOSING 7.1 ACCESS AND COOPERATION; DUE DILIGENCE; TRANSFER OF REAL ESTATE. (a) Between the date of this Agreement and the Closing Date, the Company will afford to the officers and authorized representatives of AmPaM reasonable access during normal business hours to all of the Company's sites, properties, books and records and will furnish AmPaM with such additional financial and operating data and other information as to the business and properties of the Company as AmPaM may from time to time reasonably request. The Company will cooperate with AmPaM, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. AmPaM, the Stockholders and the Company will treat all information obtained in connection with the negotiation and performance of this Agreement or the due diligence investigations conducted with respect to the Company as confidential in accordance with the provisions of Section 14 hereof. 29 38 (b) Between the date of this Agreement and the Closing Date, AmPaM will afford to the officers and authorized representatives of the Company access to all of AmPaM's sites, properties, books and records and will furnish the Company with such additional financial and operating data and other information as to the business and properties of AmPaM and the Other Founding Companies as the Company may from time to time reasonably request. AmPaM will cooperate with the Company, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. The Company will cause all information obtained pursuant to this Section 7.1(b) or obtained in connection with the negotiation and performance of this Agreement to be treated as confidential in accordance with the provisions of Section 14 hereof. (c) Except as set forth on Schedule 7.1, any real property owned by the Company will be sold or distributed by the Company on terms mutually acceptable to AmPaM and the Company and leased back by the Company on terms no less favorable to the Company than those available from an unaffiliated party and otherwise reasonably acceptable to AmPaM at or prior to the Closing Date. 7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this Agreement and the Closing Date, the Company will, except as set forth on Schedule 7.2: (i) carry on its businesses in the Ordinary Course of Business and not introduce any material new method of management, operation or accounting; (ii) use all commercially reasonable efforts to maintain its properties and facilities, including those held under leases, in as good working order and condition as at present, ordinary wear and tear, depreciation and insured losses excepted; (iii) perform in all material respects all of its obligations under all Material Documents relating to or affecting its respective assets, properties or rights; (iv) use its commercially reasonable efforts to keep in full force and effect present insurance policies or other comparable insurance coverage; (v) use its commercially reasonable efforts to maintain and preserve its business organization intact, retain its respective present key employees and maintain its relationships with suppliers, customers and others having business relations with the Company; (vi) use its commercially reasonable efforts to maintain compliance with all material permits, laws, rules and regulations, consent orders, and all other orders of applicable courts, regulatory agencies and similar governmental authorities; (vii) maintain present debt and lease instruments in accordance with their terms and not enter into new or amended debt or lease instruments without the knowledge and 30 39 consent of AmPaM (which consent shall not be unreasonably withheld), provided that debt and/or lease instruments may be replaced without the consent of AmPaM if such replacement instruments are on terms at least as favorable to the Company as the instruments being replaced; (viii) maintain or reduce present salaries and commission levels for all officers, directors, employees and agents except for ordinary and customary bonus and salary increases for employees in accordance with past practices; and (ix) use commercially reasonable efforts to cause the actual amount of its Current Assets (as defined in Annex I hereto) to be not less than 150% of the actual amount of its Current Liabilities (as defined in Annex I hereto). 7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between the date hereof and the Closing Date, the Company will not, without prior written consent of AmPaM: (i) make any change in its Charter Documents; (ii) issue any securities, options, warrants, calls, conversion rights or commitments relating to its securities of any kind other than in connection with the exercise of options or warrants listed in Schedule 5.4; (iii) except as permitted pursuant to the terms and conditions for distributions described in Annex I, declare or pay any dividend, or make any distribution in respect of its stock whether now or hereafter outstanding, or purchase, redeem or otherwise acquire or retire for value any shares of its stock; (iv) enter into any contract or commitment or incur or agree to incur any liability or make any capital expenditures, except if it is in the Ordinary Course of Business or involves an amount not in excess of three percent (3%) of the Company's gross revenues for fiscal 1997; (v) create, assume or permit to exist any mortgage, pledge or other lien or encumbrance upon any assets or properties whether now owned or hereafter acquired, except (1) with respect to purchase money liens incurred in connection with the acquisition of equipment with an aggregate cost not in excess of three percent (3%) of the Company's gross revenues for fiscal 1997 necessary or desirable for the conduct of the businesses of the Company, (2) (A) liens for taxes either not yet due or being contested in good faith and by appropriate proceedings (and for which contested taxes adequate reserves have been established and are being maintained) or (B) materialmen's, mechanics', workers', repairmen's, employees' or other like liens arising in the Ordinary Course of Business (the liens set forth in clause (2) being referred to herein as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or Schedule 5.15 hereto; 31 40 (vi) sell, assign, lease or otherwise transfer or dispose of any property or equipment except in the Ordinary Course of Business and other than distributions of real estate and other assets as permitted in this Agreement (including Annex I hereto); (vii) negotiate for the acquisition of any business or the start-up of any new business; (viii) merge or consolidate or agree to merge or consolidate with or into any other corporation; (ix) waive any material rights or claims of the Company, provided that the Company may negotiate and adjust bills and accounts in the course of good faith disputes with customers in a manner consistent with past practice; (x) amend or terminate any Material Document except for the termination of a Material Document in accordance with its terms without any action on the part of the Company; or (xi) enter into any other material transaction outside the Ordinary Course of Business or any transaction prohibited hereunder. 7.4 NO SHOP. None of the Stockholders, the Company, nor any agent, officer, director, trustee or any representative of any of the foregoing will, during the period commencing on the date of this Agreement and ending with the earlier to occur of the Closing Date or the termination of this Agreement in accordance with its terms, directly or indirectly: (i) solicit or initiate the submission of proposals or offers from any person for, (ii) participate in any discussions pertaining to, or (iii) furnish any information to any person other than AmPaM or its authorized agents relating to, any acquisition or purchase of all or a material amount of the assets of, or any equity interest in, the Company or a merger, consolidation or business combination of the Company. 7.5 AGREEMENTS. Except as disclosed on Schedule 7.5(a), the Stockholders and the Company shall terminate (i) any stockholders agreements, voting agreements, voting trusts, agreements providing for the grant by the Company of any options, warrants and employment agreements between the Company and any employee listed on Schedule 8.11 hereto and (ii) except as otherwise provided in this Agreement, any existing agreement between the Company and any Stockholder, on or prior to the Closing Date provided that nothing herein shall prohibit or prevent the Company from paying (either prior to or on the Closing Date) notes or other obligations from the Company to the Stockholders described in Schedule 7.5(b) in accordance with the terms thereof. 32 41 7.6 NOTIFICATION OF CERTAIN MATTERS. Each Stockholder and the Company shall give prompt notice to AmPaM upon obtaining knowledge of (i) the occurrence or non-occurrence of any event the occurrence or nonoccurrence of which would be likely to cause any representation or warranty of the Company or such Stockholder contained herein to be untrue or inaccurate in any material respect at or prior to the Closing and (ii) any material failure of such Stockholder or the Company to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by such person hereunder. AmPaM shall give prompt notice to the Company of (i) the occurrence or non-occurrence of any event the occurrence or non-occurrence of which would be likely to cause any representation or warranty of AmPaM contained herein to be untrue or inaccurate in any material respect at or prior to the Closing, (ii) any material failure of AmPaM to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; (iii) any termination of any Other Agreement for any reason; and (iv) the issuance by the SEC or any state securities regulatory authority of any issuance of or threatened issuance of any order challenging the availability of an exemption from registration or suspending the qualification of any securities described in the Private Placement Memorandum for sale in any jurisdiction. However, subject to the provisions of Section 7.7, such notification shall not relieve either the Company or such Stockholder of their respective obligations under this Agreement. The delivery of any notice pursuant to this Section 7.6 shall not be deemed to (i) modify the representations or warranties hereunder of the party delivering such notice, which modification may only be made pursuant to Section 7.7, (ii) modify the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect the remedies available hereunder to the party receiving such notice. 7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to the representations and warranties of such party contained in this Agreement, such party shall have the continuing obligation until 24 hours prior to the Closing Date to notify AmPaM with respect to any matter (i) hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or described in the Schedules or (ii) which may have been omitted from the Schedules previously provided by such party. Notwithstanding the foregoing sentence, no amendment or supplement to a Schedule prepared by the Company may be made unless AmPaM consents to such amendment or supplement; and provided further, that no amendment or supplement to a Schedule prepared by AmPaM may be made unless the Stockholders consent to such amendment or supplement. For all purposes of this Agreement, including without limitation for purposes of determining whether the conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules hereto, as amended or supplemented with the consent of AmPaM or the Stockholders, as the case may be, as provided above, shall be deemed to be the Schedules to this Agreement. 7.8 FURTHER ASSURANCES. The parties hereto agree to execute and deliver, or cause to be executed and delivered, such further instruments or documents or take such other action as may be reasonably necessary or appropriate to carry out the transactions contemplated hereby and to cause the conditions to the Closing Date to be satisfied as promptly as practicable. 33 42 7.9 AUTHORIZED CAPITAL. Prior to the Closing Date, AmPaM shall maintain its authorized capital stock as set forth in the Private Placement Memorandum. 7.10 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this Agreement hereby recognize that one or more filings under the Hart-Scott Act may be required in connection with the transactions contemplated herein. If it is determined by the parties to this Agreement that filings under the Hart-Scott Act are required, then: (i) each of the parties hereto agrees to cooperate and use its best efforts to comply with the Hart-Scott Act and (ii) such compliance by the Stockholders and the parties agree to cooperate and use their best efforts to cause all filings required under the Hart- Scott Act to be made. If filings under the Hart-Scott Act are required, the costs and expenses thereof (including filing fees) shall be borne by AmPaM. 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY The obligations of the Stockholders and the Company with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the following conditions. As of the Closing Date, if any such applicable conditions have not been satisfied, any one or more of the Stockholders who would be entitled to receive a majority of the Aggregate Consideration (as defined herein) received by all Stockholders specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated shall have the right to waive any condition not so satisfied. Any act or action of the Stockholders in consummating the Closing or delivering the certificates representing Company Stock as of the Closing Date shall constitute a waiver of any conditions not so satisfied. However, no such waiver shall be deemed to affect the survival of the representations and warranties of AmPaM contained in Section 6 hereof. 8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All representations and warranties of AmPaM contained in Section 6 shall be true and correct as of the Closing Date as though such representations and warranties had been made as of that time; all of the terms, covenants and conditions of this Agreement to be complied with and performed by AmPaM on or before the Closing Date shall have been duly complied with and performed in all material respects; and certificates to the foregoing effect dated the Closing Date and signed by the President or any Vice President of AmPaM shall have been delivered to the Stockholders. 8.2 SATISFACTION. All actions, proceedings, instruments and documents that are not within the control of the Company or the Stockholders and that are required to carry out this Agreement or incidental hereto shall be reasonably satisfactory to the Company, the Stockholders and their counsel. 34 43 8.3 NO LITIGATION. No action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock. 8.4 OPINION OF COUNSEL. The Company shall have received opinions from counsel for AmPaM, dated the Closing Date, addressed to the Company and the Stockholders in the form annexed hereto as Annex III. 8.5 CONSENTS AND APPROVALS. All necessary consents of and filings with any governmental authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made; any waiting periods under the Hart-Scott Act, if applicable, shall have expired or been terminated; all consents and approvals of third parties listed on Schedule 6.9 shall have been obtained; and no action or proceeding shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock and no governmental agency or body shall have taken any other action or made any request of Company as a result of which Company deems it inadvisable to proceed with the transactions hereunder. 8.6 GOOD STANDING CERTIFICATES. AmPaM shall have delivered to the Company a certificate, dated as of a date no later than ten days prior to the Closing Date, duly issued by the Delaware Secretary of State and in each state in which AmPaM is authorized to do business, showing that AmPaM is in good standing and authorized to do business and that all state franchise and/or income tax returns and taxes for AmPaM for all periods prior to the Closing have been filed and paid. 8.7 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have occurred which would constitute a Material Adverse Change with respect to AmPaM from the date of the Private Placement Memorandum. 8.8 SECRETARY'S CERTIFICATE. The Company shall have received a certificate or certificates, dated the Closing Date and signed by the secretary of AmPaM, certifying the truth and correctness of attached copies of AmPaM's Certificate of Incorporation (including amendments thereto), By-Laws (including amendments thereto), and resolutions of the board of directors and, if required, the stockholders of AmPaM approving AmPaM's entering into this Agreement and the Other Agreements and the consummation of the transactions contemplated hereby and thereby. 8.9 TAX MATTERS. The Stockholders shall have received an opinion of Andrews & Kurth L.L.P., in substantially the form of Annex IV hereto, that the AmPaM Plan of Organization will qualify as a tax-free transfer of property under Section 351 of the Code and that the Stockholders will not recognize gain to the extent the Stockholders exchange Company Stock for AmPaM Stock or AmPaM Series A Preferred Stock (but not cash or other property) pursuant to this Agreement in connection with the AmPaM Plan of Organization. 35 44 8.10 OTHER FOUNDING COMPANIES. The transactions contemplated by the Other Agreements are consummated simultaneously with the consummation of the transactions contemplated by this Agreement. 8.11 COMPANY RELEASE OF STOCKHOLDERS. The Company shall have delivered to the Stockholders an instrument dated the Closing Date, in form reasonably satisfactory to AmPaM and the Stockholders, which shall be effective only upon the occurrence of the Closing Date, releasing the Stockholders from (i) any and all claims of the Company against the Stockholders, known and unknown, and (ii) obligations of the Stockholders to the Company, except for (x) items specifically identified on Schedule 5.10(a) and Schedule 5.15(b) as being claims of or obligations to the Company and (y) continuing obligations to the Company relating to their employment by the Company pursuant to any employment agreement entered into pursuant to Section 8.11 hereof. 8.12 STERLING CITY CAPITAL TRANSFER RESTRICTIONS. Sterling City Capital, LLC and each of its Affiliates which owns AmPaM Stock shall have entered into an agreement with AmPaM containing substantially the same terms and conditions as are contained in Section 15 and Section 17. 8.13 ELECTION OF CHIEF EXECUTIVE OFFICER. AmPaM shall have taken all corporate action necessary to elect Robert A. Christianson as Chief Executive Officer of AmPaM effective immediately following the Closing Date. 8.14 FUNDING AVAILABILITY. AmPaM shall have entered into binding agreements with financial institutions, lenders or investors that provide AmPaM with sufficient funds to pay (i) the cash amounts specified in Annex I hereto as payable to the Stockholders upon the Closing and (ii) the aggregate cash amounts specified in Annex I to each of the Other Agreements as payable to the stockholders of the Other Founding Companies upon the Closing; and all conditions to the funding of the cash amounts necessary to make such payments specified in the agreements related to such financing arrangements, other than the closing of the transactions contemplated by this Agreement and the Other Agreements, shall have been satisfied as of the Closing Date. 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF AMPAM The obligations of AmPaM with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the following conditions. As of the Closing Date, if any such conditions have not been satisfied, AmPaM shall have the right to terminate this Agreement, or waive any such condition, but no such waiver shall be deemed to affect the survival of the representations and warranties contained in Section 5 hereof. 9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS. All the representations and warranties of the Stockholders and the Company contained in this Agreement shall be true and correct as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date; all of the terms, covenants and conditions of this Agreement to be complied with or performed by the Stockholders and the Company on or before 36 45 the Closing Date shall have been duly performed or complied with in all material respects; and the Stockholders shall have delivered to AmPaM certificates dated the Closing Date and signed by them to such effect. 9.2 NO LITIGATION. No action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock. 9.3 SECRETARY'S CERTIFICATE. AmPaM shall have received a certificate, dated the Closing Date and signed by the secretary of the Company, certifying the truth and correctness of attached copies of the Company's Articles or Certificate of Incorporation (including amendments thereto), By-Laws (including amendments thereto), and resolutions of the board of directors and the Stockholders approving the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby. 9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have occurred with respect to the Company which would constitute a Material Adverse Effect, and the Company shall not have suffered any material loss or damages to any of its properties or assets, whether or not covered by insurance, which change, loss or damage materially affects or impairs the ability of the Company to conduct its business. 9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to AmPaM an instrument dated the Closing Date which shall be effective only upon the occurrence of the Closing releasing the Company and AmPaM from (i) any and all claims of the Stockholders against the Company and AmPaM and (ii) obligations of the Company and AmPaM to the Stockholders, except for (A) items specifically identified on Schedule 5.31 as being claims of or obligations to the Stockholders, (B) continuing obligations to Stockholders relating to their employment by the Company pursuant to employment agreements entered into as specified in Section 8.11 hereof, (C) obligations arising under this Agreement or the transactions contemplated hereby and (D) claims of Stockholders against the Company for unreimbursed business expenses incurred by the Stockholders on behalf of the Company (other than expenses related to the transactions contemplated by this Agreement) prior to the Closing Date or unreimbursed medical expenses of the Stockholders incurred prior to the Closing Date which are covered by the Company's existing health insurance coverage. In the event that the Closing Date does not occur, then the release instrument referenced herein shall be void and of no further force or effect. 9.6 SATISFACTION. All actions, proceedings, instruments and documents that are not within the control of AmPaM and that are required to carry out the transactions contemplated by this Agreement or incidental hereto shall have been reasonably approved by counsel to AmPaM. 37 46 9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on Schedule 9.7, all existing agreements between the Company and the Stockholders (and between the Company and entities controlled by the Stockholders) specified on Schedule 5.31 shall have been terminated effective prior to or as of the Closing Date without any payment being made by the Company other than payments made for services rendered, materials provided or other benefits provided to the Company prior to the Closing Date pursuant to the terms of such agreements as in effect as of the date of this Agreement. 9.8 OPINION OF COUNSEL. AmPaM shall have received opinions from counsel to the Company and the Stockholders, dated the Closing Date, substantially in the form annexed hereto as Annex V-1 and Annex V-2. 9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any governmental authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made; any waiting periods under the Hart-Scott Act, if applicable, shall have expired or been terminated; all consents and approvals of third parties listed on Schedule 5.23(b)(2) shall have been obtained; and no action or proceeding shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock and no governmental agency or body shall have taken any other action or made any request of AmPaM as a result of which AmPaM deems it inadvisable to proceed with the transactions hereunder. 9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to AmPaM a certificate, dated as of a date no earlier than ten days prior to the Closing Date, duly issued by the appropriate governmental authority in the Company's state of incorporation and, unless waived by AmPaM, in each state in which the Company is authorized to do business, showing the Company is in good standing and authorized to do business and that all state franchise and/or income tax returns and taxes for the Company for all periods prior to the Closing have been filed and paid. 9.11 FUNDING AVAILABILITY. AmPaM shall have entered into binding agreements with financial institutions, lenders or investors that provide AmPaM with sufficient funds to pay (i) the cash amounts specified in Annex I hereto as payable to the Stockholders upon the Closing and (ii) the aggregate cash amounts specified in Annex I to each of the Other Agreements as payable to the stockholders of the Other Founding Companies upon the Closing; and all conditions to the funding of the cash amounts necessary to make such payments specified in the agreements related to such financing arrangements, other than the closing of the transactions contemplated by this Agreement and the Other Agreements, shall have been satisfied as of the Closing Date. 9.12 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to AmPaM a certificate to the effect that he is not a foreign person pursuant to Section 1.1445-2(b) of the Treasury regulations. 38 47 9.13 RESIGNATIONS OF DIRECTORS AND OFFICERS. Any directors of the Company, other than those identified on Schedule 2.1, shall have resigned as directors of the Company. Any officers of the Company, other than those identified on Schedule 2.2, shall have resigned as officers of the Company. 10. COVENANTS OF AMPAM AND THE STOCKHOLDERS AFTER CLOSING 10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. AmPaM shall use reasonable efforts to have the Stockholders released from any and all guarantees of the Company's indebtedness, including bond obligations, identified on Schedule 10.1. Prior to obtaining the release of such guarantees, AmPaM shall provide its guarantee of such indebtedness to the lenders thereof. In the event that AmPaM cannot obtain such releases from the lenders of any such guaranteed indebtedness identified on Schedule 10.1 on or prior to 90 days subsequent to the Closing Date, AmPaM shall promptly pay off or otherwise refinance or retire such indebtedness such that the Stockholders' personal liability shall be released. AmPaM will indemnify the Stockholders against any loss or damage suffered as a result of the personal guarantees. 10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated by this Agreement, after the Closing Date, AmPaM shall not and shall not permit any of its Subsidiaries to undertake any act that would jeopardize the tax-free status of the exchange of Company Stock for AmPaM Stock and AmPaM Series A Preferred Stock (but not cash or other property), including without limitation: (a) the retirement or reacquisition, directly or indirectly, of all or part of the AmPaM Stock or AmPaM Series A Preferred Stock issued in connection with the transactions contemplated hereby; or (b) the entering into of financial arrangements for the benefit of the Stockholders other than as described in the Private Placement Memorandum or as described in this Agreement. 10.3 PREPARATION AND FILING OF TAX RETURNS; PAYMENT OF TAXES. (a) The Company, if possible, or otherwise the Stockholders shall file or cause to be filed all income Tax Returns (federal, state, local or otherwise) of any Acquired Party for all taxable periods that end on or before the Closing Date, and shall permit AmPaM to review all such Tax Returns prior to such filings. Unless the Company is a C corporation, the Stockholders shall pay or cause to be paid all income Tax liabilities (in excess of all amounts already paid with respect thereto or properly accrued or reserved with respect thereto on the Financial Statements) with respect to the Company's operations for all periods through and including the Closing Date. (b) AmPaM shall file or cause to be filed all separate Returns of, or that include, any Acquired Party for all taxable periods ending after the Closing Date. 39 48 (c) Unless required by applicable law, regulations or government proceedings, AmPaM shall not take any action, including any amendment of a Tax Return of any Acquired Party, if such action would result in additional Tax liabilities payable by any of the Stockholders for periods ending on or prior to the Closing Date. (d) Each party hereto shall, and shall cause its subsidiaries and Affiliates to, provide to each of the other parties hereto such cooperation and information as any of them reasonably may request in filing any Return, amended Return or claim for refund, determining a liability for Taxes or a right to refund of Taxes or in conducting any audit or other proceeding in respect of Taxes. Such cooperation and information shall include providing copies of all relevant portions of relevant Returns, together with relevant accompanying schedules and relevant work papers, relevant documents relating to rulings or other determinations by Taxing Authorities and relevant records concerning the ownership and Tax basis of property, which such party may possess. Each party shall make its employees reasonably available on a mutually convenient basis at its cost to provide explanation of any documents or information so provided. Subject to the preceding sentence, each party required to file Returns pursuant to this Agreement shall bear all costs of filing such Returns. (e) Each of the Company, AmPaM and each Stockholder shall comply with the tax reporting requirements of Section 1.351-3 of the Treasury Regulations promulgated under the Code, and treat the transaction as a tax-free contribution under Section 351(a) of the Code subject to gain, if any, recognized on the receipt of cash or other property under Section 351(b) of the Code. 10.4 DIRECTORS. The persons named in the Private Placement Memorandum shall be appointed as directors and elected as officers of AmPaM, as and to the extent set forth in the Private Placement Memorandum, promptly following the Closing Date; provided, however, that the parties hereto acknowledge that if the Company consummates an IPO, the persons who will serve as directors and executive officers of AmPaM will be adjusted as appropriate for a publicly traded entity, with any such changes being subject to the approval of the majority of the Board of Directors of AmPaM. 10.5 LEGAL OPINIONS. If required by the lenders pursuant to the terms of any agreements related to financing of the cash amounts referred to in Section 9.11 hereof, the Company shall cause its counsel to deliver to such lenders, at the Closing, an opinion of counsel in substantially the form attached hereto as Annex V. 11. INDEMNIFICATION The Stockholders and AmPaM each make the following covenants that are applicable to them, respectively: 40 49 11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. (a) Each Stockholder covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement until the applicable Expiration Date (as defined in the introductory paragraph to Section 5(A)), provided that for purposes of clause (iii) below, the applicable Expiration Date shall be the date on which the applicable statute of limitations expires), from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM as a result of or arising from (i) any breach of the representations and warranties of the Company set forth herein or on the schedules attached hereto or certificates delivered pursuant to this Agreement, (ii) any breach of any covenant or agreement on the part of the Company under this Agreement, or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating solely to the Company which was based upon information provided to AmPaM or its counsel in writing by the Company specifically for inclusion in the Private Placement Memorandum and is contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact relating to the Company required to be stated therein or necessary to make the statements therein not misleading; provided, however, that no Stockholder shall be liable for any indemnification obligation pursuant to this Section 11.1 in excess of such Stockholder's pro rata share thereof determined by reference to the aggregate value of the Base Cash Amount (as defined in Annex I of this Agreement), the principal amount of AmPaM Notes, the shares of AmPaM Series A Preferred Stock (valued at a stated value of $13.00 per share) and the shares of AmPaM Stock (valued at a price of $13.00 per share) received by such Stockholder pursuant to Section I.A. of Annex I hereto (without giving effect to the adjustments provided in Sections I.B. and I.C. thereof) (giving effect to the value of such AmPaM Stock and such AmPaM Series A Preferred Stock and without giving effect to such adjustments, collectively, the "Aggregate Consideration") such Stockholder would receive pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated in relation to the total Aggregate Consideration all Stockholders would receive pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated. (b) Each Stockholder covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement, from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM as a result of or arising from (i) any breach of the representations and warranties of such Stockholder set forth in Section 5(B) hereof, (ii) any breach of any covenant or agreement on the part of such Stockholder under this Agreement, or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating solely to such Stockholder which was based upon information provided to AmPaM or 41 50 its counsel in writing by such Stockholder specifically for inclusion in the Private Placement Memorandum and is contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact relating solely to such Stockholder required to be stated therein or necessary to make the statements therein in light of the circumstances in which such statements were made not misleading. (c) AmPaM acknowledges and agrees that other than the representations and warranties of the Company or the Stockholders specifically contained in this Agreement, there are no representations or warranties of the Company or the Stockholders, either express or implied, with respect to the transactions contemplated by this Agreement, the Company or its assets, liabilities and business. 11.2 INDEMNIFICATION BY AMPAM. AmPaM covenants and agrees that it will indemnify, defend, protect and hold harmless the Company and the Stockholders at all times from and after the date of this Agreement until the applicable Expiration Date (as defined in the introductory paragraph of Section 6, provided that for purposes of clause (iii) below, the applicable Expiration Date shall be the date on which the applicable statute of limitations expires), from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by the Company or the Stockholders as a result of or arising from (i) any breach by AmPaM of its representations and warranties set forth herein or on the schedules attached hereto or certificates delivered pursuant to this Agreement, (ii) any breach of any agreement on the part of AmPaM under this Agreement; or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except to the extent such is based upon an untrue statement or alleged untrue statement, or omission or alleged omission, made therein in reliance upon, and in conformity with, the representations and warranties of the Company or the Stockholders specifically contained in this Agreement or other information furnished to AmPaM by the Company or the Stockholders in writing specifically for inclusion therein. 11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the "Indemnified Party") has received notice of or has knowledge of any claim by a person not a party to this Agreement ("Third Person"), or the commencement of any action or proceeding by a Third Person, the Indemnified Party shall, as a condition precedent to a claim with respect thereto being made against any party obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying Party written notice of such claim or the commencement of such action or proceeding. Such notice shall state the nature and the basis of such claim and a reasonable estimate of the amount thereof. The Indemnifying Party shall have the right to defend and settle, at its own expense and by its own counsel reasonably satisfactory to the 42 51 Indemnified Party, any such matter so long as the Indemnifying Party pursues the same in good faith and diligently, provided that the Indemnifying Party shall not settle any criminal proceeding without the written consent of the Indemnified Party. If the Indemnifying Party undertakes to defend or settle, it shall promptly notify the Indemnified Party of its intention to do so, and the Indemnified Party shall cooperate with the Indemnifying Party and its counsel in the defense thereof and in any settlement thereof. Such cooperation shall include, but shall not be limited to, furnishing the Indemnifying Party with any books, records or information reasonably requested by the Indemnifying Party that are in the Indemnified Party's possession or control. All Indemnified Parties shall use the same counsel, which shall be the counsel selected by Indemnifying Party, provided that if counsel to the Indemnifying Party shall have a conflict of interest or a conflict of interest is reasonably likely to arise that prevents counsel for the Indemnifying Party from representing such Indemnified Party, Indemnified Party shall have the right to participate in such matter through counsel of its own choosing and Indemnifying Party will reimburse the Indemnified Party for the reasonable expenses of its counsel. After the Indemnifying Party has notified the Indemnified Party of its intention to undertake to defend or settle any such asserted liability, and for so long as the Indemnifying Party diligently pursues such defense, the Indemnifying Party shall not be liable for any additional legal expenses incurred by the Indemnified Party in connection with any defense or settlement of such asserted liability, except (i) as set forth in the preceding sentence and (ii) to the extent such participation is requested by the Indemnifying Party, in which event the Indemnified Party shall be reimbursed by the Indemnifying Party for reasonable additional legal expenses and out-of-pocket expenses. If the Indemnifying Party desires to accept a final and complete settlement of any such Third Person claim and the Indemnified Party refuses to consent to such settlement, then the Indemnifying Party's liability under this Section with respect to such Third Person claim shall be limited to the amount so offered in settlement by said Third Person. Upon agreement as to such settlement between said Third Person and the Indemnifying Party, the Indemnifying Party shall, in exchange for a complete release from the Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in such settlement. If the Indemnifying Party does not undertake to defend such matter to which the Indemnified Party is entitled to indemnification hereunder, or fails diligently to pursue such defense, the Indemnified Party may undertake such defense through counsel of its choice, at the cost and expense of the Indemnifying Party, and the Indemnified Party may settle such matter, and the Indemnifying Party shall pay the Indemnified Party for the settlement amount and any other liabilities or expenses incurred by the Indemnified Party in connection therewith, provided, however, that under no circumstances shall the Indemnified Party settle any Third Person claim without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. All settlements hereunder shall effect a complete release of the Indemnified Party, unless the Indemnified Party otherwise agrees in writing. With respect to any account, note or other receivable as to which the Stockholders have paid in full any indemnification obligation pursuant to this Section 11 as a result of a breach of the representation and warranty made pursuant to Section 5.11 or as to which a claim in respect thereof has been asserted pursuant to this Section 11 that has been applied against the Indemnification Threshold with respect to the Stockholders as a result of a breach of the representation and warranty made pursuant to Section 5.11, AmPaM shall cause the Company to assign such account, note or other receivable to 43 52 the Stockholders. The parties hereto will make appropriate adjustments for insurance proceeds in determining the amount of any indemnification obligation under this Section. 11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any action seeking damages or any other form of monetary relief brought by any party to this Agreement against another party to this Agreement with respect to any provision of this Agreement, provided that, nothing herein shall be construed to limit the right of a party, in a proper case, to seek injunctive relief for a breach of this Agreement. AmPaM hereby waives, to the fullest extent permitted under applicable law, any and all other rights, claims and causes of action, known or unknown, it or any indemnified person may have against the Company or any Stockholder relating to this Agreement or the transactions pursuant to this Agreement arising under or based upon any Federal, state, local or foreign statute, law, rule, regulation or otherwise. Any indemnity payment under this Section 11 shall be treated as an adjustment to the exchange consideration for Tax purposes unless a final determination (which shall include the execution of a Form 870-AD or successor form) with respect to the Indemnified Party or any of its Affiliate causes any such payment not to be treated as an adjustment to the exchange consideration for U.S. Federal income Tax purposes. 11.5 LIMITATIONS ON INDEMNIFICATION. (a) AmPaM shall not assert any claim for indemnification under this Section 11 against the Stockholders until such time as, and solely to the extent that, the aggregate of all claims which AmPaM may have against the Stockholders shall exceed the greater of (a) 3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section 1.2 plus (ii) the value of the AmPaM Stock delivered to the Stockholders pursuant to Section 1.2 (calculated as provided in this Section 11.5) plus (iii) the principal amount of the AmPaM Notes delivered to the Stockholders pursuant to Section 1.2 (iv) plus the value of the AmPaM Series A Preferred Stock delivered to the Stockholders pursuant to Section 1.2 (calculated as provided in this Section 11.5), or (b) $50,000 (the "Indemnification Threshold"). Stockholders shall not assert any claim for indemnification hereunder against AmPaM until such time as, and solely to the extent that, the aggregate of all claims which Stockholders may have against AmPaM shall exceed $50,000; provided, however, that this sentence shall not be applicable with respect of any failure by AmPaM to (i) deliver the consideration specified in Annex I hereto on the Closing Date upon the satisfaction, or waiver by AmPaM, of all conditions to the occurrence of the Closing Date specified in Section 9 or (ii) comply with its obligations pursuant to Section 10.1. After the $50,000 threshold for AmPaM (subject to the proviso in the preceding sentence) or the Indemnification Threshold for a Stockholder has been met, all claims must be made in $10,000 increments, which claims may be cumulated in order to meet such $10,000 thresholds. For purposes of this paragraph, the AmPaM Stock delivered to the Stockholders shall be valued at $13.00 per share and the AmPaM Series A Preferred Stock delivered to the Stockholders shall have a stated value of $13.00 per share. (b) No person shall be entitled to indemnification under this Section 11 if and to the extent that such person's claim for indemnification is directly or indirectly related to a breach by such person of any representation, warranty, covenant or other agreement set forth in this Agreement. 44 53 No claim for indemnification against the Stockholders shall limit, diminish or change any obligation of AmPaM pursuant to Section 10.1 hereof. (c) Notwithstanding any other term of this Agreement, no Stockholder shall be liable under this Section 11 for an amount which exceeds eighty-five percent (85%) of the amount of proceeds received by such Stockholder (valued as of the Closing Date) in connection with the purchase and sale of the Company Stock. For purposes of this paragraph, the AmPaM Stock shall be valued at $13.00 per share and the AmPaM Series A Preferred Stock delivered to the Stockholders shall have a stated value of $13.00 per share. (d) A Stockholder may pay any indemnification obligation under Section 11 by means of the payment of cash or a combination of the payment of cash, the forgiveness of amounts owed pursuant to the AmPaM Notes and the delivery to AmPaM of shares of AmPaM Stock or shares of AmPaM Series A Preferred Stock; provided that the percentage of the indemnification obligation satisfied by means of the delivery of shares of AmPaM Stock or shares of AmPaM Series A Preferred Stock does not exceed the percentage of AmPaM Stock or shares of AmPaM Series A Preferred Stock comprising the total consideration paid to such Stockholder by AmPaM to such Stockholder pursuant to Annex I. For the purpose of crediting Stockholders for payments made to AmPaM by means of delivery of shares of AmPaM Stock or shares of AmPaM Series A Preferred Stock, the AmPaM Stock shall be valued at $13.00 per share and the AmPaM Series A Preferred Stock delivered to the Stockholders shall have a stated value of $13.00 per share. (e) In determining the amount of any loss, liability or expense for which any party is entitled to indemnification under this Agreement, the gross amount thereof will be reduced by any correlative insurance proceeds or other third party indemnity or reimbursement proceeds realized or to be realized by such party (or, in the case of AmPaM, by AmPaM, the Company or any subsidiary of AmPaM or the Company) and such correlative insurance proceeds or other third party indemnity or reimbursement proceeds shall be net of any insurance premium or other incremental cost or expense owed or payable to any third party which becomes due as a result of such claim. AmPaM shall use commercially reasonable efforts to pursue any available insurance coverage or other rights of indemnity or reimbursement from third parties with respect to any such loss, liability or expense. 12. TERMINATION OF AGREEMENT 12.1 TERMINATION. This Agreement may be terminated at any time prior to the Closing Date solely: (i) by mutual consent of AmPaM and the Stockholders; (ii) by the Stockholders, if the transactions contemplated by this Agreement to take place at the Closing Date shall not have been consummated by June 30, 1999, unless the failure of such transactions to be consummated is due to a breach of this Agreement by the Company or the Stockholders prior to or on the Closing Date; 45 54 (iii) by AmPaM, if the transactions contemplated by this Agreement to take place at the Closing Date shall not have been consummated by June 30, 1999, unless the failure of such transactions to be consummated is due to a breach of this Agreement by AmPaM prior to or on the Closing Date; (iv) by the Stockholders, if a material breach or default shall be made by AmPaM in the observance or in the due and timely performance of any of the covenants or agreements contained herein relating to AmPaM, and the curing of such default shall not have been made (or in the reasonable judgment of such Stockholders cannot be made) on or before the Closing Date; (v) by AmPaM, if a material breach or default shall be made by the Company or the Stockholders in the observance or in the due and timely performance of any of the covenants or agreements contained herein relating to the Company or the Stockholders, and the curing of such default shall not have been made (or in the reasonable judgment of AmPaM cannot be made) on or before the Closing Date; (vi) by the Stockholders, if the conditions set forth in Section 8 hereof have not been satisfied or waived as of the Closing Date; or (vii) by AmPaM, if the conditions set forth in Section 9 hereof have not been satisfied or waived as of the Closing Date. 12.2 PROCEDURE AND EFFECT OF TERMINATION. A determination to terminate this Agreement by AmPaM pursuant to Section 12.1 shall be valid and effective only if a written notice of termination, accompanied by a certified copy of resolutions of the board of directors of AmPaM that evidence the authorization of the officer of AmPaM to deliver a written notice of termination of this Agreement pursuant to Section 12.1, is given to the Stockholders in the manner specified for notices in this Agreement. A determination to terminate this Agreement by the Stockholders pursuant to Section 12.1 shall be valid and effective only if a written notice of termination, signed by Stockholders who would be entitled to receive a majority of the shares of AmPaM Stock and AmPaM Series A Preferred Stock specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated, is given to AmPaM in the manner specified for notices in this Agreement. Upon the giving of notice of termination of this Agreement pursuant to Section 12.1 as specified in the preceding sentence, this Agreement shall terminate, and the transactions contemplated hereby shall be abandoned, without further action by any of the parties hereto. Immediately upon any such termination, AmPaM shall deliver written notice of such termination to the Other Founding Companies. If this Agreement is terminated as provided in this Section 12, no party hereto shall have any liability or further obligation hereunder to any other party, except as provided in Section 14 and Section 18.6, provided, that, the termination of this Agreement will in no way limit any obligation or liability of any party based on or arising from a breach or default by such party with respect to any of its representations, warranties, covenants or agreements 46 55 contained in this Agreement including, but not limited to, legal and audit costs and out of pocket expenses that occurred prior to such termination. 13. NONCOMPETITION 13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the prior written consent of AmPaM, for a period of two (2) years following the Closing Date for any reason whatsoever, directly or indirectly, for themselves or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature: (i) engage, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, whether paid or unpaid, in any plumbing, piping, mechanical, heating, ventilation or air conditioning contracting, installation or services business or operation, whether for residential, commercial, industrial or governmental customers, or any ancillary contracting, installation or services business directly related thereto (such business and operations referred to herein as the "Plumbing and Mechanical Business"), within 100 miles of where the Company or any of its subsidiaries conducted business within two (2) years prior to the Closing Date (the "Territory"); (ii) call upon any person who is, at the Closing Date, within the Territory, an employee of AmPaM or any subsidiary thereof for the purpose or with the intent of enticing such employee away from or out of the employ of AmPaM or any subsidiary thereof; (iii) call upon any person or entity which is, at the Closing Date, or which has been within three (3) years prior to the Closing Date, a customer of AmPaM or any subsidiary thereof, of the Company or of any of the Other Founding Companies for the purpose of soliciting customers, orders or contracts for any Plumbing and Mechanical Business in direct competition with AmPaM within the Territory; (iv) call upon any prospective acquisition candidate, on any Stockholder's own behalf or on behalf of any competitor in the Plumbing and Mechanical Business, which candidate, to the actual knowledge of such Stockholder after due inquiry, was called upon by AmPaM or any subsidiary thereof or for which, to the actual knowledge of such Stockholder after due inquiry, AmPaM or any subsidiary thereof made an acquisition analysis, for the purpose of acquiring such entity; or (v) disclose to any person, firm, partnership, corporation or business the names or identities of any person, firm, partnership, corporation or business which has been a customer of the Company or any of its subsidiaries within the two (2) years prior to the Closing Date for any reason or purpose whatsoever except to the extent that the Company has in the past disclosed such information to the public for valid business reasons; or 47 56 (vi) testify as an expert witness in matters related to the Plumbing and Mechanical Business for an adverse party to AmPaM, the Company or any Other Founding Companies in litigation. Notwithstanding the above, the foregoing covenant shall not be deemed to prohibit any Stockholder from acquiring as a passive investment (i) not more than one percent (1%) of the capital stock of a competing business whose stock is traded on a national securities exchange, the NASDAQ Stock Market or over-the-counter, or (ii) not more than five percent (5%) of the capital stock of a competing business whose stock is not publicly traded if the Board of Directors of AmPaM consents to such acquisition. In addition, the provisions of clause (i) above shall not apply to George Christianson with respect to the heating, ventilation and air conditioning installation and service business. 13.2 DAMAGES. Because of the difficulty of measuring economic losses to AmPaM as a result of a breach of the foregoing covenant, and because of the immediate and irreparable damage that could be caused to AmPaM for which it would have no other adequate remedy, each Stockholder agrees that the foregoing covenant may be enforced by AmPaM in the event of breach by such Stockholder, by injunctions and restraining orders. 13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the foregoing covenants in this Section 13 impose a reasonable restraint on the Stockholders in light of the activities and business of AmPaM and the subsidiaries thereof on the date of the execution of this Agreement and the current plans of AmPaM as described in the Private Placement Memorandum. 13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant. Moreover, in the event any court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which the court deems reasonable, and the Agreement shall thereby be reformed. 13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of any Stockholder against AmPaM or any subsidiary thereof, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by AmPaM of such covenants. It is specifically agreed that the period of two (2) years stated at the beginning of this Section 13, during which the agreements and covenants of each Stockholder made in this Section 13 shall be effective, shall be computed by excluding from such computation any time during which such Stockholder is found to be in violation of any provision of this Section 13 as determined by any of (i) a written agreement to such effect executed and delivered by AmPaM and such Stockholder, (ii) a determination by an arbitration panel pursuant to an arbitration conducted pursuant to Section 18.16 hereof or (iii) a non-appealable judgment of a court of competent jurisdiction. The covenants contained in Section 13 shall not be affected by any breach of any other 48 57 provision hereof by any party hereto. The covenants contained in Section 13 shall have no effect if the transactions contemplated by this Agreement are not consummated. 13.6 MATERIALITY. The Company and the Stockholders hereby agree that the covenants contained in this Section 13 are a material and substantial part of this transaction. 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION 14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they had in the past, currently have, and in the future may possibly have, access to certain confidential information of the Company, the Other Founding Companies, and/or AmPaM, such as operational policies, customer lists, and pricing and cost policies that are valuable, special and unique assets of the Company's, the Other Founding Companies' and/or AmPaM's respective businesses. The Stockholders agree that they will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, except (a) to authorized representatives of AmPaM, (b) following the Closing, such information may be disclosed by the Stockholders as is required in the course of performing their duties for AmPaM or the Company and (c) to its counsel and other advisers, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section 14.1; provided, however that (i) the foregoing disclosure prohibition shall not apply in the event that (i) such information becomes known to the public generally through no fault of the Stockholders, (ii) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (ii), the Stockholders shall, if possible, give prior written notice thereof to AmPaM and provide AmPaM with the opportunity to contest such disclosure, or (iii) the disclosing party reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party. In the event of a breach or threatened breach by any of the Stockholders of the provisions of this Section, AmPaM shall be entitled to an injunction restraining such Stockholders from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting AmPaM from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. In the event the transactions contemplated by this Agreement are not consummated, Stockholders shall have none of the above-mentioned restrictions on their ability to disseminate confidential information with respect to the Company. 14.2 AMPAM. AmPaM recognizes and acknowledges that it had in the past and currently has access to certain confidential information of the Company, such as operational policies, customer lists, and pricing and cost policies that are valuable, special and unique assets of the Company's business. AmPaM agrees that, prior to the Closing, or if the transactions contemplated by this Agreement are not consummated, it will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, except (a) to authorized representatives of the Company, (b) to its counsel and other advisers, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section 14.2, (c) to the Other Founding Companies and their representatives pursuant to Section 7.1(b) of the Other Agreements and (d) to potential purchasers of securities of AmPaM to the extent necessary or 49 58 advisable in connection with the applicable securities laws; provided, however that the foregoing disclosure prohibition shall not apply in the event that (A) such information becomes known to the public generally through no fault of AmPaM, (B) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (B), AmPaM shall, if possible, give prior written notice thereof to the Company and the Stockholders and provide the Company and the Stockholders with the opportunity to contest such disclosure, or (C) the disclosing party reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party. In the event of a breach or threatened breach by AmPaM of the provisions of this Section 14.2, the Company and the Stockholders shall be entitled to an injunction restraining AmPaM from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting the Company and the Stockholders from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. In the event the transactions contemplated by this Agreement are not consummated for any reason, AmPaM shall nevertheless remain subject to this Section 14.2, except that it shall not be permitted to make any disclosures otherwise than pursuant to clause (A), (B) or (C) above. 14.3 DAMAGES. Because of the difficulty of measuring economic losses as a result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and because of the immediate and irreparable damage that would be caused for which they would have no other adequate remedy, the parties hereto agree that, in the event of a breach by any of them of the foregoing covenants, the covenant may be enforced against the other parties by injunctions and restraining orders. 14.4 SURVIVAL. The obligations of the parties under this Article 14 shall survive the termination of this Agreement for a period of five years from the Closing Date. 14.5 RETURN OF INFORMATION. If the transactions contemplated by this Agreement are not consummated, AmPaM will return or destroy all confidential information regarding the Company. 15. TRANSFER RESTRICTIONS 15.1 TRANSFER RESTRICTIONS RELATING TO AMPAM STOCK. For a period of two years from the Closing Date or, in the event that the Company completes an IPO, for a period through the second anniversary of the date of the closing of such IPO (the "Restricted Period"), no Stockholder shall (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any shares of AmPaM Stock (including shares received in a conversion of the AmPaM Series A Preferred Stock), AmPaM Series A Preferred Stock or AmPaM Notes received by the Stockholders pursuant to this Agreement or any securities convertible into, exchangeable or exercisable for any shares of AmPaM Stock, AmPaM Notes or AmPaM Series A Preferred Stock received by such Stockholder pursuant to this Agreement, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any shares of AmPaM Stock, AmPaM Notes or AmPaM Series A Preferred Stock received by such Stockholder pursuant to this Agreement, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or 50 59 indirectly, the economic consequence of ownership of the AmPaM Stock, AmPaM Notes or AmPaM Series A Preferred Stock, whether any such swap or transaction is to be settled by delivery of shares of AmPaM Stock, AmPaM Notes or AmPaM Series A Preferred Stock or other securities, by the delivery or payment of cash or otherwise, except, in the case of clauses (i), (ii) or (iii) above, (A) as otherwise agreed by AmPaM, (B) for the sale of shares of AmPaM Stock, and entering into agreements relating to the sale of shares of AmPaM Stock, pursuant to Section 17 hereof, (C) for transfers to (I) immediate family members of such Stockholder who agree with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (II) trusts, limited partnerships or other estate planning entities for the benefit of such Stockholder or family members of such Stockholder which have agreed with AmPaM in writing, through action taken by the trustees, partners or other persons having authority to bind the trust, limited partnership or other estate planning entity, to be bound by the restrictions set forth in this Section 15.1, (III) any charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code which agrees with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (D) for transfers of AmPaM Stock, AmPaM Notes or AmPaM Series A Preferred Stock to AmPaM pursuant to Section 11.5(d), (E) for transfers to another Stockholder, to another person or entity who receives shares of AmPaM Stock or AmPaM Notes pursuant to the Other Agreements or to Sterling City Capital LLC or any of its Affiliates provided that (1) such transaction is exempt from the registration requirements of the 1933 Act as evidenced by the delivery to AmPaM of an opinion of counsel in form and substance reasonably satisfactory to AmPaM and (2) any such transferee agrees in writing to be bound by the restrictions set forth in this Section 15.1, (F) transfers of shares of AmPaM Stock, shares of AmPaM Notes or AmPaM Series A Preferred Stock, or grants of options to purchase shares of AmPaM Stock, by such Stockholder to employees of the Company of up to an aggregate of 15% of the shares of AmPaM Stock or AmPaM Series A Preferred Stock received by such Stockholder pursuant to this Agreement provided that (1) any such transaction is exempt from the registration requirements of the 1933 Act as evidenced by the delivery to AmPaM of an opinion of counsel in form and substance reasonably satisfactory to AmPaM and (2) any such employee agrees with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (G) the sale by such Stockholder in an IPO of shares of AmPaM Stock representing not more than 10% of the Aggregate Consideration in cash; provided, however, that in no circumstance will a Stockholder be entitled to sell shares of AmPaM Stock in an IPO to the extent that the sale of such shares by such Stockholder would result in such Stockholder receiving in excess of 45% of the Aggregate Consideration in cash; and, provided further, if AmPaM is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under Section 17.1 that the number of shares to be sold by persons other than AmPaM is greater than the number of such shares which can be offered without adversely affecting the success of the offering, AmPaM may reduce pro rata (among the Stockholders and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter or (H) pledges of AmPaM Stock, AmPaM Series A Preferred Stock or AmPaM Notes to secure a bonafide financing arrangement with an unaffiliated financial institution; provided that the party to whom such securities are pledged agrees to be bound by the transfer restrictions set forth in this Agreement. During the Restricted Period, the certificates evidencing the AmPaM Stock, AmPaM 51 60 Notes or the AmPaM Series A Preferred Stock delivered to the Stockholders pursuant to Section 3 of this Agreement will bear a legend substantially in the form set forth below: THE [SHARES/NOTES] REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO THE TERMS OF THE ACQUISITION AGREEMENT PURSUANT TO WHICH SUCH SHARES WERE ISSUED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, PLEDGE OR OTHER DISPOSITION PRIOR TO EXPIRATION OF THE RESTRICTED PERIOD REFERRED TO IN THE ACQUISITION AGREEMENT EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH AGREEMENT. SUCH RESTRICTIONS ON TRANSFER ARE SET FORTH IN AN ACQUISITION AGREEMENT, A COPY OF WHICH IS MAINTAINED AT THE PRINCIPAL OFFICES OF THE ISSUER. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE. 15.2 TRANSFER RESTRICTIONS RELATING TO ADDITIONAL CONSIDERATION. No Stockholder shall (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any right to receive any consideration pursuant to Section II of Annex I to this Agreement (the "Additional Consideration Right") or any securities convertible into, exchangeable or exercisable for any Additional Consideration Right, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any Additional Consideration Right, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of any Additional Consideration Right, whether any such swap or transaction is to be settled by delivery of shares of AmPaM Stock or other securities, by the delivery or payment of cash or otherwise. 16. FEDERAL SECURITIES ACT REPRESENTATIONS 16.1 COMPLIANCE WITH LAW. Each Stockholder acknowledges that the shares of AmPaM Stock, the shares of AmPaM Series A Preferred Stock, the Additional Consideration Right and any AmPaM Notes to be delivered to such Stockholder pursuant to this Agreement have not been and will not be registered under the 1933 Act (except as provided in Section 17 hereof) and therefore may not be sold, assigned, exchanged, transferred, pledged or otherwise disposed of without compliance with the 1933 Act which, among other matters, would require registration under the 1933 Act unless exemption from the registration requirements is available for such transaction. The AmPaM Stock, the AmPaM Series A Preferred Stock, the Additional Consideration Right and any AmPaM Notes to be acquired by each Stockholder pursuant to this Agreement is being acquired solely for such Stockholder's own account, for investment purposes only, and with no present intention of selling, assigning, exchanging, transferring, pledging, or otherwise disposing of it. Each Stockholder covenants, warrants and represents that neither the shares of AmPaM Stock, the AmPaM Series A Preferred Stock, the Additional Consideration Right nor any AmPaM Notes issued to such Stockholder will be offered, sold, assigned, exchanged, pledged, transferred or otherwise 52 61 disposed of except after full compliance with all of the applicable provisions of the 1933 Act and the rules and regulations of the SEC. All certificates representing the AmPaM Stock or the AmPaM Series A Preferred Stock, shall bear the following legend in addition to the legend required under Section 15 of this Agreement: THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE FEDERAL AND STATE SECURITIES LAWS. 16.2 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear the economic risk of an investment in the AmPaM Stock, the AmPaM Series A Preferred Stock and AmPaM Notes to be acquired pursuant to this Agreement and can afford to sustain a total loss of such investment. Each Stockholder has substantial knowledge and experience in making investment decisions of this type (or is relying on qualified purchaser representatives with such knowledge and experience in making this decision), and is capable, either individually or with such purchaser representatives, of evaluating the merits and risks of this investment. Each Stockholder has had an adequate opportunity to ask questions and receive answers from the officers of AmPaM concerning any and all matters relating to the transactions described herein including, without limitation, the background and experience of the current and proposed officers and directors of AmPaM, the plans for the operations of the business of AmPaM, the business, operations and financial condition of the Founding Companies other than the Company, and any plans for additional acquisitions. Each Stockholder has asked any and all questions of the nature described in the preceding sentence and all questions have been answered to such Stockholder's satisfaction. Except as set forth on Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule 501(a) of the 1933 Act. Neither the foregoing nor any investigation made by the Stockholders referred to above shall in any way affect the representations, warranties, covenants and agreements of AmPaM made herein except to the extent that AmPaM is relying upon the representations of the Stockholders in Section 16.1 and in this Section 16.2 for purposes of AmPaM's representations and warranties in Sections 6.9, 6.11, 6.15 and 6.17 hereof as specified therein. 16.3 RELIANCE BY AMPAM. Each Stockholder acknowledges that AmPaM in relying upon the representations and covenants of such Stockholder set forth in Section 16.1 and Section 16.2 for purposes of compliance by AmPaM with Federal and state securities laws related to the issuance of AmPaM Stock and the AmPaM Series A Preferred Stock pursuant to this Agreement and the Other Agreements. 53 62 17. REGISTRATION RIGHTS 17.1 PIGGYBACK REGISTRATION RIGHTS. Whenever AmPaM proposes to register any AmPaM Stock for its own or other's account under the 1933 Act for a public offering, other than (i) any shelf or other registration of shares to be used as consideration for acquisitions of additional businesses by AmPaM and (ii) registrations relating to employee benefit plans, AmPaM shall give each of the Stockholders prompt written notice of its intent to do so. Upon the written request of any of the Stockholders given within 15 calendar days after receipt of such notice, notwithstanding the provisions of Section 15 (except as specified below with respect to an IPO), AmPaM shall cause to be included in such registration all of the AmPaM Stock issued to such Stockholders pursuant to this Agreement (including any stock issued as or issuable upon the conversion or exchange of the AmPaM Series A Preferred Stock and any convertible security, warrant, right or other security which is issued by AmPaM as a stock split, dividend or other distribution with respect to, or in exchange for, or in replacement of such AmPaM Stock or AmPaM Series A Preferred Stock) which any such Stockholder requests, other than shares of AmPaM Stock which may then be immediately sold under Rule 144(k) (or any similar or successor provision) promulgated under the 1933 Act, and other than shares of AmPaM Stock that have been theretofore sold by the Stockholder in accordance with the 1933 Act, provided that AmPaM shall have the right to reduce pro rata the number of shares of each selling Stockholder included in such registration to the extent that inclusion of such shares would, in the written opinion of tax counsel to AmPaM or its independent auditors, jeopardize the status of the transactions contemplated hereby and by the Private Placement Memorandum as a tax-free organization under Section 351 of the Code; provided, however, that with respect to a proposal by AmPaM to register AmPaM Stock under the 1933 Act in connection with an IPO, no Stockholder shall be permitted pursuant to this Section 17.1 to have included in such registration more shares of AmPaM Stock than permitted to be sold by such Stockholder pursuant to Section 15.1. In addition, if AmPaM is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under this Section 17.1 that the number of shares to be sold by persons other than AmPaM is greater than the number of such shares which can be offered without adversely affecting the success of the offering, AmPaM may reduce pro rata (among the Stockholders and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. If any Stockholder disapproves of the terms of the underwriting, that Stockholder may elect to withdraw therefrom by written notice to AmPaM and the managing underwriter. That Stockholder's shares of AmPaM Stock so withdrawn shall also be withdrawn from registration; provided, however, that, if by the withdrawal of such shares a greater number of shares of AmPaM Stock held by other Stockholders may be included in such registration, then AmPaM shall offer to all other Stockholders of AmPaM the right to include additional shares in the same proportion used in effecting the above limitations. AmPaM shall not, for a period of two years following the Closing Date, grant to any other person any rights to cause AmPaM to register any securities in priority over, or in precedent to, the rights granted to the Stockholders hereunder and to the stockholders of the Other Founding Companies pursuant to Section 17 of the Other Agreements. 54 63 17.2 REGISTRATION PROCEDURES. Whenever AmPaM is required to register shares of AmPaM Stock pursuant to Section 17.1, AmPaM will, as expeditiously as possible: (i) Prepare and file with the SEC a registration statement with respect to such shares and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements or term sheets thereto, AmPaM will furnish a representative of the Stockholders with copies of all such documents proposed to be filed) as promptly as practical; (ii) Notify the Stockholders of any stop order issued or threatened by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered; (iii) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 120 days, cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the 1933 Act; and comply with the provisions of the 1933 Act applicable to it with respect to the disposition of all securities covered by such registration statement during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement or supplement to the prospectus; (iv) Furnish to each Stockholder who so requests such number of copies of such registration statement, each amendment and supplement thereto and the prospectus included in such registration statement (including each preliminary prospectus and any term sheet associated therewith), and such other documents as such Stockholder may reasonably request in order to facilitate the disposition of the relevant shares; (v) Make "generally available to its security holders" (within the meaning of Rule 158) an earnings statement satisfying the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no later than 90 days after the end of the 12-month period beginning with the first day of AmPaM's first fiscal quarter commencing after the effective date of the registration statement; (vi) Make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible moment; (vii) If requested by the managing underwriter or underwriters, if any, or any participating Stockholder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters or any participating Stockholder, as the case may be, reasonably requests to be included therein, including, without limitation, information with respect to the number of shares of AmPaM 55 64 Stock being sold by participating Stockholders to any underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any other terms of an underwritten offering of the shares of AmPaM Stock to be sold in such offering, and promptly make all required filings of such prospectus by supplement or post-effective amendment; (viii) Make available for inspection by participating Stockholders, any underwriter participating in any disposition pursuant to such registration statement, and the counsel retained by the participating Stockholders, counsel for the underwriters and any accountant or other agent retained by participating Stockholders or any such underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of AmPaM (the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause AmPaM's officers, directors and employees to supply all information reasonably requested by any such Inspectors in connection with such registration statement; provided, that records which AmPaM determines, in good faith, to be confidential and which AmPaM notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction after delivery of sufficient notice to AmPaM to enable AmPaM to contest such subpoena or order; (ix) Take all other steps reasonably necessary to effect the registration of the shares of AmPaM Stock contemplated hereby; (x) Use its best efforts to register or qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Stockholders, and to keep such registration or qualification effective during the period such registration statement is required to be kept effective, provided that AmPaM shall not be required to become subject to taxation, to qualify generally to do business or to file a general consent to service of process in any such states or jurisdictions; (xi) Cause all such shares of AmPaM Stock to be listed or included not later than the date of the first sale of shares of AmPaM Stock under such registration statement on any securities exchanges or trading systems on which similar securities issued by AmPaM are then listed or included; and (xii) Notify each Stockholder at any time when a prospectus relating thereto is required to be delivered under the 1933 Act within the period that AmPaM is required to keep the registration statement effective of the happening of any event as a result of which the prospectus included in such registration statement (as then in effect), together with any associated term sheet, contains an untrue statement of a material fact or omits to state any 56 65 fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading, and, at the request of such Stockholder, AmPaM promptly will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of the covered shares, such prospectus will not contain an untrue statement of material fact or omit to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading. All expenses incurred in connection with the registration under this Article 17 and compliance with securities and blue sky laws (including all registration, filing, listing, escrow agent, qualification, legal, printer and accounting fees, but excluding underwriting commissions and discounts), shall be borne by AmPaM. 17.3 INDEMNIFICATION. (a) In connection with any registration under Section 17.1, AmPaM shall indemnify, to the extent permitted by law, each selling Stockholder (an "Indemnified Party") against all losses, claims, damages, liabilities and expenses arising out of or resulting from any untrue or alleged untrue statement of material fact contained or incorporated by reference in any registration statement, prospectus or preliminary prospectus or associated term sheet or any omission or alleged omission to state or incorporated by reference therein a material fact required to be stated or incorporated by reference therein or necessary to make the statements therein not misleading except insofar as the same are caused by or contained in or omitted from any information furnished in writing to AmPaM by such Indemnified Party expressly for use therein or by any Indemnified Parties' failure to deliver a copy of the registration statement or prospectus or any amendment or supplements thereto after AmPaM has furnished such Indemnified Party with a sufficient number of copies of the same. (b) In connection with any registration under Section 17.1, each selling Stockholder shall furnish to AmPaM in writing such information concerning the Stockholder and his or her proposed offering of shares as is reasonably requested by AmPaM for use in any such registration statement or prospectus and will indemnify, to the extent permitted by law, AmPaM, its directors and officers and each person who controls AmPaM (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of a material fact or any omission or alleged omission to state therein a material fact required to be stated in the registration statement or prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, but only to the extent that such untrue or alleged untrue statement or omission or alleged omission is contained in or omitted from information so furnished in writing to AmPaM by such Stockholder expressly for use in the registration statement. Notwithstanding the foregoing, the liability of a Stockholder under this Section 17.3 shall be limited to an amount equal to the net proceeds actually received by such Stockholder from the sale of the relevant shares covered by the registration statement. 57 66 (c) Any person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified parties' reasonable judgment, a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. Any failure to give prompt notice shall deprive a party of its right to indemnification hereunder only to the extent that such failure shall have adversely affected the indemnifying party. If the defense of any claim is assumed, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent shall not be unreasonably withheld). An indemnifying party that is not entitled or elects not, to assume the defense of a claim, will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. 17.4 UNDERWRITING AGREEMENT. In connection with each registration pursuant to Sections 17.1 covering an underwritten registered offering, (i) each participating Stockholder shall execute and deliver to AmPaM a written power of attorney instrument that (A) appoints an officer of AmPaM as such Stockholder's attorney-in-fact for purposes of executing and delivering an underwriting agreement among AmPaM, the underwriters named therein and such Stockholder specifying the terms and conditions applicable to the sale of AmPaM Stock of such Stockholder in such offering and (B) otherwise is in such form and containing such provisions as are customary in the securities business for such an arrangement in connection with an underwritten registered offering in which one or more stockholders of the issuer are participants, including a provision that authorizes the attorney-in-fact appointed by such Stockholder to execute and deliver such an underwriting agreement in the event that the net price per share to be received by such Stockholder from the sale of the shares of AmPaM Stock to be sold in such offering is not less than a price specified in such instrument and (iii) AmPaM and each participating Stockholder agree to enter into a written agreement with the managing underwriters in such form and containing such provisions as are customary in the securities business for such an arrangement between such managing underwriters and companies of AmPaM's size and investment stature, including indemnification; provided, however, that (A) such Stockholder shall be exempt and excluded from any indemnification of the managing underwriters other than with respect to information provided by such Stockholder with respect to such Stockholder to AmPaM or the managing underwriters specifically for inclusion in any such registration statement and (B) such Stockholder shall not be obligated to enter into such an underwriting agreement in the event that the net price per share to be received by such Stockholder from the sale of shares of AmPaM Stock to be sold in such offering is less than the floor price specified in the power of attorney instrument executed and delivered to AmPaM pursuant to clause (i) above. 58 67 17.5 TRANSFER OF RIGHTS. The right to cause AmPaM to register shares of AmPaM Stock under this Agreement may be assigned to a transferee or assignee of any Stockholder to the extent that such transferee or assignee is a member of the immediate family of a Stockholder, a trust, limited partnership or other estate planning entity for the benefit of any such persons or a charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code. 17.6 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the SEC that may permit the sale of AmPaM stock to the public without registration, following an IPO AmPaM agrees to use its reasonable efforts, from and after the completion of an IPO, to: (i) make and keep public information regarding AmPaM available as those terms are understood and defined in Rule 144 under the 1933 Act beginning 90 days following the effective date of a registration statement relating to an IPO; (ii) file with the SEC in a timely manner all reports and other documents required of AmPaM under the 1933 Act and the 1934 Act at any time after it has become subject to such reporting requirements; and (iii) so long as a Stockholder owns any restricted AmPaM Stock, furnish to each Stockholder forthwith upon written request a written statement by AmPaM as to its compliance with the current public information requirements of Rule 144 (at any time from and after 90 days following the effective date of a registration statement relating to an IPO), and of the 1933 Act and the 1934 Act (any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of AmPaM, and such other reports and documents so filed as a Stockholder may reasonably request in availing itself of any rule or regulation of the SEC allowing a Stockholder to sell any such shares without registration. 17.7 CONVERTED SHARES OF AMPAM SERIES A PREFERRED STOCK. The provisions of this Section 17 shall apply to any and all shares of AmPaM Stock issued in connection with the conversion of AmPaM Series A Preferred Stock into AmPaM Stock. 18. REDEMPTION OF AMPAM STOCK 18.1 REDEMPTION TRIGGER. In the event that, within three years of the Closing Date, (i) AmPaM has not consummated an IPO and (ii) any Stockholder has not received cash (including proceeds from the public or private sale of AmPaM Stock received as consideration hereunder and the receipt of principal payments, if any, made with respect to AmPaM Notes held by such Stockholder) equal to or exceeding 50% of the Aggregate Consideration on or prior to the third anniversary of the Closing Date, such Stockholder shall have the right (the "Put Right"), but not the obligation, commencing on the third anniversary of the Closing Date to require AmPaM to purchase a number of shares of AmPaM Stock then owned by such Stockholder, subject to the limitations set 59 68 forth in Section 18.2 below. The purchase price for such redemption shall be $13.00 per share, such price to be subject to appropriate adjustment to reflect any reclassification, stock dividend, subdivision, split-up or combination of shares of AmPaM Stock after the date hereof. 18.2 MINIMUM REDEMPTION; LIMITATIONS. If the events specified in Section 18.1(i) and 18.1(ii), with Section 18.1(ii) being determined on an individual Stockholder basis, have not occurred within the time specified, AmPaM shall be obligated to purchase from each eligible Stockholder no less than 10% of the AmPaM Stock held by such Stockholder annually; provided, however, that the Stockholders shall not be entitled to exercise their Put Rights if and to the extent the Company has not achieved the Target Net Income (as defined in Annex I hereto) for the year preceding the year in which a Stockholder seeks to exercise his Put Right. The redemptions will be funded by internal cash flows or alternative financing arrangements but AmPaM's obligation to make any redemption pursuant to this Section 18 will be subject to the covenants and restrictions contained in AmPaM's then existing private or public debt or equity instruments. 18.3 NOTICE; EXERCISE. The Stockholders may exercise their Put Right by giving written notice (the "Put Notice") to AmPaM within thirty (30) days of the third anniversary of the execution hereof. If any Stockholder does not provide AmPaM with a Put Notice within such thirty-day period, the Put Right applicable to such Stockholder shall expire. The date for closing the sale of any shares of AmPaM Stock pursuant to a proper exercise of a Put Right shall in no event be earlier than 90 days after the date AmPaM receives the Put Notice. Any such closing shall be at such time of day and place as shall be mutually agreed between such holder and AmPaM. At such closing AmPaM shall make payment for the AmPaM Stock to be repurchased by wire transfer of immediately available funds to a bank account designated by such Stockholder for such purpose and such Stockholder shall deliver to AmPaM certificates, duly endorsed for transfer, representing the shares of AmPaM Stock to be purchased and sold pursuant to the exercise of such Put Right. 18.4 ADDITIONAL REDEMPTIONS. In the event AmPaM has not consummated an IPO and notwithstanding the foregoing, to the extent the Stockholders who have received greater than 50% of their Aggregate Consideration in cash wish to tender AmPaM Stock to AmPaM for purchase, AmPaM will use its commercially reasonable efforts to continue to repurchase up to 10% of the AmPaM Stock held by such Stockholder annually. 18.5 TERMINATION OF REDEMPTION OBLIGATION. Put Rights with respect to any individual Stockholder will terminate upon receipt by such Stockholder of 50% of his Aggregate Consideration in cash; such termination will not, however, limit such Stockholders ability to participate in the additional redemptions provided in Section 18.4. Notwithstanding the foregoing, all of AmPaM's redemption obligations contained in this Section 18 shall terminate on the earlier to occur of (i) an IPO, (ii) any sale of all or substantially all of AmPaM's assets in one transaction or series of transactions, (iii) any merger or consolidation which involves AmPaM and in which AmPaM is not the surviving entity or (iv) any transaction after which the shares of AmPaM Common Stock, if any, which are then held by persons other than the holders of AmPaM Common Stock as of the Closing 60 69 Date constitute 50% or more of AmPaM Common Stock outstanding as of the date of the consummation of such transaction. 19. GENERAL 19.1 COOPERATION. The Company, Stockholders and AmPaM shall each deliver or cause to be delivered to the other on the Closing Date, and at such other times and places as shall be reasonably agreed to, such additional instruments as the other may reasonably request for the purpose of carrying out this Agreement. The Company will cooperate and use its reasonable efforts to have the present officers, directors and employees of the Company cooperate with AmPaM on and after the Closing Date in furnishing information, evidence, testimony and other assistance in connection with any tax return filing obligations, actions, proceedings, arrangements or disputes of any nature with respect to matters pertaining to all periods prior to the Closing Date. 19.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties hereunder may not be assigned (except by operation of law and except as provided in Section 17.5) and shall be binding upon and shall inure to the benefit of the parties hereto, the successors of AmPaM and the Company, and the heirs, successors and legal representatives of the Stockholders. 19.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits and annexes attached hereto) and the documents delivered pursuant hereto constitute the entire agreement and understanding among the Stockholders, the Company and AmPaM and supersede any prior agreement and understanding relating to the subject matter of this Agreement. This Agreement, upon execution, constitutes a valid and binding agreement of the parties hereto enforceable in accordance with its terms and may be modified or amended only by a written instrument executed by the Stockholders, the Company and AmPaM, acting through their respective officers or trustees, duly authorized by their respective Boards of Directors. Any disclosure made on any Schedule delivered pursuant hereto shall be deemed to have been disclosed for purposes of any other Schedule required hereby, provided that the Company shall make a good faith effort to cross reference disclosure, as necessary or advisable, between related Schedules. 19.4 COUNTERPARTS. This Agreement may be executed simultaneously in two (2) or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument. A telecopied facsimile of an executed counterpart of this Agreement shall be sufficient to evidence the binding agreement of each party to the terms hereof. However, each party agrees to return to the other parties an original, duly executed counterpart of this Agreement promptly after delivery of a telecopied facsimile thereof. 19.5 BROKERS AND AGENT. Except as disclosed on Schedule 18.5, each party hereto represents and warrants that it employed no broker or agent in connection with this transaction and agrees to indemnify the other parties hereto against all loss, cost, damages or expense arising out of claims for fees or commission of brokers employed or alleged to have been employed by such indemnifying party. 61 70 19.6 EXPENSES. Whether or not the transactions herein contemplated shall be consummated, AmPaM will pay the reasonable fees, expenses and disbursements of AmPaM and its agents, representatives, accountants and counsel incurred in connection with the subject matter of this Agreement and any amendments thereto, including all costs and expenses incurred in the performance and compliance with all conditions to be performed by AmPaM under this Agreement, including the fees and expenses of Arthur Andersen LLP, Andrews & Kurth L.L.P., and any other person or entity retained by AmPaM, and the costs of preparing the Private Placement Memorandum incurred in connection with the subject matter of this Agreement and any amendments thereto. In addition, whether or not the transactions contemplated herein shall be consummated, AmPaM will pay the reasonable fees and expenses of Bracewell & Patterson LLP incurred on behalf of the Company and the Stockholders in connection with the subject matter of this Agreement. Whether or not the transactions herein contemplated shall be consummated, the Company will pay all of its costs and expenses incurred on behalf of the Company and the Stockholders in connection with the subject matter of this Agreement except that (i) the Company shall not be required to pay any of the costs, fees and expenses specified above as to which AmPaM is responsible for the payment thereof and (ii) neither the Company nor the Stockholders shall be responsible for the payment of the costs, fees and expenses incurred by or on behalf of AmPaM. Whether or not the transactions herein contemplated shall be consummated, AmPaM shall reimburse Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any of the foregoing fees, expenses and disbursements paid by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) and shall repay Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any loans or advances made by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for the purpose of providing AmPaM funds to pay any such fees, expenses and disbursements, provided that such reimbursement and loan repayment obligation shall be limited to the foregoing fees, expenses, and disbursements which are out-of-pocket expenses of AmPaM, Sterling City Capital, LLC or any person or entity which is an Affiliate thereof. Sterling City Capital, LLC shall be reimbursed by AmPaM in the form of AmPaM Notes. AmPaM retains the right, within a reasonable period following the Closing Date, to conduct an audit of the expenses for which Sterling City Capital, LLC is reimbursed. Each Stockholder shall pay all sales, use, transfer, real property transfer, recording, gains, stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in connection with the purchase and sale of the Company Stock, other than Transfer Taxes, if any, imposed by the State of Delaware. Each Stockholder shall file all necessary documentation and Returns with respect to such Transfer Taxes. In addition, each Stockholder acknowledges that he, and not the Company or AmPaM, will pay all Taxes due by him upon receipt of the consideration payable pursuant to Section 1 hereof. The Stockholders acknowledge that the risks of the transactions contemplated hereby include Tax risks, with respect to which the Stockholders are relying substantially on the opinion contemplated by Section 8.12 hereof and representations by AmPaM in this Agreement. 19.7 NOTICES. All notices of communication required or permitted hereunder shall be in writing and may be given by depositing the same in United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested, or by delivering the same in person or via a nationally recognized courier service to an officer or agent of such party. 62 71 (a) If to AmPaM addressed to it at: American Plumbing & Mechanical, Inc. 515 Post Oak Blvd., Suite 450 Houston, Texas 77027 Attention: Chief Executive Officer with copies to: Thomas P. Mason Andrews & Kurth L.L.P. 4200 Chase Tower Houston, Texas 77002 (b) If to the Stockholders, addressed to them at their addresses set forth on the signature pages hereto, with copies to: J. Rowland Cook Jenkens & Gilchrist, a Professional Corporation 2200 One American Center 600 Congress Austin, Texas 78701 and: Ronald G. Skloss Brobeck, Phleger & Harrison LLP 301 Congress Avenue, Suite 1200 Austin, Texas 78701 (c) If to the Company, addressed to it at: Christianson Enterprises, Inc. 1950 Louis Henna Blvd. Round Rock, Texas 78664 or to such other address or counsel as any party hereto shall specify pursuant to this Section 18.7 from time to time. 63 72 19.8 GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of Texas, excluding any conflicts of law, rule or principle that might refer same to the laws of another jurisdiction. 19.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations, warranties, covenants and agreements of the parties made herein and at the time of the Closing or in writing delivered pursuant to the provisions of this Agreement shall survive the consummation of the transactions contemplated hereby and any examination on behalf of the parties until the respective Expiration Dates referred to herein with respect thereto or, if no Expiration Date is applicable with respect thereto, until the expiration of all applicable statute of limitations periods. 19.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided herein, no delay of or omission in the exercise of any right, power or remedy accruing to any party as a result of any breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver. 19.11 TIME. Time is of the essence with respect to this Agreement. 19.12 REFORMATION AND SEVERABILITY. In case any provision of this Agreement shall be invalid, illegal or unenforceable, it shall, to the extent possible, be modified in such manner as to be valid, legal and enforceable but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement, and in either case the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. No provision of this Agreement shall be interpreted or construed against any party solely because that party or its legal representative drafted such provision. 19.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term of this Agreement shall be deemed exclusive but each shall be cumulative with all other rights, remedies and elections available at law or in equity. 19.14 CAPTIONS. The headings of this Agreement are inserted for convenience only, shall not constitute a part of this Agreement or be used to construe or interpret any provision hereof. 19.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived only with the written consent of AmPaM, the Company and Stockholders who would receive a majority of the Aggregate Consideration specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated. Any amendment or waiver effected in accordance with this Section 19.15 shall be binding upon each of the parties hereto, any other person receiving AmPaM Stock or AmPaM Series A Preferred Stock in connection with the purchase and sale of the Company Stock and each 64 73 future holder of such AmPaM Stock or AmPaM Series A Preferred Stock. Any consent of the Stockholders who would receive a majority of the Aggregate Consideration pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated shall be deemed to be the consent of the Stockholders for purposes of provisions of this Agreement as to which a consent of the Stockholders may be requested or required. 19.16 MEDIATION AND ARBITRATION. If a dispute arises out of or relates to this Agreement, or the breach thereof, and if said dispute cannot be settled through direct discussions, the parties agree to first endeavor to settle the dispute in an amicable manner by mediation administered by the American Arbitration Association under its then prevailing Commercial Mediation Rules, before resorting to arbitration. Thereafter, any unresolved controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association in accordance with its then prevailing Commercial Arbitration Rules. The enforcement, interpretation and procedural and substantive effect of the obligation to arbitrate created by this Section 19.16 shall be governed by the Federal Arbitration Act as amended from time to time, 9 U.S.C. Sections 1 et seq. The parties hereby disclaim any intention to have the substantive or procedural law of any state or other jurisdiction, other than the law of the United States as embodied in the Federal Arbitration Act, applied to such obligation. Any such mediation or arbitration proceeding will be conducted in Houston, Texas. 19.17 INFORMATION PROVIDED FOR PRIVATE PLACEMENT MEMORANDUM. For purposes of this Agreement, the information provided by the Company in writing specifically for inclusion in the Private Placement Memorandum shall include solely (i) the Financial Statements (in the form that they appear in the Private Placement Memorandum), (ii) any financial statements provided to AmPaM pursuant to Section 7.9, (iii) the description of the Company contained in the Private Placement Memorandum under the caption "The Company", (iv) the description of the Company's results of operations and its liquidity and capital resources, if any, contained in the Private Placement Memorandum under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and (v) the description, if any, of matters related to the Company contained in the Private Placement Memorandum under the caption "Certain Transactions involving Certain Officers, Directors and Stockholders". For purposes of this Agreement, the information provided by a Stockholder in writing specifically for inclusion in the Private Placement Memorandum shall include only (i) the description, if any, of matters related to such Stockholder contained in the Private Placement Memorandum under the caption "Certain Transactions - Transactions involving Certain Officers, Directors and Stockholders" and (ii) the biographical description of such Stockholder, if any, contained in the Private Placement Memorandum under the caption "Management." 19.18 EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective upon (i) the execution and delivery of this Agreement by all of the parties hereto and (ii) the delivery to AmPaM of each Employment Agreement attached hereto as Annex VI-1, Annex VI-2, Annex VI-3, Annex VI-4, Annex VI-5 and Annex VI-6 executed by each of the Company, the employees named therein and AmPaM. 65 74 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. AMERICAN PLUMBING & MECHANICAL, INC. By:: /s/ DAVID BAGGETT -------------------------------- Name: David Baggett ------------------------------- Title: Chief Financial Officer ------------------------------ CHRISTIANSON ENTERPRISES, INC. By:: /s/ ROBERT CHRISTIANSON -------------------------------- Robert Christianson President CHRISTIANSON SERVICES, INC. By:: /s/ ROBERT CHRISTIANSON -------------------------------- Robert Christianson President GGR LEASING CORPORATION By:: /s/ GLEN CHRISTIANSON -------------------------------- Glen Christianson President [Remainder of page intentionally left blank] 66 75 STOCKHOLDERS OF CHRISTIANSON SPOUSES (WITHOUT PERSONAL LIABILITY ENTERPRISES, INC.: AND SOLELY TO ACKNOWLEDGE THE SALE OF THE COMPANY STOCK BY THE STOCKHOLDER): /s/ ROBERT CHRISTIANSON /s/ BEVERLY CHRISTIANSON - -------------------------------- -------------------------------- Robert A. Christianson Beverly A. Christianson 5803 Long Court Austin, Texas 78730 Darrell and Pamela Christianson 600 Woodway Drive Georgetown, Texas 78628 By: /s/ DARRELL CHRISTIANSON -------------------------------- Darrell Christianson By: /s/ PAMELA CHRISTIANSON -------------------------------- Pamela Christianson /s/ LANE CHRISTIANSON /s/ KELLY CHRISTIANSON - -------------------------------- -------------------------------- Lane B. Christianson Kelly Christianson 2104 Smoke Tree Round Rock, Texas 78664 /s/ GEORGE CHRISTIANSON /s/ DEBORAH CHRISTIANSON - -------------------------------- -------------------------------- George Christianson Deborah Christianson 1443 County Road #3 Georgetown, Texas 78726 /s/ BRIAN CHRISTIANSON /s/ JULIE CHRISTIANSON - -------------------------------- -------------------------------- Brian Trent Christianson Julie Christianson 122 Cascade Caverns Road Boerne, Texas 78006 67 76 /s/ TREY CHRISTIANSON - -------------------------------- Trey Christianson 16650 Huebner Road #1218 San Antonio, Texas 78248 /s/ GLEN T. CHRISTIANSON /s/ JUDY CHRISTIANSON - -------------------------------- -------------------------------- Glen T. Christianson Judy K. Christianson P.O. Box 280 Weir, Texas 78674 /s/ GLEN T. CHRISTIANSON /s/ ANGELA CHRISTIANSON - -------------------------------- -------------------------------- Greg T. Christianson Angela Christianson P.O. Box 28 Weir, Texas 78674 /s/ RANDY DALE CHRISTIANSON /s/ MELISSA JILL CHRISTIANSON - -------------------------------- -------------------------------- Randy Dale Christianson Melissa Jill Christianson 213 Wind Ridge Cove Georgetown, Texas 78628 The Callan E. Christianson QSST Trust 1950 Louis Henna Blvd. Round Rock, Texas 78664 By: /s/ GEORGE CHRISTIANSON -------------------------------- George Christianson, as Trustee The Cody Christianson QSST Trust 1950 Louis Henna Blvd. Round Rock, Texas 78664 By: /s/ GEORGE CHRISTIANSON -------------------------------- George Christianson, as Trustee 68 77 STOCKHOLDERS OF CHRISTIANSON SPOUSES (WITHOUT PERSONAL LIABILITY AND SERVICES, INC. SOLELY TO ACKNOWLEDGE THE SALE OF THE COMPANY STOCK BY THE STOCKHOLDER): /s/ ROBERT A. CHRISTIANSON /s/ BEVERLY A. CHRISTIANSON - -------------------------------- -------------------------------- Robert A. Christianson Beverly A. Christianson 5803 Long Court Austin, Texas 78730 /s/ DARRELL CHRISTIANSON /s/ PAMELA CHRISTIANSON - -------------------------------- -------------------------------- Darrell Christianson Pamela Christianson 600 Woodway Drive Georgetown, Texas 78628 /s/ LANE B. CHRISTIANSON /s/ KELLY CHRISTIANSON - -------------------------------- -------------------------------- Lane B. Christianson Kelly Christianson 2104 Smoke Tree Round Rock, Texas 78664 /s/ GEORGE CHRISTIANSON /s/ DEBORAH CHRISTIANSON - -------------------------------- -------------------------------- George Christianson Deborah Christianson 1443 County Road #3 Georgetown, Texas 78726 /s/ BRIAN TRENT CHRISTIANSON /s/ JULIE CHRISTIANSON - -------------------------------- -------------------------------- Brian Trent Christianson Julie Christianson 122 Cascade Caverns Road Boerne, Texas 78006 /s/ TREY CHRISTIANSON - -------------------------------- Trey Christianson 16650 Huebner Road #1218 San Antonio, Texas 78248 69 78 /s/ GLEN T. CHRISTIANSON /s/ JUDY K. CHRISTIANSON - -------------------------------- -------------------------------- Glen T. Christianson Judy K. Christianson P.O. Box 280 Weir, Texas 78674 /s/ GREG T. CHRISTIANSON /s/ ANGELA CHRISTIANSON - -------------------------------- -------------------------------- Greg T. Christianson Angela Christianson P.O. Box 28 Weir, Texas 78674 /s/ RANDY DALE CHRISTIANSON /s/ MELISSA JILL CHRISTIANSON - -------------------------------- -------------------------------- Randy Dale Christianson Melissa Jill Christianson 213 Wind Ridge Cove Georgetown, Texas 78628 The Callan E. Christianson QSST Trust 1950 Louis Henna Blvd. Round Rock, Texas 78664 By: /s/ GEORGE CHRISTIANSON -------------------------------- George Christianson, as Trustee The Cody Christianson QSST Trust 1950 Louis Henna Blvd. Round Rock, Texas 78664 By: /s/ GEORGE CHRISTIANSON -------------------------------- George Christianson, as Trustee 70 79 STOCKHOLDERS OF GGR LEASING SPOUSES (WITHOUT PERSONAL LIABILITY AND CORPORATION SOLELY TO ACKNOWLEDGE THE SALE OF THE COMPANY STOCK BY THE STOCKHOLDER): /s/ ROBERT A. CHRISTIANSON /s/ BEVERLY A. CHRISTIANSON - -------------------------------- -------------------------------- Robert A. Christianson Beverly A. Christianson 5803 Long Court Austin, Texas 78730 /s/ GLEN T. CHRISTIANSON /s/ JUDY K. CHRISTIANSON - -------------------------------- -------------------------------- Glen T. Christianson Judy K. Christianson P.O. Box 280 Weir, Texas 78674 /s/ GEORGE CHRISTIANSON /s/ DEBORAH CHRISTIANSON - -------------------------------- -------------------------------- George Christianson Deborah Christianson 1443 County Road #3 Georgetown, Texas 78726 71 EX-10.6 11 ACQUISITION AGMT. - J.A. CROSON COMPANY 1 EXHIBIT 10.6 Execution Copy - -------------------------------------------------------------------------------- ACQUISITION AGREEMENT dated as of the 11th day of February, 1999 by and among AMERICAN PLUMBING & MECHANICAL, INC. J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY and all of the STOCKHOLDERS of J.A. CROSON COMPANY and FRANKLIN FIRE SPRINKLER COMPANY - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page RECITALS ......................................................................................................... 1 1. ACQUISITION OF STOCK..................................................................................... 5 1.1 Acquisition..................................................................................... 5 1.2 Consideration................................................................................... 5 1.3 Certain Information With Respect to the Capital Stock of the Company and AmPaM....................................................................................... 5 2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY........................................................... 5 2.1 Board of Directors.............................................................................. 5 2.2 Officers........................................................................................ 5 3. DELIVERY OF CONSIDERATION................................................................................ 6 3.1 Stockholders' Consideration..................................................................... 6 3.2 Stockholders' Deliveries........................................................................ 6 4. CLOSING.................................................................................................. 6 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................ 6 5.1 Due Organization................................................................................ 7 5.2 Authorization................................................................................... 7 5.3 Capital Stock of the Company.................................................................... 7 5.4 Transactions in Capital Stock................................................................... 8 5.5 No Bonus Shares................................................................................. 8 5.6 Subsidiaries; Ownership in Other Entities....................................................... 8 5.7 Predecessor Status; etc......................................................................... 8 5.8 Spin-off by the Company......................................................................... 8 5.9 Financial Statements............................................................................ 8 5.10 Liabilities and Obligations..................................................................... 9 5.11 Accounts and Notes Receivable...................................................................10 5.12 Licenses; Intellectual Property.................................................................10 5.13 Environmental Matters...........................................................................11 5.14 Personal Property...............................................................................13 5.15 Significant Customers; Material Contracts and Commitments.......................................13 5.16 Real Property...................................................................................14 5.17 Insurance.......................................................................................14 5.18 Compensation; Employment Agreements; Labor Matters..............................................15 5.19 Employee Plans..................................................................................15 5.20 Compliance with ERISA...........................................................................16 5.21 Conformity with Law; Litigation.................................................................17
-i- 3 5.22 Taxes..........................................................................................17 5.23 No Violations; No Consent Required, Etc........................................................18 5.24 Government Contracts...........................................................................19 5.25 Absence of Changes.............................................................................19 5.26 Deposit Accounts; Powers of Attorney...........................................................21 5.27 Validity of Obligations........................................................................21 5.28 Relations with Governments.....................................................................21 5.29 Disclosure.....................................................................................21 5.30 No Warranties or Insurance.....................................................................21 5.31 Interest in Customers and Suppliers and Related Party Transactions.............................22 5.32 Private Placement Memorandum...................................................................22 5.33 Authority; Ownership...........................................................................22 5.34 Preemptive Rights..............................................................................23 5.35 No Commitment to Dispose of AmPaM Stock........................................................23 5.36 Disclosure.....................................................................................23 6. REPRESENTATIONS OF AMPAM................................................................................23 6.1 Due Organization...............................................................................24 6.2 Authorization..................................................................................24 6.3 Capital Stock of AmPaM.........................................................................24 6.4 Transactions in Capital Stock..................................................................24 6.5 Subsidiaries...................................................................................25 6.6 Financial Statements...........................................................................25 6.7 Liabilities and Obligations....................................................................25 6.8 Conformity with Law; Litigation................................................................25 6.9 No Violations..................................................................................26 6.10 Validity of Obligations........................................................................27 6.11 AmPaM Stock....................................................................................27 6.12 AmPaM Notes....................................................................................28 6.13 No Side Agreements.............................................................................28 6.14 Business; Real Property; Material Agreements...................................................28 6.15 Relations with Governments.....................................................................28 6.16 Disclosure.....................................................................................28 6.17 Other Agreements...............................................................................29 7. COVENANTS PRIOR TO CLOSING..............................................................................29 7.1 Access and Cooperation; Due Diligence; Transfer of Real Estate.................................29 7.2 Conduct of Business Pending Closing............................................................30 7.3 Prohibited Activities..........................................................................31 7.4 No Shop........................................................................................32 7.5 Agreements.....................................................................................32 7.6 Notification of Certain Matters................................................................32 7.7 Amendment of Schedules.........................................................................33 7.8 Further Assurances.............................................................................33 7.9 Authorized Capital.............................................................................33
-ii- 4 7.10 Compliance with the Hart-Scott Act.............................................................33 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.............................................................................................34 8.1 Representations and Warranties; Performance of Obligations.....................................34 8.2 Satisfaction...................................................................................34 8.3 No Litigation..................................................................................34 8.4 Opinion of Counsel.............................................................................34 8.5 Consents and Approvals.........................................................................34 8.6 Good Standing Certificates.....................................................................35 8.7 No Material Adverse Change.....................................................................35 8.8 Secretary's Certificate........................................................................35 8.9 Tax Matters....................................................................................35 8.10 Other Founding Companies.......................................................................35 8.11 Company Release of Stockholders................................................................35 8.12 Sterling City Capital Transfer Restrictions....................................................35 8.13 Election of Chief Executive Officer............................................................36 8.14 Funding Availability...........................................................................36 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF AMPAM............................................................36 9.1 Representations and Warranties; Performance and Obligations....................................36 9.2 No Litigation..................................................................................36 9.3 Secretary's Certificate........................................................................36 9.4 No Material Adverse Effect.....................................................................37 9.5 Stockholders' Release..........................................................................37 9.6 Satisfaction...................................................................................37 9.7 Termination of Related Party Agreements........................................................37 9.8 Opinion of Counsel.............................................................................37 9.9 Consents and Approvals.........................................................................37 9.10 Good Standing Certificates.....................................................................38 9.11 Funding Availability...........................................................................38 9.12 FIRPTA Certificate.............................................................................38 9.13 Resignations of Directors and Officers.........................................................38 10. COVENANTS OF AMPAM AND THE STOCKHOLDERS AFTER CLOSING...................................................38 10.1 Release From Guarantees; Repayment of Certain Obligations......................................38 10.2 Preservation of Tax and Accounting Treatment...................................................39 10.3 Preparation and Filing of Tax Returns; Payment of Taxes........................................39 10.4 Directors......................................................................................40 10.5 Legal Opinions.................................................................................40 11. INDEMNIFICATION.........................................................................................40 11.1 General Indemnification by the Stockholders....................................................40 11.2 Indemnification by AmPaM.......................................................................42 11.3 Third Person Claims............................................................................42
-iii- 5 11.4 Exclusive Remedy...............................................................................43 11.5 Limitations on Indemnification.................................................................44 12. TERMINATION OF AGREEMENT................................................................................45 12.1 Termination....................................................................................45 12.2 Procedure and Effect of Termination............................................................46 13. NONCOMPETITION..........................................................................................46 13.1 Prohibited Activities..........................................................................46 13.2 Damages........................................................................................47 13.3 Reasonable Restraint...........................................................................48 13.4 Severability; Reformation......................................................................48 13.5 Independent Covenant...........................................................................48 13.6 Materiality....................................................................................48 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...............................................................48 14.1 Stockholders...................................................................................48 14.2 AmPaM..........................................................................................49 14.3 Damages........................................................................................50 14.4 Survival.......................................................................................50 14.5 Return of Information..........................................................................50 15. TRANSFER RESTRICTIONS...................................................................................50 15.1 Transfer Restrictions Relating to AmPaM Stock and AmPaM Notes..................................50 15.2 Transfer Restrictions Relating to Additional Consideration.....................................51 16. FEDERAL SECURITIES ACT REPRESENTATIONS..................................................................52 16.1 Compliance with Law............................................................................52 16.2 Economic Risk; Sophistication..................................................................52 16.3 Reliance by AmPaM..............................................................................53 17. REGISTRATION RIGHTS.....................................................................................53 17.1 Piggyback Registration Rights..................................................................53 17.2 Registration Procedures........................................................................54 17.3 Indemnification................................................................................56 17.4 Underwriting Agreement.........................................................................57 17.5 Transfer of Rights.............................................................................58 17.6 Rule 144 Reporting.............................................................................58 18. REDEMPTION OF AMPAM STOCK...............................................................................58 18.1 Redemption Trigger.............................................................................58 18.2 Minimum Redemption; Limitations................................................................59 18.3 Notice; Exercise...............................................................................59 18.4 Additional Redemptions.........................................................................59 18.5 Termination of Redemption Obligation...........................................................59
-iv- 6 19. GENERAL.................................................................................................60 19.1 Cooperation....................................................................................60 19.2 Successors and Assigns.........................................................................60 19.3 Entire Agreement...............................................................................60 19.4 Counterparts...................................................................................60 19.5 Brokers and Agent..............................................................................61 19.6 Expenses.......................................................................................61 19.7 Notices........................................................................................62 19.8 Governing Law..................................................................................63 19.9 Survival of Representations and Warranties.....................................................63 19.10 Exercise of Rights and Remedies................................................................63 19.11 Time...........................................................................................63 19.12 Reformation and Severability...................................................................63 19.13 Remedies Cumulative............................................................................63 19.14 Captions.......................................................................................63 19.15 Amendments and Waivers.........................................................................63 19.16 Mediation and Arbitration......................................................................64 19.17 Information Provided for Private Placement Memorandum..........................................64 19.18 Effective Date of Agreement....................................................................64
-v- 7 ANNEXES Annex I - Consideration to Be Paid to Stockholders Annex II - Amended and Restated Certificate of Incorporation and By-Laws of AmPaM Annex III - Form of Opinion of Counsel to AmPaM Annex IV - Form of Tax Opinion Annex V - Form of Opinion of Counsel to Company and Stockholders Annex VI-I - Form of Employment Agreement -vi- 8 SCHEDULES 2.1 Board of Directors 2.2 Officers 5.1 Due Organization 5.2 Authorization 5.3 Capital Stock of the Company 5.4 Transactions in Capital Stock; Organization Accounting 5.5 No Bonus Shares 5.6 Subsidiaries; Ownership in Other Entities 5.7 Predecessor Status; etc 5.8 Spin-off by the Company 5.9 Financial Statements 5.10 Liabilities and Obligations 5.11 Accounts and Notes Receivable 5.12 Licenses; Intellectual Property (Schedules 5.12(a)(1), 5.12(a)(2), 5.12(b)(1) and 5.12(b)(2)) 5.13 Environmental Matters 5.14 Personal Property 5.15 Significant Customers; Material Contracts and Commitments (Schedules 5.15(a), 5.15(b) and 5.15 (c)) 5.16 Real Property 5.17 Insurance 5.18 Compensation; Employment Agreements; Labor Matters 5.19 Employee Plans 5.20 Compliance with ERISA 5.21 Conformity with Law; Litigation 5.22 Taxes (Schedules 5.22(a) and 5.22(b)) 5.23 No Violations, No Consents Required, Etc. (Schedules 5.23(a), 5.23(b), 5.23(c) and 5.23(e)) 5.24 Government Contracts 5.25 Absence of Changes 5.26 Deposit Accounts; Powers of Attorney 5.30 No Warranties or Insurance 5.31 Interest in Customers and Suppliers and Related Party Transactions 5.33 Authority; Ownership (Schedules 5.33(a) and 5.33(b)) 6.9 No Violations 7.1 Access and Cooperation; Due Diligence; Transfer of Real Estate 7.2 Conduct of Business Pending Closing 7.3 Prohibited Activities 7.5 Agreements 8.11 Employment Agreements 9.7 Termination of Related Party Agreements 10.1 Release From Guarantees; Repayment of Certain Obligations 16.2 Non-accredited Investors 18.5 Brokers and Agents -vii- 9 ACQUISITION AGREEMENT THIS ACQUISITION AGREEMENT (the "Agreement") is made as of the 11th day of February, 1999 by and among AMERICAN PLUMBING & MECHANICAL, INC., a Delaware corporation ("AmPaM"), J.A. CROSON COMPANY, an Ohio corporation ("J.A. Croson") and FRANKLIN FIRE SPRINKLER COMPANY, an Ohio corporation ("Franklin Fire"), and the stockholders listed on the signature pages of this Agreement (the "Stockholders"), which are all the stockholders of J.A. CROSON and FRANKLIN FIRE (collectively, the "Company").. RECITALS WHEREAS, the Company is engaged in the plumbing and mechanical services business; WHEREAS, as of the date hereof, the Stockholders own, and as of the Closing Date the Stockholders will own, all of the issued and outstanding capital stock of each of J.A. Croson and Franklin Fire (the "Company Stock"); WHEREAS, AmPaM is entering into other separate agreements simultaneously with this Agreement that are substantially the same as this Agreement (the "Other Agreements"), each of which is entitled "Acquisition Agreement," with each of the Other Founding Companies (as defined herein) and their respective stockholders in order for AmPaM to acquire additional companies engaged in the plumbing and mechanical services business; WHEREAS, this Agreement and the Other Agreements constitute the "AmPaM Plan of Organization;" WHEREAS, the Stockholders and the boards of directors and the stockholders of AmPaM, and each of the Other Founding Companies that are parties to the Other Agreements, have approved and adopted the AmPaM Plan of Organization as an integrated plan pursuant to which the Stockholders and the stockholders of each of the other Founding Companies will contribute the capital stock of each of the Founding Companies to AmPaM, and the Stockholders and the stockholders of each of the other Founding Companies will acquire the stock of AmPaM (but not cash or other property) as a tax-free transfer of property under Section 351 of the Code; WHEREAS, in consideration of the agreements of the Other Founding Companies pursuant to the Other Agreements, the Stockholders have approved this Agreement as part of the AmPaM Plan of Organization in order to transfer all of the issued and outstanding capital stock of the Company to AmPaM; and NOW, THEREFORE, in consideration of the premises and of the mutual agreements, representations, warranties, provisions and covenants herein contained, the parties hereto hereby agree as follows: 10 Unless the context otherwise requires, capitalized terms used in this Agreement or in any schedule attached hereto and not otherwise defined shall have the following meanings for all purposes of this Agreement: "1933 Act" means the Securities Act of 1933, as amended. "Acquired Party" means the Company, any subsidiary of the Company and any member of a Relevant Group. "Affiliates" means with respect to any person or entity, any other person or entity that directly or indirectly, controls, is controlled by, or is under common control with such person or entity. "AmPaM" has the meaning set forth in the first paragraph of this Agreement. "AmPaM Charter Documents" has the meaning set forth in Section 6.1. "AmPaM Plan of Organization" has the meaning set forth in the recitals of this Agreement. "AmPaM Stock" means the common stock, par value $.01 per share, of AmPaM. "AmPaM Notes" means those notes issued by AmPaM to the Stockholders as a portion of the consideration to be received hereunder and in substantially the form to Annex I as Appendix A. "Balance Sheet Date" has the meaning set forth in Section 5.9. "Charter Documents" has the meaning set forth in Section 5.1. "Closing" has the meaning set forth in Section 4. "Closing Date" has the meaning set forth in Section 4. "Code" means the Internal Revenue Code of 1986, as amended. "Company" has the meaning set forth in the first paragraph of this Agreement. "Company Stock" has the meaning set forth in the recitals of this Agreement. "Delaware GCL" means the General Corporation Law of the State of Delaware. "Environmental Laws" has the meaning set forth in Section 5.13(b). "Expiration Date" has the meaning set forth in Section 5(A) and Section 6, as applicable. 2 11 "Founding Companies" means the following companies: Christianson Enterprises, Inc., a Texas corporation; Christianson Services, Inc., a Texas corporation; GGR Leasing Corporation, a Texas corporation; J.A. Croson Company of Florida, a Florida corporation; J.A. Croson Company, an Ohio corporation; Franklin Fire Sprinkler Company, an Ohio corporation; Keith Riggs Plumbing, Inc., an Arizona corporation; Miller Mechanical Contractors, Inc., a Georgia corporation; Nelson Mechanical Contractors, Inc., a Florida corporation; Power Plumbing Inc., a Delaware corporation; R.C.R. Plumbing, Inc., a California corporation; Sherwood Mechanical, Inc., a California corporation; and Teepe's River City Mechanical, Inc., an Ohio corporation. "GAAP" means generally accepted accounting principles as consistently applied in the United States. "Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Hazardous Substance" has the meaning set forth in Section 5.13(c). "IPO" means a firm commitment underwritten initial public offering of AmPaM Stock managed by one or more nationally recognized national investment banking firms. "known" or "knowledge," when used in reference to a statement regarding the existence or absence of facts in this Agreement, is intended by the parties to mean that the only information to be attributed to such person is information actually known to (a) the person in the case of an individual, (b) in the case of a corporation or other entity other than the Company, an officer or director of such corporation or entity or (c) in the case of the Company and its Subsidiaries, an officer of the Company listed on Schedule 2.2 hereto, except for David Baggett. "Material Adverse Change" means a material adverse change in the business, operations, properties, assets or condition (financial or otherwise), of the subject entity and its subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on the business, operations, properties, assets or condition (financial or otherwise), of the subject entity and its subsidiaries taken as a whole. "Material Documents" has the meaning set forth in Section 5.23. 3 12 "Ordinary Course of Business" means the ordinary course of business consistent with past customs and practice (including with respect to quantity and frequency). "Other Agreements" has the meaning set forth in the recitals of this Agreement. "Other Founding Companies" means all of the Founding Companies other than the Company. "Plans" has the meaning set forth in Section 5.19. "Private Placement Memorandum" means the Private Placement Memorandum, dated as of February 11, 1999, provided to each Stockholder prior to the execution and delivery of this Agreement which sets forth certain information relating to the transactions contemplated by this Agreement and the Other Agreements. "Qualified Plans" has the meaning set forth in Section 5.20. "Relevant Group" means the Company and any affiliated, combined, consolidated, unitary or similar group of which the Company is or was a member. "Restricted Common Stock" has the meaning set forth in Section 1.3(ii). "Returns" means any returns, reports or statements (including any information returns) required to be filed for purposes of a particular Tax. "Schedule" means each Schedule attached hereto, which shall reference the relevant sections of this Agreement, on which parties hereto disclose information as part of their respective representations, warranties and covenants. "SEC" means the United States Securities and Exchange Commission. "State of Incorporation" means the State of Ohio for each of J.A. Croson and Franklin Fire. "Stockholders" has the meaning set forth in the first paragraph of this Agreement. "Subsidiaries" means with respect to a person or entity, any corporation or other entity in which such person or entity owns a 5% or greater ownership interest. "Tax" or "Taxes" means all federal, state, local or foreign net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value added, franchise, withholding, employment, excise, property, deed, stamp, alternative or add-on minimum, or other taxes, assessments, duties, fees, levies or other governmental charges, whether disputed or not, together with any interest, penalties, additions to tax or additional amounts with respect thereto. 4 13 1. ACQUISITION OF STOCK 1.1 ACQUISITION. Upon the terms and subject to the conditions contained in this Agreement and in reliance upon the representations, warranties, covenants and agreements contained in this Agreement, on the Closing Date, the Stockholders shall convey and transfer to AmPaM all of the issued and outstanding shares of Company Stock as set forth in Annex I hereto. 1.2 CONSIDERATION. The consideration for the Company Stock shall be as set forth on Annex I to this Agreement. 1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY AND AMPAM. The respective designations and numbers of outstanding shares and voting rights of each class of outstanding capital stock of the Company and AmPaM as of the date of this Agreement are as follows: (i) as of the date of this Agreement, the authorized and outstanding Company Stock is as set forth on Schedule 5.3 hereto; and (ii) immediately prior to the Closing Date, the authorized capital stock of AmPaM will consist of (A) 100,000,000 shares of AmPaM Stock, of which the number of issued and outstanding shares will be set forth in the Private Placement Memorandum, (B) 10,000,000 shares of redeemable preferred stock, of which the number of issued and outstanding shares will be set forth in the Private Placement Memorandum, and (C) 5,000,000 shares of Restricted Voting Common Stock, $.01 per value (the "Restricted Common Stock"), all of which will be issued and outstanding except as otherwise set forth in the Private Placement Memorandum. 2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY 2.1 BOARD OF DIRECTORS. The Company and the Stockholders shall take action, including solicitation of resignation of directors, necessary so that the Board of Directors of the Company as of the Closing Date shall consist only of the persons identified on Schedule 2.1 hereto. 2.2 OFFICERS. The Company and the Stockholders shall take action, including solicitation of resignation of officers, necessary so that the officers of the Company as of the Closing Date shall consist only of the persons identified on Schedule 2.2 hereto. 5 14 3. DELIVERY OF CONSIDERATION 3.1 STOCKHOLDERS' CONSIDERATION. On the Closing Date, the Stockholders shall, upon surrender of certificates evidencing the Company Stock, receive from AmPaM the respective number of shares of AmPaM Stock, the amount of cash and the principal amount of AmPaM Notes described on Annex I hereto specified with respect to each such Stockholder as payable on the Closing Date. All payments of cash shall be made by certified check or wire transfer of immediately available funds. Consideration consisting of AmPaM Notes shall be substantially in the form of Appendix A to Annex I. 3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at the Closing the certificates representing Company Stock, duly endorsed in blank by the Stockholders, or accompanied by blank stock powers, and with all necessary transfer tax and other revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The Stockholders agree promptly to cure any deficiencies with respect to the endorsement of the stock certificates or other documents of conveyance with respect to such Company Stock or with respect to the stock powers accompanying any Company Stock. 4. CLOSING The consummation of the transactions contemplated by Section 3 (the "Closing") shall take place on March 31, 1999 or such date not later than May 31, 1999 as AmPaM shall determine by giving written notice of such other date as provided in Section 18.7 (the "Closing Date") at the offices of Andrews & Kurth L.L.P., 4200 Chase Tower, 600 Travis, Houston, Texas 77002. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY (A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in the disclosure schedules attached hereto and except as otherwise qualified below, the Company represents and warrants that all of the following representations and warranties in this Section 5(A) are true at the date of this Agreement and, subject to Section 7.7 hereto, shall be true at the time of the Closing, and that such representations and warranties shall survive the Closing Date for a period of eighteen months (the last day of such period being the "Expiration Date"), except that the representations and warranties set forth in Sections 5.3, 5.22 and 5.32 hereof shall survive until such time as the applicable statute of limitations period has run, which shall be deemed to be the Expiration Date for the representations and warranties set forth in Sections 5.3, 5.22 and 5.32. For purposes of this Section 5, the term "Company" shall mean and refer to the Company and all of its Subsidiaries, if any, and any reference to a Material Adverse Effect on the Company or Material Adverse Change with respect to the Company shall mean the Company and its Subsidiaries, taken as a whole. Except as expressly set forth in this Agreement, the Company expressly disclaims any representation or warranty (express, implied or otherwise) relating to the 6 15 Company and any Subsidiary thereof including, without limitation, any warranty of merchantability or fitness for a particular purpose. 5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of Incorporation, and has the requisite power and authority to carry on its business as it is now being conducted. The Company is duly qualified or authorized to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or authorization necessary except where the failure to be so qualified or authorized to do business would not have a Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all states in which the Company is authorized or qualified to do business, which list indicates which of such entities is authorized or qualified to do business in such states. True, complete and correct copies of the Certificate or Articles of Incorporation and By-laws, each as amended, of the Company (the "Charter Documents") are all attached to Schedule 5.1. The Company has delivered to AmPaM complete and correct copies of (i) the stock records of the Company and (ii) all minutes of meetings, written consents and other evidence, if any, of deliberations of or actions taken by the Company's Board of Directors, any committees of the Board of Directors and stockholders during the last five years. 5.2 AUTHORIZATION. (i) The officers or other representatives of the Company executing this Agreement have the authority to enter into and bind the Company to the terms of this Agreement and (ii) the Company has the full legal right, power and authority to enter into this Agreement and consummate the transactions contemplated hereby. Copies of the most recent resolutions adopted by the Board of Directors of the Company and the most recent resolutions adopted by the Stockholders, which approve this Agreement and the transactions contemplated hereby in all respects, certified by the Secretary or an Assistant Secretary of the Company as being in full force and effect on the date hereof, are attached hereto as Schedule 5.2. 5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the Company and each of its Subsidiaries is as set forth on Schedule 5.3(a). All of the issued and outstanding shares of the capital stock of the Company are owned by the Stockholders in the amounts set forth in Schedule 5.3(a). Except as set forth on Schedule 5.3(a), all of the issued and outstanding capital stock of each Subsidiary is owned by the Company. All of the issued and outstanding shares of the capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable, are owned of record by the Stockholders and further, such shares were offered, issued, sold and delivered by the Company in compliance with all applicable state and Federal laws concerning the issuance of securities. Further, none of such shares were issued in violation of any preemptive rights of any past or present stockholder. 7 16 5.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 5.4(a), the Company has not acquired or redeemed any shares of capital stock of the Company since January 1, 1996. Except as set forth on Schedule 5.4(b), (i) no option, warrant, call, conversion right or commitment of any kind exists which obligates the Company to issue any of its authorized but unissued capital stock; (ii) the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof; and (iii) neither the voting stock structure of the Company nor the relative ownership of shares among any of its Stockholders has been altered or changed in contemplation of the AmPaM Plan of Organization. There are no voting trusts, proxies or other agreements or understandings to which the Company is a party or is bound with respect to the voting of any shares of capital stock of the Company. 5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the shares of Company Stock was issued pursuant to awards, grants or bonuses in contemplation of the AmPaM Plan of Organization. 5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set forth on Schedule 5.6(a), the Company has no Subsidiaries. Except as set forth in Schedule 5.6(b), the Company does not presently own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity nor is the Company, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. 5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7(a) is a list of all predecessor companies of the Company, including the names of any entities acquired by the Company (by stock purchase, merger or otherwise) or owned by the Company or from whom the Company previously acquired material assets, in any case, from the earliest date upon which any Stockholder acquired his or her stock in any Company. Except as disclosed on Schedule 5.7(b), the Company has not been, within such period of time, a subsidiary or division of another corporation or a part of an acquisition which was later rescinded. 5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there has not been any sale, spin-off or split-up of material assets of either the Company or any other person or entity that is an Affiliate of the Company since January 1, 1996. 5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 is a copy of: (i) the combined balance sheets of the Company as of September 30, 1996 and 1997 and the related statements of combined operations, stockholders' equity and cash flows for the three-year period ended September 30, 1997, together with the related notes and schedules (such balance sheets, the related statements of operations, stockholders' equity and cash flows and the related notes and schedules are referred to herein as the "Year-end Financial Statements"); 8 17 (ii) the combined balance sheet of the Company as of June 30, 1998 and the related statements of combined operations, stockholders' equity and cash flows for the nine-month periods ended June 30, 1997 and 1998, together with the related notes and schedules (such balance sheets, the related statements of operations, stockholders' equity and cash flows and the related notes and schedules are referred to herein as the "Nine-Month Interim Financial Statements"); (iii) the combined balance sheet of the Company as of September 30, 1998 (the "Balance Sheet Date") and the related statements of operations, stockholders' equity and cash flows for the twelve-month periods ended September 30, 1998 (such balance sheets, the related statements of operations, stockholders' equity and cash flows are referred to herein as the "Twelve-Month Interim Financial Statements"); and (iv) the combined income statement of the Company for the 12-month period ended June 30, 1998 (the "Valuation Income Statement"). The Year-end Financial Statements, the Nine-Month Interim Financial Statements, the Twelve-Month Interim Financial Statements and the Valuation Income Statement are collectively called the "Financial Statements". The Financial Statements, including those included in the Private Placement Memorandum, have been prepared in accordance with GAAP applied on a consistent basis and fairly present the combined financial position of the Company as of the dates thereof and the results of its operations and changes in financial position for the periods then ended, subject, in the case of the Nine-Month Interim Financial Statements and the Twelve-Month Interim Financial Statements, to normal year-end audit adjustments and any other adjustments described therein and the absence of certain footnote disclosures. 5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10(a) sets forth an accurate list as of the Balance Sheet Date of (i) all material liabilities of the Company which are not reflected on the combined balance sheet of the Company at the Balance Sheet Date or otherwise reflected in the Company Financial Statements at the Balance Sheet Date which by their nature would be required in accordance with GAAP to be reflected in the balance sheet, and (ii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages, pledges or other security agreements to which the Company is a party or by which its properties may be bound other than bid bonds and performance bonds made in the Ordinary Course of Business. Except as set forth on Schedule 5.10(b), since the Balance Sheet Date, the Company has not incurred any material liabilities or obligations of any kind, character or description, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than liabilities incurred in the Ordinary Course of Business. The Company has also delivered to AmPaM, on Schedule 5.10(c), a list of contingent liabilities related to pending litigation or litigation that has been threatened in writing, or other material liabilities which are not fixed or otherwise accrued or reserved. For each such contingent liability of the Company or liability of the Company for which the amount is not fixed or is contested, the Company has provided to AmPaM the following information: 9 18 (i) a summary description of the liability together with the following: (a) copies of all relevant documentation in the possession of the Company or its directors, officers or stockholders relating thereto; (b) amounts claimed and any other action or relief sought; and (c) name of claimant and all other parties to the claim, suit or proceeding; (ii) the name of each court or agency before which such claim, suit or proceeding is pending; (iii) the date such claim, suit or proceeding was instituted; and (iv) a good faith estimate of the maximum amount, if any, which the Company expects, based on information available, is likely to become payable with respect to each such liability and the amount, if any, accrued or reserved for each such potential liability on the Financial Statements. AmPaM acknowledges that all estimates referred to above and set forth on Schedule 5.10(c) are only good faith estimates, and that the Company and the Stockholders expressly do not represent or warrant that the actual amounts of such liabilities will be equal to, or more or less than, the amounts of such estimates. 5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11(a) sets forth an accurate list, in all material respects, of the accounts and notes receivable of the Company, as of the Balance Sheet Date, including any such amounts which are not reflected in the balance sheet as of the Balance Sheet Date, and including all receivables from and advances to employees and the Stockholders, which are identified as such. Schedule 5.11(a) also sets forth a materially accurate aging of all accounts and notes receivable as of the Balance Sheet Date showing amounts due in 30-day aging categories. Except to the extent reflected on Schedule 5.11(b), such accounts, notes and other receivables are collectible in the amounts shown on Schedule 5.11(a), net of reserves reflected in the balance sheet as of the Balance Sheet Date. 5.12 LICENSES; INTELLECTUAL PROPERTY. (a) The Company or its employees hold all licenses, franchises, permits and other governmental authorizations ("Licenses") necessary to conduct the business of the Company, the absence of which would cause a Material Adverse Effect on the Company, and the Company has delivered to AmPaM a list that is accurate, in all material respects, and summary description (which is set forth on Schedule 5.12(a)(1)) of all such Licenses. At or prior to the Closing, all such Licenses owned or held by any employee of the Company will be assigned or licensed to the Company for no additional consideration. The Licenses listed on Schedule 5.12(a)(1) are valid, and the Company has not received any notice that any person intends to cancel, terminate or not renew any such License. The Company has conducted and is conducting its business in compliance in all material respects with the requirements, standards, criteria and 10 19 conditions set forth in the Licenses listed on Schedule 5.12(a)(1) and is not in violation of any of the foregoing in any material respect. Except as specifically provided in Schedule 5.12(a)(2), the consummation by the Company of the transactions contemplated by this Agreement will not result in a default under or a breach or violation of, or adversely affect the rights and benefits afforded to the Company by, any such Licenses. (b) The Company owns or possesses adequate licenses or other rights to use (without making any payment or granting rights to any person in exchange) all patents, patent applications, trademarks, copyrights, service marks and trade names (collectively, the "Intellectual Property") necessary to conduct its business as currently conducted. A description of any Intellectual Property licensed by the Company, including the material terms of any such license, is described on Schedule 5.12(b)(1). Neither the validity of the Intellectual Property nor the title thereto or use thereof by the Company is being questioned in any pending litigation, and the conduct of the Company's business, as currently conducted, does not conflict with licenses, copyrights, uncopyrighted works, trade marks, service marks, trade names, trade name rights, patents, patent rights, unpatented inventions or trade secrets of others. Neither the validity of the Intellectual Property nor the title thereto or use thereof by the Company is being questioned in any pending or, to the knowledge of the Company, threatened infringement claims or litigation, and the conduct of the Company's business, as now conducted, does not conflict with licenses, copyrights, uncopyrighted works, trade marks, service marks, trade names, trade name rights, patents, patent rights, unpatented inventions or trade secrets of others. Except as specifically provided in Schedule 5.12(b)(2), the consummation by the Company of the transactions contemplated by this Agreement will not adversely affect the rights and benefits afforded to the Company by any such Intellectual Property. 5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule 5.13 attached hereto, (i) the Company has conducted its businesses in compliance in all material respects with all applicable Environmental Laws, including, without limitation, having all environmental permits, licenses and other approvals and authorizations necessary for the operation of its business as presently conducted, except where the failure to have such permit, license, approval or authorization would not have a Material Adverse Effect on the Company, (ii) none of the properties owned by the Company contain any Hazardous Substance as a result of any activity of the Company in amounts exceeding the levels permitted by applicable Environmental Laws, except where amounts in excess of such levels would not have a Material Adverse Effect on the Company, (iii) the Company has not received any notices, demand letters or requests for information from any Federal, state, local or foreign governmental entity or third party indicating that the Company may be in violation of, or liable under, any Environmental Law in connection with the ownership or operation of its business, (iv) there are no civil, criminal or administrative actions, suits, demands, claims, hearings, investigations or proceedings pending or, to the knowledge of the Company, threatened, against the Company relating to any violation, or alleged violation, of any Environmental Law, except where such violation would not have a Material Adverse Effect on the Company, (v) no reports have been filed, or are required to be filed, by the Company concerning the release of any Hazardous Substance or the threatened or actual violation of any Environmental Law, (vi) no Hazardous Substance has 11 20 been disposed of, released or transported in violation of any applicable Environmental Law from any properties owned by the Company as a result of any activity of the Company during the time such properties were owned, leased or operated by the Company, (vii) there have been no environmental investigations, studies, audits, tests, reviews or other analyses regarding compliance or non-compliance with any applicable Environmental Law conducted by or which are in the possession of the Company relating to the activities of the Company which are not listed on Schedule 5.13 attached hereto prior to the date hereof, (viii) to the knowledge of the Company, (A) there are no underground storage tanks on, in or under any properties owned by the Company and (B) no underground storage tanks have been closed or removed from any of such properties during the time such properties were owned, leased or operated by the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the Company, (A) there is no asbestos or asbestos-containing material present in any material quantity in any of the properties owned by the Company, and (B) no asbestos has been removed from any of such properties during the time such properties were owned, leased or operated by the Company, and (x) neither the Company nor any of its properties are subject to any material liabilities or expenditures (fixed or contingent) relating to any suit, settlement, court order, administrative order, regulatory requirement, judgment or claim asserted or arising under any Environmental Law. (b) As used herein, "Environmental Law" means, as of the Closing Date, any Federal, state, local or foreign law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction or agreement with any governmental entity to which the Company is a party or subject relating to (x) the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource) or to human health or safety or (y) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances, in each case as amended and as in effect on the Closing Date. The term Environmental Law includes, without limitation, (i) the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as amended and as in effect on the Closing Date, and (ii) any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of, effects of or exposure to any Hazardous Substance. (c) As used herein, "Hazardous Substance" means any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive, or dangerous, or otherwise regulated, under any Environmental Law. Hazardous Substance includes any substance to which exposure is regulated by any government authority or any Environmental Law including, without 12 21 limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste, industrial substance or petroleum or any derivative or by-product thereof, radon, radioactive material, asbestos or asbestos-containing material, urea formaldehyde foam insulation, lead or polychlorinated biphenyls. 5.14 PERSONAL PROPERTY. The Company has delivered to AmPaM an accurate list (which is set forth on Schedule 5.14(a)) of (x) all personal property material to the operations of the Company as of the Balance Sheet Date included in "plant, property and equipment" on the balance sheet of the Company as of such date, (y) all other items of personal property owned by the Company with an individual value in excess of $15,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all material leases and agreements in respect of personal property, including, in the case of each of (x), (y) and (z), (1) true, complete and correct copies of all such leases and (2) an indication as to which assets are currently owned, or were formerly owned, by Stockholders, relatives of Stockholders, or Affiliates of the Company. Except as set forth on Schedule 5.14(b), (i) all personal property material to, and used by, the Company in its business is either owned by the Company or leased by the Company pursuant to a lease included on Schedule 5.14(a), (ii) all of the personal property listed on Schedule 5.14(a) or replacement property thereof is in working order and condition, ordinary wear and tear excepted and (iii) all leases and agreements included on Schedule 5.14(a) are in full force and effect and constitute valid and binding agreements of the Company, in each case in accordance with their respective terms. 5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. (a) The Company has delivered to AmPaM a materially accurate list (which is set forth on Schedule 5.15(a)(1)) of all customers (persons or entities) representing 5% or more of the Company's annual revenues for any period covered by any of the Financial Statements. Except to the extent set forth on Schedule 5.15(a)(2), none of such customers has canceled or, to the knowledge of the Company, are currently threatening to cancel a currently effective contract with the Company. (b) The Company has listed on Schedule 5.15(b) all material contracts, commitments and similar agreements to which the Company is a party or by which it or any of its properties are bound (including, but not limited to, contracts with customers listed on Schedule 5.15(a), joint venture or partnership agreements, contracts with any labor organizations, strategic alliances and options to purchase land), other than agreements listed on Schedules 5.10(a), Schedule 5.14(a) or Schedule 5.16(a), (a) in existence as of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and in each case has delivered or made available to AmPaM true, complete and correct copies of such agreements. For purposes of the preceding sentence, a contract, commitment or similar agreement is "material" if it (i) has a term of more than one year (other than contracts, commitments or agreements that are cancelable without liability or penalty within 30 days of notice from the Company of cancellation or that can be terminated by the Company without material penalty upon notice of 30 days or less) or (ii) requires the payment by or to the Company of more than $100,000 during any 12-month period. Except for expenditures in the ordinary course of 13 22 business, the Company has also indicated on Schedule 5.15(b) a summary description of all plans or projects involving the opening of new operations, expansion of existing operations, or the acquisition of any personal property, business or assets requiring, in any event, the payment of more than $50,000 by the Company during any 12-month period. (c) Except as set forth on Schedule 5.15(c), the Company is not required to provide any bonding or other financial security arrangements in any material amount in connection with any contract listed on Schedule 5.15(b). 5.16 REAL PROPERTY. Schedule 5.16(a) includes a list of all real property owned or leased by the Company at the date hereof and all other real property, if any, used by the Company in the conduct of its business. The Company has good and insurable title to any real property owned by it that is shown on Schedule 5.16(a), other than property intended to be sold or distributed prior to the Closing Date as provided in Section 7.1(c) of this Agreement, and all real property so owned is subject to no mortgage, pledge, lien, conditional sales agreement, encumbrance, lease, possessory rights of third parties or charge, except for: (i) liens reflected on Schedule 5.10(a) or Schedule 5.16(b) as securing specified liabilities (with respect to which no material default by the Company exists); (ii) liens for current taxes not yet payable and assessments not in default; (iii) easements for utilities serving the property; and (iv) easements, covenants and restrictions and other exceptions to title which do not adversely affect the current use of the property. Copies of all leases and agreements in respect of such real property leased by the Company, which are true, complete and correct in all material respects, are attached to Schedule 5.16(a), and an indication as to which such properties, if any, are currently owned, or were formerly owned, by Stockholders or Affiliates of the Company or Stockholders is included in Schedule 5.16(a). Except as set forth on Schedule 5.16(b), all of such leases included on Schedule 5.16(a) are, as to the Company, in full force and effect and constitute valid and binding agreements of the Company in accordance with their respective terms. 5.17 INSURANCE. The Company has delivered to AmPaM (i) an accurate list as of the Balance Sheet Date of all insurance policies carried by the Company and (ii) an accurate list of all insurance loss runs or workers compensation claims received for the past three policy years (which lists are set forth on Schedule 5.17). The Company has also delivered or made available to AmPaM true, complete and correct copies of all insurance policies currently in effect that are referred in Schedule 5.17. Such insurance policies evidence all of the insurance the Company is required to carry pursuant to all of its contracts and other agreements and pursuant to all applicable laws. All of such insurance policies are currently in full force and effect, except as stated in Schedule 5.17. 14 23 Since January 1, 1996, no insurance carried by the Company has been canceled by the insurer and the Company has not been denied coverage under any such policy. 5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS. (a) The Company has delivered to AmPaM an accurate list (which is set forth on Schedule 5.18(a)(1)) showing all officers, directors and key employees of the Company, listing all employment agreements with such officers, directors and key employees and the rate of compensation (and the portions thereof attributable to salary, bonus and other compensation, respectively) of each of such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The Company has provided to AmPaM true, complete and correct copies of any employment agreements for persons listed on Schedule 5.18(a)(1). Since the Balance Sheet Date, except as disclosed on Schedule 5.18(a)(2), there have been no increases in the compensation payable or any bonuses to any officer, director, key employee or other employee, except ordinary salary increases implemented on a basis consistent with past practices and except for bonuses paid on a basis consistent with past practices. (b) Except as set forth on Schedule 5.18(b), (i) the Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any arrangement with any labor union, (ii) to the knowledge of the Company, no campaign to establish such arrangement is in progress and (iii) there is no pending or, to the Company's knowledge, threatened labor dispute involving the Company and any group of its employees nor has the Company experienced any labor interruptions over the past three years. The Company believes its relationship with employees to be generally good. (c) Except as set forth in Schedule 5.18(c) attached hereto, (i) there are no claims, actions or proceedings pending or, to the knowledge of the Company, threatened between the Company and any of its employees, (ii) the Company has complied in all material respects with all laws relating to the employment of labor, including, without limitation, any provisions thereof relating to wages, hours, collective bargaining, and the payment of social security and similar taxes, and (iii) the Company has not received written notice from any person asserting that the Company is liable in any material amount for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. 5.19 EMPLOYEE PLANS. The Company has delivered to AmPaM accurate schedule (Schedule 5.19(a)) showing all employee benefit plans of the Company, including all employment agreements and other agreements or arrangements containing "golden parachute" or other similar provisions, and deferred compensation agreements, together with true, complete and correct copies of such plans, agreements and any trusts related thereto, and classifications of employees covered thereby as of the Balance Sheet Date and as of the date of this Agreement. Except for the employee benefit plans, if any, described on Schedule 5.19(a), the Company does not sponsor, maintain or contribute to any plan program, fund or arrangement that constitutes an "employee pension benefit plan", and neither the Company nor any Subsidiary has any obligation to contribute to or accrue or 15 24 pay any benefits under any deferred compensation or retirement funding arrangement on behalf of any employee or employees (such as, for example, and without limitation, any individual retirement account or annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred compensation arrangement). For the purposes of this Agreement, the term "employee pension benefit plan" shall have the same meaning as is given that term in Section 3(2) of ERISA. The Company has not sponsored, maintained or contributed to any employee pension benefit plan other than the plans set forth on Schedule 5.19(a), and, except as described on Schedule 5.19(b), the Company is not or could not be required to contribute to any retirement plan pursuant to the provisions of any collective bargaining agreement establishing the terms and conditions or employment of any of the Company's employees. Except as set forth on Schedule 5.19(c), the Company is not now, or will not as a result of its past activities become, liable to the Pension Benefit Guaranty Corporation or to any multiemployer employee pension benefit plan under the provisions of Title IV of ERISA. All employee benefit plans listed on Schedule 5.19(a) and the administration thereof are in compliance in all material respects with their terms and all applicable provisions of ERISA and the regulations issued thereunder, as well as with all other applicable federal, state and local statutes, ordinances and regulations. All accrued contribution obligations of the Company as of the Balance Sheet Date with respect to any plan listed on Schedule 5.19(a) have either been fulfilled in their entirety or are fully reflected on the balance sheet of the Company as of the Balance Sheet Date. 5.20 COMPLIANCE WITH ERISA. All plans listed on Schedule 5.19(a) that are intended to qualify under Section 401 (a) of the Code (the "Qualified Plans") are, and have been so qualified and have been determined by the Internal Revenue Service to be so qualified, and copies of such determination letters are attached to Schedule 5.19(a). Except as disclosed on Schedule 5.20, all reports and other documents required to be filed with any governmental agency or distributed to plan participants or beneficiaries (including, but not limited to, actuarial reports, audits or tax returns) since January 1, 1992 have been timely filed or distributed, and copies thereof have been made available to AmPaM. No such plan listed on Schedule 5.19(a) nor the Company has engaged in any transaction prohibited under the provisions of Section 4975 of the Code or Section 406 of ERISA. No such Plan listed on Schedule 5.19(a) has incurred an accumulated funding deficiency, as defined in Section 412(a) of the Code and Section 302(l) of ERISA; and the Company has not incurred any liability for excise tax or penalty due to the Internal Revenue Service nor any liability to the Pension Benefit Guaranty Corporation. The Company further represents that except as set forth on Schedule 5.20 hereto: (i) there have been no terminations, partial terminations or discontinuations of contributions to any Qualified Plan intended to qualify under Section 401(a) of the Code without notice to and approval by the Internal Revenue Service; 16 25 (ii) no plan listed on Schedule 5.19(a) subject to the provisions of Title IV of ERISA has been terminated; (iii) there have been no "reportable events" (as that phrase is defined in Section 4043 of ERISA) with respect to any such plan listed in Schedule 5.19(a); (iv) the Company (including any Subsidiaries) has not incurred liability under Section 4062 of ERISA; and (v) no circumstances exist pursuant to which the Company could have any direct or indirect liability whatsoever (including, but not limited to, any liability to any multiemployer plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for any excise tax or penalty, or being subject to any statutory lien to secure payment of any such liability) with respect to any plan now or heretofore maintained or contributed to by any entity other than the Company that is, or at any time was, a member of a "controlled group" (as defined in Section 412(n)(6)(B) of the Code) that includes the Company. 5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on Schedule 5.21 or Schedule 5.13, the Company has not violated within the five years prior to the date of this Agreement and is not currently in violation of any law or regulation or any order of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it other than violations that would not have a Material Adverse Effect on the Company; and except to the extent set forth on Schedule 5.10(c) or Schedule 5.13, there are no claims, actions, suits or proceedings, pending or, to the knowledge of the Company, threatened in writing against the Company, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over the Company and no written notice of any claim, action, suit or proceeding, whether pending or threatened, has been received by the Company, and to the knowledge of the Company there is no valid basis for any such claim, action, suit or proceeding that could reasonably be expected to have a Material Adverse Effect on the Company. 5.22 TAXES. The Company has timely filed all requisite Federal, state and other Tax Returns or extension requests for all fiscal periods ended on or before the Balance Sheet Date; and except as set forth on Schedule 5.22(a), there are no examinations in progress or claims pending against the Company for federal, state and other Taxes (including penalties and interest) for any period or periods prior to and including the Balance Sheet Date and no notice of any claim for Taxes, whether pending or threatened, has been received. All Tax, including interest and penalties (whether or not shown on any Tax Return), due by the Company has been paid. The amounts shown as accruals for Taxes on the Financial Statements are sufficient for the payment of all Taxes of the kinds indicated (including penalties and interest) for all fiscal periods ended on or before the date of the respective Financial Statements. Copies of (i) any tax examinations, (ii) extensions of statutory limitations and (iii) the federal and local income Tax Returns and franchise Tax Returns of Company for their last three (3) fiscal years, or such shorter period of time as any of them shall 17 26 have existed, are attached hereto as Schedule 5.22(a) or have otherwise been delivered to AmPaM. The Company has a taxable year ended September 30. Except as set forth on Schedule 5.22(a), the Company uses the accrual method of accounting for income tax purposes, and the Company's methods of accounting have not changed in any material respect in the past five years (except as required to conform to changes in GAAP). The Company is not an investment company as defined in Section 351(e)(1) of the Code. The Company is not and has not during the last five years been a party to any tax sharing agreement or agreement of similar effect. Except as set forth on Schedule 5.22(a), the Company is not and has not during the last five years been a member of any consolidated group for federal tax purposes. The Company has not received, been denied, or applied for any private letter ruling from the IRS during the last ten years. 5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC. (a) The Company is not in violation of any Charter Document. Except as set forth on Schedule 5.23(a), the Company is not in default under any lease, instrument, agreement, license, or permit set forth on Schedule 5.12(a), Schedule 5.14(a), Schedule 5.15(b) or Schedule 5.16(a) (collectively, the "Material Documents"). (b) Except as set forth on Schedule 5.23(b)(1), the execution and delivery of this Agreement by each of the Company and the Stockholders do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company under any of the terms, conditions or provisions of (i) the Charter Documents of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to the Company or any of its properties or assets, or (iii) any Material Document to which the Company is now a party or by which the Company or any of its properties or assets may be bound or affected. The consummation by the Company and the Stockholders of the transactions contemplated hereby will not result in any material violation, conflict, breach, right of termination or acceleration or creation of liens under any of the terms, conditions or provisions of the items described in clauses (i) through (iii) of the preceding sentence, subject, in the case of the terms, conditions or provisions of the items described in clause (iii) above, to obtaining (prior to the Effective Time) such consents as may be required from commercial lenders, lessors or other third parties as listed on Schedule 5.23(b)(2). (c) Except as set forth on Schedule 5.23(c) and except for the Hart-Scott Act, none of the Material Documents requires notice to, or the consent or approval of, any governmental agency or other third party with respect to the consummation by the Company and the Stockholders of any of the transactions contemplated hereby in order to remain in full force and effect, and consummation by the Company and the Stockholders of the transactions contemplated hereby will not give rise to any right to termination, cancellation or acceleration or loss of any material right or benefit under any Material Document. 18 27 (d) Except for (i) any filings to be made with the SEC pursuant to the 1933 Act or with any state securities authorities in connection with the offer and sale of AmPaM Stock and AmPaM Notes pursuant to this Agreement and (ii) any filing required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby. (e) Except as set forth on Schedule 5.23(e), none of the Material Documents prohibits the disclosure or publication by the Company or AmPaM of the name of any other party to such Material Document, and none of the Material Documents prohibits or restricts the Company from freely providing services or selling products to any other customer or potential customer of the Company, AmPaM or any Other Founding Company. 5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the Company is not now a party to any governmental contract subject to price redetermination or renegotiation. 5.25 ABSENCE OF CHANGES. (a) Since the Balance Sheet Date, except as set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not been: (i) any Material Adverse Change in the Company; (ii) any damage, destruction or casualty loss (whether or not covered by insurance), alone or in the aggregate, which has caused a Material Adverse Effect on the Company; (iii) any change in the authorized capital of the Company or its outstanding securities or any change in its ownership interests or any grant of any options, warrants, calls, conversion rights or commitments; (iv) any declaration or payment of any dividend or distribution in respect of the capital stock or any direct or indirect redemption, purchase or other acquisition of any of the capital stock of the Company except for distributions that would have been permitted after the date hereof under Section 7.3(iii) hereof, (v) any increase in the compensation, bonus, sales commissions or fee arrangement payable or to become payable by the Company to any of its officers, directors, Stockholders, employees, consultants or agents, except for ordinary and customary bonuses, except for salary increases for employees in accordance with past practice and except for the establishment of the J. A. Croson Company Deferred Stock Compensation Plan (the "Croson Plan") or the Franklin Fire Sprinkler Company Deferred Compensation Plan (the "Franklin Plan") and the arrangements to contribute shares of AmPaM Stock thereto as described in Annex I hereto; 19 28 (vi) any work interruptions, labor grievances or claims filed, or any event or condition of any character, which has caused a Material Adverse Effect on the Company; (vii) any sale or transfer, or any agreement to sell or transfer, any material assets, property or rights of the Company to any person, including, without limitation, the Stockholders and their affiliates, except inventory sold or transferred in the Ordinary Course of Business; (viii) any cancellation, or agreement to cancel, any indebtedness or other obligation owing to the Company, including without limitation any indebtedness or obligation of any Stockholders or any Affiliate thereof; (ix) any plan, agreement or arrangement granting any preferential rights to purchase or acquire any interest in any of the material assets, property or rights of the Company or requiring consent of any party to the transfer and assignment of any such assets, property or rights; (x) any purchase or acquisition of, or agreement, plan or arrangement to purchase or acquire, any property, rights or assets outside of the Ordinary Course of Business; (xi) any waiver of any material rights or claims of the Company; (xii) any amendment or termination of any Material Document to which the Company is a party except for the termination of a Material Document in accordance with its terms without any action on the part of the Company; (xiii) any transaction by the Company outside the Ordinary Course of Business; (xiv) any cancellation or termination of a material contract with a customer or client listed on Schedule 5.15(a) prior to the scheduled termination date thereof; or (xv) any other distribution of property or assets by the Company other than in the Ordinary Course of Business, other than (a) distributions of nonoperating assets specifically identified on Schedule 5.25, (b) distributions of real estate required by Section 7.1(c) of this Agreement and (c) distributions of cash or promissory notes permitted by Annex I hereto. (b) Except as set forth on Schedule 5.25, the Company has not, between the Balance Sheet Date and the date hereof, taken any of the actions set forth in Section 7.3. 20 29 5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to AmPaM an accurate schedule (which is set forth on Schedule 5.26) as of the date of the Agreement of: (i) the name of each financial institution in which the Company has an account or safe deposit box; (ii) the names in which the accounts or boxes are held; (iii) the type of account and account number; and (iv) the name of each person authorized to draw thereon or have access thereto. Schedule 5.26 also sets forth the name of each person, corporation, firm or other entity holding a general or special power of attorney from the Company and a description of the terms of such power. 5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement by the Company and the performance of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of the Company and this Agreement has been duly and validly authorized by all necessary corporate action and is a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. 5.28 RELATIONS WITH GOVERNMENTS. The Company has not, and to the knowledge of the Company none of the Stockholders or any Affiliate of any of them has, given or offered anything of value to any governmental official, political party or candidate for government office or otherwise taken any action which would cause the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. 5.29 DISCLOSURE. This Agreement, including the Annexes and Schedules hereto, and the completed questionnaire related to the Hart-Scott Act furnished to AmPaM by the Company, do not contain an untrue statement of a material fact concerning the Company or omit to state a material fact concerning the Company necessary to make the statements herein and therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing does not apply to statements contained in or omitted from any of such documents made or omitted in reliance upon information furnished in writing by AmPaM. 5.30 NO WARRANTIES OR INSURANCE. Except for warranty liability under applicable law and except for warranty liability under the warranties issued by the Company of the types described on Schedule 5.30, the Company has no liability to any person under any warranty and the Company does not offer or sell insurance or consumer protection plans or other arrangements that could result in the Company being required to make any payment to or perform any service for any person. 21 30 5.31 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY TRANSACTIONS. Except as described on Schedule 5.31 or in Section 8.11, no Stockholder, officer, director or Affiliate of the Company (i) owns, directly or indirectly, any financial interest in, or is a director, officer, employee or affiliate of, any corporation, firm, association or business organization that is a client, supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or will be a party to an agreement or relationship with the Company other than through a customary "at will" employment relationship. 5.32 PRIVATE PLACEMENT MEMORANDUM. None of the information supplied or to be supplied by the Company in writing specifically for inclusion in the Private Placement Memorandum contained or, as of the Closing Date, will contain any untrue statement of a material fact concerning the Company or omitted or will omit to state any material fact required to be stated therein or necessary in order to make the statements contained in such information supplied or to be supplied by the Company concerning the Company, in light of the circumstances under which they are made, not misleading. (B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS. Each Stockholder severally represents and warrants that the representations and warranties set forth below are true as of the date of this Agreement and, subject to Section 7.7 hereof, shall be true at the time of Closing, and that the representations and warranties set forth in this Section 5(B) shall survive the Closing Date. 5.33 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right, power and authority to enter into this Agreement, and this Agreement is a legal, valid and binding obligation of such Stockholder, enforceable against the Stockholder in accordance with its terms. Except as set forth on Schedule 5.33(a), the execution and delivery of this Agreement by such Stockholder does not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of such Stockholder under any of the terms, conditions or provisions of (i) the Charter Documents of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to such Stockholder or any of such Stockholder's properties or assets, or (iii) any lease, instrument, agreement, license or permit to which such Stockholder is now a party or by which such Stockholder or any of such Stockholder's properties or assets may be bound or affected. Except for (i) any filings to be made with the SEC pursuant to the 1933 Act and any state securities authorities in connection with the offer and sale of AmPaM Stock and AmPaM Notes pursuant to this Agreement, (ii) any filing required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by such Stockholder or the consummation by such Stockholder of the transactions contemplated hereby. Except as set forth on 22 31 Schedule 5.33(b), such Stockholder owns beneficially and of record all of the shares of the Company Stock identified on Annex I hereto as being owned by such Stockholder, and, such Company Stock is owned free and clear of all liens, security interests, pledges, charges, voting trusts, voting agreements, restrictions, encumbrances and claims of every kind. 5.34 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby waives, any preemptive or other right to acquire shares of Company Stock or AmPaM Stock that such Stockholder has or may have had. Nothing herein, however, shall limit or restrict the rights of any Stockholder to acquire AmPaM Stock pursuant to (i) this Agreement, (ii) any option granted or to be granted by AmPaM to such Stockholder, (iii) a purchase through a broker in a regular stock market transaction or (iv) a purchase from a stockholder of a Founding Company (subject to compliance with any contractual restrictions or securities law restrictions applicable thereto specified in Section 15 hereof). 5.35 NO COMMITMENT TO DISPOSE OF AMPAM STOCK. No Stockholder is under any binding commitment or contract to sell, exchange or otherwise dispose of shares of AmPaM Stock or AmPaM Notes received pursuant to this Agreement. 5.36 DISCLOSURE. The completed Director and Officer Questionnaires with respect to such Stockholder (if any), the completed investor questionnaire furnished to AmPaM by such Stockholder in connection with the proposed acquisition by such Stockholder of AmPaM Stock and AmPaM Notes and any other information provided to AmPaM in writing by such Stockholder relating specifically to such Stockholder for inclusion in the Private Placement Memorandum do not contain an untrue statement of a material fact concerning such Stockholder or omit to state a material fact concerning such Stockholder necessary to make the statements herein and therein, in light of the circumstances under which they were made, not misleading. 6. REPRESENTATIONS OF AMPAM Except as otherwise qualified below, AmPaM represents and warrants that all of the following representations and warranties in this Section 6 are true at the date of this Agreement and, subject to Section 7.7 hereof, shall be true at the time of Closing, and that such representations and warranties shall survive the Closing Date for a period of eighteen months (the last day of such period being the "Expiration Date" for purposes of the representations and warranties set forth in this Section 6), except that the representations and warranties set forth in Section 6.3, 6.11 and 6.15 shall survive until such time as the applicable statute of limitations period has run, which shall be deemed to be the Expiration Date for the representations and warranties set forth in Sections 6.3, 6.11 and 6.15. AmPaM acknowledges that in purchasing the shares of Company Stock, it is relying upon its own independent investigation as well as the representations and warranties of the Company and the Stockholders as set forth in this Agreement. 23 32 6.1 DUE ORGANIZATION. AmPaM is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of Delaware, and has the requisite power and authority to carry on its business as it is now being conducted and as contemplated by the Private Placement Memorandum. AmPaM is duly qualified or authorized to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or authorization necessary, except where the failure to be so qualified or authorized to do business would not have a Material Adverse Effect. True, complete and correct copies of the Certificate of Incorporation and By-laws, each as proposed to be amended and as such documents shall be in effect as of the Closing Date, of AmPaM (the "AmPaM Charter Documents") are attached hereto as Annex II. 6.2 AUTHORIZATION. (i) The officers of AmPaM executing this Agreement have the authority to enter into and bind AmPaM to the terms of this Agreement and (ii) AmPaM has the full legal right, power and authority to enter into this Agreement and consummate the transactions contemplated hereby. All corporate acts and other proceedings required to have been taken by AmPaM to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and properly taken. 6.3 CAPITAL STOCK OF AMPAM. The authorized capital stock of AmPaM is as set forth in Section 1.3(ii). Immediately prior to the Closing Date, all of the issued and outstanding shares of the capital stock of AmPaM will be as set forth in the Private Placement Memorandum, free and clear of all liens, security interests, pledges, charges, voting trusts, restrictions, encumbrances and claims of every kind other than any restrictions described in the Private Placement Memorandum. All of the issued and outstanding shares of the capital stock of AmPaM have been duly authorized and validly issued, are fully paid and nonassessable and such shares were offered, issued, sold and delivered by AmPaM in compliance with all applicable state and Federal laws concerning the issuance of securities. Further, none of such shares were issued in violation of the preemptive rights of any past or present stockholder of AmPaM. Upon the Closing Date, the authorized, issued and outstanding shares of capital stock of AmPaM will be as set forth in the Private Placement Memorandum under the caption "Capitalization." Upon the Closing Date, the aggregate number of shares of AmPaM Stock issued and outstanding on the Closing Date that are owned by Sterling City Capital, LLC, any Affiliates of Sterling City Capital, LLC and the officers and directors of AmPaM will not be greater than the number of shares of AmPaM Stock reflected in the Private Placement Memorandum as the aggregate number of shares of AmPaM Stock to be issued and outstanding and owned by Sterling City Capital, LLC, any Affiliates of Sterling City Capital, LLC and the officers and directors of AmPaM. 6.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements, except for the arrangements to contribute AmPaM Stock to the Croson Plan, the Franklin Plan as described in Annex I hereto, and except as set forth in the Private Placement Memorandum, (i) no option, warrant, call, conversion right or commitment of any kind exists as of the date of this Agreement which obligates AmPaM to issue any of its authorized but unissued capital stock; and (ii) AmPaM has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity 24 33 securities or any interests therein or to pay any dividend or make any distribution in respect thereof. The material terms of any options, warrants or other rights to acquire shares of the stock of AmPaM referred to in the preceding sentence will be as described in the Private Placement Memorandum. 6.5 SUBSIDIARIES. As of the date of this Agreement, AmPaM has no subsidiaries. As of the date of this Agreement, AmPaM does not own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity, and AmPaM is not, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. 6.6 FINANCIAL STATEMENTS. The historical financial statements of AmPaM included in the Private Placement Memorandum (the "AmPaM Financial Statements") have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except as noted thereon), and the balance sheet included therein presents fairly the financial position of AmPaM as of its date. Management of AmPaM believes that the assumptions underlying the pro forma adjustments utilized in the preparation of such pro forma financial statements are reasonable, and such pro forma adjustments have been properly applied to the historical financial amounts in the compilation of the pro forma financial statements. Based on the representations in Section 5.9 of this Agreement and in Section 5.9 of each of the Other Agreements, the pro forma financial information of AmPaM fairly presents the pro forma financial position, results of operations and other information purported to be shown therein at the respective dates and for the respective periods specified. 6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Private Placement Memorandum, as of the date of this Agreement, AmPaM has no material liabilities or obligations of any kind, character or description, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than liabilities incurred in the ordinary course of business and consistent with past practices, liabilities or obligations set forth in or contemplated by this Agreement and the Other Agreements and except for fees incurred in connection with the transactions contemplated hereby and thereby. 6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the Private Placement Memorandum, AmPaM is not in violation of any law or regulation or any order of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it and its stockholders and, there are no claims, actions, suits or proceedings, pending or, to the knowledge of AmPaM, threatened against or affecting, AmPaM, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it and no notice of any claim, action, suit or proceeding, whether pending or threatened, has been received. AmPaM has conducted and is conducting its businesses in compliance in all material respects with the requirements, standards, criteria and conditions set forth in applicable Federal, state and local statutes, ordinances, permits, licenses, orders, approvals, variances, rules and regulations and is not in violation, in any material respect, of any of the foregoing. 25 34 6.9 NO VIOLATIONS. (a) AmPaM is not in violation of any AmPaM Charter Document. AmPaM is not in default under any lease, instrument, agreement, license, or permit to which AmPaM is a party or by which AmPaM or any of its properties are bound (collectively, the "AmPaM Documents"). (b) The execution and delivery of this Agreement by AmPaM do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of AmPaM under any of the terms, conditions or provisions of (i) the AmPaM Charter Documents, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to AmPaM or any of its properties or assets, or (iii) any AmPaM Document; provided that the representations and warranties specified in clause (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. The consummation by AmPaM of the transactions contemplated hereby will not result in any material violation, conflict, breach, right of termination or acceleration or creation of liens under any of the terms, conditions or provisions of the items described in clauses (i) through (iii) of the preceding sentence, subject, in the case of the terms, conditions or provisions of the items described in clause (iii) above, to obtaining (prior to the Closing Date) (x) such approvals, consents or orders from the SEC, state blue sky authorities and authorities administering the Hart-Scott Act and (y) such other consents as may be required from commercial lenders, lessors or other third parties which are listed on Schedule 6.9. (c) Except for (i) any filings to be made with the SEC pursuant to the 1933 Act and filings with various state securities authorities in connection with the transactions contemplated by this Agreement, and (ii) any filings required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, none of the AmPaM Documents requires notice to, or the consent or approval of, any governmental agency or other third party with respect to the consummation by AmPaM of any of the transactions contemplated hereby in order to remain in full force and effect, and consummation by AmPaM of the transactions contemplated hereby will not give rise to any right to termination, cancellation or acceleration or loss of any material right or benefit under the AmPaM Documents; provided that the representations and warranties specified in clauses (i) and (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the 26 35 stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. (d) Except for (i) any filings with the SEC pursuant to the 1933 Act and filings with various state securities authorities in connection with the transactions contemplated by this Agreement and (ii) any filings required under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by AmPaM or the consummation by AmPaM of the transactions contemplated hereby; provided that the representations and warranties specified in clauses (i) and (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. 6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement by AmPaM and the performance of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of AmPaM and this Agreement has been duly and validly authorized by all necessary corporate action and is a legal, valid and binding obligation of AmPaM, enforceable against AmPaM in accordance with its terms. 6.11 AMPAM STOCK. At the time of issuance thereof and delivery to the Stockholders, the AmPaM Stock to be delivered to the Stockholders pursuant to this Agreement will constitute valid, duly authorized and legally issued shares of AmPaM, fully paid and nonassessable, and with the exception of restrictions upon resale set forth in Sections 15 and 16 hereof, will be identical in all substantive respects (which do not include the form of certificate upon which it is printed or the presence or absence of a CUSIP number on any such certificate) to the AmPaM Stock issued and outstanding as of the date hereof, other than the Restricted Common Stock. The AmPaM Stock issued and delivered to the Stockholders shall at the time of such issuance and delivery be free and clear of any liens, claims or encumbrances of any kind or character. The offer and sale of the shares of AmPaM Stock to be issued to the Stockholders pursuant to this Agreement are not required to be registered under the 1933 Act; provided that the representations and warranties specified in this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are 27 36 subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. 6.12 AMPAM NOTES. The AmPaM Notes have been duly authorized and, at the Closing Date, will have been duly executed by AmPaM and, when authenticated, issued and delivered, will constitute valid and binding obligations of AmPaM, enforceable against AmPaM in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers) reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). 6.13 NO SIDE AGREEMENTS. AmPaM has not entered into any agreement with any of the Founding Companies or any of the Stockholders of the Founding Companies other than this Agreement, the Other Agreements, the agreements referred to in this Agreement and in the Other Agreements and the Private Placement Memorandum. AmPaM has not entered into any agreements providing for rights to register shares of AmPaM Stock under the 1933 Act except as provided in Section 17 of this Agreement, in Section 17 of the Other Agreements and in an agreement with Sterling City Capital, LLC, its Affiliates and officers and directors of AmPaM having terms substantially similar to those set forth in Section 17 hereof. 6.14 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. AmPaM was formed in June 1998 and has conducted no material business since the date of its inception except for activities related to the transaction contemplated by this Agreement, the Other Agreements and the Private Placement Memorandum. Except as described in the Private Placement Memorandum, as of the date of this Agreement, AmPaM does not own any real property or any material personal property and is not a party to any other material agreement other than this Agreement, the Other Agreements and the agreements contemplated hereby and thereby. 6.15 RELATIONS WITH GOVERNMENTS. Neither AmPaM nor any of its directors, officers or Affiliates has given or offered anything of value to any government official, political party or candidate for government office, nor has AmPaM, any of its directors, officers or Affiliates of any of them otherwise taken any action, which would cause AmPaM to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. 6.16 DISCLOSURE. The Private Placement Memorandum delivered to the Company and the Stockholders does not as of the date hereof contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing does not apply to statements contained in or omitted from any of such documents made or omitted in reliance upon, and in conformity with, information furnished to AmPaM by the Company or the Stockholders in writing specifically for inclusion in the Private Placement Memorandum. 28 37 6.17 OTHER AGREEMENTS. The Other Agreements have been duly authorized, executed and delivered by AmPaM and constitute the legal, valid and binding obligation of AmPaM enforceable against AmPaM in accordance with their respective terms. The terms and conditions of the Other Agreements (excluding the terms relating to the consideration payable by AmPaM thereunder) are identical in all material respects to the terms and conditions in this Agreement. 7. COVENANTS PRIOR TO CLOSING 7.1 ACCESS AND COOPERATION; DUE DILIGENCE; TRANSFER OF REAL ESTATE. (a) Between the date of this Agreement and the Closing Date, the Company will afford to the officers and authorized representatives of AmPaM reasonable access during normal business hours to all of the Company's sites, properties, books and records and will furnish AmPaM with such additional financial and operating data and other information as to the business and properties of the Company as AmPaM may from time to time reasonably request. The Company will cooperate with AmPaM, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. AmPaM, the Stockholders and the Company will treat all information obtained in connection with the negotiation and performance of this Agreement or the due diligence investigations conducted with respect to the Company as confidential in accordance with the provisions of Section 14 hereof. (b) Between the date of this Agreement and the Closing Date, AmPaM will afford to the officers and authorized representatives of the Company access to all of AmPaM's sites, properties, books and records and will furnish the Company with such additional financial and operating data and other information as to the business and properties of AmPaM and the Other Founding Companies as the Company may from time to time reasonably request. AmPaM will cooperate with the Company, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. The Company will cause all information obtained pursuant to this Section 7.1(b) or obtained in connection with the negotiation and performance of this Agreement to be treated as confidential in accordance with the provisions of Section 14 hereof. (c) Except as set forth on Schedule 7.1, any real property owned by the Company will be sold or distributed by the Company on terms mutually acceptable to AmPaM and the Company and leased back by the Company on terms no less favorable to the Company than those available from an unaffiliated party and otherwise reasonably acceptable to AmPaM at or prior to the Closing Date. (d) David A. Croson shall cause the guaranty by the Company of the loan referred to in Schedule 10.1 to be released by Bank One within 60 days following the Closing Date. 29 38 7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this Agreement and the Closing Date, the Company will, except as set forth on Schedule 7.2: (i) carry on its businesses in the Ordinary Course of Business and not introduce any material new method of management, operation or accounting; (ii) use all commercially reasonable efforts to maintain its properties and facilities, including those held under leases, in as good working order and condition as at present, ordinary wear and tear, depreciation and insured losses excepted; (iii) perform in all material respects all of its obligations under all Material Documents relating to or affecting its respective assets, properties or rights; (iv) use its commercially reasonable efforts to keep in full force and effect present insurance policies or other comparable insurance coverage; (v) use its commercially reasonable efforts to maintain and preserve its business organization intact, retain its respective present key employees and maintain its relationships with suppliers, customers and others having business relations with the Company; (vi) use its commercially reasonable efforts to maintain compliance with all material permits, laws, rules and regulations, consent orders, and all other orders of applicable courts, regulatory agencies and similar governmental authorities; (vii) maintain present debt and lease instruments in accordance with their terms and not enter into new or amended debt or lease instruments without the knowledge and consent of AmPaM (which consent shall not be unreasonably withheld), provided that debt and/or lease instruments may be replaced without the consent of AmPaM if such replacement instruments are on terms at least as favorable to the Company as the instruments being replaced; (viii) maintain or reduce present salaries and commission levels for all officers, directors, employees and agents except for ordinary and customary bonus and salary increases for employees in accordance with past practices; and (ix) use commercially reasonable efforts to cause the actual amount of its Current Assets (as defined in Annex I hereto) to be not less than 150% of the actual amount of its Current Liabilities (as defined in Annex I hereto). 30 39 7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between the date hereof and the Closing Date, the Company will not, without prior written consent of AmPaM: (i) make any change in its Charter Documents; (ii) issue any securities, options, warrants, calls, conversion rights or commitments relating to its securities of any kind other than in connection with the exercise of options or warrants listed in Schedule 5.4; (iii) except as permitted pursuant to the terms and conditions for distributions described in Annex I, declare or pay any dividend, or make any distribution in respect of its stock whether now or hereafter outstanding, or purchase, redeem or otherwise acquire or retire for value any shares of its stock; (iv) enter into any contract or commitment or incur or agree to incur any liability or make any capital expenditures, except if it is in the Ordinary Course of Business or involves an amount not in excess of three percent (3%) of the Company's gross revenues for fiscal 1997; (v) create, assume or permit to exist any mortgage, pledge or other lien or encumbrance upon any assets or properties whether now owned or hereafter acquired, except (1) with respect to purchase money liens incurred in connection with the acquisition of equipment with an aggregate cost not in excess of three percent (3%) of the Company's gross revenues for fiscal 1997 necessary or desirable for the conduct of the businesses of the Company, (2) (A) liens for taxes either not yet due or being contested in good faith and by appropriate proceedings (and for which contested taxes adequate reserves have been established and are being maintained) or (B) materialmen's, mechanics', workers', repairmen's, employees' or other like liens arising in the Ordinary Course of Business (the liens set forth in clause (2) being referred to herein as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or Schedule 5.15 hereto; (vi) sell, assign, lease or otherwise transfer or dispose of any property or equipment except in the Ordinary Course of Business and other than distributions of real estate and other assets as permitted in this Agreement (including Annex I hereto); (vii) negotiate for the acquisition of any business or the start-up of any new business; (viii) merge or consolidate or agree to merge or consolidate with or into any other corporation; 31 40 (ix) waive any material rights or claims of the Company, provided that the Company may negotiate and adjust bills and accounts in the course of good faith disputes with customers in a manner consistent with past practice; (x) amend or terminate any Material Document except for the termination of a Material Document in accordance with its terms without any action on the part of the Company; or (xi) enter into any other material transaction outside the Ordinary Course of Business or any transaction prohibited hereunder. 7.4 NO SHOP. None of the Stockholders, the Company, nor any agent, officer, director, trustee or any representative of any of the foregoing will, during the period commencing on the date of this Agreement and ending with the earlier to occur of the Closing Date or the termination of this Agreement in accordance with its terms, directly or indirectly: (i) solicit or initiate the submission of proposals or offers from any person for, (ii) participate in any discussions pertaining to, or (iii) furnish any information to any person other than AmPaM or its authorized agents relating to, any acquisition or purchase of all or a material amount of the assets of, or any equity interest in, the Company or a merger, consolidation or business combination of the Company. 7.5 AGREEMENTS. Except as disclosed on Schedule 7.5(a), the Stockholders and the Company shall terminate (i) any stockholders agreements, voting agreements, voting trusts, agreements providing for the grant by the Company of any options, warrants and employment agreements between the Company and any employee listed on Schedule 8.11 hereto and (ii) except as otherwise provided in this Agreement, any existing agreement between the Company and any Stockholder, on or prior to the Closing Date provided that nothing herein shall prohibit or prevent the Company from paying (either prior to or on the Closing Date) notes or other obligations from the Company to the Stockholders described in Schedule 7.5(b) in accordance with the terms thereof. 7.6 NOTIFICATION OF CERTAIN MATTERS. Each Stockholder and the Company shall give prompt notice to AmPaM upon obtaining knowledge of (i) the occurrence or non-occurrence of any event the occurrence or nonoccurrence of which would be likely to cause any representation or warranty of the Company or such Stockholder contained herein to be untrue or inaccurate in any material respect at or prior to the Closing and (ii) any material failure of such Stockholder or the Company to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by such person hereunder. AmPaM shall give prompt notice to the Company of (i) the occurrence or non-occurrence of any event the occurrence or non-occurrence of which would be likely to cause any representation or warranty of AmPaM contained herein to be untrue or inaccurate 32 41 in any material respect at or prior to the Closing, (ii) any material failure of AmPaM to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; (iii) any termination of any Other Agreement for any reason; and (iv) the issuance by the SEC or any state securities regulatory authority of any issuance of or threatened issuance of any order challenging the availability of an exemption from registration or suspending the qualification of any securities described in the Private Placement Memorandum for sale in any jurisdiction. However, subject to the provisions of Section 7.7, such notification shall not relieve either the Company or such Stockholder of their respective obligations under this Agreement. The delivery of any notice pursuant to this Section 7.6 shall not be deemed to (i) modify the representations or warranties hereunder of the party delivering such notice, which modification may only be made pursuant to Section 7.7, (ii) modify the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect the remedies available hereunder to the party receiving such notice. 7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to the representations and warranties of such party contained in this Agreement, such party shall have the continuing obligation until 24 hours prior to the Closing Date to notify AmPaM with respect to any matter (i) hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or described in the Schedules or (ii) which may have been omitted from the Schedules previously provided by such party. Notwithstanding the foregoing sentence, no amendment or supplement to a Schedule prepared by the Company may be made unless AmPaM consents to such amendment or supplement; and provided further, that no amendment or supplement to a Schedule prepared by AmPaM may be made unless the Stockholders consent to such amendment or supplement. For all purposes of this Agreement, including without limitation for purposes of determining whether the conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules hereto, as amended or supplemented with the consent of AmPaM or the Stockholders, as the case may be, as provided above, shall be deemed to be the Schedules to this Agreement. 7.8 FURTHER ASSURANCES. The parties hereto agree to execute and deliver, or cause to be executed and delivered, such further instruments or documents or take such other action as may be reasonably necessary or appropriate to carry out the transactions contemplated hereby and to cause the conditions to the Closing Date to be satisfied as promptly as practicable. 7.9 AUTHORIZED CAPITAL. Prior to the Closing Date, AmPaM shall maintain its authorized capital stock as set forth in the Private Placement Memorandum. 7.10 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this Agreement hereby recognize that one or more filings under the Hart-Scott Act may be required in connection with the transactions contemplated herein. If it is determined by the parties to this Agreement that filings under the Hart-Scott Act are required, then: (i) each of the parties hereto agrees to cooperate and use its best efforts to comply with the Hart-Scott Act and (ii) such compliance by the Stockholders and the parties agree to cooperate and use their best efforts to cause all filings required under the Hart-Scott Act to be made. If filings under the Hart-Scott Act are required, the costs and expenses thereof (including filing fees) shall be borne by AmPaM. 33 42 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY The obligations of the Stockholders and the Company with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the following conditions. As of the Closing Date, if any such applicable conditions have not been satisfied, any one or more of the Stockholders who would be entitled to receive a majority of the Aggregate Consideration (as defined herein) received by all Stockholders if the transactions contemplated hereby were consummated shall have the right to waive any condition not so satisfied. Any act or action of the Stockholders in consummating the Closing or delivering the certificates representing Company Stock as of the Closing Date shall constitute a waiver of any conditions not so satisfied. However, no such waiver shall be deemed to affect the survival of the representations and warranties of AmPaM contained in Section 6 hereof. 8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All representations and warranties of AmPaM contained in Section 6 shall be true and correct as of the Closing Date as though such representations and warranties had been made as of that time; all of the terms, covenants and conditions of this Agreement to be complied with and performed by AmPaM on or before the Closing Date shall have been duly complied with and performed in all material respects; and certificates to the foregoing effect dated the Closing Date and signed by the President or any Vice President of AmPaM shall have been delivered to the Stockholders. 8.2 SATISFACTION. All actions, proceedings, instruments and documents that are not within the control of the Company or the Stockholders and that are required to carry out this Agreement or incidental hereto shall be reasonably satisfactory to the Company, the Stockholders and their counsel. 8.3 NO LITIGATION. No action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock. 8.4 OPINION OF COUNSEL. The Company shall have received opinions from counsel for AmPaM, dated the Closing Date, addressed to the Company and the Stockholders in the form annexed hereto as Annex III. 8.5 CONSENTS AND APPROVALS. All necessary consents of and filings with any governmental authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made; any waiting periods under the Hart-Scott Act, if applicable, shall have expired or been terminated; all consents and approvals of third parties listed on Schedule 6.9 shall have been obtained; and no action or proceeding shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock and no governmental agency or body shall have taken any other action or made any request of Company as a result of which Company deems it inadvisable to proceed with the transactions hereunder. 34 43 8.6 GOOD STANDING CERTIFICATES. AmPaM shall have delivered to the Company a certificate, dated as of a date no later than ten days prior to the Closing Date, duly issued by the Delaware Secretary of State and in each state in which AmPaM is authorized to do business, showing that AmPaM is in good standing and authorized to do business and that all state franchise and/or income tax returns and taxes for AmPaM for all periods prior to the Closing have been filed and paid. 8.7 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have occurred which would constitute a Material Adverse Change with respect to AmPaM from the date of the Private Placement Memorandum. 8.8 SECRETARY'S CERTIFICATE. The Company shall have received a certificate or certificates, dated the Closing Date and signed by the secretary of AmPaM, certifying the truth and correctness of attached copies of AmPaM's Certificate of Incorporation (including amendments thereto), By-Laws (including amendments thereto), and resolutions of the board of directors and, if required, the stockholders of AmPaM approving AmPaM's entering into this Agreement and the Other Agreements and the consummation of the transactions contemplated hereby and thereby. 8.9 TAX MATTERS. The Stockholders shall have received an opinion of Andrews & Kurth L.L.P., in substantially the form of Annex IV hereto, that the AmPaM Plan of Organization will qualify as a tax-free transfer of property under Section 351 of the Code and that the Stockholders will not recognize gain to the extent the Stockholders exchange Company Stock for AmPaM Stock (but not cash or other property) pursuant to this Agreement in connection with the AmPaM Plan of Organization. 8.10 OTHER FOUNDING COMPANIES. The transactions contemplated by the Other Agreements are consummated simultaneously with the consummation of the transactions contemplated by this Agreement. 8.11 COMPANY RELEASE OF STOCKHOLDERS. The Company shall have delivered to the Stockholders an instrument dated the Closing Date, in form reasonably satisfactory to AmPaM and the Stockholders, which shall be effective only upon the occurrence of the Closing Date, releasing the Stockholders from (i) any and all claims of the Company against the Stockholders, known and unknown, and (ii) obligations of the Stockholders to the Company, except for (x) items specifically identified on Schedule 5.10(a) and Schedule 5.15(b) as being claims of or obligations to the Company and (y) continuing obligations to the Company relating to their employment by the Company pursuant to any employment agreement entered into pursuant to Section 8.11 hereof. 8.12 STERLING CITY CAPITAL TRANSFER RESTRICTIONS. Sterling City Capital, LLC and each of its Affiliates which owns AmPaM Stock shall have entered into an agreement with AmPaM containing substantially the same terms and conditions as are contained in Section 15 and Section 17. 35 44 8.13 ELECTION OF CHIEF EXECUTIVE OFFICER. AmPaM shall have taken all corporate action necessary to elect Robert A. Christianson as Chief Executive Officer of AmPaM effective immediately following the Closing Date. 8.14 FUNDING AVAILABILITY. AmPaM shall have entered into binding agreements with financial institutions, lenders or investors that provide AmPaM with sufficient funds to pay (i) the cash amounts specified in Annex I hereto as payable to the Stockholders upon the Closing and (ii) the aggregate cash amounts specified in Annex I to each of the Other Agreements as payable to the stockholders of the Other Founding Companies upon the Closing; and all conditions to the funding of the cash amounts necessary to make such payments specified in the agreements related to such financing arrangements, other than the closing of the transactions contemplated by this Agreement and the Other Agreements, shall have been satisfied as of the Closing Date. 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF AMPAM The obligations of AmPaM with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the following conditions. As of the Closing Date, if any such conditions have not been satisfied, AmPaM shall have the right to terminate this Agreement, or waive any such condition, but no such waiver shall be deemed to affect the survival of the representations and warranties contained in Section 5 hereof. 9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS. All the representations and warranties of the Stockholders and the Company contained in this Agreement shall be true and correct as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date; all of the terms, covenants and conditions of this Agreement to be complied with or performed by the Stockholders and the Company on or before the Closing Date shall have been duly performed or complied with in all material respects; and the Stockholders shall have delivered to AmPaM certificates dated the Closing Date and signed by them to such effect. 9.2 NO LITIGATION. No action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock. 9.3 SECRETARY'S CERTIFICATE. AmPaM shall have received a certificate, dated the Closing Date and signed by the secretary of the Company, certifying the truth and correctness of attached copies of the Company's Articles or Certificate of Incorporation (including amendments thereto), By-Laws (including amendments thereto), and resolutions of the board of directors and the Stockholders approving the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby. 36 45 9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have occurred with respect to the Company which would constitute a Material Adverse Effect, and the Company shall not have suffered any material loss or damages to any of its properties or assets, whether or not covered by insurance, which change, loss or damage materially affects or impairs the ability of the Company to conduct its business. 9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to AmPaM an instrument dated the Closing Date which shall be effective only upon the occurrence of the Closing releasing the Company and AmPaM from (i) any and all claims of the Stockholders against the Company and AmPaM and (ii) obligations of the Company and AmPaM to the Stockholders, except for (A) items specifically identified on Schedule 5.31 as being claims of or obligations to the Stockholders, (B) continuing obligations to Stockholders relating to their employment by the Company pursuant to employment agreements entered into as specified in Section 8.11 hereof, (C) obligations arising under this Agreement or the transactions contemplated hereby and (D) claims of Stockholders against the Company for unreimbursed business expenses incurred by the Stockholders on behalf of the Company (other than expenses related to the transactions contemplated by this Agreement) prior to the Closing Date or unreimbursed medical expenses of the Stockholders incurred prior to the Closing Date which are covered by the Company's existing health insurance coverage. In the event that the Closing Date does not occur, then the release instrument referenced herein shall be void and of no further force or effect. 9.6 SATISFACTION. All actions, proceedings, instruments and documents that are not within the control of AmPaM and that are required to carry out the transactions contemplated by this Agreement or incidental hereto shall have been reasonably approved by counsel to AmPaM. 9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on Schedule 9.7, all existing agreements between the Company and the Stockholders (and between the Company and entities controlled by the Stockholders) specified on Schedule 5.31 shall have been terminated effective prior to or as of the Closing Date without any payment being made by the Company other than payments made for services rendered, materials provided or other benefits provided to the Company prior to the Closing Date pursuant to the terms of such agreements as in effect as of the date of this Agreement. 9.8 OPINION OF COUNSEL. AmPaM shall have received opinions from counsel to the Company and the Stockholders, dated the Closing Date, substantially in the form annexed hereto as Annex V. 9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any governmental authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made; any waiting periods under the Hart-Scott Act, if applicable, shall have expired or been terminated; all consents and approvals of third parties listed on Schedule 5.23(b)(2) shall have been obtained; and no action or proceeding shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock and no 37 46 governmental agency or body shall have taken any other action or made any request of AmPaM as a result of which AmPaM deems it inadvisable to proceed with the transactions hereunder. 9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to AmPaM a certificate, dated as of a date no earlier than ten days prior to the Closing Date, duly issued by the appropriate governmental authority in the Company's state of incorporation and, unless waived by AmPaM, in each state in which the Company is authorized to do business, showing the Company is in good standing and authorized to do business and that all state franchise and/or income tax returns and taxes for the Company for all periods prior to the Closing have been filed and paid. 9.11 FUNDING AVAILABILITY. AmPaM shall have entered into binding agreements with financial institutions, lenders or investors that provide AmPaM with sufficient funds to pay (i) the cash amounts specified in Annex I hereto as payable to the Stockholders upon the Closing and (ii) the aggregate cash amounts specified in Annex I to each of the Other Agreements as payable to the stockholders of the Other Founding Companies upon the Closing; and all conditions to the funding of the cash amounts necessary to make such payments specified in the agreements related to such financing arrangements, other than the closing of the transactions contemplated by this Agreement and the Other Agreements, shall have been satisfied as of the Closing Date. 9.12 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to AmPaM a certificate to the effect that he is not a foreign person pursuant to Section 1.1445-2(b) of the Treasury regulations. 9.13 RESIGNATIONS OF DIRECTORS AND OFFICERS. Any directors of the Company, other than those identified on Schedule 2.1, shall have resigned as directors of the Company. Any officers of the Company, other than those identified on Schedule 2.2, shall have resigned as officers of the Company. 10. COVENANTS OF AMPAM AND THE STOCKHOLDERS AFTER CLOSING 10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. AmPaM shall use reasonable efforts to have the Stockholders released from any and all guarantees of the Company's indebtedness, including bond obligations, identified on Schedule 10.1. Prior to obtaining the release of such guarantees, AmPaM shall provide its guarantee of such indebtedness to the lenders thereof. In the event that AmPaM cannot obtain such releases from the lenders of any such guaranteed indebtedness identified on Schedule 10.1 on or prior to 90 days subsequent to the Closing Date, AmPaM shall promptly pay off or otherwise refinance or retire such indebtedness such that the Stockholders' personal liability shall be released. AmPaM will indemnify the Stockholders against any loss or damage suffered as a result of the personal guarantees. 38 47 10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated by this Agreement, after the Closing Date, AmPaM shall not and shall not permit any of its Subsidiaries to undertake any act that would jeopardize the tax-free status of the exchange of Company Stock for AmPaM Stock (but not cash or other property), including without limitation: (a) the retirement or reacquisition, directly or indirectly, of all or part of the AmPaM Stock issued in connection with the transactions contemplated hereby; or (b) the entering into of financial arrangements for the benefit of the Stockholders other than as described in the Private Placement Memorandum or as described in this Agreement. 10.3 PREPARATION AND FILING OF TAX RETURNS; PAYMENT OF TAXES. (a) The Company, if possible, or otherwise the Stockholders shall file or cause to be filed all income Tax Returns (federal, state, local or otherwise) of any Acquired Party for all taxable periods that end on or before the Closing Date, and shall permit AmPaM to review all such Tax Returns prior to such filings. Unless the Company is a C corporation, the Stockholders shall pay or cause to be paid all income Tax liabilities (in excess of all amounts already paid with respect thereto or properly accrued or reserved with respect thereto on the Financial Statements) with respect to the Company's operations for all periods through and including the Closing Date. (b) AmPaM shall file or cause to be filed all separate Returns of, or that include, any Acquired Party for all taxable periods ending after the Closing Date. (c) Unless required by applicable law, regulations or government proceedings, AmPaM shall not take any action, including any amendment of a Tax Return of any Acquired Party, if such action would result in additional Tax liabilities payable by any of the Stockholders for periods ending on or prior to the Closing Date. (d) Each party hereto shall, and shall cause its subsidiaries and Affiliates to, provide to each of the other parties hereto such cooperation and information as any of them reasonably may request in filing any Return, amended Return or claim for refund, determining a liability for Taxes or a right to refund of Taxes or in conducting any audit or other proceeding in respect of Taxes. Such cooperation and information shall include providing copies of all relevant portions of relevant Returns, together with relevant accompanying schedules and relevant work papers, relevant documents relating to rulings or other determinations by Taxing Authorities and relevant records concerning the ownership and Tax basis of property, which such party may possess. Each party shall make its employees reasonably available on a mutually convenient basis at its cost to provide explanation of any documents or information so provided. Subject to the preceding sentence, each party required to file Returns pursuant to this Agreement shall bear all costs of filing such Returns. 39 48 (e) Each of the Company, AmPaM and each Stockholder shall comply with the tax reporting requirements of Section 1.351-3 of the Treasury Regulations promulgated under the Code, and treat the transaction as a tax-free contribution under Section 351(a) of the Code subject to gain, if any, recognized on the receipt of cash or other property under Section 351(b) of the Code. 10.4 DIRECTORS. The persons named in the Private Placement Memorandum shall be appointed as directors and elected as officers of AmPaM, as and to the extent set forth in the Private Placement Memorandum, promptly following the Closing Date; provided, however, that the parties hereto acknowledge that if the Company consummates an IPO, the persons who will serve as directors and executive officers of AmPaM will be adjusted as appropriate for a publicly traded entity, with any such changes being subject to the approval of the majority of the Board of Directors of AmPaM. 10.5 LEGAL OPINIONS. If required by the lenders pursuant to the terms of any agreements related to financing of the cash amounts referred to in Section 9.11 hereof, the Company shall cause its counsel to deliver to such lenders, at the Closing, an opinion of counsel in substantially the form attached hereto as Annex V. 11. INDEMNIFICATION The Stockholders and AmPaM each make the following covenants that are applicable to them, respectively: 11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. (a) Each Stockholder covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement until the applicable Expiration Date (as defined in the introductory paragraph to Section 5(A)), provided that for purposes of clause (iii) below, the applicable Expiration Date shall be the date on which the applicable statute of limitations expires), from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM as a result of or arising from (i) any breach of the representations and warranties of the Company set forth herein or on the schedules attached hereto or certificates delivered pursuant to this Agreement, (ii) any breach of any covenant or agreement on the part of the Company under this Agreement, or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating solely to the Company which was based upon information provided to AmPaM or its counsel in writing by the Company specifically for inclusion in the Private Placement Memorandum and is contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact relating to the Company required to be stated therein or necessary to make the statements therein not misleading; provided, however, that no Stockholder shall be liable for any 40 49 indemnification obligation pursuant to this Section 11.1 in excess of such Stockholder's pro rata share thereof determined by reference to the aggregate value of the Base Cash Amount (as defined in Annex I of this Agreement), the principal amount of AmPaM Notes and the shares of AmPaM Stock (valued at a price of $13.00 per share) received by such Stockholder pursuant to Section I.A. of Annex I hereto (without giving effect to the adjustments provided in Sections I.B. and I.C. thereof) (giving effect to the value of such AmPaM Stock and without giving effect to such adjustments, collectively, the "Aggregate Consideration") such Stockholder would receive pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated in relation to the total Aggregate Consideration all Stockholders would receive pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated. (b) Each Stockholder covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement, from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM as a result of or arising from (i) any breach of the representations and warranties of such Stockholder set forth in Section 5(B) hereof, (ii) any breach of any covenant or agreement on the part of such Stockholder under this Agreement, or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating solely to such Stockholder which was based upon information provided to AmPaM or its counsel in writing by such Stockholder specifically for inclusion in the Private Placement Memorandum and is contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact relating solely to such Stockholder required to be stated therein or necessary to make the statements therein in light of the circumstances in which such statements were made not misleading. (c) David A. Croson covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement, from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM as a result of or arising from the guarantee by the Company of the loan referred to in Schedule 10.1. (d) AmPaM acknowledges and agrees that other than the representations and warranties of the Company or the Stockholders specifically contained in this Agreement, there are no representations or warranties of the Company or the Stockholders, either express or implied, with respect to the transactions contemplated by this Agreement, the Company or its assets, liabilities and business. 41 50 11.2 INDEMNIFICATION BY AMPAM. AmPaM covenants and agrees that it will indemnify, defend, protect and hold harmless the Company and the Stockholders at all times from and after the date of this Agreement until the applicable Expiration Date (as defined in the introductory paragraph of Section 6, provided that for purposes of clause (iii) below, the applicable Expiration Date shall be the date on which the applicable statute of limitations expires), from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by the Company or the Stockholders as a result of or arising from (i) any breach by AmPaM of its representations and warranties set forth herein or on the schedules attached hereto or certificates delivered pursuant to this Agreement, (ii) any breach of any agreement on the part of AmPaM under this Agreement; or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except to the extent such is based upon an untrue statement or alleged untrue statement, or omission or alleged omission, made therein in reliance upon, and in conformity with, the representations and warranties of the Company or the Stockholders specifically contained in this Agreement or other information furnished to AmPaM by the Company or the Stockholders in writing specifically for inclusion therein. 11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the "Indemnified Party") has received notice of or has knowledge of any claim by a person not a party to this Agreement ("Third Person"), or the commencement of any action or proceeding by a Third Person, the Indemnified Party shall, as a condition precedent to a claim with respect thereto being made against any party obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying Party written notice of such claim or the commencement of such action or proceeding. Such notice shall state the nature and the basis of such claim and a reasonable estimate of the amount thereof. The Indemnifying Party shall have the right to defend and settle, at its own expense and by its own counsel reasonably satisfactory to the Indemnified Party, any such matter so long as the Indemnifying Party pursues the same in good faith and diligently, provided that the Indemnifying Party shall not settle any criminal proceeding without the written consent of the Indemnified Party. If the Indemnifying Party undertakes to defend or settle, it shall promptly notify the Indemnified Party of its intention to do so, and the Indemnified Party shall cooperate with the Indemnifying Party and its counsel in the defense thereof and in any settlement thereof. Such cooperation shall include, but shall not be limited to, furnishing the Indemnifying Party with any books, records or information reasonably requested by the Indemnifying Party that are in the Indemnified Party's possession or control. All Indemnified Parties shall use the same counsel, which shall be the counsel selected by Indemnifying Party, provided that if counsel to the Indemnifying Party shall have a conflict of interest or a conflict of interest is reasonably likely to arise that prevents counsel for the Indemnifying Party from representing such Indemnified Party, Indemnified Party shall have the right to participate in such matter through counsel of its own choosing and Indemnifying Party will reimburse the Indemnified Party for the reasonable expenses 42 51 of its counsel. After the Indemnifying Party has notified the Indemnified Party of its intention to undertake to defend or settle any such asserted liability, and for so long as the Indemnifying Party diligently pursues such defense, the Indemnifying Party shall not be liable for any additional legal expenses incurred by the Indemnified Party in connection with any defense or settlement of such asserted liability, except (i) as set forth in the preceding sentence and (ii) to the extent such participation is requested by the Indemnifying Party, in which event the Indemnified Party shall be reimbursed by the Indemnifying Party for reasonable additional legal expenses and out-of-pocket expenses. If the Indemnifying Party desires to accept a final and complete settlement of any such Third Person claim and the Indemnified Party refuses to consent to such settlement, then the Indemnifying Party's liability under this Section with respect to such Third Person claim shall be limited to the amount so offered in settlement by said Third Person. Upon agreement as to such settlement between said Third Person and the Indemnifying Party, the Indemnifying Party shall, in exchange for a complete release from the Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in such settlement. If the Indemnifying Party does not undertake to defend such matter to which the Indemnified Party is entitled to indemnification hereunder, or fails diligently to pursue such defense, the Indemnified Party may undertake such defense through counsel of its choice, at the cost and expense of the Indemnifying Party, and the Indemnified Party may settle such matter, and the Indemnifying Party shall pay the Indemnified Party for the settlement amount and any other liabilities or expenses incurred by the Indemnified Party in connection therewith, provided, however, that under no circumstances shall the Indemnified Party settle any Third Person claim without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. All settlements hereunder shall effect a complete release of the Indemnified Party, unless the Indemnified Party otherwise agrees in writing. With respect to any account, note or other receivable as to which the Stockholders have paid in full any indemnification obligation pursuant to this Section 11 as a result of a breach of the representation and warranty made pursuant to Section 5.11 or as to which a claim in respect thereof has been asserted pursuant to this Section 11 that has been applied against the Indemnification Threshold with respect to the Stockholders as a result of a breach of the representation and warranty made pursuant to Section 5.11, AmPaM shall cause the Company to assign such account, note or other receivable to the Stockholders. The parties hereto will make appropriate adjustments for insurance proceeds in determining the amount of any indemnification obligation under this Section. 11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any action seeking damages or any other form of monetary relief brought by any party to this Agreement against another party to this Agreement with respect to any provision of this Agreement, provided that, nothing herein shall be construed to limit the right of a party, in a proper case, to seek injunctive relief for a breach of this Agreement. AmPaM hereby waives, to the fullest extent permitted under applicable law, any and all other rights, claims and causes of action, known or unknown, it or any indemnified person may have against the Company or any Stockholder relating to this Agreement or the transactions pursuant to this Agreement arising under or based upon any Federal, state, local or foreign statute, law, rule, regulation or otherwise. Any indemnity payment under this Section 11 shall be treated as an adjustment to the exchange consideration for Tax purposes unless a final determination (which shall 43 52 include the execution of a Form 870-AD or successor form) with respect to the Indemnified Party or any of its Affiliate causes any such payment not to be treated as an adjustment to the exchange consideration for U.S. Federal income Tax purposes. 11.5 LIMITATIONS ON INDEMNIFICATION. (a) AmPaM shall not assert any claim for indemnification under this Section 11 against the Stockholders until such time as, and solely to the extent that, the aggregate of all claims which AmPaM may have against the Stockholders shall exceed the greater of (a) 3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section 1.2 plus (ii) the value of the AmPaM Stock delivered to the Stockholders pursuant to Section 1.2 (calculated as provided in this Section 11.5) plus (iii) the principal amount of the AmPaM Notes delivered to the Stockholders pursuant to Section 1.2, or (b) $50,000 (the "Indemnification Threshold"). Stockholders shall not assert any claim for indemnification hereunder against AmPaM until such time as, and solely to the extent that, the aggregate of all claims which Stockholders may have against AmPaM shall exceed $50,000; provided, however, that this sentence shall not be applicable with respect of any failure by AmPaM to (i) deliver the consideration specified in Annex I hereto on the Closing Date upon the satisfaction, or waiver by AmPaM, of all conditions to the occurrence of the Closing Date specified in Section 9 or (ii) comply with its obligations pursuant to Section 10.1. After the $50,000 threshold for AmPaM (subject to the proviso in the preceding sentence) or the Indemnification Threshold for a Stockholder has been met, all claims must be made in $10,000 increments, which claims may be cumulated in order to meet such $10,000 thresholds. For purposes of this paragraph, the AmPaM Stock delivered to the Stockholders shall be valued at $13.00 per share. (b) No person shall be entitled to indemnification under this Section 11 if and to the extent that such person's claim for indemnification is directly or indirectly related to a breach by such person of any representation, warranty, covenant or other agreement set forth in this Agreement. No claim for indemnification against the Stockholders shall limit, diminish or change any obligation of AmPaM pursuant to Section 10.1 hereof. (c) Notwithstanding any other term of this Agreement, no Stockholder shall be liable under this Section 11 for an amount which exceeds eighty-five percent (85%) of the amount of proceeds received by such Stockholder (valued as of the Closing Date) in connection with the purchase and sale of the Company Stock. For purposes of this paragraph, the AmPaM Stock shall be valued at $13.00 per share. (d) A Stockholder may pay any indemnification obligation under Section 11 by means of the payment of cash or a combination of the payment of cash, the forgiveness of amounts owed pursuant to the AmPaM Notes and the delivery to AmPaM of shares of AmPaM Stock; provided that the percentage of the indemnification obligation satisfied by means of the delivery of shares of AmPaM Stock does not exceed the percentage of AmPaM Stock comprising the total consideration paid to such Stockholder by AmPaM to such Stockholder pursuant to Annex I. For the purpose of crediting Stockholders for payments made to AmPaM by means of delivery of shares of AmPaM Stock, the AmPaM Stock shall be valued at $13.00 per share. 44 53 (e) In determining the amount of any loss, liability or expense for which any party is entitled to indemnification under this Agreement, the gross amount thereof will be reduced by any correlative insurance proceeds or other third party indemnity or reimbursement proceeds realized or to be realized by such party (or, in the case of AmPaM, by AmPaM, the Company or any subsidiary of AmPaM or the Company) and such correlative insurance proceeds or other third party indemnity or reimbursement proceeds shall be net of any insurance premium or other incremental cost or expense owed or payable to any third party which becomes due as a result of such claim. AmPaM shall use commercially reasonable efforts to pursue any available insurance coverage or other rights of indemnity or reimbursement from third parties with respect to any such loss, liability or expense. 12. TERMINATION OF AGREEMENT 12.1 TERMINATION. This Agreement may be terminated at any time prior to the Closing Date solely: (i) by mutual consent of AmPaM and the Stockholders; (ii) by the Stockholders, if the transactions contemplated by this Agreement to take place at the Closing Date shall not have been consummated by June 30, 1999, unless the failure of such transactions to be consummated is due to a breach of this Agreement by the Company or the Stockholders prior to or on the Closing Date; (iii) by AmPaM, if the transactions contemplated by this Agreement to take place at the Closing Date shall not have been consummated by June 30, 1999, unless the failure of such transactions to be consummated is due to a breach of this Agreement by AmPaM prior to or on the Closing Date; (iv) by the Stockholders, if a material breach or default shall be made by AmPaM in the observance or in the due and timely performance of any of the covenants or agreements contained herein relating to AmPaM, and the curing of such default shall not have been made (or in the reasonable judgment of such Stockholders cannot be made) on or before the Closing Date; (v) by AmPaM, if a material breach or default shall be made by the Company or the Stockholders in the observance or in the due and timely performance of any of the covenants or agreements contained herein relating to the Company or the Stockholders, and the curing of such default shall not have been made (or in the reasonable judgment of AmPaM cannot be made) on or before the Closing Date; (vi) by the Stockholders, if the conditions set forth in Section 8 hereof have not been satisfied or waived as of the Closing Date; or 45 54 (vii) by AmPaM, if the conditions set forth in Section 9 hereof have not been satisfied or waived as of the Closing Date. 12.2 PROCEDURE AND EFFECT OF TERMINATION. A determination to terminate this Agreement by AmPaM pursuant to Section 12.1 shall be valid and effective only if a written notice of termination, accompanied by a certified copy of resolutions of the board of directors of AmPaM that evidence the authorization of the officer of AmPaM to deliver a written notice of termination of this Agreement pursuant to Section 12.1, is given to the Stockholders in the manner specified for notices in this Agreement. A determination to terminate this Agreement by the Stockholders pursuant to Section 12.1 shall be valid and effective only if a written notice of termination, signed by Stockholders who would be entitled to receive a majority of the shares of AmPaM Stock specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated, is given to AmPaM in the manner specified for notices in this Agreement. Upon the giving of notice of termination of this Agreement pursuant to Section 12.1 as specified in the preceding sentence, this Agreement shall terminate, and the transactions contemplated hereby shall be abandoned, without further action by any of the parties hereto. Immediately upon any such termination, AmPaM shall deliver written notice of such termination to the Other Founding Companies. If this Agreement is terminated as provided in this Section 12, no party hereto shall have any liability or further obligation hereunder to any other party, except as provided in Section 14 and Section 18.6, provided, that, the termination of this Agreement will in no way limit any obligation or liability of any party based on or arising from a breach or default by such party with respect to any of its representations, warranties, covenants or agreements contained in this Agreement including, but not limited to, legal and audit costs and out of pocket expenses that occurred prior to such termination. 13. NONCOMPETITION 13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the prior written consent of AmPaM, for a period of two (2) years following the Closing Date, for any reason whatsoever, directly or indirectly, for themselves or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature: (i) engage, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, whether paid or unpaid, in any plumbing, piping, mechanical, heating, ventilation or air conditioning contracting, installation or services business or operation, whether for residential, commercial, industrial or governmental customers, or any ancillary contracting, installation or services business directly related thereto (such business and operations referred to herein as the "Plumbing and Mechanical Business"), within 100 miles of where the Company or any of its subsidiaries conducted business within two (2) years prior to the Closing Date (the "Territory"); 46 55 (ii) call upon any person who is, at the Closing Date, within the Territory, an employee of AmPaM or any subsidiary thereof for the purpose or with the intent of enticing such employee away from or out of the employ of AmPaM or any subsidiary thereof; (iii) call upon any person or entity which is, at the Closing Date, or which has been within three (3) years prior to the Closing Date, a customer of AmPaM or any subsidiary thereof, of the Company or of any of the Other Founding Companies for the purpose of soliciting customers, orders or contracts for any Plumbing and Mechanical Business in direct competition with AmPaM within the Territory; (iv) call upon any prospective acquisition candidate, on any Stockholder's own behalf or on behalf of any competitor in the Plumbing and Mechanical Business, which candidate, to the actual knowledge of such Stockholder after due inquiry, was called upon by AmPaM or any subsidiary thereof or for which, to the actual knowledge of such Stockholder after due inquiry, AmPaM or any subsidiary thereof made an acquisition analysis, for the purpose of acquiring such entity; or (v) disclose to any person, firm, partnership, corporation or business the names or identities of any person, firm, partnership, corporation or business which has been a customer of the Company or any of its subsidiaries within the two (2) years prior to the Closing Date for any reason or purpose whatsoever except to the extent that the Company has in the past disclosed such information to the public for valid business reasons; or (vi) testify as an expert witness in matters related to the Plumbing and Mechanical Business for an adverse party to AmPaM, the Company or any Other Founding Companies in litigation. Notwithstanding the above, the foregoing covenant shall not be deemed to prohibit any Stockholder from acquiring as a passive investment (i) not more than one percent (1%) of the capital stock of a competing business whose stock is traded on a national securities exchange, the NASDAQ Stock Market or over-the-counter, or (ii) not more than five percent (5%) of the capital stock of a competing business whose stock is not publicly traded if the Board of Directors of AmPaM consents to such acquisition. 13.2 DAMAGES. Because of the difficulty of measuring economic losses to AmPaM as a result of a breach of the foregoing covenant, and because of the immediate and irreparable damage that could be caused to AmPaM for which it would have no other adequate remedy, each Stockholder agrees that the foregoing covenant may be enforced by AmPaM in the event of breach by such Stockholder, by injunctions and restraining orders. 47 56 13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the foregoing covenants in this Section 13 impose a reasonable restraint on the Stockholders in light of the activities and business of AmPaM and the subsidiaries thereof on the date of the execution of this Agreement and the current plans of AmPaM as described in the Private Placement Memorandum. 13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant. Moreover, in the event any court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which the court deems reasonable, and the Agreement shall thereby be reformed. 13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of any Stockholder against AmPaM or any subsidiary thereof, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by AmPaM of such covenants. It is specifically agreed that the period of two (2) years stated at the beginning of this Section 13, during which the agreements and covenants of each Stockholder made in this Section 13 shall be effective, shall be computed by excluding from such computation any time during which such Stockholder is found to be in violation of any provision of this Section 13 as determined by any of (i) a written agreement to such effect executed and delivered by AmPaM and such Stockholder, (ii) a determination by an arbitration panel pursuant to an arbitration conducted pursuant to Section 18.16 hereof or (iii) a non-appealable judgment of a court of competent jurisdiction. The covenants contained in Section 13 shall not be affected by any breach of any other provision hereof by any party hereto. The covenants contained in Section 13 shall have no effect if the transactions contemplated by this Agreement are not consummated. 13.6 MATERIALITY. The Company and the Stockholders hereby agree that the covenants contained in this Section 13 are a material and substantial part of this transaction. 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION 14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they had in the past, currently have, and in the future may possibly have, access to certain confidential information of the Company, the Other Founding Companies, and/or AmPaM, such as operational policies, customer lists, and pricing and cost policies that are valuable, special and unique assets of the Company's, the Other Founding Companies' and/or AmPaM's respective businesses. The Stockholders agree that they will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, except (a) to authorized representatives of AmPaM, (b) following the Closing, such information may be disclosed by the Stockholders as is required in the course of performing their duties for AmPaM or the Company and (c) to its counsel and other advisers, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section 14.1; provided, however that (i) the foregoing 48 57 disclosure prohibition shall not apply in the event that (i) such information becomes known to the public generally through no fault of the Stockholders, (ii) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (ii), the Stockholders shall, if possible, give prior written notice thereof to AmPaM and provide AmPaM with the opportunity to contest such disclosure, or (iii) the disclosing party reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party. In the event of a breach or threatened breach by any of the Stockholders of the provisions of this Section, AmPaM shall be entitled to an injunction restraining such Stockholders from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting AmPaM from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. In the event the transactions contemplated by this Agreement are not consummated, Stockholders shall have none of the above-mentioned restrictions on their ability to disseminate confidential information with respect to the Company. 14.2 AMPAM. AmPaM recognizes and acknowledges that it had in the past and currently has access to certain confidential information of the Company, such as operational policies, customer lists, and pricing and cost policies that are valuable, special and unique assets of the Company's business. AmPaM agrees that, prior to the Closing, or if the transactions contemplated by this Agreement are not consummated, it will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, except (a) to authorized representatives of the Company, (b) to its counsel and other advisers, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section 14.2, (c) to the Other Founding Companies and their representatives pursuant to Section 7.1(b) of the Other Agreements and (d) to potential purchasers of securities of AmPaM to the extent necessary or advisable in connection with the applicable securities laws; provided, however that the foregoing disclosure prohibition shall not apply in the event that (A) such information becomes known to the public generally through no fault of AmPaM, (B) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (B), AmPaM shall, if possible, give prior written notice thereof to the Company and the Stockholders and provide the Company and the Stockholders with the opportunity to contest such disclosure, or (C) the disclosing party reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party. In the event of a breach or threatened breach by AmPaM of the provisions of this Section 14.2, the Company and the Stockholders shall be entitled to an injunction restraining AmPaM from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting the Company and the Stockholders from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. In the event the transactions contemplated by this Agreement are not consummated for any reason, AmPaM shall nevertheless remain subject to this Section 14.2, except that it shall not be permitted to make any disclosures otherwise than pursuant to clause (A), (B) or (C) above. 49 58 14.3 DAMAGES. Because of the difficulty of measuring economic losses as a result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and because of the immediate and irreparable damage that would be caused for which they would have no other adequate remedy, the parties hereto agree that, in the event of a breach by any of them of the foregoing covenants, the covenant may be enforced against the other parties by injunctions and restraining orders. 14.4 SURVIVAL. The obligations of the parties under this Article 14 shall survive the termination of this Agreement for a period of five years from the Closing Date. 14.5 RETURN OF INFORMATION. If the transactions contemplated by this Agreement are not consummated, AmPaM will return or destroy all confidential information regarding the Company. 15. TRANSFER RESTRICTIONS 15.1 TRANSFER RESTRICTIONS RELATING TO AMPAM STOCK AND AMPAM NOTES. For a period of two years from the Closing Date or, in the event that the Company completes an IPO, for a period through the second anniversary of the date of the closing of such IPO (the "Restricted Period"), no Stockholder shall (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any shares of AmPaM Stock or AmPaM Notes received by the Stockholders pursuant to this Agreement or any securities convertible into, exchangeable or exercisable for any shares of AmPaM Stock or AmPaM Notes received by such Stockholder pursuant to this Agreement, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any shares of AmPaM Stock or AmPaM Notes received by such Stockholder pursuant to this Agreement, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the AmPaM Stock or AmPaM Notes, whether any such swap or transaction is to be settled by delivery of shares of AmPaM Stock or AmPaM Notes or other securities, by the delivery or payment of cash or otherwise, except, in the case of clauses (i), (ii) or (iii) above, (A) as otherwise agreed by AmPaM, (B) for the sale of shares of AmPaM Stock, and entering into agreements relating to the sale of shares of AmPaM Stock, pursuant to Section 17 hereof, (C) for transfers to (I) immediate family members of such Stockholder who agree with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (II) trusts, limited partnerships or other estate planning entities for the benefit of such Stockholder or family members of such Stockholder which have agreed with AmPaM in writing, through action taken by the trustees, partners or other persons having authority to bind the trust, limited partnership or other estate planning entity, to be bound by the restrictions set forth in this Section 15.1, (III) any charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code which agrees with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (D) for transfers of AmPaM Stock or AmPaM Notes to AmPaM pursuant to Section 11.5(d), (E) for transfers to another Stockholder, to another person or entity who receives shares of AmPaM Stock or AmPaM Notes or AmPaM Series A Preferred Stock pursuant to the Other Agreements or to Sterling City Capital LLC or any of its Affiliates provided that (1) such transaction is exempt from the registration requirements of the 1933 Act as evidenced by the delivery to AmPaM of an opinion of counsel in form and substance reasonably satisfactory to AmPaM and 50 59 (2) any such transferee agrees in writing to be bound by the restrictions set forth in this Section 15.1, (F) transfers of shares of AmPaM Notes, shares of AmPaM Stock, or grants of options to purchase shares of AmPaM Stock, by such Stockholder to employees of the Company of up to an aggregate of 15% of the shares of AmPaM Stock received by such Stockholder pursuant to this Agreement provided that (1) any such transaction is exempt from the registration requirements of the 1933 Act as evidenced by the delivery to AmPaM of an opinion of counsel in form and substance reasonably satisfactory to AmPaM and (2) any such employee agrees with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1 or (G) the sale by such Stockholder in an IPO of shares of AmPaM Stock representing not more than 10% of the Aggregate Consideration in cash; provided, however, that in no circumstance will a Stockholder be entitled to sell shares of AmPaM Stock in an IPO to the extent that the sale of such shares by such Stockholder would result in such Stockholder receiving in excess of 45% of the Aggregate Consideration in cash; and, provided further, if AmPaM is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under Section 17.1 that the number of shares to be sold by persons other than AmPaM is greater than the number of such shares which can be offered without adversely affecting the success of the offering, AmPaM may reduce pro rata (among the Stockholders and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. During the Restricted Period, the certificates evidencing the AmPaM Stock or AmPaM Notes delivered to the Stockholders pursuant to Section 3 of this Agreement will bear a legend substantially in the form set forth below: THE [SHARES/NOTES] REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO THE TERMS OF THE ACQUISITION AGREEMENT PURSUANT TO WHICH SUCH SHARES WERE ISSUED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, PLEDGE OR OTHER DISPOSITION PRIOR TO EXPIRATION OF THE RESTRICTED PERIOD REFERRED TO IN THE ACQUISITION AGREEMENT EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH AGREEMENT. SUCH RESTRICTIONS ON TRANSFER ARE SET FORTH IN AN ACQUISITION AGREEMENT, A COPY OF WHICH IS MAINTAINED AT THE PRINCIPAL OFFICES OF THE ISSUER. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE. 15.2 TRANSFER RESTRICTIONS RELATING TO ADDITIONAL CONSIDERATION. No Stockholder shall (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any right to receive any consideration pursuant to Section II of Annex I to this Agreement (the "Additional Consideration Right") or any securities convertible into, exchangeable or exercisable for any Additional Consideration Right, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any Additional Consideration Right, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly 51 60 or indirectly, the economic consequence of ownership of any Additional Consideration Right, whether any such swap or transaction is to be settled by delivery of shares of AmPaM Stock or other securities, by the delivery or payment of cash or otherwise. 16. FEDERAL SECURITIES ACT REPRESENTATIONS 16.1 COMPLIANCE WITH LAW. Each Stockholder acknowledges that the shares of AmPaM Stock, the Additional Consideration Right and any AmPaM Notes to be delivered to such Stockholder pursuant to this Agreement have not been and will not be registered under the 1933 Act (except as provided in Section 17 hereof) and therefore may not be sold, assigned, exchanged, transferred, pledged or otherwise disposed of without compliance with the 1933 Act which, among other matters, would require registration under the 1933 Act unless exemption from the registration requirements is available for such transaction. The AmPaM Stock, the Additional Consideration Right and any AmPaM Notes to be acquired by each Stockholder pursuant to this Agreement is being acquired solely for such Stockholder's own account, for investment purposes only, and with no present intention of selling, assigning, exchanging, transferring, pledging, or otherwise disposing of it. Each Stockholder covenants, warrants and represents that neither the shares of AmPaM Stock, the Additional Consideration Right nor any AmPaM Notes issued to such Stockholder will be offered, sold, assigned, exchanged, pledged, transferred or otherwise disposed of except after full compliance with all of the applicable provisions of the 1933 Act and the rules and regulations of the SEC. All certificates representing the AmPaM Stock shall bear the following legend in addition to the legend required under Section 15 of this Agreement: THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE FEDERAL AND STATE SECURITIES LAWS. 16.2 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear the economic risk of an investment in the AmPaM Stock and AmPaM Notes to be acquired pursuant to this Agreement and can afford to sustain a total loss of such investment. Each Stockholder has substantial knowledge and experience in making investment decisions of this type (or is relying on qualified purchaser representatives with such knowledge and experience in making this decision), and is capable, either individually or with such purchaser representatives, of evaluating the merits and risks of this investment. Each Stockholder has had an adequate opportunity to ask questions and receive answers from the officers of AmPaM concerning any and all matters relating to the transactions described herein including, without limitation, the background and experience of the current and proposed officers and directors of AmPaM, the plans for the operations of the business of AmPaM, the business, operations and financial condition of the Founding Companies other than the Company, and any plans for additional acquisitions. Each Stockholder has asked any and all questions of the nature described in the preceding sentence and all questions have been answered to such Stockholder's satisfaction. Except as set forth on Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule 501(a) of the 1933 Act. Neither the foregoing nor any investigation made by the Stockholders referred to above shall in any way affect the representations, warranties, 52 61 covenants and agreements of AmPaM made herein except to the extent that AmPaM is relying upon the representations of the Stockholders in Section 16.1 and in this Section 16.2 for purposes of AmPaM's representations and warranties in Sections 6.9, 6.11, 6.15 and 6.17 hereof as specified therein. 16.3 RELIANCE BY AMPAM. Each Stockholder acknowledges that AmPaM in relying upon the representations and covenants of such Stockholder set forth in Section 16.1 and Section 16.2 for purposes of compliance by AmPaM with Federal and state securities laws related to the issuance of AmPaM Stock pursuant to this Agreement and the Other Agreements. 17. REGISTRATION RIGHTS 17.1 PIGGYBACK REGISTRATION RIGHTS. Whenever AmPaM proposes to register any AmPaM Stock for its own or other's account under the 1933 Act for a public offering, other than (i) any shelf or other registration of shares to be used as consideration for acquisitions of additional businesses by AmPaM and (ii) registrations relating to employee benefit plans, AmPaM shall give each of the Stockholders prompt written notice of its intent to do so. Upon the written request of any of the Stockholders given within 15 calendar days after receipt of such notice, notwithstanding the provisions of Section 15 (except as specified below with respect to an IPO), AmPaM shall cause to be included in such registration all of the AmPaM Stock issued to such Stockholders pursuant to this Agreement (including any stock issued as or issuable upon the conversion or exchange of any convertible security, warrant, right or other security which is issued by AmPaM as a stock split, dividend or other distribution with respect to, or in exchange for, or in replacement of such AmPaM Stock) which any such Stockholder requests, other than shares of AmPaM Stock which may then be immediately sold under Rule 144(k) (or any similar or successor provision) promulgated under the 1933 Act, and other than shares of AmPaM Stock that have been theretofore sold by the Stockholder in accordance with the 1933 Act, provided that AmPaM shall have the right to reduce pro rata the number of shares of each selling Stockholder included in such registration to the extent that inclusion of such shares would, in the written opinion of tax counsel to AmPaM or its independent auditors, jeopardize the status of the transactions contemplated hereby and by the Private Placement Memorandum as a tax-free organization under Section 351 of the Code; provided, however, that with respect to a proposal by AmPaM to register AmPaM Stock under the 1933 Act in connection with an IPO, no Stockholder shall be permitted pursuant to this Section 17.1 to have included in such registration more shares of AmPaM Stock than permitted to be sold by such Stockholder pursuant to Section 15.1. In addition, if AmPaM is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under this Section 17.1 that the number of shares to be sold by persons other than AmPaM is greater than the number of such shares which can be offered without adversely affecting the success of the offering, AmPaM may reduce pro rata (among the Stockholders and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. If any Stockholder disapproves of the terms of the underwriting, that Stockholder may elect to withdraw therefrom by written notice to AmPaM and the managing underwriter. That 53 62 Stockholder's shares of AmPaM Stock so withdrawn shall also be withdrawn from registration; provided, however, that, if by the withdrawal of such shares a greater number of shares of AmPaM Stock held by other Stockholders may be included in such registration, then AmPaM shall offer to all other Stockholders of AmPaM the right to include additional shares in the same proportion used in effecting the above limitations. AmPaM shall not, for a period of two years following the Closing Date, grant to any other person any rights to cause AmPaM to register any securities in priority over, or in precedent to, the rights granted to the Stockholders hereunder and to the stockholders of the Other Founding Companies pursuant to Section 17 of the Other Agreements. 17.2 REGISTRATION PROCEDURES. Whenever AmPaM is required to register shares of AmPaM Stock pursuant to Section 17.1, AmPaM will, as expeditiously as possible: (i) Prepare and file with the SEC a registration statement with respect to such shares and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements or term sheets thereto, AmPaM will furnish a representative of the Stockholders with copies of all such documents proposed to be filed) as promptly as practical; (ii) Notify the Stockholders of any stop order issued or threatened by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered; (iii) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 120 days, cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the 1933 Act; and comply with the provisions of the 1933 Act applicable to it with respect to the disposition of all securities covered by such registration statement during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement or supplement to the prospectus; (iv) Furnish to each Stockholder who so requests such number of copies of such registration statement, each amendment and supplement thereto and the prospectus included in such registration statement (including each preliminary prospectus and any term sheet associated therewith), and such other documents as such Stockholder may reasonably request in order to facilitate the disposition of the relevant shares; (v) Make "generally available to its security holders" (within the meaning of Rule 158) an earnings statement satisfying the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no later than 90 days after the end of the 12-month period beginning with the first day of AmPaM's first fiscal quarter commencing after the effective date of the registration statement; 54 63 (vi) Make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible moment; (vii) If requested by the managing underwriter or underwriters, if any, or any participating Stockholder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters or any participating Stockholder, as the case may be, reasonably requests to be included therein, including, without limitation, information with respect to the number of shares of AmPaM Stock being sold by participating Stockholders to any underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any other terms of an underwritten offering of the shares of AmPaM Stock to be sold in such offering, and promptly make all required filings of such prospectus by supplement or post-effective amendment; (viii) Make available for inspection by participating Stockholders, any underwriter participating in any disposition pursuant to such registration statement, and the counsel retained by the participating Stockholders, counsel for the underwriters and any accountant or other agent retained by participating Stockholders or any such underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of AmPaM (the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause AmPaM's officers, directors and employees to supply all information reasonably requested by any such Inspectors in connection with such registration statement; provided, that records which AmPaM determines, in good faith, to be confidential and which AmPaM notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction after delivery of sufficient notice to AmPaM to enable AmPaM to contest such subpoena or order; (ix) Take all other steps reasonably necessary to effect the registration of the shares of AmPaM Stock contemplated hereby; (x) Use its best efforts to register or qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Stockholders, and to keep such registration or qualification effective during the period such registration statement is required to be kept effective, provided that AmPaM shall not be required to become subject to taxation, to qualify generally to do business or to file a general consent to service of process in any such states or jurisdictions; (xi) Cause all such shares of AmPaM Stock to be listed or included not later than the date of the first sale of shares of AmPaM Stock under such registration statement on any 55 64 securities exchanges or trading systems on which similar securities issued by AmPaM are then listed or included; and (xii) Notify each Stockholder at any time when a prospectus relating thereto is required to be delivered under the 1933 Act within the period that AmPaM is required to keep the registration statement effective of the happening of any event as a result of which the prospectus included in such registration statement (as then in effect), together with any associated term sheet, contains an untrue statement of a material fact or omits to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading, and, at the request of such Stockholder, AmPaM promptly will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of the covered shares, such prospectus will not contain an untrue statement of material fact or omit to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading. All expenses incurred in connection with the registration under this Article 17 and compliance with securities and blue sky laws (including all registration, filing, listing, escrow agent, qualification, legal, printer and accounting fees, but excluding underwriting commissions and discounts), shall be borne by AmPaM. 17.3 INDEMNIFICATION. (a) In connection with any registration under Section 17.1, AmPaM shall indemnify, to the extent permitted by law, each selling Stockholder (an "Indemnified Party") against all losses, claims, damages, liabilities and expenses arising out of or resulting from any untrue or alleged untrue statement of material fact contained or incorporated by reference in any registration statement, prospectus or preliminary prospectus or associated term sheet or any omission or alleged omission to state or incorporated by reference therein a material fact required to be stated or incorporated by reference therein or necessary to make the statements therein not misleading except insofar as the same are caused by or contained in or omitted from any information furnished in writing to AmPaM by such Indemnified Party expressly for use therein or by any Indemnified Parties' failure to deliver a copy of the registration statement or prospectus or any amendment or supplements thereto after AmPaM has furnished such Indemnified Party with a sufficient number of copies of the same. (b) In connection with any registration under Section 17.1, each selling Stockholder shall furnish to AmPaM in writing such information concerning the Stockholder and his or her proposed offering of shares as is reasonably requested by AmPaM for use in any such registration statement or prospectus and will indemnify, to the extent permitted by law, AmPaM, its directors and officers and each person who controls AmPaM (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged 56 65 untrue statement of a material fact or any omission or alleged omission to state therein a material fact required to be stated in the registration statement or prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, but only to the extent that such untrue or alleged untrue statement or omission or alleged omission is contained in or omitted from information so furnished in writing to AmPaM by such Stockholder expressly for use in the registration statement. Notwithstanding the foregoing, the liability of a Stockholder under this Section 17.3 shall be limited to an amount equal to the net proceeds actually received by such Stockholder from the sale of the relevant shares covered by the registration statement. (c) Any person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified parties' reasonable judgment, a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. Any failure to give prompt notice shall deprive a party of its right to indemnification hereunder only to the extent that such failure shall have adversely affected the indemnifying party. If the defense of any claim is assumed, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent shall not be unreasonably withheld). An indemnifying party that is not entitled or elects not, to assume the defense of a claim, will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. 17.4 UNDERWRITING AGREEMENT. In connection with each registration pursuant to Sections 17.1 covering an underwritten registered offering, (i) each participating Stockholder shall execute and deliver to AmPaM a written power of attorney instrument that (A) appoints an officer of AmPaM as such Stockholder's attorney-in-fact for purposes of executing and delivering an underwriting agreement among AmPaM, the underwriters named therein and such Stockholder specifying the terms and conditions applicable to the sale of AmPaM Stock of such Stockholder in such offering and (B) otherwise is in such form and containing such provisions as are customary in the securities business for such an arrangement in connection with an underwritten registered offering in which one or more stockholders of the issuer are participants, including a provision that authorizes the attorney-in-fact appointed by such Stockholder to execute and deliver such an underwriting agreement in the event that the net price per share to be received by such Stockholder from the sale of the shares of AmPaM Stock to be sold in such offering is not less than a price specified in such instrument and (iii) AmPaM and each participating Stockholder agree to enter into a written agreement with the managing underwriters in such form and containing such provisions as are customary in the securities business for such an arrangement between such managing underwriters and companies of AmPaM's size and investment stature, including indemnification; provided, however, that (A) such Stockholder shall be exempt and excluded from any indemnification of the managing underwriters other than with respect to information provided by such Stockholder with respect to such Stockholder to AmPaM or the managing underwriters 57 66 specifically for inclusion in any such registration statement and (B) such Stockholder shall not be obligated to enter into such an underwriting agreement in the event that the net price per share to be received by such Stockholder from the sale of shares of AmPaM Stock to be sold in such offering is less than the floor price specified in the power of attorney instrument executed and delivered to AmPaM pursuant to clause (i) above. 17.5 TRANSFER OF RIGHTS. The right to cause AmPaM to register shares of AmPaM Stock under this Agreement may be assigned to a transferee or assignee of any Stockholder to the extent that such transferee or assignee is a member of the immediate family of a Stockholder, a trust, limited partnership or other estate planning entity for the benefit of any such persons or a charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code. 17.6 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the SEC that may permit the sale of AmPaM stock to the public without registration, following an IPO AmPaM agrees to use its reasonable efforts, from and after the completion of an IPO, to: (i) make and keep public information regarding AmPaM available as those terms are understood and defined in Rule 144 under the 1933 Act beginning 90 days following the effective date of a registration statement relating to an IPO; (ii) file with the SEC in a timely manner all reports and other documents required of AmPaM under the 1933 Act and the 1934 Act at any time after it has become subject to such reporting requirements; and (iii) so long as a Stockholder owns any restricted AmPaM Stock, furnish to each Stockholder forthwith upon written request a written statement by AmPaM as to its compliance with the current public information requirements of Rule 144 (at any time from and after 90 days following the effective date of a registration statement relating to an IPO), and of the 1933 Act and the 1934 Act (any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of AmPaM, and such other reports and documents so filed as a Stockholder may reasonably request in availing itself of any rule or regulation of the SEC allowing a Stockholder to sell any such shares without registration. 18. REDEMPTION OF AMPAM STOCK 18.1 REDEMPTION TRIGGER. In the event that, within three years of the Closing Date, (i) AmPaM has not consummated an IPO and (ii) any Stockholder has not received cash (including proceeds from the public or private sale of AmPaM Stock received as consideration hereunder and the receipt of principal payments, if any, made with respect to AmPaM Notes held by such Stockholder) equal to or exceeding 50% of the Aggregate Consideration on or prior to the third anniversary of the Closing Date, such Stockholder shall have the right (the "Put Right"), but not the 58 67 obligation, commencing on the third anniversary of the Closing Date to require AmPaM to purchase a number of shares of AmPaM Stock then owned by such Stockholder, subject to the limitations set forth in Section 18.2 below. The purchase price for such redemption shall be $13.00 per share, such price to be subject to appropriate adjustment to reflect any reclassification, stock dividend, subdivision, split-up or combination of shares of AmPaM Stock after the date hereof. 18.2 MINIMUM REDEMPTION; LIMITATIONS. If the events specified in Section 18.1(i) and 18.1(ii), with Section 18.1(ii) being determined on an individual Stockholder basis, have not occurred within the time specified, AmPaM shall be obligated to purchase from each eligible Stockholder no less than 10% of the AmPaM Stock held by such Stockholder annually; provided, however, that the Stockholders shall not be entitled to exercise their Put Rights if and to the extent the Company has not achieved the Target Net Income (as defined in Annex I hereto) for the year preceding the year in which a Stockholder seeks to exercise his Put Right. The redemptions will be funded by internal cash flows or alternative financing arrangements but AmPaM's obligation to make any redemption pursuant to this Section 18 will be subject to the covenants and restrictions contained in AmPaM's then existing private or public debt or equity instruments. 18.3 NOTICE; EXERCISE. The Stockholders may exercise their Put Right by giving written notice (the "Put Notice") to AmPaM within thirty (30) days of the third anniversary of the execution hereof. If any Stockholder does not provide AmPaM with a Put Notice within such thirty-day period, the Put Right applicable to such Stockholder shall expire. The date for closing the sale of any shares of AmPaM Stock pursuant to a proper exercise of a Put Right shall in no event be earlier than 90 days after the date AmPaM receives the Put Notice. Any such closing shall be at such time of day and place as shall be mutually agreed between such holder and AmPaM. At such closing AmPaM shall make payment for the AmPaM Stock to be repurchased by wire transfer of immediately available funds to a bank account designated by such Stockholder for such purpose and such Stockholder shall deliver to AmPaM certificates, duly endorsed for transfer, representing the shares of AmPaM Stock to be purchased and sold pursuant to the exercise of such Put Right. 18.4 ADDITIONAL REDEMPTIONS. In the event AmPaM has not consummated an IPO and notwithstanding the foregoing, to the extent the Stockholders who have received greater than 50% of their Aggregate Consideration in cash wish to tender AmPaM Stock to AmPaM for purchase, AmPaM will use its commercially reasonable efforts to continue to repurchase up to 10% of the AmPaM Stock held by such Stockholder annually. 18.5 TERMINATION OF REDEMPTION OBLIGATION. Put Rights with respect to any individual Stockholder will terminate upon receipt by such Stockholder of 50% of his Aggregate Consideration in cash; such termination will not, however, limit such Stockholders ability to participate in the additional redemptions provided in Section 18.4. Notwithstanding the foregoing, all of AmPaM's redemption obligations contained in this Section 18 shall terminate on the earlier to occur of (i) an IPO, (ii) any sale of all or substantially all of AmPaM's assets in one transaction or series of transactions, (iii) any merger or consolidation which involves AmPaM and in which AmPaM is not the surviving entity or (iv) any transaction after which the shares of AmPaM Common Stock, if any, 59 68 which are then held by persons other than the holders of AmPaM Common Stock as of the Closing Date constitute 50% or more of AmPaM Common Stock outstanding as of the date of the consummation of such transaction. 19. GENERAL 19.1 COOPERATION. The Company, Stockholders and AmPaM shall each deliver or cause to be delivered to the other on the Closing Date, and at such other times and places as shall be reasonably agreed to, such additional instruments as the other may reasonably request for the purpose of carrying out this Agreement. The Company will cooperate and use its reasonable efforts to have the present officers, directors and employees of the Company cooperate with AmPaM on and after the Closing Date in furnishing information, evidence, testimony and other assistance in connection with any tax return filing obligations, actions, proceedings, arrangements or disputes of any nature with respect to matters pertaining to all periods prior to the Closing Date. 19.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties hereunder may not be assigned (except by operation of law and except as provided in Section 17.5) and shall be binding upon and shall inure to the benefit of the parties hereto, the successors of AmPaM and the Company, and the heirs, successors and legal representatives of the Stockholders. 19.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits and annexes attached hereto) and the documents delivered pursuant hereto constitute the entire agreement and understanding among the Stockholders, the Company and AmPaM and supersede any prior agreement and understanding relating to the subject matter of this Agreement. This Agreement, upon execution, constitutes a valid and binding agreement of the parties hereto enforceable in accordance with its terms and may be modified or amended only by a written instrument executed by the Stockholders, the Company and AmPaM, acting through their respective officers or trustees, duly authorized by their respective Boards of Directors. Any disclosure made on any Schedule delivered pursuant hereto shall be deemed to have been disclosed for purposes of any other Schedule required hereby, provided that the Company shall make a good faith effort to cross reference disclosure, as necessary or advisable, between related Schedules. 19.4 COUNTERPARTS. This Agreement may be executed simultaneously in two (2) or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument. A telecopied facsimile of an executed counterpart of this Agreement shall be sufficient to evidence the binding agreement of each party to the terms hereof. However, each party agrees to return to the other parties an original, duly executed counterpart of this Agreement promptly after delivery of a telecopied facsimile thereof. 60 69 19.5 BROKERS AND AGENT. Except as disclosed on Schedule 18.5, each party hereto represents and warrants that it employed no broker or agent in connection with this transaction and agrees to indemnify the other parties hereto against all loss, cost, damages or expense arising out of claims for fees or commission of brokers employed or alleged to have been employed by such indemnifying party. 19.6 EXPENSES. Whether or not the transactions herein contemplated shall be consummated, AmPaM will pay the reasonable fees, expenses and disbursements of AmPaM and its agents, representatives, accountants and counsel incurred in connection with the subject matter of this Agreement and any amendments thereto, including all costs and expenses incurred in the performance and compliance with all conditions to be performed by AmPaM under this Agreement, including the fees and expenses of Arthur Andersen LLP, Andrews & Kurth L.L.P., and any other person or entity retained by AmPaM, and the costs of preparing the Private Placement Memorandum incurred in connection with the subject matter of this Agreement and any amendments thereto. In addition, whether or not the transactions contemplated herein shall be consummated, AmPaM will pay the reasonable fees and expenses of Bracewell & Patterson LLP incurred on behalf of the Company and the Stockholders in connection with the subject matter of this Agreement. Whether or not the transactions herein contemplated shall be consummated, the Company will pay all of its costs and expenses incurred on behalf of the Company and the Stockholders in connection with the subject matter of this Agreement except that (i) the Company shall not be required to pay any of the costs, fees and expenses specified above as to which AmPaM is responsible for the payment thereof and (ii) neither the Company nor the Stockholders shall be responsible for the payment of the costs, fees and expenses incurred by or on behalf of AmPaM. Whether or not the transactions herein contemplated shall be consummated, AmPaM shall reimburse Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any of the foregoing fees, expenses and disbursements paid by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) and shall repay Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any loans or advances made by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for the purpose of providing AmPaM funds to pay any such fees, expenses and disbursements, provided that such reimbursement and loan repayment obligation shall be limited to the foregoing fees, expenses, and disbursements which are out-of-pocket expenses of AmPaM, Sterling City Capital, LLC or any person or entity which is an Affiliate thereof. Sterling City Capital, LLC shall be reimbursed by AmPaM in the form of AmPaM Notes. AmPaM retains the right, within a reasonable period following the Closing Date, to conduct an audit of the expenses for which Sterling City Capital, LLC is reimbursed. Each Stockholder shall pay all sales, use, transfer, real property transfer, recording, gains, stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in connection with the purchase and sale of the Company Stock, other than Transfer Taxes, if any, imposed by the State of Delaware. Each Stockholder shall file all necessary documentation and Returns with respect to such Transfer Taxes. In addition, each Stockholder acknowledges that he, and not the Company or AmPaM, will pay all Taxes due by him upon receipt of the consideration payable pursuant to Section 1 hereof. The Stockholders acknowledge that the risks of the transactions contemplated hereby include Tax risks, with respect to which the 61 70 Stockholders are relying substantially on the opinion contemplated by Section 8.12 hereof and representations by AmPaM in this Agreement. 19.7 NOTICES. All notices of communication required or permitted hereunder shall be in writing and may be given by depositing the same in United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested, or by delivering the same in person or via a nationally recognized courier service to an officer or agent of such party. (a) If to AmPaM addressed to it at: American Plumbing & Mechanical, Inc. 515 Post Oak Blvd., Suite 450 Houston, Texas 77027 Attention: Chief Executive Officer with copies to: Thomas P. Mason Andrews & Kurth L.L.P. 4200 Chase Tower Houston, Texas 77002 (b) If to the Stockholders, addressed to them at their addresses set forth on the signature pages hereto, with copies to: Richard V. Patchen Carlile Patchen & Murphy LLP 366 East Broad Street Columbus, Ohio 43215 (c) If to the Company, addressed to it at: David A. Croson J.A. Croson Company 2130 Franklin Road Columbus, Ohio 43209 or to such other address or counsel as any party hereto shall specify pursuant to this Section 18.7 from time to time. 62 71 19.8 GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of Texas, excluding any conflicts of law, rule or principle that might refer same to the laws of another jurisdiction. 19.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations, warranties, covenants and agreements of the parties made herein and at the time of the Closing or in writing delivered pursuant to the provisions of this Agreement shall survive the consummation of the transactions contemplated hereby and any examination on behalf of the parties until the respective Expiration Dates referred to herein with respect thereto or, if no Expiration Date is applicable with respect thereto, until the expiration of all applicable statute of limitations periods. 19.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided herein, no delay of or omission in the exercise of any right, power or remedy accruing to any party as a result of any breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver. 19.11 TIME. Time is of the essence with respect to this Agreement. 19.12 REFORMATION AND SEVERABILITY. In case any provision of this Agreement shall be invalid, illegal or unenforceable, it shall, to the extent possible, be modified in such manner as to be valid, legal and enforceable but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement, and in either case the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. No provision of this Agreement shall be interpreted or construed against any party solely because that party or its legal representative drafted such provision. 19.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term of this Agreement shall be deemed exclusive but each shall be cumulative with all other rights, remedies and elections available at law or in equity. 19.14 CAPTIONS. The headings of this Agreement are inserted for convenience only, shall not constitute a part of this Agreement or be used to construe or interpret any provision hereof. 19.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived only with the written consent of AmPaM, the Company and Stockholders who would receive a majority of the Aggregate Consideration specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated. Any amendment or waiver effected in accordance with this Section 19.15 shall be binding upon each of the parties hereto, any other person receiving AmPaM Stock in connection with the purchase and sale of the Company Stock and each future holder of such AmPaM Stock. Any consent of the Stockholders who would receive a majority of the Aggregate Consideration pursuant 63 72 to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated shall be deemed to be the consent of the Stockholders for purposes of provisions of this Agreement as to which a consent of the Stockholders may be requested or required. 19.16 MEDIATION AND ARBITRATION. If a dispute arises out of or relates to this Agreement, or the breach thereof, and if said dispute cannot be settled through direct discussions, the parties agree to first endeavor to settle the dispute in an amicable manner by mediation administered by the American Arbitration Association under its then prevailing Commercial Mediation Rules, before resorting to arbitration. Thereafter, any unresolved controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association in accordance with its then prevailing Commercial Arbitration Rules. The enforcement, interpretation and procedural and substantive effect of the obligation to arbitrate created by this Section 19.16 shall be governed by the Federal Arbitration Act as amended from time to time, 9 U.S.C. Sections 1 et seq. The parties hereby disclaim any intention to have the substantive or procedural law of any state or other jurisdiction, other than the law of the United States as embodied in the Federal Arbitration Act, applied to such obligation. Any such mediation or arbitration proceeding will be conducted in Houston, Texas. 19.17 INFORMATION PROVIDED FOR PRIVATE PLACEMENT MEMORANDUM. For purposes of this Agreement, the information provided by the Company in writing specifically for inclusion in the Private Placement Memorandum shall include solely (i) the Financial Statements (in the form that they appear in the Private Placement Memorandum), (ii) any financial statements provided to AmPaM pursuant to Section 7.9, (iii) the description of the Company contained in the Private Placement Memorandum under the caption "The Company", (iv) the description of the Company's results of operations and its liquidity and capital resources, if any, contained in the Private Placement Memorandum under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and (v) the description, if any, of matters related to the Company contained in the Private Placement Memorandum under the caption "Certain Transactions Transactions involving Certain Officers, Directors and Stockholders". For purposes of this Agreement, the information provided by a Stockholder in writing specifically for inclusion in the Private Placement Memorandum shall include only (i) the description, if any, of matters related to such Stockholder contained in the Private Placement Memorandum under the caption "Certain Transactions - Transactions involving Certain Officers, Directors and Stockholders" and (ii) the biographical description of such Stockholder, if any, contained in the Private Placement Memorandum under the caption "Management." 19.18 EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective upon (i) the execution and delivery of this Agreement by all of the parties hereto and (ii) the delivery to AmPaM of each Employment Agreement attached hereto as Annex VI-1 executed by each of the Company, the employees named therein and AmPaM. 64 73 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. AMERICAN PLUMBING & MECHANICAL, INC. By: /s/ DAVID BAGGETT --------------------------------- Name: David Baggett ------------------------------- Title: Chief Financial Officer ------------------------------ J.A. CROSON COMPANY By: /s/ DAVID A. CROSON --------------------------------- David A. Croson President FRANKLIN FIRE SPRINKLER COMPANY By: /s/ JOHN L. BOYLE --------------------------------- John L. Boyle President [Remainder of page intentionally left blank] 65 74 STOCKHOLDERS OF J.A. CROSON COMPANY: SPOUSES (WITHOUT PERSONAL LIABILITY AND SOLELY TO ACKNOWLEDGE THE SALE OF THE COMPANY STOCK BY THE STOCKHOLDER): /s/ KATHERINE RUTH ELIZABETH CROSON - ------------------------------------ Katherine Ruth Elizabeth Croson 5705 Lithopolis Road Lancaster, Ohio 43130 /s/ KATHERINE R. CROSON - ------------------------------------ Katherine R. Croson Custodian for Charles D. Croson, Minor 5705 Lithopolis Road Lancaster, Ohio 43130 /s/ DAVID A. CROSON /s/ KATHERINE R. CROSON - ------------------------------------ ----------------------------------- David A. Croson Katherine R. Croson 5705 Lithopolis Road Lancaster, Ohio 43130 66 75 STOCKHOLDERS OF FRANKLIN FIRE SPOUSES (WITHOUT PERSONAL LIABILITY AND SPRINKLER COMPANY: SOLELY TO ACKNOWLEDGE THE SALE OF THE COMPANY STOCK BY THE STOCKHOLDER): /s/ MIKEAL W. KING /s/ PATSY J. KING - ------------------------------------ ----------------------------------- Mikeal W. King Patsy J. King 5193 Norton Road Grove City, Ohio 43123 /s/ RUSSELL W. CLARK /s/ M. DIANE CLARK - ------------------------------------ ----------------------------------- Russell W. Clark M. Diane Clark 2000 Riverhill Road Cols, Ohio 43221 /s/ NORBERT HOFFMANN /s/ MONA HOFFMANN - ------------------------------------ ----------------------------------- Norbert Hoffmann Mona Hoffmann 24340 Woodsedge Dr. Bonita Springs, Florida 34134-2916 /s/ KATHERINE R. CROSON /s/ DAVID A. CROSON - ------------------------------------ ----------------------------------- Katherine R. Croson David A. Croson 5705 Lithopolis Road Lancaster, Ohio 43130 /s/ DAVID A. CROSON /s/ KATHERINE R. CROSON - ------------------------------------ ----------------------------------- David A. Croson Katherine R. Croson 5705 Lithopolis Road Lancaster, Ohio 43130 67 EX-10.7 12 ACQUISITION AGMT. - J.A. CROSON CO. OF FLORIDA 1 EXHIBIT 10.7 Execution Copy - -------------------------------------------------------------------------------- ACQUISITION AGREEMENT dated as of the 11th day of February, 1999 by and among AMERICAN PLUMBING & MECHANICAL, INC. J.A. CROSON COMPANY OF FLORIDA and all of the STOCKHOLDERS of J.A. CROSON COMPANY OF FLORIDA - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page RECITALS .........................................................................................................1 1. ACQUISITION OF STOCK.....................................................................................5 1.1 Acquisition.....................................................................................5 1.2 Consideration...................................................................................5 1.3 Certain Information With Respect to the Capital Stock of the Company and AmPaM.......................................................................................5 2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY...........................................................5 2.1 Board of Directors..............................................................................5 2.2 Officers........................................................................................5 3. DELIVERY OF CONSIDERATION................................................................................6 3.1 Stockholders' Consideration.....................................................................6 3.2 Stockholders' Deliveries........................................................................6 4. CLOSING..................................................................................................6 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................6 5.1 Due Organization................................................................................7 5.2 Authorization...................................................................................7 5.3 Capital Stock of the Company....................................................................7 5.4 Transactions in Capital Stock...................................................................8 5.5 No Bonus Shares.................................................................................8 5.6 Subsidiaries; Ownership in Other Entities.......................................................8 5.7 Predecessor Status; etc.........................................................................8 5.8 Spin-off by the Company.........................................................................8 5.9 Financial Statements............................................................................8 5.10 Liabilities and Obligations.....................................................................9 5.11 Accounts and Notes Receivable..................................................................10 5.12 Licenses; Intellectual Property................................................................10 5.13 Environmental Matters..........................................................................11 5.14 Personal Property..............................................................................13 5.15 Significant Customers; Material Contracts and Commitments......................................13 5.16 Real Property..................................................................................14 5.17 Insurance......................................................................................14 5.18 Compensation; Employment Agreements; Labor Matters.............................................15 5.19 Employee Plans.................................................................................15 5.20 Compliance with ERISA..........................................................................16 5.21 Conformity with Law; Litigation................................................................17
-i- 3 5.22 Taxes..........................................................................................17 5.23 No Violations; No Consent Required, Etc........................................................18 5.24 Government Contracts...........................................................................19 5.25 Absence of Changes.............................................................................19 5.26 Deposit Accounts; Powers of Attorney...........................................................21 5.27 Validity of Obligations........................................................................21 5.28 Relations with Governments.....................................................................21 5.29 Disclosure.....................................................................................21 5.30 No Warranties or Insurance.....................................................................21 5.31 Interest in Customers and Suppliers and Related Party Transactions.............................22 5.32 Private Placement Memorandum...................................................................22 5.33 Authority; Ownership...........................................................................22 5.34 Preemptive Rights..............................................................................23 5.35 No Commitment to Dispose of AmPaM Stock........................................................23 5.36 Disclosure.....................................................................................23 6. REPRESENTATIONS OF AMPAM................................................................................23 6.1 Due Organization...............................................................................24 6.2 Authorization..................................................................................24 6.3 Capital Stock of AmPaM.........................................................................24 6.4 Transactions in Capital Stock..................................................................24 6.5 Subsidiaries...................................................................................25 6.6 Financial Statements...........................................................................25 6.7 Liabilities and Obligations....................................................................25 6.8 Conformity with Law; Litigation................................................................25 6.9 No Violations..................................................................................26 6.10 Validity of Obligations........................................................................27 6.11 AmPaM Stock....................................................................................27 6.12 AmPaM Notes....................................................................................28 6.13 No Side Agreements.............................................................................28 6.14 Business; Real Property; Material Agreements...................................................28 6.15 Relations with Governments.....................................................................28 6.16 Disclosure.....................................................................................28 6.17 Other Agreements...............................................................................29 7. COVENANTS PRIOR TO CLOSING..............................................................................29 7.1 Access and Cooperation; Due Diligence; Transfer of Real Estate.................................29 7.2 Conduct of Business Pending Closing............................................................30 7.3 Prohibited Activities..........................................................................31 7.4 No Shop........................................................................................32 7.5 Agreements.....................................................................................32 7.6 Notification of Certain Matters................................................................32 7.7 Amendment of Schedules.........................................................................33 7.8 Further Assurances.............................................................................33 7.9 Authorized Capital.............................................................................33
-ii- 4 7.10 Compliance with the Hart-Scott Act.............................................................33 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.............................................................................................34 8.1 Representations and Warranties; Performance of Obligations.....................................34 8.2 Satisfaction...................................................................................34 8.3 No Litigation..................................................................................34 8.4 Opinion of Counsel.............................................................................34 8.5 Consents and Approvals.........................................................................34 8.6 Good Standing Certificates.....................................................................35 8.7 No Material Adverse Change.....................................................................35 8.8 Secretary's Certificate........................................................................35 8.9 Tax Matters....................................................................................35 8.10 Other Founding Companies.......................................................................35 8.11 Company Release of Stockholders................................................................35 8.12 Sterling City Capital Transfer Restrictions....................................................35 8.13 Election of Chief Executive Officer............................................................36 8.14 Funding Availability...........................................................................36 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF AMPAM............................................................36 9.1 Representations and Warranties; Performance and Obligations....................................36 9.2 No Litigation..................................................................................36 9.3 Secretary's Certificate........................................................................36 9.4 No Material Adverse Effect.....................................................................37 9.5 Stockholders' Release..........................................................................37 9.6 Satisfaction...................................................................................37 9.7 Termination of Related Party Agreements........................................................37 9.8 Opinion of Counsel.............................................................................37 9.9 Consents and Approvals.........................................................................37 9.10 Good Standing Certificates.....................................................................38 9.11 Funding Availability...........................................................................38 9.12 FIRPTA Certificate.............................................................................38 9.13 Resignations of Directors and Officers.........................................................38 10. COVENANTS OF AMPAM AND THE STOCKHOLDERS AFTER CLOSING...................................................38 10.1 Release From Guarantees; Repayment of Certain Obligations......................................38 10.2 Preservation of Tax and Accounting Treatment...................................................39 10.3 Preparation and Filing of Tax Returns; Payment of Taxes........................................39 10.4 Directors......................................................................................40 10.5 Legal Opinions.................................................................................40 11. INDEMNIFICATION.........................................................................................40 11.1 General Indemnification by the Stockholders....................................................40 11.2 Indemnification by AmPaM.......................................................................41 11.3 Third Person Claims............................................................................42
-iii- 5 11.4 Exclusive Remedy...............................................................................43 11.5 Limitations on Indemnification.................................................................44 12. TERMINATION OF AGREEMENT................................................................................45 12.1 Termination....................................................................................45 12.2 Procedure and Effect of Termination............................................................45 13. NONCOMPETITION..........................................................................................46 13.1 Prohibited Activities..........................................................................46 13.2 Damages........................................................................................47 13.3 Reasonable Restraint...........................................................................47 13.4 Severability; Reformation......................................................................47 13.5 Independent Covenant...........................................................................48 13.6 Materiality....................................................................................48 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...............................................................48 14.1 Stockholders...................................................................................48 14.2 AmPaM..........................................................................................48 14.3 Damages........................................................................................49 14.4 Survival.......................................................................................49 14.5 Return of Information..........................................................................50 15. TRANSFER RESTRICTIONS...................................................................................50 15.1 Transfer Restrictions Relating to AmPaM Stock and AmPaM Notes..................................50 15.2 Transfer Restrictions Relating to Additional Consideration.....................................51 16. FEDERAL SECURITIES ACT REPRESENTATIONS..................................................................52 16.1 Compliance with Law............................................................................52 16.2 Economic Risk; Sophistication..................................................................52 16.3 Reliance by AmPaM..............................................................................53 17. REGISTRATION RIGHTS.....................................................................................53 17.1 Piggyback Registration Rights..................................................................53 17.2 Registration Procedures........................................................................54 17.3 Indemnification................................................................................56 17.4 Underwriting Agreement.........................................................................57 17.5 Transfer of Rights.............................................................................58 17.6 Rule 144 Reporting.............................................................................58 18. REDEMPTION OF AMPAM STOCK...............................................................................58 18.1 Redemption Trigger.............................................................................58 18.2 Minimum Redemption; Limitations................................................................59 18.3 Notice; Exercise...............................................................................59 18.4 Additional Redemptions.........................................................................59 18.5 Termination of Redemption Obligation...........................................................59
-iv- 6 19. GENERAL.................................................................................................60 19.1 Cooperation....................................................................................60 19.2 Successors and Assigns.........................................................................60 19.3 Entire Agreement...............................................................................60 19.4 Counterparts...................................................................................60 19.5 Brokers and Agent..............................................................................61 19.6 Expenses.......................................................................................61 19.7 Notices........................................................................................62 19.8 Governing Law..................................................................................63 19.9 Survival of Representations and Warranties.....................................................63 19.10 Exercise of Rights and Remedies................................................................63 19.11 Time...........................................................................................63 19.12 Reformation and Severability...................................................................63 19.13 Remedies Cumulative............................................................................63 19.14 Captions.......................................................................................63 19.15 Amendments and Waivers.........................................................................63 19.16 Mediation and Arbitration......................................................................64 19.17 Information Provided for Private Placement Memorandum..........................................64 19.18 Effective Date of Agreement....................................................................64
-v- 7 ANNEXES Annex I - Consideration to Be Paid to Stockholders Annex II - Amended and Restated Certificate of Incorporation and By-Laws of AmPaM Annex III - Form of Opinion of Counsel to AmPaM Annex IV - Form of Tax Opinion Annex V - Form of Opinion of Counsel to Company and Stockholders Annex VI-1 - Form of Employment Agreement Annex VI-2 - Form of Employment Agreement -vi- 8 SCHEDULES 2.1 Board of Directors 2.2 Officers 5.1 Due Organization 5.2 Authorization 5.3 Capital Stock of the Company 5.4 Transactions in Capital Stock; Organization Accounting 5.5 No Bonus Shares 5.6 Subsidiaries; Ownership in Other Entities 5.7 Predecessor Status; etc 5.8 Spin-off by the Company 5.9 Financial Statements 5.10 Liabilities and Obligations 5.11 Accounts and Notes Receivable 5.12 Licenses; Intellectual Property (Schedules 5.12(a)(1), 5.12(a)(2), 5.12(b)(1) and 5.12(b)(2)) 5.13 Environmental Matters 5.14 Personal Property 5.15 Significant Customers; Material Contracts and Commitments (Schedules 5.15(a), 5.15(b) and 5.15 (c)) 5.16 Real Property 5.17 Insurance 5.18 Compensation; Employment Agreements; Labor Matters 5.19 Employee Plans 5.20 Compliance with ERISA 5.21 Conformity with Law; Litigation 5.22 Taxes (Schedules 5.22(a) and 5.22(b)) 5.23 No Violations, No Consents Required, Etc. (Schedules 5.23(a), 5.23(b), 5.23(c) and 5.23(e)) 5.24 Government Contracts 5.25 Absence of Changes 5.26 Deposit Accounts; Powers of Attorney 5.30 No Warranties or Insurance 5.31 Interest in Customers and Suppliers and Related Party Transactions 5.33 Authority; Ownership (Schedules 5.33(a) and 5.33(b)) 6.9 No Violations 7.1 Access and Cooperation; Due Diligence; Transfer of Real Estate 7.2 Conduct of Business Pending Closing 7.3 Prohibited Activities 7.5 Agreements 8.11 Employment Agreements 9.7 Termination of Related Party Agreements 10.1 Release From Guarantees; Repayment of Certain Obligations 16.2 Non-accredited Investors 18.5 Brokers and Agents -vii- 9 ACQUISITION AGREEMENT THIS ACQUISITION AGREEMENT (the "Agreement") is made as of the 11th day of February, 1999 by and among AMERICAN PLUMBING & MECHANICAL, INC., a Delaware corporation ("AmPaM"), J.A. CROSON COMPANY OF FLORIDA, a Florida corporation (the "Company"), and the stockholders listed on the signature pages of this Agreement (the "Stockholders"), which are all the stockholders of the Company. RECITALS WHEREAS, the Company is engaged in the plumbing and mechanical services business; WHEREAS, as of the date hereof, the Stockholders own, and as of the Closing Date the Stockholders will own, all of the issued and outstanding capital stock of the Company (the "Company Stock"); WHEREAS, AmPaM is entering into other separate agreements simultaneously with this Agreement that are substantially the same as this Agreement (the "Other Agreements"), each of which is entitled "Acquisition Agreement," with each of the Other Founding Companies (as defined herein) and their respective stockholders in order for AmPaM to acquire additional companies engaged in the plumbing and mechanical services business; WHEREAS, this Agreement and the Other Agreements constitute the "AmPaM Plan of Organization;" WHEREAS, the Stockholders and the boards of directors and the stockholders of AmPaM, and each of the Other Founding Companies that are parties to the Other Agreements, have approved and adopted the AmPaM Plan of Organization as an integrated plan pursuant to which the Stockholders and the stockholders of each of the other Founding Companies will contribute the capital stock of each of the Founding Companies to AmPaM, and the Stockholders and the stockholders of each of the other Founding Companies will acquire the stock of AmPaM (but not cash or other property) as a tax-free transfer of property under Section 351 of the Code; WHEREAS, in consideration of the agreements of the Other Founding Companies pursuant to the Other Agreements, the Stockholders have approved this Agreement as part of the AmPaM Plan of Organization in order to transfer all of the issued and outstanding capital stock of the Company to AmPaM; and NOW, THEREFORE, in consideration of the premises and of the mutual agreements, representations, warranties, provisions and covenants herein contained, the parties hereto hereby agree as follows: 10 Unless the context otherwise requires, capitalized terms used in this Agreement or in any schedule attached hereto and not otherwise defined shall have the following meanings for all purposes of this Agreement: "1933 Act" means the Securities Act of 1933, as amended. "Acquired Party" means the Company, any subsidiary of the Company and any member of a Relevant Group. "Affiliates" means with respect to any person or entity, any other person or entity that directly or indirectly, controls, is controlled by, or is under common control with such person or entity. "AmPaM" has the meaning set forth in the first paragraph of this Agreement. "AmPaM Charter Documents" has the meaning set forth in Section 6.1. "AmPaM Plan of Organization" has the meaning set forth in the recitals of this Agreement. "AmPaM Stock" means the common stock, par value $.01 per share, of AmPaM. "AmPaM Notes" means those notes issued by AmPaM to the Stockholders as a portion of the consideration to be received hereunder and in substantially the form to Annex I as Appendix A. "Balance Sheet Date" has the meaning set forth in Section 5.9. "Charter Documents" has the meaning set forth in Section 5.1. "Closing" has the meaning set forth in Section 4. "Closing Date" has the meaning set forth in Section 4. "Code" means the Internal Revenue Code of 1986, as amended. "Company" has the meaning set forth in the first paragraph of this Agreement. "Company Stock" has the meaning set forth in the recitals of this Agreement. "Delaware GCL" means the General Corporation Law of the State of Delaware. "Environmental Laws" has the meaning set forth in Section 5.13(b). "Expiration Date" has the meaning set forth in Section 5(A) and Section 6, as applicable. 2 11 "Founding Companies" means the following companies: Christianson Enterprises, Inc., a Texas corporation; Christianson Services, Inc., a Texas corporation; GGR Leasing Corporation, a Texas corporation; J.A. Croson Company of Florida, a Florida corporation; J.A. Croson Company, an Ohio corporation; Franklin Fire Sprinkler Company, an Ohio corporation; Keith Riggs Plumbing, Inc., an Arizona corporation; Miller Mechanical Contractors, Inc., a Georgia corporation; Nelson Mechanical Contractors, Inc., a Florida corporation; Power Plumbing Inc., a Delaware corporation; R.C.R. Plumbing, Inc., a California corporation; Sherwood Mechanical, Inc., a California corporation; and Teepe's River City Mechanical, Inc., an Ohio corporation. "GAAP" means generally accepted accounting principles as consistently applied in the United States. "Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Hazardous Substance" has the meaning set forth in Section 5.13(c). "IPO" means a firm commitment underwritten initial public offering of AmPaM Stock managed by one or more nationally recognized national investment banking firms. "known" or "knowledge," when used in reference to a statement regarding the existence or absence of facts in this Agreement, is intended by the parties to mean that the only information to be attributed to such person is information actually known to (a) the person in the case of an individual, (b) in the case of a corporation or other entity other than the Company, an officer or director of such corporation or entity or (c) in the case of the Company and its Subsidiaries, an officer of the Company listed on Schedule 2.2 hereto, except for David Baggett. "Material Adverse Change" means a material adverse change in the business, operations, properties, assets or condition (financial or otherwise), of the subject entity and its subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on the business, operations, properties, assets or condition (financial or otherwise), of the subject entity and its subsidiaries taken as a whole. "Material Documents" has the meaning set forth in Section 5.23. 3 12 "Ordinary Course of Business" means the ordinary course of business consistent with past customs and practice (including with respect to quantity and frequency). "Other Agreements" has the meaning set forth in the recitals of this Agreement. "Other Founding Companies" means all of the Founding Companies other than the Company. "Plans" has the meaning set forth in Section 5.19. "Private Placement Memorandum" means the Private Placement Memorandum, dated as of February 11, 1999, provided to each Stockholder prior to the execution and delivery of this Agreement which sets forth certain information relating to the transactions contemplated by this Agreement and the Other Agreements. "Qualified Plans" has the meaning set forth in Section 5.20. "Relevant Group" means the Company and any affiliated, combined, consolidated, unitary or similar group of which the Company is or was a member. "Restricted Common Stock" has the meaning set forth in Section 1.3(ii). "Returns" means any returns, reports or statements (including any information returns) required to be filed for purposes of a particular Tax. "Schedule" means each Schedule attached hereto, which shall reference the relevant sections of this Agreement, on which parties hereto disclose information as part of their respective representations, warranties and covenants. "SEC" means the United States Securities and Exchange Commission. "State of Incorporation" means the State of Florida. "Stockholders" has the meaning set forth in the first paragraph of this Agreement. "Subsidiaries" means with respect to a person or entity, any corporation or other entity in which such person or entity owns a 5% or greater ownership interest. "Tax" or "Taxes" means all federal, state, local or foreign net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value added, franchise, withholding, employment, excise, property, deed, stamp, alternative or add-on minimum, or other taxes, assessments, duties, fees, levies or other governmental charges, whether disputed or not, together with any interest, penalties, additions to tax or additional amounts with respect thereto. 4 13 1. ACQUISITION OF STOCK 1.1 ACQUISITION. Upon the terms and subject to the conditions contained in this Agreement and in reliance upon the representations, warranties, covenants and agreements contained in this Agreement, on the Closing Date, the Stockholders shall convey and transfer to AmPaM all of the issued and outstanding shares of Company Stock as set forth in Annex I hereto. 1.2 CONSIDERATION. The consideration for the Company Stock shall be as set forth on Annex I to this Agreement. 1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY AND AMPAM. The respective designations and numbers of outstanding shares and voting rights of each class of outstanding capital stock of the Company and AmPaM as of the date of this Agreement are as follows: (i) as of the date of this Agreement, the authorized and outstanding Company Stock is as set forth on Schedule 5.3 hereto; and (ii) immediately prior to the Closing Date, the authorized capital stock of AmPaM will consist of (A) 100,000,000 shares of AmPaM Stock, of which the number of issued and outstanding shares will be set forth in the Private Placement Memorandum, (B) 10,000,000 shares of redeemable preferred stock, of which the number of issued and outstanding shares will be set forth in the Private Placement Memorandum, and (C) 5,000,000 shares of Restricted Voting Common Stock, $.01 per value (the "Restricted Common Stock"), all of which will be issued and outstanding except as otherwise set forth in the Private Placement Memorandum. 2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY 2.1 BOARD OF DIRECTORS. The Company and the Stockholders shall take action, including solicitation of resignation of directors, necessary so that the Board of Directors of the Company as of the Closing Date shall consist only of the persons identified on Schedule 2.1 hereto. 2.2 OFFICERS. The Company and the Stockholders shall take action, including solicitation of resignation of officers, necessary so that the officers of the Company as of the Closing Date shall consist only of the persons identified on Schedule 2.2 hereto. 5 14 3. DELIVERY OF CONSIDERATION 3.1 STOCKHOLDERS' CONSIDERATION. On the Closing Date, the Stockholders shall, upon surrender of certificates evidencing the Company Stock, receive from AmPaM the respective number of shares of AmPaM Stock, the amount of cash and the principal amount of AmPaM Notes described on Annex I hereto specified with respect to each such Stockholder as payable on the Closing Date. All payments of cash shall be made by certified check or wire transfer of immediately available funds. Consideration consisting of AmPaM Notes shall be substantially in the form of Appendix A to Annex I. 3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at the Closing the certificates representing Company Stock, duly endorsed in blank by the Stockholders, or accompanied by blank stock powers, and with all necessary transfer tax and other revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The Stockholders agree promptly to cure any deficiencies with respect to the endorsement of the stock certificates or other documents of conveyance with respect to such Company Stock or with respect to the stock powers accompanying any Company Stock. 4. CLOSING The consummation of the transactions contemplated by Section 3 (the "Closing") shall take place on March 31, 1999 or such date not later than May 31, 1999 as AmPaM shall determine by giving written notice of such other date as provided in Section 18.7 (the "Closing Date") at the offices of Andrews & Kurth L.L.P., 4200 Chase Tower, 600 Travis, Houston, Texas 77002. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY (A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in the disclosure schedules attached hereto and except as otherwise qualified below, the Company represents and warrants that all of the following representations and warranties in this Section 5(A) are true at the date of this Agreement and, subject to Section 7.7 hereto, shall be true at the time of the Closing, and that such representations and warranties shall survive the Closing Date for a period of eighteen months (the last day of such period being the "Expiration Date"), except that the representations and warranties set forth in Sections 5.3, 5.22 and 5.32 hereof shall survive until such time as the applicable statute of limitations period has run, which shall be deemed to be the Expiration Date for the representations and warranties set forth in Sections 5.3, 5.22 and 5.32. For purposes of this Section 5, the term "Company" shall mean and refer to the Company and all of its Subsidiaries, if any, and any reference to a Material Adverse Effect on the Company or Material Adverse Change with respect to the Company shall mean the Company and its Subsidiaries, taken as a whole. Except as expressly set forth in this Agreement, the Company expressly disclaims any representation or warranty (express, implied or otherwise) relating to the 6 15 Company and any Subsidiary thereof including, without limitation, any warranty of merchantability or fitness for a particular purpose. 5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of Incorporation, and has the requisite power and authority to carry on its business as it is now being conducted. The Company is duly qualified or authorized to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or authorization necessary except where the failure to be so qualified or authorized to do business would not have a Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all states in which the Company is authorized or qualified to do business, which list indicates which of such entities is authorized or qualified to do business in such states. True, complete and correct copies of the Certificate or Articles of Incorporation and By-laws, each as amended, of the Company (the "Charter Documents") are all attached to Schedule 5.1. The Company has delivered to AmPaM complete and correct copies of (i) the stock records of the Company and (ii) all minutes of meetings, written consents and other evidence, if any, of deliberations of or actions taken by the Company's Board of Directors, any committees of the Board of Directors and stockholders during the last five years. 5.2 AUTHORIZATION. (i) The officers or other representatives of the Company executing this Agreement have the authority to enter into and bind the Company to the terms of this Agreement and (ii) the Company has the full legal right, power and authority to enter into this Agreement and consummate the transactions contemplated hereby. Copies of the most recent resolutions adopted by the Board of Directors of the Company and the most recent resolutions adopted by the Stockholders, which approve this Agreement and the transactions contemplated hereby in all respects, certified by the Secretary or an Assistant Secretary of the Company as being in full force and effect on the date hereof, are attached hereto as Schedule 5.2. 5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the Company and each of its Subsidiaries is as set forth on Schedule 5.3(a). All of the issued and outstanding shares of the capital stock of the Company and the Subsidiaries are owned by the Stockholders in the amounts set forth in Schedule 5.3(a). Except as set forth on Schedule 5.3(a), all of the issued and outstanding capital stock of each Subsidiary is owned by the Company. All of the issued and outstanding shares of the capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable, are owned of record by the Stockholders and further, such shares were offered, issued, sold and delivered by the Company in compliance with all applicable state and Federal laws concerning the issuance of securities. Further, none of such shares were issued in violation of any preemptive rights of any past or present stockholder. 7 16 5.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 5.4(a), the Company has not acquired or redeemed any shares of capital stock of the Company since January 1, 1996. Except as set forth on Schedule 5.4(b), (i) no option, warrant, call, conversion right or commitment of any kind exists which obligates the Company to issue any of its authorized but unissued capital stock; (ii) the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof; and (iii) neither the voting stock structure of the Company nor the relative ownership of shares among any of its Stockholders has been altered or changed in contemplation of the AmPaM Plan of Organization. There are no voting trusts, proxies or other agreements or understandings to which the Company is a party or is bound with respect to the voting of any shares of capital stock of the Company. 5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the shares of Company Stock was issued pursuant to awards, grants or bonuses in contemplation of the AmPaM Plan of Organization. 5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set forth on Schedule 5.6(a), the Company has no Subsidiaries. Except as set forth in Schedule 5.6(b), the Company does not presently own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity nor is the Company, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. 5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7(a) is a list of all predecessor companies of the Company, including the names of any entities acquired by the Company (by stock purchase, merger or otherwise) or owned by the Company or from whom the Company previously acquired material assets, in any case, from the earliest date upon which any Stockholder acquired his or her stock in any Company. Except as disclosed on Schedule 5.7(b), the Company has not been, within such period of time, a subsidiary or division of another corporation or a part of an acquisition which was later rescinded. 5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there has not been any sale, spin-off or split-up of material assets of either the Company or any other person or entity that is an Affiliate of the Company since January 1, 1996. 5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 is a copy of: (i) the balance sheets of the Company as of December 31, 1996 and 1997 and the related statements of operations, stockholders' equity and cash flows for the three-year period ended December 31, 1997, together with the related notes and schedules (such balance sheets, the related statements of operations, stockholders' equity and cash flows and the related notes and schedules are referred to herein as the "Year-end Financial Statements"); 8 17 (ii) the balance sheet of the Company as of June 30, 1998 and the related statements of operations, stockholders' equity and cash flows for the six-month periods ended June 30, 1997 and 1998, together with the related notes and schedules (such balance sheets, the related statements of operations, stockholders' equity and cash flows and the related notes and schedules are referred to herein as the "Six-Month Interim Financial Statements"); (iii) the balance sheet of the Company as of September 30, 1998 (the "Balance Sheet Date") and the related statements of operations, stockholders' equity and cash flows for the nine-month periods ended September 30, 1997 and 1998 (such balance sheets, the related statements of operations, stockholders' equity and cash flows are referred to herein as the "Nine-Month Interim Financial Statements"); and (iv) the income statement of the Company for the 12-month period ended June 30, 1998 (the "Valuation Income Statement"). The Year-end Financial Statements, the Six-Month Interim Financial Statements, the Nine-Month Interim Financial Statements and the Valuation Income Statement are collectively called the "Financial Statements". The Financial Statements, including those included in the Private Placement Memorandum, have been prepared in accordance with GAAP applied on a consistent basis and fairly present the financial position of the Company as of the dates thereof and the results of its operations and changes in financial position for the periods then ended, subject, in the case of the Six-Month Interim Financial Statements and the Nine-Month Interim Financial Statements, to normal year-end audit adjustments and any other adjustments described therein and the absence of certain footnote disclosures. 5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10(a) sets forth an accurate list as of the Balance Sheet Date of (i) all material liabilities of the Company which are not reflected on the balance sheet of the Company at the Balance Sheet Date or otherwise reflected in the Company Financial Statements at the Balance Sheet Date which by their nature would be required in accordance with GAAP to be reflected in the balance sheet, and (ii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages, pledges or other security agreements to which the Company is a party or by which its properties may be bound other than bid bonds and performance bonds made in the Ordinary Course of Business. Except as set forth on Schedule 5.10(b), since the Balance Sheet Date, the Company has not incurred any material liabilities or obligations of any kind, character or description, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than liabilities incurred in the Ordinary Course of Business. The Company has also delivered to AmPaM, on Schedule 5.10(c), a list of contingent liabilities related to pending litigation or litigation that has been threatened in writing, or other material liabilities which are not fixed or otherwise accrued or reserved. For each such contingent liability of the Company or liability of the Company for which the amount is not fixed or is contested, the Company has provided to AmPaM the following information: 9 18 (i) a summary description of the liability together with the following: (a) copies of all relevant documentation in the possession of the Company or its directors, officers or stockholders relating thereto; (b) amounts claimed and any other action or relief sought; and (c) name of claimant and all other parties to the claim, suit or proceeding; (ii) the name of each court or agency before which such claim, suit or proceeding is pending; (iii) the date such claim, suit or proceeding was instituted; and (iv) a good faith estimate of the maximum amount, if any, which the Company expects, based on information available, is likely to become payable with respect to each such liability and the amount, if any, accrued or reserved for each such potential liability on the Financial Statements. AmPaM acknowledges that all estimates referred to above and set forth on Schedule 5.10(c) are only good faith estimates, and that the Company and the Stockholders expressly do not represent or warrant that the actual amounts of such liabilities will be equal to, or more or less than, the amounts of such estimates. 5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11(a) sets forth an accurate list, in all material respects, of the accounts and notes receivable of the Company, as of the Balance Sheet Date, including any such amounts which are not reflected in the balance sheet as of the Balance Sheet Date, and including all receivables from and advances to employees and the Stockholders, which are identified as such. Schedule 5.11(a) also sets forth a materially accurate aging of all accounts and notes receivable as of the Balance Sheet Date showing amounts due in 30-day aging categories. Except to the extent reflected on Schedule 5.11(b), such accounts, notes and other receivables are collectible in the amounts shown on Schedule 5.11(a), net of reserves reflected in the balance sheet as of the Balance Sheet Date. 5.12 LICENSES; INTELLECTUAL PROPERTY. (a) The Company or its employees hold all licenses, franchises, permits and other governmental authorizations ("Licenses") necessary to conduct the business of the Company, the absence of which would cause a Material Adverse Effect on the Company, and the Company has delivered to AmPaM a list that is accurate, in all material respects, and summary description (which is set forth on Schedule 5.12(a)(1)) of all such Licenses. At or prior to the Closing, all such Licenses owned or held by any employee of the Company will be assigned or licensed to the Company for no additional consideration. The Licenses listed on Schedule 5.12(a)(1) are valid, and the Company has not received any notice that any person intends to cancel, terminate or not renew any such License. The Company has conducted and is conducting its business in compliance in all material respects with the requirements, standards, criteria and 10 19 conditions set forth in the Licenses listed on Schedule 5.12(a)(1) and is not in violation of any of the foregoing in any material respect. Except as specifically provided in Schedule 5.12(a)(2), the consummation by the Company of the transactions contemplated by this Agreement will not result in a default under or a breach or violation of, or adversely affect the rights and benefits afforded to the Company by, any such Licenses. (b) The Company owns or possesses adequate licenses or other rights to use (without making any payment or granting rights to any person in exchange) all patents, patent applications, trademarks, copyrights, service marks and trade names (collectively, the "Intellectual Property") necessary to conduct its business as currently conducted. A description of any Intellectual Property licensed by the Company, including the material terms of any such license, is described on Schedule 5.12(b)(1). Neither the validity of the Intellectual Property nor the title thereto or use thereof by the Company is being questioned in any pending litigation, and the conduct of the Company's business, as currently conducted, does not conflict with licenses, copyrights, uncopyrighted works, trade marks, service marks, trade names, trade name rights, patents, patent rights, unpatented inventions or trade secrets of others. Neither the validity of the Intellectual Property nor the title thereto or use thereof by the Company is being questioned in any pending or, to the knowledge of the Company, threatened infringement claims or litigation, and the conduct of the Company's business, as now conducted, does not conflict with licenses, copyrights, uncopyrighted works, trade marks, service marks, trade names, trade name rights, patents, patent rights, unpatented inventions or trade secrets of others. Except as specifically provided in Schedule 5.12(b)(2), the consummation by the Company of the transactions contemplated by this Agreement will not adversely affect the rights and benefits afforded to the Company by any such Intellectual Property. 5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule 5.13 attached hereto, (i) the Company has conducted its businesses in compliance in all material respects with all applicable Environmental Laws, including, without limitation, having all environmental permits, licenses and other approvals and authorizations necessary for the operation of its business as presently conducted, except where the failure to have such permit, license, approval or authorization would not have a Material Adverse Effect on the Company, (ii) none of the properties owned by the Company contain any Hazardous Substance as a result of any activity of the Company in amounts exceeding the levels permitted by applicable Environmental Laws, except where amounts in excess of such levels would not have a Material Adverse Effect on the Company, (iii) the Company has not received any notices, demand letters or requests for information from any Federal, state, local or foreign governmental entity or third party indicating that the Company may be in violation of, or liable under, any Environmental Law in connection with the ownership or operation of its business, (iv) there are no civil, criminal or administrative actions, suits, demands, claims, hearings, investigations or proceedings pending or, to the knowledge of the Company, threatened, against the Company relating to any violation, or alleged violation, of any Environmental Law, except where such violation would not have a Material Adverse Effect on the Company, (v) no reports have been filed, or are required to be filed, by the Company concerning the release of any Hazardous Substance or the threatened or actual violation of any Environmental Law, (vi) no Hazardous Substance has 11 20 been disposed of, released or transported in violation of any applicable Environmental Law from any properties owned by the Company as a result of any activity of the Company during the time such properties were owned, leased or operated by the Company, (vii) there have been no environmental investigations, studies, audits, tests, reviews or other analyses regarding compliance or non-compliance with any applicable Environmental Law conducted by or which are in the possession of the Company relating to the activities of the Company which are not listed on Schedule 5.13 attached hereto prior to the date hereof, (viii) to the knowledge of the Company, (A) there are no underground storage tanks on, in or under any properties owned by the Company and (B) no underground storage tanks have been closed or removed from any of such properties during the time such properties were owned, leased or operated by the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the Company, (A) there is no asbestos or asbestos-containing material present in any material quantity in any of the properties owned by the Company, and (B) no asbestos has been removed from any of such properties during the time such properties were owned, leased or operated by the Company, and (x) neither the Company nor any of its properties are subject to any material liabilities or expenditures (fixed or contingent) relating to any suit, settlement, court order, administrative order, regulatory requirement, judgment or claim asserted or arising under any Environmental Law. (b) As used herein, "Environmental Law" means, as of the Closing Date, any Federal, state, local or foreign law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction or agreement with any governmental entity to which the Company is a party or subject relating to (x) the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource) or to human health or safety or (y) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances, in each case as amended and as in effect on the Closing Date. The term Environmental Law includes, without limitation, (i) the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as amended and as in effect on the Closing Date, and (ii) any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of, effects of or exposure to any Hazardous Substance. (c) As used herein, "Hazardous Substance" means any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive, or dangerous, or otherwise regulated, under any Environmental Law. Hazardous Substance includes any substance to which exposure is regulated by any government authority or any Environmental Law including, without 12 21 limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste, industrial substance or petroleum or any derivative or by-product thereof, radon, radioactive material, asbestos or asbestos-containing material, urea formaldehyde foam insulation, lead or polychlorinated biphenyls. 5.14 PERSONAL PROPERTY. The Company has delivered to AmPaM an accurate list (which is set forth on Schedule 5.14(a)) of (x) all personal property material to the operations of the Company as of the Balance Sheet Date included in "plant, property and equipment" on the balance sheet of the Company as of such date, (y) all other items of personal property owned by the Company with an individual value in excess of $15,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all material leases and agreements in respect of personal property, including, in the case of each of (x), (y) and (z), (1) true, complete and correct copies of all such leases and (2) an indication as to which assets are currently owned, or were formerly owned, by Stockholders, relatives of Stockholders, or Affiliates of the Company. Except as set forth on Schedule 5.14(b), (i) all personal property material to, and used by, the Company in its business is either owned by the Company or leased by the Company pursuant to a lease included on Schedule 5.14(a), (ii) all of the personal property listed on Schedule 5.14(a) or replacement property thereof is in working order and condition, ordinary wear and tear excepted and (iii) all leases and agreements included on Schedule 5.14(a) are in full force and effect and constitute valid and binding agreements of the Company, in each case in accordance with their respective terms. 5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. (a) The Company has delivered to AmPaM a materially accurate list (which is set forth on Schedule 5.15(a)(1)) of all customers (persons or entities) representing 5% or more of the Company's annual revenues for any period covered by any of the Financial Statements. Except to the extent set forth on Schedule 5.15(a)(2), none of such customers has canceled or, to the knowledge of the Company, are currently threatening to cancel a currently effective contract with the Company. (b) The Company has listed on Schedule 5.15(b) all material contracts, commitments and similar agreements to which the Company is a party or by which it or any of its properties are bound (including, but not limited to, contracts with customers listed on Schedule 5.15(a), joint venture or partnership agreements, contracts with any labor organizations, strategic alliances and options to purchase land), other than agreements listed on Schedules 5.10(a), Schedule 5.14(a) or Schedule 5.16(a), (a) in existence as of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and in each case has delivered or made available to AmPaM true, complete and correct copies of such agreements. For purposes of the preceding sentence, a contract, commitment or similar agreement is "material" if it (i) has a term of more than one year (other than contracts, commitments or agreements that are cancelable without liability or penalty within 30 days of notice from the Company of cancellation or that can be terminated by the Company without material penalty upon notice of 30 days or less) or (ii) requires the payment by or to the Company of more than $100,000 during any 12-month period. Except for expenditures in the ordinary course of 13 22 business, the Company has also indicated on Schedule 5.15(b) a summary description of all plans or projects involving the opening of new operations, expansion of existing operations, or the acquisition of any personal property, business or assets requiring, in any event, the payment of more than $50,000 by the Company during any 12-month period. (c) Except as set forth on Schedule 5.15(c), the Company is not required to provide any bonding or other financial security arrangements in any material amount in connection with any contract listed on Schedule 5.15(b). 5.16 REAL PROPERTY. Schedule 5.16(a) includes a list of all real property owned or leased by the Company at the date hereof and all other real property, if any, used by the Company in the conduct of its business. The Company has good and insurable title to any real property owned by it that is shown on Schedule 5.16(a), other than property intended to be sold or distributed prior to the Closing Date as provided in Section 7.1(c) of this Agreement, and all real property so owned is subject to no mortgage, pledge, lien, conditional sales agreement, encumbrance, lease, possessory rights of third parties or charge, except for: (i) liens reflected on Schedule 5.10(a) or Schedule 5.16(b) as securing specified liabilities (with respect to which no material default by the Company exists); (ii) liens for current taxes not yet payable and assessments not in default; (iii) easements for utilities serving the property; and (iv) easements, covenants and restrictions and other exceptions to title which do not adversely affect the current use of the property. Copies of all leases and agreements in respect of such real property leased by the Company, which are true, complete and correct in all material respects, are attached to Schedule 5.16(a), and an indication as to which such properties, if any, are currently owned, or were formerly owned, by Stockholders or Affiliates of the Company or Stockholders is included in Schedule 5.16(a). Except as set forth on Schedule 5.16(b), all of such leases included on Schedule 5.16(a) are, as to the Company, in full force and effect and constitute valid and binding agreements of the Company in accordance with their respective terms. 5.17 INSURANCE. The Company has delivered to AmPaM (i) an accurate list as of the Balance Sheet Date of all insurance policies carried by the Company and (ii) an accurate list of all insurance loss runs or workers compensation claims received for the past three policy years (which lists are set forth on Schedule 5.17). The Company has also delivered or made available to AmPaM true, complete and correct copies of all insurance policies currently in effect that are referred in Schedule 5.17. Such insurance policies evidence all of the insurance the Company is required to carry pursuant to all of its contracts and other agreements and pursuant to all applicable laws. All of such insurance policies are currently in full force and effect except as stated in Schedule 5.17. 14 23 Since January 1, 1996, no insurance carried by the Company has been canceled by the insurer and the Company has not been denied coverage under any such policy. 5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS. (a) The Company has delivered to AmPaM an accurate list (which is set forth on Schedule 5.18(a)(1)) showing all officers, directors and key employees of the Company, listing all employment agreements with such officers, directors and key employees and the rate of compensation (and the portions thereof attributable to salary, bonus and other compensation, respectively) of each of such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The Company has provided to AmPaM true, complete and correct copies of any employment agreements for persons listed on Schedule 5.18(a)(1). Since the Balance Sheet Date, except as disclosed on Schedule 5.18(a)(2), there have been no increases in the compensation payable or any bonuses to any officer, director, key employee or other employee, except ordinary salary increases implemented on a basis consistent with past practices and except for bonuses paid on a basis consistent with past practices. (b) Except as set forth on Schedule 5.18(b), (i) the Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any arrangement with any labor union, (ii) to the knowledge of the Company, no campaign to establish such arrangement is in progress and (iii) there is no pending or, to the Company's knowledge, threatened labor dispute involving the Company and any group of its employees nor has the Company experienced any labor interruptions over the past three years. The Company believes its relationship with employees to be generally good. (c) Except as set forth in Schedule 5.18(c) attached hereto, (i) there are no claims, actions or proceedings pending or, to the knowledge of the Company, threatened between the Company and any of its employees, (ii) the Company has complied in all material respects with all laws relating to the employment of labor, including, without limitation, any provisions thereof relating to wages, hours, collective bargaining, and the payment of social security and similar taxes, and (iii) the Company has not received written notice from any person asserting that the Company is liable in any material amount for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. 5.19 EMPLOYEE PLANS. The Company has delivered to AmPaM accurate schedule (Schedule 5.19(a)) showing all employee benefit plans of the Company, including all employment agreements and other agreements or arrangements containing "golden parachute" or other similar provisions, and deferred compensation agreements, together with true, complete and correct copies of such plans, agreements and any trusts related thereto, and classifications of employees covered thereby as of the Balance Sheet Date and as of the date of this Agreement. Except for the employee benefit plans, if any, described on Schedule 5.19(a), the Company does not sponsor, maintain or contribute to any plan program, fund or arrangement that constitutes an "employee pension benefit plan", and neither the Company nor any Subsidiary has any obligation to contribute to or accrue or 15 24 pay any benefits under any deferred compensation or retirement funding arrangement on behalf of any employee or employees (such as, for example, and without limitation, any individual retirement account or annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred compensation arrangement). For the purposes of this Agreement, the term "employee pension benefit plan" shall have the same meaning as is given that term in Section 3(2) of ERISA. The Company has not sponsored, maintained or contributed to any employee pension benefit plan other than the plans set forth on Schedule 5.19(a), and, except as described on Schedule 5.19(b), the Company is not or could not be required to contribute to any retirement plan pursuant to the provisions of any collective bargaining agreement establishing the terms and conditions or employment of any of the Company's employees. Except as set forth on Schedule 5.19(c), the Company is not now, or will not as a result of its past activities become, liable to the Pension Benefit Guaranty Corporation or to any multiemployer employee pension benefit plan under the provisions of Title IV of ERISA. All employee benefit plans listed on Schedule 5.19(a) and the administration thereof are in compliance in all material respects with their terms and all applicable provisions of ERISA and the regulations issued thereunder, as well as with all other applicable federal, state and local statutes, ordinances and regulations. All accrued contribution obligations of the Company as of the Balance Sheet Date with respect to any plan listed on Schedule 5.19(a) have either been fulfilled in their entirety or are fully reflected on the balance sheet of the Company as of the Balance Sheet Date. 5.20 COMPLIANCE WITH ERISA. All plans listed on Schedule 5.19(a) that are intended to qualify under Section 401 (a) of the Code (the "Qualified Plans") are, and have been so qualified and have been determined by the Internal Revenue Service to be so qualified, and copies of such determination letters are attached to Schedule 5.19(a). Except as disclosed on Schedule 5.20, all reports and other documents required to be filed with any governmental agency or distributed to plan participants or beneficiaries (including, but not limited to, actuarial reports, audits or tax returns) since January 1, 1992 have been timely filed or distributed, and copies thereof have been made available to AmPaM. No such plan listed on Schedule 5.19(a) nor the Company has engaged in any transaction prohibited under the provisions of Section 4975 of the Code or Section 406 of ERISA. No such Plan listed on Schedule 5.19(a) has incurred an accumulated funding deficiency, as defined in Section 412(a) of the Code and Section 302(l) of ERISA; and the Company has not incurred any liability for excise tax or penalty due to the Internal Revenue Service nor any liability to the Pension Benefit Guaranty Corporation. The Company further represents that except as set forth on Schedule 5.20 hereto: (i) there have been no terminations, partial terminations or discontinuations of contributions to any Qualified Plan intended to qualify under Section 401(a) of the Code without notice to and approval by the Internal Revenue Service; 16 25 (ii) no plan listed on Schedule 5.19(a) subject to the provisions of Title IV of ERISA has been terminated; (iii) there have been no "reportable events" (as that phrase is defined in Section 4043 of ERISA) with respect to any such plan listed in Schedule 5.19(a); (iv) the Company (including any Subsidiaries) has not incurred liability under Section 4062 of ERISA; and (v) no circumstances exist pursuant to which the Company could have any direct or indirect liability whatsoever (including, but not limited to, any liability to any multiemployer plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for any excise tax or penalty, or being subject to any statutory lien to secure payment of any such liability) with respect to any plan now or heretofore maintained or contributed to by any entity other than the Company that is, or at any time was, a member of a "controlled group" (as defined in Section 412(n)(6)(B) of the Code) that includes the Company. 5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on Schedule 5.21 or Schedule 5.13, the Company has not violated within the five years prior to the date of this Agreement and is not currently in violation of any law or regulation or any order of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it other than violations that would not have a Material Adverse Effect on the Company; and except to the extent set forth on Schedule 5.10(c) or Schedule 5.13, there are no claims, actions, suits or proceedings, pending or, to the knowledge of the Company, threatened in writing against the Company, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over the Company and no written notice of any claim, action, suit or proceeding, whether pending or threatened, has been received by the Company, and to the knowledge of the Company there is no valid basis for any such claim, action, suit or proceeding that could reasonably be expected to have a Material Adverse Effect on the Company. 5.22 TAXES. (a) The Company has timely filed all requisite Federal, state and other Tax Returns or extension requests for all fiscal periods ended on or before the Balance Sheet Date; and except as set forth on Schedule 5.22(a), there are no examinations in progress or claims pending against the Company for federal, state and other Taxes (including penalties and interest) for any period or periods prior to and including the Balance Sheet Date and no notice of any claim for Taxes, whether pending or threatened, has been received. All Tax, including interest and penalties (whether or not shown on any Tax Return), due by the Company has been paid. The amounts shown as accruals for Taxes on the Financial Statements are sufficient for the payment of all Taxes of the kinds indicated (including penalties and interest) for all fiscal periods ended on or before the date of the respective Financial Statements. Copies of (i) any tax examinations, (ii) extensions of statutory limitations and (iii) the federal and local income Tax Returns and franchise Tax Returns of Company for their last three (3) fiscal years, or such shorter period of time as any of them shall 17 26 have existed, are attached hereto as Schedule 5.22(a) or have otherwise been delivered to AmPaM. The Company has a taxable year ended December 31. Except as set forth on Schedule 5.22(a), the Company uses the accrual method of accounting for income tax purposes, and the Company's methods of accounting have not changed in any material respect in the past five years (except as required to conform to changes in GAAP). The Company is not an investment company as defined in Section 351(e)(1) of the Code. The Company is not and has not during the last five years been a party to any tax sharing agreement or agreement of similar effect. Except as set forth on Schedule 5.22(a), the Company is not and has not during the last five years been a member of any consolidated group for federal tax purposes. The Company has not received, been denied, or applied for any private letter ruling from the IRS during the last ten years. (b) The Stockholders have made a valid election under the provisions of Subchapter S of the Code and, except as set forth on Schedule 5.22(b), the Company has not, within the past five years, been subject to Federal income Taxes under the provisions of Subchapter C of the Code. 5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC. (a) The Company is not in violation of any Charter Document. Except as set forth on Schedule 5.23(a), the Company is not in default under any lease, instrument, agreement, license, or permit set forth on Schedule 5.12(a), Schedule 5.14(a), Schedule 5.15(b) or Schedule 5.16(a) (collectively, the "Material Documents"). (b) Except as set forth on Schedule 5.23(b)(1), the execution and delivery of this Agreement by each of the Company and the Stockholders do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company under any of the terms, conditions or provisions of (i) the Charter Documents of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to the Company or any of its properties or assets, or (iii) any Material Document to which the Company is now a party or by which the Company or any of its properties or assets may be bound or affected. The consummation by the Company and the Stockholders of the transactions contemplated hereby will not result in any material violation, conflict, breach, right of termination or acceleration or creation of liens under any of the terms, conditions or provisions of the items described in clauses (i) through (iii) of the preceding sentence, subject, in the case of the terms, conditions or provisions of the items described in clause (iii) above, to obtaining (prior to the Effective Time) such consents as may be required from commercial lenders, lessors or other third parties as listed on Schedule 5.23(b)(2). (c) Except as set forth on Schedule 5.23(c) and except for the Hart-Scott Act, none of the Material Documents requires notice to, or the consent or approval of, any governmental agency or other third party with respect to the consummation by the Company and the Stockholders of any of 18 27 the transactions contemplated hereby in order to remain in full force and effect, and consummation by the Company and the Stockholders of the transactions contemplated hereby will not give rise to any right to termination, cancellation or acceleration or loss of any material right or benefit under any Material Document. (d) Except for (i) any filings to be made with the SEC pursuant to the 1933 Act or with any state securities authorities in connection with the offer and sale of AmPaM Stock and AmPaM Notes pursuant to this Agreement and (ii) any filing required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby. (e) Except as set forth on Schedule 5.23(e), none of the Material Documents prohibits the disclosure or publication by the Company or AmPaM of the name of any other party to such Material Document, and none of the Material Documents prohibits or restricts the Company from freely providing services or selling products to any other customer or potential customer of the Company, AmPaM or any Other Founding Company. 5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the Company is not now a party to any governmental contract subject to price redetermination or renegotiation. 5.25 ABSENCE OF CHANGES. (a) Since the Balance Sheet Date, except as set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not been: (i) any Material Adverse Change in the Company; (ii) any damage, destruction or casualty loss (whether or not covered by insurance), alone or in the aggregate, which has caused a Material Adverse Effect on the Company; (iii) any change in the authorized capital of the Company or its outstanding securities or any change in its ownership interests or any grant of any options, warrants, calls, conversion rights or commitments; (iv) any declaration or payment of any dividend or distribution in respect of the capital stock or any direct or indirect redemption, purchase or other acquisition of any of the capital stock of the Company except for distributions that would have been permitted after the date hereof under Section 7.3(iii) hereof, (v) any increase in the compensation, bonus, sales commissions or fee arrangement payable or to become payable by the Company to any of its officers, directors, 19 28 Stockholders, employees, consultants or agents, except for ordinary and customary bonuses and salary increases for employees in accordance with past practice; (vi) any work interruptions, labor grievances or claims filed, or any event or condition of any character, which has caused a Material Adverse Effect on the Company; (vii) any sale or transfer, or any agreement to sell or transfer, any material assets, property or rights of the Company to any person, including, without limitation, the Stockholders and their affiliates, except inventory sold or transferred in the Ordinary Course of Business; (viii) any cancellation, or agreement to cancel, any indebtedness or other obligation owing to the Company, including without limitation any indebtedness or obligation of any Stockholders or any Affiliate thereof; (ix) any plan, agreement or arrangement granting any preferential rights to purchase or acquire any interest in any of the material assets, property or rights of the Company or requiring consent of any party to the transfer and assignment of any such assets, property or rights; (x) any purchase or acquisition of, or agreement, plan or arrangement to purchase or acquire, any property, rights or assets outside of the Ordinary Course of Business; (xi) any waiver of any material rights or claims of the Company; (xii) any amendment or termination of any Material Document to which the Company is a party except for the termination of a Material Document in accordance with its terms without any action on the part of the Company; (xiii) any transaction by the Company outside the Ordinary Course of Business; (xiv) any cancellation or termination of a material contract with a customer or client listed on Schedule 5.15(a) prior to the scheduled termination date thereof; or (xv) any other distribution of property or assets by the Company other than in the Ordinary Course of Business, other than (a) distributions of nonoperating assets specifically identified on Schedule 5.25, (b) distributions of real estate required by Section 7.1(c) of this Agreement and (c) distributions of cash or promissory notes permitted by Annex I hereto. (b) Except as set forth on Schedule 5.25, the Company has not, between the Balance Sheet Date and the date hereof, taken any of the actions set forth in Section 7.3. 20 29 5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to AmPaM an accurate schedule (which is set forth on Schedule 5.26) as of the date of the Agreement of: (i) the name of each financial institution in which the Company has an account or safe deposit box; (ii) the names in which the accounts or boxes are held; (iii) the type of account and account number; and (iv) the name of each person authorized to draw thereon or have access thereto. Schedule 5.26 also sets forth the name of each person, corporation, firm or other entity holding a general or special power of attorney from the Company and a description of the terms of such power. 5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement by the Company and the performance of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of the Company and this Agreement has been duly and validly authorized by all necessary corporate action and is a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. 5.28 RELATIONS WITH GOVERNMENTS. The Company has not, and to the knowledge of the Company none of the Stockholders or any Affiliate of any of them has, given or offered anything of value to any governmental official, political party or candidate for government office or otherwise taken any action which would cause the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. 5.29 DISCLOSURE. This Agreement, including the Annexes and Schedules hereto, and the completed questionnaire related to the Hart-Scott Act furnished to AmPaM by the Company, do not contain an untrue statement of a material fact concerning the Company or omit to state a material fact concerning the Company necessary to make the statements herein and therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing does not apply to statements contained in or omitted from any of such documents made or omitted in reliance upon information furnished in writing by AmPaM. 5.30 NO WARRANTIES OR INSURANCE. Except for warranty liability under applicable law and except for warranty liability under the warranties issued by the Company of the types described on Schedule 5.30, the Company has no liability to any person under any warranty and the Company does not offer or sell insurance or consumer protection plans or other arrangements that could result in the Company being required to make any payment to or perform any service for any person. 21 30 5.31 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY TRANSACTIONS. Except as described on Schedule 5.31 or in Section 8.11, no Stockholder, officer, director or Affiliate of the Company (i) owns, directly or indirectly, any financial interest in, or is a director, officer, employee or affiliate of, any corporation, firm, association or business organization that is a client, supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or will be a party to an agreement or relationship with the Company other than through a customary "at will" employment relationship. 5.32 PRIVATE PLACEMENT MEMORANDUM. None of the information supplied or to be supplied by the Company in writing specifically for inclusion in the Private Placement Memorandum contained or, as of the Closing Date, will contain any untrue statement of a material fact concerning the Company or omitted or will omit to state any material fact required to be stated therein or necessary in order to make the statements contained in such information supplied or to be supplied by the Company concerning the Company, in light of the circumstances under which they are made, not misleading. (B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS. Each Stockholder severally represents and warrants that the representations and warranties set forth below are true as of the date of this Agreement and, subject to Section 7.7 hereof, shall be true at the time of Closing, and that the representations and warranties set forth in this Section 5(B) shall survive the Closing Date. 5.33 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right, power and authority to enter into this Agreement, and this Agreement is a legal, valid and binding obligation of such Stockholder, enforceable against the Stockholder in accordance with its terms. Except as set forth on Schedule 5.33(a), the execution and delivery of this Agreement by such Stockholder does not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of such Stockholder under any of the terms, conditions or provisions of (i) the Charter Documents of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to such Stockholder or any of such Stockholder's properties or assets, or (iii) any lease, instrument, agreement, license or permit to which such Stockholder is now a party or by which such Stockholder or any of such Stockholder's properties or assets may be bound or affected. Except for (i) any filings to be made with the SEC pursuant to the 1933 Act and any state securities authorities in connection with the offer and sale of AmPaM Stock and AmPaM Notes pursuant to this Agreement, (ii) any filing required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by such Stockholder or the consummation by such Stockholder of the transactions contemplated hereby. Except as set forth on 22 31 Schedule 5.33(b), such Stockholder owns beneficially and of record all of the shares of the Company Stock identified on Annex I hereto as being owned by such Stockholder, and, such Company Stock is owned free and clear of all liens, security interests, pledges, charges, voting trusts, voting agreements, restrictions, encumbrances and claims of every kind. 5.34 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby waives, any preemptive or other right to acquire shares of Company Stock or AmPaM Stock that such Stockholder has or may have had. Nothing herein, however, shall limit or restrict the rights of any Stockholder to acquire AmPaM Stock pursuant to (i) this Agreement, (ii) any option granted or to be granted by AmPaM to such Stockholder, (iii) a purchase through a broker in a regular stock market transaction or (iv) a purchase from a stockholder of a Founding Company (subject to compliance with any contractual restrictions or securities law restrictions applicable thereto specified in Section 15 hereof). 5.35 NO COMMITMENT TO DISPOSE OF AMPAM STOCK. No Stockholder is under any binding commitment or contract to sell, exchange or otherwise dispose of shares of AmPaM Stock or AmPaM Notes received pursuant to this Agreement. 5.36 DISCLOSURE. The completed Director and Officer Questionnaires with respect to such Stockholder (if any), the completed investor questionnaire furnished to AmPaM by such Stockholder in connection with the proposed acquisition by such Stockholder of AmPaM Stock and AmPaM Notes and any other information provided to AmPaM in writing by such Stockholder relating specifically to such Stockholder for inclusion in the Private Placement Memorandum do not contain an untrue statement of a material fact concerning such Stockholder or omit to state a material fact concerning such Stockholder necessary to make the statements herein and therein, in light of the circumstances under which they were made, not misleading. 6. REPRESENTATIONS OF AMPAM Except as otherwise qualified below, AmPaM represents and warrants that all of the following representations and warranties in this Section 6 are true at the date of this Agreement and, subject to Section 7.7 hereof, shall be true at the time of Closing, and that such representations and warranties shall survive the Closing Date for a period of eighteen months (the last day of such period being the "Expiration Date" for purposes of the representations and warranties set forth in this Section 6), except that the representations and warranties set forth in Section 6.3, 6.11 and 6.15 shall survive until such time as the applicable statute of limitations period has run, which shall be deemed to be the Expiration Date for the representations and warranties set forth in Sections 6.3, 6.11 and 6.15. AmPaM acknowledges that in purchasing the shares of Company Stock, it is relying upon its own independent investigation as well as the representations and warranties of the Company and the Stockholders as set forth in this Agreement. 23 32 6.1 DUE ORGANIZATION. AmPaM is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of Delaware, and has the requisite power and authority to carry on its business as it is now being conducted and as contemplated by the Private Placement Memorandum. AmPaM is duly qualified or authorized to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or authorization necessary, except where the failure to be so qualified or authorized to do business would not have a Material Adverse Effect. True, complete and correct copies of the Certificate of Incorporation and By-laws, each as proposed to be amended and as such documents shall be in effect as of the Closing Date, of AmPaM (the "AmPaM Charter Documents") are attached hereto as Annex II. 6.2 AUTHORIZATION. (i) The officers of AmPaM executing this Agreement have the authority to enter into and bind AmPaM to the terms of this Agreement and (ii) AmPaM has the full legal right, power and authority to enter into this Agreement and consummate the transactions contemplated hereby. All corporate acts and other proceedings required to have been taken by AmPaM to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and properly taken. 6.3 CAPITAL STOCK OF AMPAM. The authorized capital stock of AmPaM is as set forth in Section 1.3(ii). Immediately prior to the Closing Date, all of the issued and outstanding shares of the capital stock of AmPaM will be as set forth in the Private Placement Memorandum, free and clear of all liens, security interests, pledges, charges, voting trusts, restrictions, encumbrances and claims of every kind other than any restrictions described in the Private Placement Memorandum. All of the issued and outstanding shares of the capital stock of AmPaM have been duly authorized and validly issued, are fully paid and nonassessable and such shares were offered, issued, sold and delivered by AmPaM in compliance with all applicable state and Federal laws concerning the issuance of securities. Further, none of such shares were issued in violation of the preemptive rights of any past or present stockholder of AmPaM. Upon the Closing Date, the authorized, issued and outstanding shares of capital stock of AmPaM will be as set forth in the Private Placement Memorandum under the caption "Capitalization." Upon the Closing Date, the aggregate number of shares of AmPaM Stock issued and outstanding on the Closing Date that are owned by Sterling City Capital, LLC, any Affiliates of Sterling City Capital, LLC and the officers and directors of AmPaM will not be greater than the number of shares of AmPaM Stock reflected in the Private Placement Memorandum as the aggregate number of shares of AmPaM Stock to be issued and outstanding and owned by Sterling City Capital, LLC, any Affiliates of Sterling City Capital, LLC and the officers and directors of AmPaM. 6.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements and except as set forth in the Private Placement Memorandum, (i) no option, warrant, call, conversion right or commitment of any kind exists as of the date of this Agreement which obligates AmPaM to issue any of its authorized but unissued capital stock; and (ii) AmPaM has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof. The material terms of any 24 33 options, warrants or other rights to acquire shares of the stock of AmPaM referred to in the preceding sentence will be as described in the Private Placement Memorandum. 6.5 SUBSIDIARIES. As of the date of this Agreement, AmPaM has no subsidiaries. As of the date of this Agreement, AmPaM does not own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity, and AmPaM is not, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. 6.6 FINANCIAL STATEMENTS. The historical financial statements of AmPaM included in the Private Placement Memorandum (the "AmPaM Financial Statements") have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except as noted thereon), and the balance sheet included therein presents fairly the financial position of AmPaM as of its date. Management of AmPaM believes that the assumptions underlying the pro forma adjustments utilized in the preparation of such pro forma financial statements are reasonable, and such pro forma adjustments have been properly applied to the historical financial amounts in the compilation of the pro forma financial statements. Based on the representations in Section 5.9 of this Agreement and in Section 5.9 of each of the Other Agreements, the pro forma financial information of AmPaM fairly presents the pro forma financial position, results of operations and other information purported to be shown therein at the respective dates and for the respective periods specified. 6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Private Placement Memorandum, as of the date of this Agreement, AmPaM has no material liabilities or obligations of any kind, character or description, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than liabilities incurred in the ordinary course of business and consistent with past practices, liabilities or obligations set forth in or contemplated by this Agreement and the Other Agreements and except for fees incurred in connection with the transactions contemplated hereby and thereby. 6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the Private Placement Memorandum, AmPaM is not in violation of any law or regulation or any order of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it and its stockholders and, there are no claims, actions, suits or proceedings, pending or, to the knowledge of AmPaM, threatened against or affecting, AmPaM, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it and no notice of any claim, action, suit or proceeding, whether pending or threatened, has been received. AmPaM has conducted and is conducting its businesses in compliance in all material respects with the requirements, standards, criteria and conditions set forth in applicable Federal, state and local statutes, ordinances, permits, licenses, orders, approvals, variances, rules and regulations and is not in violation, in any material respect, of any of the foregoing. 25 34 6.9 NO VIOLATIONS. (a) AmPaM is not in violation of any AmPaM Charter Document. AmPaM is not in default under any lease, instrument, agreement, license, or permit to which AmPaM is a party or by which AmPaM or any of its properties are bound (collectively, the "AmPaM Documents"). (b) The execution and delivery of this Agreement by AmPaM do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of AmPaM under any of the terms, conditions or provisions of (i) the AmPaM Charter Documents, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to AmPaM or any of its properties or assets, or (iii) any AmPaM Document; provided that the representations and warranties specified in clause (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. The consummation by AmPaM of the transactions contemplated hereby will not result in any material violation, conflict, breach, right of termination or acceleration or creation of liens under any of the terms, conditions or provisions of the items described in clauses (i) through (iii) of the preceding sentence, subject, in the case of the terms, conditions or provisions of the items described in clause (iii) above, to obtaining (prior to the Closing Date) (x) such approvals, consents or orders from the SEC, state blue sky authorities and authorities administering the Hart-Scott Act and (y) such other consents as may be required from commercial lenders, lessors or other third parties which are listed on Schedule 6.9. (c) Except for (i) any filings to be made with the SEC pursuant to the 1933 Act and filings with various state securities authorities in connection with the transactions contemplated by this Agreement, and (ii) any filings required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, none of the AmPaM Documents requires notice to, or the consent or approval of, any governmental agency or other third party with respect to the consummation by AmPaM of any of the transactions contemplated hereby in order to remain in full force and effect, and consummation by AmPaM of the transactions contemplated hereby will not give rise to any right to termination, cancellation or acceleration or loss of any material right or benefit under the AmPaM Documents; provided that the representations and warranties specified in clauses (i) and (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the 26 35 stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. (d) Except for (i) any filings with the SEC pursuant to the 1933 Act and filings with various state securities authorities in connection with the transactions contemplated by this Agreement and (ii) any filings required under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by AmPaM or the consummation by AmPaM of the transactions contemplated hereby; provided that the representations and warranties specified in clauses (i) and (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. 6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement by AmPaM and the performance of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of AmPaM and this Agreement has been duly and validly authorized by all necessary corporate action and is a legal, valid and binding obligation of AmPaM, enforceable against AmPaM in accordance with its terms. 6.11 AmPaM STOCK. At the time of issuance thereof and delivery to the Stockholders, the AmPaM Stock to be delivered to the Stockholders pursuant to this Agreement will constitute valid, duly authorized and legally issued shares of AmPaM, fully paid and nonassessable, and with the exception of restrictions upon resale set forth in Sections 15 and 16 hereof, will be identical in all substantive respects (which do not include the form of certificate upon which it is printed or the presence or absence of a CUSIP number on any such certificate) to the AmPaM Stock issued and outstanding as of the date hereof, other than the Restricted Common Stock. The AmPaM Stock issued and delivered to the Stockholders shall at the time of such issuance and delivery be free and clear of any liens, claims or encumbrances of any kind or character. The offer and sale of the shares of AmPaM Stock to be issued to the Stockholders pursuant to this Agreement are not required to be registered under the 1933 Act; provided that the representations and warranties specified in this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are 27 36 subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. 6.12 AmPaM NOTES. The AmPaM Notes have been duly authorized and, at the Closing Date, will have been duly executed by AmPaM and, when authenticated, issued and delivered, will constitute valid and binding obligations of AmPaM, enforceable against AmPaM in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers) reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). 6.13 NO SIDE AGREEMENTS. AmPaM has not entered into any agreement with any of the Founding Companies or any of the Stockholders of the Founding Companies other than this Agreement, the Other Agreements, the agreements referred to in this Agreement and in the Other Agreements and the Private Placement Memorandum. AmPaM has not entered into any agreements providing for rights to register shares of AmPaM Stock under the 1933 Act except as provided in Section 17 of this Agreement, in Section 17 of the Other Agreements and in an agreement with Sterling City Capital, LLC, its Affiliates and officers and directors of AmPaM having terms substantially similar to those set forth in Section 17 hereof. 6.14 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. AmPaM was formed in June 1998 and has conducted no material business since the date of its inception except for activities related to the transaction contemplated by this Agreement, the Other Agreements and the Private Placement Memorandum. Except as described in the Private Placement Memorandum, as of the date of this Agreement, AmPaM does not own any real property or any material personal property and is not a party to any other material agreement other than this Agreement, the Other Agreements and the agreements contemplated hereby and thereby. 6.15 RELATIONS WITH GOVERNMENTS. Neither AmPaM nor any of its directors, officers or Affiliates has given or offered anything of value to any government official, political party or candidate for government office, nor has AmPaM, any of its directors, officers or Affiliates of any of them otherwise taken any action, which would cause AmPaM to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. 6.16 DISCLOSURE. The Private Placement Memorandum delivered to the Company and the Stockholders does not as of the date hereof contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing does not apply to statements contained in or omitted from any of such documents made or omitted in reliance upon, and in conformity with, information furnished to AmPaM by the Company or the Stockholders in writing specifically for inclusion in the Private Placement Memorandum. 28 37 6.17 OTHER AGREEMENTS. The Other Agreements have been duly authorized, executed and delivered by AmPaM and constitute the legal, valid and binding obligation of AmPaM enforceable against AmPaM in accordance with their respective terms. The terms and conditions of the Other Agreements (excluding the terms relating to the consideration payable by AmPaM thereunder) are identical in all material respects to the terms and conditions in this Agreement. 7. COVENANTS PRIOR TO CLOSING 7.1 ACCESS AND COOPERATION; DUE DILIGENCE; TRANSFER OF REAL ESTATE. (a) Between the date of this Agreement and the Closing Date, the Company will afford to the officers and authorized representatives of AmPaM reasonable access during normal business hours to all of the Company's sites, properties, books and records and will furnish AmPaM with such additional financial and operating data and other information as to the business and properties of the Company as AmPaM may from time to time reasonably request. The Company will cooperate with AmPaM, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. AmPaM, the Stockholders and the Company will treat all information obtained in connection with the negotiation and performance of this Agreement or the due diligence investigations conducted with respect to the Company as confidential in accordance with the provisions of Section 14 hereof. (b) Between the date of this Agreement and the Closing Date, AmPaM will afford to the officers and authorized representatives of the Company access to all of AmPaM's sites, properties, books and records and will furnish the Company with such additional financial and operating data and other information as to the business and properties of AmPaM and the Other Founding Companies as the Company may from time to time reasonably request. AmPaM will cooperate with the Company, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. The Company will cause all information obtained pursuant to this Section 7.1(b) or obtained in connection with the negotiation and performance of this Agreement to be treated as confidential in accordance with the provisions of Section 14 hereof. (c) Except as set forth on Schedule 7.1, any real property owned by the Company will be sold or distributed by the Company on terms mutually acceptable to AmPaM and the Company and leased back by the Company on terms no less favorable to the Company than those available from an unaffiliated party and otherwise reasonably acceptable to AmPaM at or prior to the Closing Date. 29 38 7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this Agreement and the Closing Date, the Company will, except as set forth on Schedule 7.2: (i) carry on its businesses in the Ordinary Course of Business and not introduce any material new method of management, operation or accounting; (ii) use all commercially reasonable efforts to maintain its properties and facilities, including those held under leases, in as good working order and condition as at present, ordinary wear and tear, depreciation and insured losses excepted; (iii) perform in all material respects all of its obligations under all Material Documents relating to or affecting its respective assets, properties or rights; (iv) use its commercially reasonable efforts to keep in full force and effect present insurance policies or other comparable insurance coverage; (v) use its commercially reasonable efforts to maintain and preserve its business organization intact, retain its respective present key employees and maintain its relationships with suppliers, customers and others having business relations with the Company; (vi) use its commercially reasonable efforts to maintain compliance with all material permits, laws, rules and regulations, consent orders, and all other orders of applicable courts, regulatory agencies and similar governmental authorities; (vii) maintain present debt and lease instruments in accordance with their terms and not enter into new or amended debt or lease instruments without the knowledge and consent of AmPaM (which consent shall not be unreasonably withheld), provided that debt and/or lease instruments may be replaced without the consent of AmPaM if such replacement instruments are on terms at least as favorable to the Company as the instruments being replaced; (viii) maintain or reduce present salaries and commission levels for all officers, directors, employees and agents except for ordinary and customary bonus and salary increases for employees in accordance with past practices; and (ix) use commercially reasonable efforts to cause the actual amount of its Current Assets (as defined in Annex I hereto) to be not less than 150% of the actual amount of its Current Liabilities (as defined in Annex I hereto). 30 39 7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between the date hereof and the Closing Date, the Company will not, without prior written consent of AmPaM: (i) make any change in its Charter Documents; (ii) issue any securities, options, warrants, calls, conversion rights or commitments relating to its securities of any kind other than in connection with the exercise of options or warrants listed in Schedule 5.4; (iii) except as permitted pursuant to the terms and conditions for distributions described in Annex I, declare or pay any dividend, or make any distribution in respect of its stock whether now or hereafter outstanding, or purchase, redeem or otherwise acquire or retire for value any shares of its stock; (iv) enter into any contract or commitment or incur or agree to incur any liability or make any capital expenditures, except if it is in the Ordinary Course of Business or involves an amount not in excess of three percent (3%) of the Company's gross revenues for fiscal 1997; (v) create, assume or permit to exist any mortgage, pledge or other lien or encumbrance upon any assets or properties whether now owned or hereafter acquired, except (1) with respect to purchase money liens incurred in connection with the acquisition of equipment with an aggregate cost not in excess of three percent (3%) of the Company's gross revenues for fiscal 1997 necessary or desirable for the conduct of the businesses of the Company, (2) (A) liens for taxes either not yet due or being contested in good faith and by appropriate proceedings (and for which contested taxes adequate reserves have been established and are being maintained) or (B) materialmen's, mechanics', workers', repairmen's, employees' or other like liens arising in the Ordinary Course of Business (the liens set forth in clause (2) being referred to herein as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or Schedule 5.15 hereto; (vi) sell, assign, lease or otherwise transfer or dispose of any property or equipment except in the Ordinary Course of Business and other than distributions of real estate and other assets as permitted in this Agreement (including Annex I hereto); (vii) negotiate for the acquisition of any business or the start-up of any new business; (viii) merge or consolidate or agree to merge or consolidate with or into any other corporation; 31 40 (ix) waive any material rights or claims of the Company, provided that the Company may negotiate and adjust bills and accounts in the course of good faith disputes with customers in a manner consistent with past practice; (x) amend or terminate any Material Document except for the termination of a Material Document in accordance with its terms without any action on the part of the Company; or (xi) enter into any other material transaction outside the Ordinary Course of Business or any transaction prohibited hereunder. 7.4 NO SHOP. None of the Stockholders, the Company, nor any agent, officer, director, trustee or any representative of any of the foregoing will, during the period commencing on the date of this Agreement and ending with the earlier to occur of the Closing Date or the termination of this Agreement in accordance with its terms, directly or indirectly: (i) solicit or initiate the submission of proposals or offers from any person for, (ii) participate in any discussions pertaining to, or (iii) furnish any information to any person other than AmPaM or its authorized agents relating to, any acquisition or purchase of all or a material amount of the assets of, or any equity interest in, the Company or a merger, consolidation or business combination of the Company. 7.5 AGREEMENTS. Except as disclosed on Schedule 7.5(a), the Stockholders and the Company shall terminate (i) any stockholders agreements, voting agreements, voting trusts, agreements providing for the grant by the Company of any options, warrants and employment agreements between the Company and any employee listed on Schedule 8.11 hereto and (ii) except as otherwise provided in this Agreement, any existing agreement between the Company and any Stockholder, on or prior to the Closing Date provided that nothing herein shall prohibit or prevent the Company from paying (either prior to or on the Closing Date) notes or other obligations from the Company to the Stockholders described in Schedule 7.5(b) in accordance with the terms thereof. 7.6 NOTIFICATION OF CERTAIN MATTERS. Each Stockholder and the Company shall give prompt notice to AmPaM upon obtaining knowledge of (i) the occurrence or non-occurrence of any event the occurrence or nonoccurrence of which would be likely to cause any representation or warranty of the Company or such Stockholder contained herein to be untrue or inaccurate in any material respect at or prior to the Closing and (ii) any material failure of such Stockholder or the Company to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by such person hereunder. AmPaM shall give prompt notice to the Company of (i) the occurrence or non-occurrence of any event the occurrence or non-occurrence of which would be likely to cause any representation or warranty of AmPaM contained herein to be untrue or inaccurate 32 41 in any material respect at or prior to the Closing, (ii) any material failure of AmPaM to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; (iii) any termination of any Other Agreement for any reason; and (iv) the issuance by the SEC or any state securities regulatory authority of any issuance of or threatened issuance of any order challenging the availability of an exemption from registration or suspending the qualification of any securities described in the Private Placement Memorandum for sale in any jurisdiction. However, subject to the provisions of Section 7.7, such notification shall not relieve either the Company or such Stockholder of their respective obligations under this Agreement. The delivery of any notice pursuant to this Section 7.6 shall not be deemed to (i) modify the representations or warranties hereunder of the party delivering such notice, which modification may only be made pursuant to Section 7.7, (ii) modify the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect the remedies available hereunder to the party receiving such notice. 7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to the representations and warranties of such party contained in this Agreement, such party shall have the continuing obligation until 24 hours prior to the Closing Date to notify AmPaM with respect to any matter (i) hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or described in the Schedules or (ii) which may have been omitted from the Schedules previously provided by such party. Notwithstanding the foregoing sentence, no amendment or supplement to a Schedule prepared by the Company may be made unless AmPaM consents to such amendment or supplement; and provided further, that no amendment or supplement to a Schedule prepared by AmPaM may be made unless the Stockholders consent to such amendment or supplement. For all purposes of this Agreement, including without limitation for purposes of determining whether the conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules hereto, as amended or supplemented with the consent of AmPaM or the Stockholders, as the case may be, as provided above, shall be deemed to be the Schedules to this Agreement. 7.8 FURTHER ASSURANCES. The parties hereto agree to execute and deliver, or cause to be executed and delivered, such further instruments or documents or take such other action as may be reasonably necessary or appropriate to carry out the transactions contemplated hereby and to cause the conditions to the Closing Date to be satisfied as promptly as practicable. 7.9 AUTHORIZED CAPITAL. Prior to the Closing Date, AmPaM shall maintain its authorized capital stock as set forth in the Private Placement Memorandum. 7.10 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this Agreement hereby recognize that one or more filings under the Hart-Scott Act may be required in connection with the transactions contemplated herein. If it is determined by the parties to this Agreement that filings under the Hart-Scott Act are required, then: (i) each of the parties hereto agrees to cooperate and use its best efforts to comply with the Hart-Scott Act and (ii) such compliance by the Stockholders and the parties agree to cooperate and use their best efforts to cause all filings required under the Hart- Scott Act to be made. If filings under the Hart-Scott Act are required, the costs and expenses thereof (including filing fees) shall be borne by AmPaM. 33 42 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY The obligations of the Stockholders and the Company with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the following conditions. As of the Closing Date, if any such applicable conditions have not been satisfied, any one or more of the Stockholders who would be entitled to receive a majority of the Aggregate Consideration (as defined herein) received by all the Stockholders if the transactions contemplated hereby were consummated shall have the right to waive any condition not so satisfied. Any act or action of the Stockholders in consummating the Closing or delivering the certificates representing Company Stock as of the Closing Date shall constitute a waiver of any conditions not so satisfied. However, no such waiver shall be deemed to affect the survival of the representations and warranties of AmPaM contained in Section 6 hereof. 8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All representations and warranties of AmPaM contained in Section 6 shall be true and correct as of the Closing Date as though such representations and warranties had been made as of that time; all of the terms, covenants and conditions of this Agreement to be complied with and performed by AmPaM on or before the Closing Date shall have been duly complied with and performed in all material respects; and certificates to the foregoing effect dated the Closing Date and signed by the President or any Vice President of AmPaM shall have been delivered to the Stockholders. 8.2 SATISFACTION. All actions, proceedings, instruments and documents that are not within the control of the Company or the Stockholders and that are required to carry out this Agreement or incidental hereto shall be reasonably satisfactory to the Company, the Stockholders and their counsel. 8.3 NO LITIGATION. No action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock. 8.4 OPINION OF COUNSEL. The Company shall have received opinions from counsel for AmPaM, dated the Closing Date, addressed to the Company and the Stockholders in the form annexed hereto as Annex III. 8.5 CONSENTS AND APPROVALS. All necessary consents of and filings with any governmental authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made; any waiting periods under the Hart-Scott Act, if applicable, shall have expired or been terminated; all consents and approvals of third parties listed on Schedule 6.9 shall have been obtained; and no action or proceeding shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock and no governmental agency or body shall have taken any other action or made any request of Company as a result of which Company deems it inadvisable to proceed with the transactions hereunder. 34 43 8.6 GOOD STANDING CERTIFICATES. AmPaM shall have delivered to the Company a certificate, dated as of a date no later than ten days prior to the Closing Date, duly issued by the Delaware Secretary of State and in each state in which AmPaM is authorized to do business, showing that AmPaM is in good standing and authorized to do business and that all state franchise and/or income tax returns and taxes for AmPaM for all periods prior to the Closing have been filed and paid. 8.7 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have occurred which would constitute a Material Adverse Change with respect to AmPaM from the date of the Private Placement Memorandum. 8.8 SECRETARY'S CERTIFICATE. The Company shall have received a certificate or certificates, dated the Closing Date and signed by the secretary of AmPaM, certifying the truth and correctness of attached copies of AmPaM's Certificate of Incorporation (including amendments thereto), By-Laws (including amendments thereto), and resolutions of the board of directors and, if required, the stockholders of AmPaM approving AmPaM's entering into this Agreement and the Other Agreements and the consummation of the transactions contemplated hereby and thereby. 8.9 TAX MATTERS. The Stockholders shall have received an opinion of Andrews & Kurth L.L.P., in substantially the form of Annex IV hereto, that the AmPaM Plan of Organization will qualify as a tax-free transfer of property under Section 351 of the Code and that the Stockholders will not recognize gain to the extent the Stockholders exchange Company Stock for AmPaM Stock (but not cash or other property) pursuant to this Agreement in connection with the AmPaM Plan of Organization. 8.10 OTHER FOUNDING COMPANIES. The transactions contemplated by the Other Agreements are consummated simultaneously with the consummation of the transactions contemplated by this Agreement. 8.11 COMPANY RELEASE OF STOCKHOLDERS. The Company shall have delivered to the Stockholders an instrument dated the Closing Date, in form reasonably satisfactory to AmPaM and the Stockholders, which shall be effective only upon the occurrence of the Closing Date, releasing the Stockholders from (i) any and all claims of the Company against the Stockholders, known and unknown, and (ii) obligations of the Stockholders to the Company, except for (x) items specifically identified on Schedule 5.10(a) and Schedule 5.15(b) as being claims of or obligations to the Company and (y) continuing obligations to the Company relating to their employment by the Company pursuant to any employment agreement entered into pursuant to Section 8.11 hereof. 8.12 STERLING CITY CAPITAL TRANSFER RESTRICTIONS. Sterling City Capital, LLC and each of its Affiliates which owns AmPaM Stock shall have entered into an agreement with AmPaM containing substantially the same terms and conditions as are contained in Section 15 and Section 17. 35 44 8.13 ELECTION OF CHIEF EXECUTIVE OFFICER. AmPaM shall have taken all corporate action necessary to elect Robert A. Christianson as Chief Executive Officer of AmPaM effective immediately following the Closing Date. 8.14 FUNDING AVAILABILITY. AmPaM shall have entered into binding agreements with financial institutions, lenders or investors that provide AmPaM with sufficient funds to pay (i) the cash amounts specified in Annex I hereto as payable to the Stockholders upon the Closing and (ii) the aggregate cash amounts specified in Annex I to each of the Other Agreements as payable to the stockholders of the Other Founding Companies upon the Closing; and all conditions to the funding of the cash amounts necessary to make such payments specified in the agreements related to such financing arrangements, other than the closing of the transactions contemplated by this Agreement and the Other Agreements, shall have been satisfied as of the Closing Date. 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF AMPAM The obligations of AmPaM with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the following conditions. As of the Closing Date, if any such conditions have not been satisfied, AmPaM shall have the right to terminate this Agreement, or waive any such condition, but no such waiver shall be deemed to affect the survival of the representations and warranties contained in Section 5 hereof. 9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS. All the representations and warranties of the Stockholders and the Company contained in this Agreement shall be true and correct as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date; all of the terms, covenants and conditions of this Agreement to be complied with or performed by the Stockholders and the Company on or before the Closing Date shall have been duly performed or complied with in all material respects; and the Stockholders shall have delivered to AmPaM certificates dated the Closing Date and signed by them to such effect. 9.2 NO LITIGATION. No action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock. 9.3 SECRETARY'S CERTIFICATE. AmPaM shall have received a certificate, dated the Closing Date and signed by the secretary of the Company, certifying the truth and correctness of attached copies of the Company's Articles or Certificate of Incorporation (including amendments thereto), By-Laws (including amendments thereto), and resolutions of the board of directors and the Stockholders approving the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby. 36 45 9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have occurred with respect to the Company which would constitute a Material Adverse Effect, and the Company shall not have suffered any material loss or damages to any of its properties or assets, whether or not covered by insurance, which change, loss or damage materially affects or impairs the ability of the Company to conduct its business. 9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to AmPaM an instrument dated the Closing Date which shall be effective only upon the occurrence of the Closing releasing the Company and AmPaM from (i) any and all claims of the Stockholders against the Company and AmPaM and (ii) obligations of the Company and AmPaM to the Stockholders, except for (A) items specifically identified on Schedule 5.31 as being claims of or obligations to the Stockholders, (B) continuing obligations to Stockholders relating to their employment by the Company pursuant to employment agreements entered into as specified in Section 8.11 hereof, (C) obligations arising under this Agreement or the transactions contemplated hereby and (D) claims of Stockholders against the Company for unreimbursed business expenses incurred by the Stockholders on behalf of the Company (other than expenses related to the transactions contemplated by this Agreement) prior to the Closing Date or unreimbursed medical expenses of the Stockholders incurred prior to the Closing Date which are covered by the Company's existing health insurance coverage. In the event that the Closing Date does not occur, then the release instrument referenced herein shall be void and of no further force or effect. 9.6 SATISFACTION. All actions, proceedings, instruments and documents that are not within the control of AmPaM and that are required to carry out the transactions contemplated by this Agreement or incidental hereto shall have been reasonably approved by counsel to AmPaM. 9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on Schedule 9.7, all existing agreements between the Company and the Stockholders (and between the Company and entities controlled by the Stockholders) specified on Schedule 5.31 shall have been terminated effective prior to or as of the Closing Date without any payment being made by the Company other than payments made for services rendered, materials provided or other benefits provided to the Company prior to the Closing Date pursuant to the terms of such agreements as in effect as of the date of this Agreement. 9.8 OPINION OF COUNSEL. AmPaM shall have received opinions from counsel to the Company and the Stockholders, dated the Closing Date, substantially in the form annexed hereto as Annex V. 9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any governmental authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made; any waiting periods under the Hart-Scott Act, if applicable, shall have expired or been terminated; all consents and approvals of third parties listed on Schedule 5.23(b)(2) shall have been obtained; and no action or proceeding shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock and no 37 46 governmental agency or body shall have taken any other action or made any request of AmPaM as a result of which AmPaM deems it inadvisable to proceed with the transactions hereunder. 9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to AmPaM a certificate, dated as of a date no earlier than ten days prior to the Closing Date, duly issued by the appropriate governmental authority in the Company's state of incorporation and, unless waived by AmPaM, in each state in which the Company is authorized to do business, showing the Company is in good standing and authorized to do business and that all state franchise and/or income tax returns and taxes for the Company for all periods prior to the Closing have been filed and paid. 9.11 FUNDING AVAILABILITY. AmPaM shall have entered into binding agreements with financial institutions, lenders or investors that provide AmPaM with sufficient funds to pay (i) the cash amounts specified in Annex I hereto as payable to the Stockholders upon the Closing and (ii) the aggregate cash amounts specified in Annex I to each of the Other Agreements as payable to the stockholders of the Other Founding Companies upon the Closing; and all conditions to the funding of the cash amounts necessary to make such payments specified in the agreements related to such financing arrangements, other than the closing of the transactions contemplated by this Agreement and the Other Agreements, shall have been satisfied as of the Closing Date. 9.12 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to AmPaM a certificate to the effect that he is not a foreign person pursuant to Section 1.1445-2(b) of the Treasury regulations. 9.13 RESIGNATIONS OF DIRECTORS AND OFFICERS. Any directors of the Company, other than those identified on Schedule 2.1, shall have resigned as directors of the Company. Any officers of the Company, other than those identified on Schedule 2.2, shall have resigned as officers of the Company. 10. COVENANTS OF AMPAM AND THE STOCKHOLDERS AFTER CLOSING 10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. AmPaM shall use reasonable efforts to have the Stockholders released from any and all guarantees of the Company's indebtedness, including bond obligations, identified on Schedule 10.1. Prior to obtaining the release of such guarantees, AmPaM shall provide its guarantee of such indebtedness to the lenders thereof. In the event that AmPaM cannot obtain such releases from the lenders of any such guaranteed indebtedness identified on Schedule 10.1 on or prior to 90 days subsequent to the Closing Date, AmPaM shall promptly pay off or otherwise refinance or retire such indebtedness such that the Stockholders' personal liability shall be released. AmPaM will indemnify the Stockholders against any loss or damage suffered as a result of the personal guarantees. 38 47 10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated by this Agreement, after the Closing Date, AmPaM shall not and shall not permit any of its Subsidiaries to undertake any act that would jeopardize the tax-free status of the exchange of Company Stock for AmPaM Stock (but not cash or other property), including without limitation: (a) the retirement or reacquisition, directly or indirectly, of all or part of the AmPaM Stock issued in connection with the transactions contemplated hereby; or (b) the entering into of financial arrangements for the benefit of the Stockholders other than as described in the Private Placement Memorandum or as described in this Agreement. 10.3 PREPARATION AND FILING OF TAX RETURNS; PAYMENT OF TAXES. (a) The Company, if possible, or otherwise the Stockholders shall file or cause to be filed all income Tax Returns (federal, state, local or otherwise) of any Acquired Party for all taxable periods that end on or before the Closing Date, and shall permit AmPaM to review all such Tax Returns prior to such filings. Unless the Company is a C corporation, the Stockholders shall pay or cause to be paid all income Tax liabilities (in excess of all amounts already paid with respect thereto or properly accrued or reserved with respect thereto on the Financial Statements) with respect to the Company's operations for all periods through and including the Closing Date. (b) AmPaM shall file or cause to be filed all separate Returns of, or that include, any Acquired Party for all taxable periods ending after the Closing Date. (c) Unless required by applicable law, regulations or government proceedings, AmPaM shall not take any action, including any amendment of a Tax Return of any Acquired Party, if such action would result in additional Tax liabilities payable by any of the Stockholders for periods ending on or prior to the Closing Date. (d) Each party hereto shall, and shall cause its subsidiaries and Affiliates to, provide to each of the other parties hereto such cooperation and information as any of them reasonably may request in filing any Return, amended Return or claim for refund, determining a liability for Taxes or a right to refund of Taxes or in conducting any audit or other proceeding in respect of Taxes. Such cooperation and information shall include providing copies of all relevant portions of relevant Returns, together with relevant accompanying schedules and relevant work papers, relevant documents relating to rulings or other determinations by Taxing Authorities and relevant records concerning the ownership and Tax basis of property, which such party may possess. Each party shall make its employees reasonably available on a mutually convenient basis at its cost to provide explanation of any documents or information so provided. Subject to the preceding sentence, each party required to file Returns pursuant to this Agreement shall bear all costs of filing such Returns. 39 48 (e) Each of the Company, AmPaM and each Stockholder shall comply with the tax reporting requirements of Section 1.351-3 of the Treasury Regulations promulgated under the Code, and treat the transaction as a tax-free contribution under Section 351(a) of the Code subject to gain, if any, recognized on the receipt of cash or other property under Section 351(b) of the Code. 10.4 DIRECTORS. The persons named in the Private Placement Memorandum shall be appointed as directors and elected as officers of AmPaM, as and to the extent set forth in the Private Placement Memorandum, promptly following the Closing Date; provided, however, that the parties hereto acknowledge that if the Company consummates an IPO, the persons who will serve as directors and executive officers of AmPaM will be adjusted as appropriate for a publicly traded entity, with any such changes being subject to the approval of the majority of the Board of Directors of AmPaM. 10.5 LEGAL OPINIONS. If required by the lenders pursuant to the terms of any agreements related to financing of the cash amounts referred to in Section 9.11 hereof, the Company shall cause its counsel to deliver to such lenders, at the Closing, an opinion of counsel in substantially the form attached hereto as Annex V. 11. INDEMNIFICATION The Stockholders and AmPaM each make the following covenants that are applicable to them, respectively: 11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. (a) Each Stockholder covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement until the applicable Expiration Date (as defined in the introductory paragraph to Section 5(A)), provided that for purposes of clause (iii) below, the applicable Expiration Date shall be the date on which the applicable statute of limitations expires), from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM as a result of or arising from (i) any breach of the representations and warranties of the Company set forth herein or on the schedules attached hereto or certificates delivered pursuant to this Agreement, (ii) any breach of any covenant or agreement on the part of the Company under this Agreement, or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating solely to the Company which was based upon information provided to AmPaM or its counsel in writing by the Company specifically for inclusion in the Private Placement Memorandum and is contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact relating to the Company required to be stated therein or necessary to make the statements therein not misleading; provided, however, that no Stockholder shall be liable for any 40 49 indemnification obligation pursuant to this Section 11.1 in excess of such Stockholder's pro rata share thereof determined by reference to the aggregate value of the Base Cash Amount (as defined in Annex I of this Agreement), the principal amount of AmPaM Notes and the shares of AmPaM Stock (valued at a price of $13.00 per share) received by such Stockholder pursuant to Section I.A. of Annex I hereto (without giving effect to the adjustments provided in Sections I.B. and I.C. thereof) (giving effect to the value of such AmPaM Stock and without giving effect to such adjustments, collectively, the "Aggregate Consideration") such Stockholder would receive pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated in relation to the total Aggregate Consideration all Stockholders would receive pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated. (b) Each Stockholder covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement, from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM as a result of or arising from (i) any breach of the representations and warranties of such Stockholder set forth in Section 5(B) hereof, (ii) any breach of any covenant or agreement on the part of such Stockholder under this Agreement, or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating solely to such Stockholder which was based upon information provided to AmPaM or its counsel in writing by such Stockholder specifically for inclusion in the Private Placement Memorandum and is contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact relating solely to such Stockholder required to be stated therein or necessary to make the statements therein in light of the circumstances in which such statements were made not misleading. (c) AmPaM acknowledges and agrees that other than the representations and warranties of the Company or the Stockholders specifically contained in this Agreement, there are no representations or warranties of the Company or the Stockholders, either express or implied, with respect to the transactions contemplated by this Agreement, the Company or its assets, liabilities and business. 11.2 INDEMNIFICATION BY AMPAM. AmPaM covenants and agrees that it will indemnify, defend, protect and hold harmless the Company and the Stockholders at all times from and after the date of this Agreement until the applicable Expiration Date (as defined in the introductory paragraph of Section 6, provided that for purposes of clause (iii) below, the applicable Expiration Date shall be the date on which the applicable statute of limitations expires), from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by the Company or the Stockholders as a result of or arising from (i) any breach by AmPaM of its representations and warranties set forth herein or on the schedules attached 41 50 hereto or certificates delivered pursuant to this Agreement, (ii) any breach of any agreement on the part of AmPaM under this Agreement; or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except to the extent such is based upon an untrue statement or alleged untrue statement, or omission or alleged omission, made therein in reliance upon, and in conformity with, the representations and warranties of the Company or the Stockholders specifically contained in this Agreement or other information furnished to AmPaM by the Company or the Stockholders in writing specifically for inclusion therein. 11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the "Indemnified Party") has received notice of or has knowledge of any claim by a person not a party to this Agreement ("Third Person"), or the commencement of any action or proceeding by a Third Person, the Indemnified Party shall, as a condition precedent to a claim with respect thereto being made against any party obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying Party written notice of such claim or the commencement of such action or proceeding. Such notice shall state the nature and the basis of such claim and a reasonable estimate of the amount thereof. The Indemnifying Party shall have the right to defend and settle, at its own expense and by its own counsel reasonably satisfactory to the Indemnified Party, any such matter so long as the Indemnifying Party pursues the same in good faith and diligently, provided that the Indemnifying Party shall not settle any criminal proceeding without the written consent of the Indemnified Party. If the Indemnifying Party undertakes to defend or settle, it shall promptly notify the Indemnified Party of its intention to do so, and the Indemnified Party shall cooperate with the Indemnifying Party and its counsel in the defense thereof and in any settlement thereof. Such cooperation shall include, but shall not be limited to, furnishing the Indemnifying Party with any books, records or information reasonably requested by the Indemnifying Party that are in the Indemnified Party's possession or control. All Indemnified Parties shall use the same counsel, which shall be the counsel selected by Indemnifying Party, provided that if counsel to the Indemnifying Party shall have a conflict of interest or a conflict of interest is reasonably likely to arise that prevents counsel for the Indemnifying Party from representing such Indemnified Party, Indemnified Party shall have the right to participate in such matter through counsel of its own choosing and Indemnifying Party will reimburse the Indemnified Party for the reasonable expenses of its counsel. After the Indemnifying Party has notified the Indemnified Party of its intention to undertake to defend or settle any such asserted liability, and for so long as the Indemnifying Party diligently pursues such defense, the Indemnifying Party shall not be liable for any additional legal expenses incurred by the Indemnified Party in connection with any defense or settlement of such asserted liability, except (i) as set forth in the preceding sentence and (ii) to the extent such participation is requested by the Indemnifying Party, in which event the Indemnified Party shall be reimbursed by the Indemnifying Party for reasonable additional legal expenses and out-of-pocket expenses. If the Indemnifying Party desires to accept a final and complete settlement of any such Third Person claim and the Indemnified Party refuses to consent to such settlement, then the 42 51 Indemnifying Party's liability under this Section with respect to such Third Person claim shall be limited to the amount so offered in settlement by said Third Person. Upon agreement as to such settlement between said Third Person and the Indemnifying Party, the Indemnifying Party shall, in exchange for a complete release from the Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in such settlement. If the Indemnifying Party does not undertake to defend such matter to which the Indemnified Party is entitled to indemnification hereunder, or fails diligently to pursue such defense, the Indemnified Party may undertake such defense through counsel of its choice, at the cost and expense of the Indemnifying Party, and the Indemnified Party may settle such matter, and the Indemnifying Party shall pay the Indemnified Party for the settlement amount and any other liabilities or expenses incurred by the Indemnified Party in connection therewith, provided, however, that under no circumstances shall the Indemnified Party settle any Third Person claim without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. All settlements hereunder shall effect a complete release of the Indemnified Party, unless the Indemnified Party otherwise agrees in writing. With respect to any account, note or other receivable as to which the Stockholders have paid in full any indemnification obligation pursuant to this Section 11 as a result of a breach of the representation and warranty made pursuant to Section 5.11 or as to which a claim in respect thereof has been asserted pursuant to this Section 11 that has been applied against the Indemnification Threshold with respect to the Stockholders as a result of a breach of the representation and warranty made pursuant to Section 5.11, AmPaM shall cause the Company to assign such account, note or other receivable to the Stockholders. The parties hereto will make appropriate adjustments for insurance proceeds in determining the amount of any indemnification obligation under this Section. 11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any action seeking damages or any other form of monetary relief brought by any party to this Agreement against another party to this Agreement with respect to any provision of this Agreement, provided that, nothing herein shall be construed to limit the right of a party, in a proper case, to seek injunctive relief for a breach of this Agreement. AmPaM hereby waives, to the fullest extent permitted under applicable law, any and all other rights, claims and causes of action, known or unknown, it or any indemnified person may have against the Company or any Stockholder relating to this Agreement or the transactions pursuant to this Agreement arising under or based upon any Federal, state, local or foreign statute, law, rule, regulation or otherwise. Any indemnity payment under this Section 11 shall be treated as an adjustment to the exchange consideration for Tax purposes unless a final determination (which shall include the execution of a Form 870-AD or successor form) with respect to the Indemnified Party or any of its Affiliate causes any such payment not to be treated as an adjustment to the exchange consideration for U.S. Federal income Tax purposes. 11.5 LIMITATIONS ON INDEMNIFICATION. (a) AmPaM shall not assert any claim for indemnification under this Section 11 against the Stockholders until such time as, and solely to the extent that, the aggregate of all claims which AmPaM may have against the Stockholders shall exceed the greater of (a) 3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section 1.2 plus (ii) the value of the AmPaM Stock delivered to the Stockholders pursuant to Section 1.2 43 52 (calculated as provided in this Section 11.5) plus (iii) the principal amount of the AmPaM Notes delivered to the Stockholders pursuant to Section 1.2, or (b) $50,000 (the "Indemnification Threshold"). Stockholders shall not assert any claim for indemnification hereunder against AmPaM until such time as, and solely to the extent that, the aggregate of all claims which Stockholders may have against AmPaM shall exceed $50,000; provided, however, that this sentence shall not be applicable with respect of any failure by AmPaM to (i) deliver the consideration specified in Annex I hereto on the Closing Date upon the satisfaction, or waiver by AmPaM, of all conditions to the occurrence of the Closing Date specified in Section 9 or (ii) comply with its obligations pursuant to Section 10.1. After the $50,000 threshold for AmPaM (subject to the proviso in the preceding sentence) or the Indemnification Threshold for a Stockholder has been met, all claims must be made in $10,000 increments, which claims may be cumulated in order to meet such $10,000 thresholds. For purposes of this paragraph, the AmPaM Stock delivered to the Stockholders shall be valued at $13.00 per share. (b) No person shall be entitled to indemnification under this Section 11 if and to the extent that such person's claim for indemnification is directly or indirectly related to a breach by such person of any representation, warranty, covenant or other agreement set forth in this Agreement. No claim for indemnification against the Stockholders shall limit, diminish or change any obligation of AmPaM pursuant to Section 10.1 hereof. (c) Notwithstanding any other term of this Agreement, no Stockholder shall be liable under this Section 11 for an amount which exceeds eighty-five percent (85%) of the amount of proceeds received by such Stockholder (valued as of the Closing Date) in connection with the purchase and sale of the Company Stock. For purposes of this paragraph, the AmPaM Stock shall be valued at $13.00 per share. (d) A Stockholder may pay any indemnification obligation under Section 11 by means of the payment of cash or a combination of the payment of cash, the forgiveness of amounts owed pursuant to the AmPaM Notes and the delivery to AmPaM of shares of AmPaM Stock; provided that the percentage of the indemnification obligation satisfied by means of the delivery of shares of AmPaM Stock does not exceed the percentage of AmPaM Stock comprising the total consideration paid to such Stockholder by AmPaM to such Stockholder pursuant to Annex I. For the purpose of crediting Stockholders for payments made to AmPaM by means of delivery of shares of AmPaM Stock, the AmPaM Stock shall be valued at $13.00 per share. (e) In determining the amount of any loss, liability or expense for which any party is entitled to indemnification under this Agreement, the gross amount thereof will be reduced by any correlative insurance proceeds or other third party indemnity or reimbursement proceeds realized or to be realized by such party (or, in the case of AmPaM, by AmPaM, the Company or any subsidiary of AmPaM or the Company) and such correlative insurance proceeds or other third party indemnity or reimbursement proceeds shall be net of any insurance premium or other incremental cost or expense owed or payable to any third party which becomes due as a result of such claim. AmPaM 44 53 shall use commercially reasonable efforts to pursue any available insurance coverage or other rights of indemnity or reimbursement from third parties with respect to any such loss, liability or expense. 12. TERMINATION OF AGREEMENT 12.1 TERMINATION. This Agreement may be terminated at any time prior to the Closing Date solely: (i) by mutual consent of AmPaM and the Stockholders; (ii) by the Stockholders, if the transactions contemplated by this Agreement to take place at the Closing Date shall not have been consummated by June 30, 1999, unless the failure of such transactions to be consummated is due to a breach of this Agreement by the Company or the Stockholders prior to or on the Closing Date; (iii) by AmPaM, if the transactions contemplated by this Agreement to take place at the Closing Date shall not have been consummated by June 30, 1999, unless the failure of such transactions to be consummated is due to a breach of this Agreement by AmPaM prior to or on the Closing Date; (iv) by the Stockholders, if a material breach or default shall be made by AmPaM in the observance or in the due and timely performance of any of the covenants or agreements contained herein relating to AmPaM, and the curing of such default shall not have been made (or in the reasonable judgment of such Stockholders cannot be made) on or before the Closing Date; (v) by AmPaM, if a material breach or default shall be made by the Company or the Stockholders in the observance or in the due and timely performance of any of the covenants or agreements contained herein relating to the Company or the Stockholders, and the curing of such default shall not have been made (or in the reasonable judgment of AmPaM cannot be made) on or before the Closing Date; (vi) by the Stockholders, if the conditions set forth in Section 8 hereof have not been satisfied or waived as of the Closing Date; or (vii) by AmPaM, if the conditions set forth in Section 9 hereof have not been satisfied or waived as of the Closing Date. 12.2 PROCEDURE AND EFFECT OF TERMINATION. A determination to terminate this Agreement by AmPaM pursuant to Section 12.1 shall be valid and effective only if a written notice of termination, accompanied by a certified copy of resolutions of the board of directors of AmPaM that evidence the authorization of the officer of AmPaM to deliver a written notice of termination of this Agreement pursuant to Section 12.1, is given to the Stockholders in the manner specified for notices 45 54 in this Agreement. A determination to terminate this Agreement by the Stockholders pursuant to Section 12.1 shall be valid and effective only if a written notice of termination, signed by Stockholders who would be entitled to receive a majority of the shares of AmPaM Stock specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated, is given to AmPaM in the manner specified for notices in this Agreement. Upon the giving of notice of termination of this Agreement pursuant to Section 12.1 as specified in the preceding sentence, this Agreement shall terminate, and the transactions contemplated hereby shall be abandoned, without further action by any of the parties hereto. Immediately upon any such termination, AmPaM shall deliver written notice of such termination to the Other Founding Companies. If this Agreement is terminated as provided in this Section 12, no party hereto shall have any liability or further obligation hereunder to any other party, except as provided in Section 14 and Section 18.6, provided, that, the termination of this Agreement will in no way limit any obligation or liability of any party based on or arising from a breach or default by such party with respect to any of its representations, warranties, covenants or agreements contained in this Agreement including, but not limited to, legal and audit costs and out of pocket expenses that occurred prior to such termination. 13. NONCOMPETITION 13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the prior written consent of AmPaM, for a period of two (2) years following the Closing Date, for any reason whatsoever, directly or indirectly, for themselves or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature: (i) engage, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, whether paid or unpaid, in any plumbing, piping, mechanical, heating, ventilation or air conditioning contracting, installation or services business or operation, whether for residential, commercial, industrial or governmental customers, or any ancillary contracting, installation or services business directly related thereto (such business and operations referred to herein as the "Plumbing and Mechanical Business"), within 100 miles of where the Company or any of its subsidiaries conducted business within two (2) years prior to the Closing Date (the "Territory"); (ii) call upon any person who is, at the Closing Date, within the Territory, an employee of AmPaM or any subsidiary thereof for the purpose or with the intent of enticing such employee away from or out of the employ of AmPaM or any subsidiary thereof; (iii) call upon any person or entity which is, at the Closing Date, or which has been within three (3) years prior to the Closing Date, a customer of AmPaM or any subsidiary thereof, of the Company or of any of the Other Founding Companies for the purpose of soliciting customers, orders or contracts for any Plumbing and Mechanical Business in direct competition with AmPaM within the Territory; 46 55 (iv) call upon any prospective acquisition candidate, on any Stockholder's own behalf or on behalf of any competitor in the Plumbing and Mechanical Business, which candidate, to the actual knowledge of such Stockholder after due inquiry, was called upon by AmPaM or any subsidiary thereof or for which, to the actual knowledge of such Stockholder after due inquiry, AmPaM or any subsidiary thereof made an acquisition analysis, for the purpose of acquiring such entity; or (v) disclose to any person, firm, partnership, corporation or business the names or identities of any person, firm, partnership, corporation or business which has been a customer of the Company or any of its subsidiaries within the two (2) years prior to the Closing Date for any reason or purpose whatsoever except to the extent that the Company has in the past disclosed such information to the public for valid business reasons; or (vi) testify as an expert witness in matters related to the Plumbing and Mechanical Business for an adverse party to AmPaM, the Company or any Other Founding Companies in litigation. Notwithstanding the above, the foregoing covenant shall not be deemed to prohibit any Stockholder from acquiring as a passive investment (i) not more than one percent (1%) of the capital stock of a competing business whose stock is traded on a national securities exchange, the NASDAQ Stock Market or over-the-counter, or (ii) not more than five percent (5%) of the capital stock of a competing business whose stock is not publicly traded if the Board of Directors of AmPaM consents to such acquisition. 13.2 DAMAGES. Because of the difficulty of measuring economic losses to AmPaM as a result of a breach of the foregoing covenant, and because of the immediate and irreparable damage that could be caused to AmPaM for which it would have no other adequate remedy, each Stockholder agrees that the foregoing covenant may be enforced by AmPaM in the event of breach by such Stockholder, by injunctions and restraining orders. 13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the foregoing covenants in this Section 13 impose a reasonable restraint on the Stockholders in light of the activities and business of AmPaM and the subsidiaries thereof on the date of the execution of this Agreement and the current plans of AmPaM as described in the Private Placement Memorandum. 13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant. Moreover, in the event any court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which the court deems reasonable, and the Agreement shall thereby be reformed. 47 56 13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of any Stockholder against AmPaM or any subsidiary thereof, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by AmPaM of such covenants. It is specifically agreed that the period of two (2) years stated at the beginning of this Section 13, during which the agreements and covenants of each Stockholder made in this Section 13 shall be effective, shall be computed by excluding from such computation any time during which such Stockholder is found to be in violation of any provision of this Section 13 as determined by any of (i) a written agreement to such effect executed and delivered by AmPaM and such Stockholder, (ii) a determination by an arbitration panel pursuant to an arbitration conducted pursuant to Section 18.16 hereof or (iii) a non-appealable judgment of a court of competent jurisdiction. The covenants contained in Section 13 shall not be affected by any breach of any other provision hereof by any party hereto. The covenants contained in Section 13 shall have no effect if the transactions contemplated by this Agreement are not consummated. 13.6 MATERIALITY. The Company and the Stockholders hereby agree that the covenants contained in this Section 13 are a material and substantial part of this transaction. 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION 14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they had in the past, currently have, and in the future may possibly have, access to certain confidential information of the Company, the Other Founding Companies, and/or AmPaM, such as operational policies, customer lists, and pricing and cost policies that are valuable, special and unique assets of the Company's, the Other Founding Companies' and/or AmPaM's respective businesses. The Stockholders agree that they will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, except (a) to authorized representatives of AmPaM, (b) following the Closing, such information may be disclosed by the Stockholders as is required in the course of performing their duties for AmPaM or the Company and (c) to its counsel and other advisers, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section 14.1; provided, however that (i) the foregoing disclosure prohibition shall not apply in the event that (i) such information becomes known to the public generally through no fault of the Stockholders, (ii) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (ii), the Stockholders shall, if possible, give prior written notice thereof to AmPaM and provide AmPaM with the opportunity to contest such disclosure, or (iii) the disclosing party reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party. In the event of a breach or threatened breach by any of the Stockholders of the provisions of this Section, AmPaM shall be entitled to an injunction restraining such Stockholders from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting AmPaM from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. In the event the transactions contemplated 48 57 by this Agreement are not consummated, Stockholders shall have none of the above-mentioned restrictions on their ability to disseminate confidential information with respect to the Company. 14.2 AmPaM. AmPaM recognizes and acknowledges that it had in the past and currently has access to certain confidential information of the Company, such as operational policies, customer lists, and pricing and cost policies that are valuable, special and unique assets of the Company's business. AmPaM agrees that, prior to the Closing, or if the transactions contemplated by this Agreement are not consummated, it will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, except (a) to authorized representatives of the Company, (b) to its counsel and other advisers, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section 14.2, (c) to the Other Founding Companies and their representatives pursuant to Section 7.1(b) of the Other Agreements and (d) to potential purchasers of securities of AmPaM to the extent necessary or advisable in connection with the applicable securities laws; provided, however that the foregoing disclosure prohibition shall not apply in the event that (A) such information becomes known to the public generally through no fault of AmPaM, (B) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (B), AmPaM shall, if possible, give prior written notice thereof to the Company and the Stockholders and provide the Company and the Stockholders with the opportunity to contest such disclosure, or (C) the disclosing party reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party. In the event of a breach or threatened breach by AmPaM of the provisions of this Section 14.2, the Company and the Stockholders shall be entitled to an injunction restraining AmPaM from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting the Company and the Stockholders from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. In the event the transactions contemplated by this Agreement are not consummated for any reason, AmPaM shall nevertheless remain subject to this Section 14.2, except that it shall not be permitted to make any disclosures otherwise than pursuant to clause (A), (B) or (C) above. 14.3 DAMAGES. Because of the difficulty of measuring economic losses as a result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and because of the immediate and irreparable damage that would be caused for which they would have no other adequate remedy, the parties hereto agree that, in the event of a breach by any of them of the foregoing covenants, the covenant may be enforced against the other parties by injunctions and restraining orders. 14.4 SURVIVAL. The obligations of the parties under this Article 14 shall survive the termination of this Agreement for a period of five years from the Closing Date. 49 58 14.5 RETURN OF INFORMATION. If the transactions contemplated by this Agreement are not consummated, AmPaM will return or destroy all confidential information regarding the Company. 15. TRANSFER RESTRICTIONS 15.1 TRANSFER RESTRICTIONS RELATING TO AMPAM STOCK AND AMPAM NOTES. For a period of two years from the Closing Date or, in the event that the Company completes an IPO, for a period through the second anniversary of the date of the closing of such IPO (the "Restricted Period"), no Stockholder shall (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any shares of AmPaM Stock or AmPaM Notes received by the Stockholders pursuant to this Agreement or any securities convertible into, exchangeable or exercisable for any shares of AmPaM Stock or AmPaM Notes received by such Stockholder pursuant to this Agreement, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any shares of AmPaM Stock or AmPaM Notes received by such Stockholder pursuant to this Agreement, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the AmPaM Stock or AmPaM Notes, whether any such swap or transaction is to be settled by delivery of shares of AmPaM Stock or AmPaM Notes or other securities, by the delivery or payment of cash or otherwise, except, in the case of clauses (i), (ii) or (iii) above, (A) as otherwise agreed by AmPaM, (B) for the sale of shares of AmPaM Stock, and entering into agreements relating to the sale of shares of AmPaM Stock, pursuant to Section 17 hereof, (C) for transfers to (I) immediate family members of such Stockholder who agree with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (II) trusts, limited partnerships or other estate planning entities for the benefit of such Stockholder or family members of such Stockholder which have agreed with AmPaM in writing, through action taken by the trustees, partners or other persons having authority to bind the trust, limited partnership or other estate planning entity, to be bound by the restrictions set forth in this Section 15.1, (III) any charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code which agrees with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (D) for transfers of AmPaM Stock or AmPaM Notes to AmPaM pursuant to Section 11.5(d), (E) for transfers to another Stockholder, to another person or entity who receives shares of AmPaM Stock or AmPaM Notes or AmPaM Series A Preferred Stock pursuant to the Other Agreements or to Sterling City Capital LLC or any of its Affiliates provided that (1) such transaction is exempt from the registration requirements of the 1933 Act as evidenced by the delivery to AmPaM of an opinion of counsel in form and substance reasonably satisfactory to AmPaM and (2) any such transferee agrees in writing to be bound by the restrictions set forth in this Section 15.1, (F) transfers of shares of AmPaM Notes, shares of AmPaM Stock, or grants of options to purchase shares of AmPaM Stock, by such Stockholder to employees of the Company of up to an aggregate of 15% of the shares of AmPaM Stock received by such Stockholder pursuant to this Agreement provided that (1) any such transaction is exempt from the registration requirements of the 1933 Act as evidenced by the delivery to AmPaM of an opinion of counsel in form and substance reasonably satisfactory to AmPaM and (2) any such employee agrees with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1 or (G) the sale by such Stockholder in an IPO of shares of AmPaM Stock representing not more than 10% of the 50 59 Aggregate Consideration in cash; provided, however, that in no circumstance will a Stockholder be entitled to sell shares of AmPaM Stock in an IPO to the extent that the sale of such shares by such Stockholder would result in such Stockholder receiving in excess of 45% of the Aggregate Consideration in cash; and, provided further, if AmPaM is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under Section 17.1 that the number of shares to be sold by persons other than AmPaM is greater than the number of such shares which can be offered without adversely affecting the success of the offering, AmPaM may reduce pro rata (among the Stockholders and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. During the Restricted Period, the certificates evidencing the AmPaM Stock or AmPaM Notes delivered to the Stockholders pursuant to Section 3 of this Agreement will bear a legend substantially in the form set forth below: THE [SHARES/NOTES] REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO THE TERMS OF THE ACQUISITION AGREEMENT PURSUANT TO WHICH SUCH SHARES WERE ISSUED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, PLEDGE OR OTHER DISPOSITION PRIOR TO EXPIRATION OF THE RESTRICTED PERIOD REFERRED TO IN THE ACQUISITION AGREEMENT EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH AGREEMENT. SUCH RESTRICTIONS ON TRANSFER ARE SET FORTH IN AN ACQUISITION AGREEMENT, A COPY OF WHICH IS MAINTAINED AT THE PRINCIPAL OFFICES OF THE ISSUER. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE. 15.2 TRANSFER RESTRICTIONS RELATING TO ADDITIONAL CONSIDERATION. No Stockholder shall (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any right to receive any consideration pursuant to Section II of Annex I to this Agreement (the "Additional Consideration Right") or any securities convertible into, exchangeable or exercisable for any Additional Consideration Right, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any Additional Consideration Right, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of any Additional Consideration Right, whether any such swap or transaction is to be settled by delivery of shares of AmPaM Stock or other securities, by the delivery or payment of cash or otherwise. 51 60 16. FEDERAL SECURITIES ACT REPRESENTATIONS 16.1 COMPLIANCE WITH LAW. Each Stockholder acknowledges that the shares of AmPaM Stock, the Additional Consideration Right and any AmPaM Notes to be delivered to such Stockholder pursuant to this Agreement have not been and will not be registered under the 1933 Act (except as provided in Section 17 hereof) and therefore may not be sold, assigned, exchanged, transferred, pledged or otherwise disposed of without compliance with the 1933 Act which, among other matters, would require registration under the 1933 Act unless exemption from the registration requirements is available for such transaction. The AmPaM Stock, the Additional Consideration Right and any AmPaM Notes to be acquired by each Stockholder pursuant to this Agreement is being acquired solely for such Stockholder's own account, for investment purposes only, and with no present intention of selling, assigning, exchanging, transferring, pledging, or otherwise disposing of it. Each Stockholder covenants, warrants and represents that neither the shares of AmPaM Stock, the Additional Consideration Right nor any AmPaM Notes issued to such Stockholder will be offered, sold, assigned, exchanged, pledged, transferred or otherwise disposed of except after full compliance with all of the applicable provisions of the 1933 Act and the rules and regulations of the SEC. All certificates representing the AmPaM Stock shall bear the following legend in addition to the legend required under Section 15 of this Agreement: THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE FEDERAL AND STATE SECURITIES LAWS. 16.2 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear the economic risk of an investment in the AmPaM Stock and AmPaM Notes to be acquired pursuant to this Agreement and can afford to sustain a total loss of such investment. Each Stockholder has substantial knowledge and experience in making investment decisions of this type (or is relying on qualified purchaser representatives with such knowledge and experience in making this decision), and is capable, either individually or with such purchaser representatives, of evaluating the merits and risks of this investment. Each Stockholder has had an adequate opportunity to ask questions and receive answers from the officers of AmPaM concerning any and all matters relating to the transactions described herein including, without limitation, the background and experience of the current and proposed officers and directors of AmPaM, the plans for the operations of the business of AmPaM, the business, operations and financial condition of the Founding Companies other than the Company, and any plans for additional acquisitions. Each Stockholder has asked any and all questions of the nature described in the preceding sentence and all questions have been answered to such Stockholder's satisfaction. Except as set forth on Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule 501(a) of the 1933 Act. Neither the foregoing nor any investigation made by the Stockholders referred to above shall in any way affect the representations, warranties, covenants and agreements of AmPaM made herein except to the extent that AmPaM is relying upon the representations of the Stockholders in Section 16.1 and in this Section 16.2 for purposes of 52 61 AmPaM's representations and warranties in Sections 6.9, 6.11, 6.15 and 6.17 hereof as specified therein. 16.3 RELIANCE BY AmPaM. Each Stockholder acknowledges that AmPaM in relying upon the representations and covenants of such Stockholder set forth in Section 16.1 and Section 16.2 for purposes of compliance by AmPaM with Federal and state securities laws related to the issuance of AmPaM Stock pursuant to this Agreement and the Other Agreements. 17. REGISTRATION RIGHTS 17.1 PIGGYBACK REGISTRATION RIGHTS. Whenever AmPaM proposes to register any AmPaM Stock for its own or other's account under the 1933 Act for a public offering, other than (i) any shelf or other registration of shares to be used as consideration for acquisitions of additional businesses by AmPaM and (ii) registrations relating to employee benefit plans, AmPaM shall give each of the Stockholders prompt written notice of its intent to do so. Upon the written request of any of the Stockholders given within 15 calendar days after receipt of such notice, notwithstanding the provisions of Section 15 (except as specified below with respect to an IPO), AmPaM shall cause to be included in such registration all of the AmPaM Stock issued to such Stockholders pursuant to this Agreement (including any stock issued as or issuable upon the conversion or exchange of any convertible security, warrant, right or other security which is issued by AmPaM as a stock split, dividend or other distribution with respect to, or in exchange for, or in replacement of such AmPaM Stock) which any such Stockholder requests, other than shares of AmPaM Stock which may then be immediately sold under Rule 144(k) (or any similar or successor provision) promulgated under the 1933 Act, and other than shares of AmPaM Stock that have been theretofore sold by the Stockholder in accordance with the 1933 Act, provided that AmPaM shall have the right to reduce pro rata the number of shares of each selling Stockholder included in such registration to the extent that inclusion of such shares would, in the written opinion of tax counsel to AmPaM or its independent auditors, jeopardize the status of the transactions contemplated hereby and by the Private Placement Memorandum as a tax-free organization under Section 351 of the Code; provided, however, that with respect to a proposal by AmPaM to register AmPaM Stock under the 1933 Act in connection with an IPO, no Stockholder shall be permitted pursuant to this Section 17.1 to have included in such registration more shares of AmPaM Stock than permitted to be sold by such Stockholder pursuant to Section 15.1. In addition, if AmPaM is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under this Section 17.1 that the number of shares to be sold by persons other than AmPaM is greater than the number of such shares which can be offered without adversely affecting the success of the offering, AmPaM may reduce pro rata (among the Stockholders and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. If any Stockholder disapproves of the terms of the underwriting, that Stockholder may elect to withdraw therefrom by written notice to AmPaM and the managing underwriter. That Stockholder's shares of AmPaM Stock so withdrawn shall also be withdrawn from registration; provided, however, that, if by the withdrawal of such shares a greater number of shares of AmPaM 53 62 Stock held by other Stockholders may be included in such registration, then AmPaM shall offer to all other Stockholders of AmPaM the right to include additional shares in the same proportion used in effecting the above limitations. AmPaM shall not, for a period of two years following the Closing Date, grant to any other person any rights to cause AmPaM to register any securities in priority over, or in precedent to, the rights granted to the Stockholders hereunder and to the stockholders of the Other Founding Companies pursuant to Section 17 of the Other Agreements. 17.2 REGISTRATION PROCEDURES. Whenever AmPaM is required to register shares of AmPaM Stock pursuant to Section 17.1, AmPaM will, as expeditiously as possible: (i) Prepare and file with the SEC a registration statement with respect to such shares and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements or term sheets thereto, AmPaM will furnish a representative of the Stockholders with copies of all such documents proposed to be filed) as promptly as practical; (ii) Notify the Stockholders of any stop order issued or threatened by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered; (iii) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 120 days, cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the 1933 Act; and comply with the provisions of the 1933 Act applicable to it with respect to the disposition of all securities covered by such registration statement during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement or supplement to the prospectus; (iv) Furnish to each Stockholder who so requests such number of copies of such registration statement, each amendment and supplement thereto and the prospectus included in such registration statement (including each preliminary prospectus and any term sheet associated therewith), and such other documents as such Stockholder may reasonably request in order to facilitate the disposition of the relevant shares; (v) Make "generally available to its security holders" (within the meaning of Rule 158) an earnings statement satisfying the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no later than 90 days after the end of the 12-month period beginning with the first day of AmPaM's first fiscal quarter commencing after the effective date of the registration statement; 54 63 (vi) Make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible moment; (vii) If requested by the managing underwriter or underwriters, if any, or any participating Stockholder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters or any participating Stockholder, as the case may be, reasonably requests to be included therein, including, without limitation, information with respect to the number of shares of AmPaM Stock being sold by participating Stockholders to any underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any other terms of an underwritten offering of the shares of AmPaM Stock to be sold in such offering, and promptly make all required filings of such prospectus by supplement or post-effective amendment; (viii) Make available for inspection by participating Stockholders, any underwriter participating in any disposition pursuant to such registration statement, and the counsel retained by the participating Stockholders, counsel for the underwriters and any accountant or other agent retained by participating Stockholders or any such underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of AmPaM (the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause AmPaM's officers, directors and employees to supply all information reasonably requested by any such Inspectors in connection with such registration statement; provided, that records which AmPaM determines, in good faith, to be confidential and which AmPaM notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction after delivery of sufficient notice to AmPaM to enable AmPaM to contest such subpoena or order; (ix) Take all other steps reasonably necessary to effect the registration of the shares of AmPaM Stock contemplated hereby; (x) Use its best efforts to register or qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Stockholders, and to keep such registration or qualification effective during the period such registration statement is required to be kept effective, provided that AmPaM shall not be required to become subject to taxation, to qualify generally to do business or to file a general consent to service of process in any such states or jurisdictions; (xi) Cause all such shares of AmPaM Stock to be listed or included not later than the date of the first sale of shares of AmPaM Stock under such registration statement on any 55 64 securities exchanges or trading systems on which similar securities issued by AmPaM are then listed or included; and (xii) Notify each Stockholder at any time when a prospectus relating thereto is required to be delivered under the 1933 Act within the period that AmPaM is required to keep the registration statement effective of the happening of any event as a result of which the prospectus included in such registration statement (as then in effect), together with any associated term sheet, contains an untrue statement of a material fact or omits to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading, and, at the request of such Stockholder, AmPaM promptly will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of the covered shares, such prospectus will not contain an untrue statement of material fact or omit to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading. All expenses incurred in connection with the registration under this Article 17 and compliance with securities and blue sky laws (including all registration, filing, listing, escrow agent, qualification, legal, printer and accounting fees, but excluding underwriting commissions and discounts), shall be borne by AmPaM. 17.3 INDEMNIFICATION. (a) In connection with any registration under Section 17.1, AmPaM shall indemnify, to the extent permitted by law, each selling Stockholder (an "Indemnified Party") against all losses, claims, damages, liabilities and expenses arising out of or resulting from any untrue or alleged untrue statement of material fact contained or incorporated by reference in any registration statement, prospectus or preliminary prospectus or associated term sheet or any omission or alleged omission to state or incorporated by reference therein a material fact required to be stated or incorporated by reference therein or necessary to make the statements therein not misleading except insofar as the same are caused by or contained in or omitted from any information furnished in writing to AmPaM by such Indemnified Party expressly for use therein or by any Indemnified Parties' failure to deliver a copy of the registration statement or prospectus or any amendment or supplements thereto after AmPaM has furnished such Indemnified Party with a sufficient number of copies of the same. (b) In connection with any registration under Section 17.1, each selling Stockholder shall furnish to AmPaM in writing such information concerning the Stockholder and his or her proposed offering of shares as is reasonably requested by AmPaM for use in any such registration statement or prospectus and will indemnify, to the extent permitted by law, AmPaM, its directors and officers and each person who controls AmPaM (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged 56 65 untrue statement of a material fact or any omission or alleged omission to state therein a material fact required to be stated in the registration statement or prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, but only to the extent that such untrue or alleged untrue statement or omission or alleged omission is contained in or omitted from information so furnished in writing to AmPaM by such Stockholder expressly for use in the registration statement. Notwithstanding the foregoing, the liability of a Stockholder under this Section 17.3 shall be limited to an amount equal to the net proceeds actually received by such Stockholder from the sale of the relevant shares covered by the registration statement. (c) Any person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified parties' reasonable judgment, a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. Any failure to give prompt notice shall deprive a party of its right to indemnification hereunder only to the extent that such failure shall have adversely affected the indemnifying party. If the defense of any claim is assumed, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent shall not be unreasonably withheld). An indemnifying party that is not entitled or elects not, to assume the defense of a claim, will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. 17.4 UNDERWRITING AGREEMENT. In connection with each registration pursuant to Sections 17.1 covering an underwritten registered offering, (i) each participating Stockholder shall execute and deliver to AmPaM a written power of attorney instrument that (A) appoints an officer of AmPaM as such Stockholder's attorney-in-fact for purposes of executing and delivering an underwriting agreement among AmPaM, the underwriters named therein and such Stockholder specifying the terms and conditions applicable to the sale of AmPaM Stock of such Stockholder in such offering and (B) otherwise is in such form and containing such provisions as are customary in the securities business for such an arrangement in connection with an underwritten registered offering in which one or more stockholders of the issuer are participants, including a provision that authorizes the attorney-in-fact appointed by such Stockholder to execute and deliver such an underwriting agreement in the event that the net price per share to be received by such Stockholder from the sale of the shares of AmPaM Stock to be sold in such offering is not less than a price specified in such instrument and (iii) AmPaM and each participating Stockholder agree to enter into a written agreement with the managing underwriters in such form and containing such provisions as are customary in the securities business for such an arrangement between such managing underwriters and companies of AmPaM's size and investment stature, including indemnification; provided, however, that (A) such Stockholder shall be exempt and excluded from any indemnification of the managing underwriters other than with respect to information provided by such Stockholder with respect to such Stockholder to AmPaM or the managing underwriters 57 66 specifically for inclusion in any such registration statement and (B) such Stockholder shall not be obligated to enter into such an underwriting agreement in the event that the net price per share to be received by such Stockholder from the sale of shares of AmPaM Stock to be sold in such offering is less than the floor price specified in the power of attorney instrument executed and delivered to AmPaM pursuant to clause (i) above. 17.5 TRANSFER OF RIGHTS. The right to cause AmPaM to register shares of AmPaM Stock under this Agreement may be assigned to a transferee or assignee of any Stockholder to the extent that such transferee or assignee is a member of the immediate family of a Stockholder, a trust, limited partnership or other estate planning entity for the benefit of any such persons or a charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code. 17.6 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the SEC that may permit the sale of AmPaM stock to the public without registration, following an IPO AmPaM agrees to use its reasonable efforts, from and after the completion of an IPO, to: (i) make and keep public information regarding AmPaM available as those terms are understood and defined in Rule 144 under the 1933 Act beginning 90 days following the effective date of a registration statement relating to an IPO; (ii) file with the SEC in a timely manner all reports and other documents required of AmPaM under the 1933 Act and the 1934 Act at any time after it has become subject to such reporting requirements; and (iii) so long as a Stockholder owns any restricted AmPaM Stock, furnish to each Stockholder forthwith upon written request a written statement by AmPaM as to its compliance with the current public information requirements of Rule 144 (at any time from and after 90 days following the effective date of a registration statement relating to an IPO), and of the 1933 Act and the 1934 Act (any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of AmPaM, and such other reports and documents so filed as a Stockholder may reasonably request in availing itself of any rule or regulation of the SEC allowing a Stockholder to sell any such shares without registration. 18. REDEMPTION OF AMPAM STOCK 18.1 REDEMPTION TRIGGER. In the event that, within three years of the Closing Date, (i) AmPaM has not consummated an IPO and (ii) any Stockholder has not received cash (including proceeds from the public or private sale of AmPaM Stock received as consideration hereunder and the receipt of principal payments, if any, made with respect to AmPaM Notes held by such Stockholder) equal to or exceeding 50% of the Aggregate Consideration on or prior to the third anniversary of the Closing Date, such Stockholder shall have the right (the "Put Right"), but not the 58 67 obligation, commencing on the third anniversary of the Closing Date to require AmPaM to purchase a number of shares of AmPaM Stock then owned by such Stockholder, subject to the limitations set forth in Section 18.2 below. The purchase price for such redemption shall be $13.00 per share, such price to be subject to appropriate adjustment to reflect any reclassification, stock dividend, subdivision, split-up or combination of shares of AmPaM Stock after the date hereof. 18.2 MINIMUM REDEMPTION; LIMITATIONS. If the events specified in Section 18.1(i) and 18.1(ii), with Section 18.1(ii) being determined on an individual Stockholder basis, have not occurred within the time specified, AmPaM shall be obligated to purchase from each eligible Stockholder no less than 10% of the AmPaM Stock held by such Stockholder annually; provided, however, that the Stockholders shall not be entitled to exercise their Put Rights if and to the extent the Company has not achieved the Target Net Income (as defined in Annex I hereto) for the year preceding the year in which a Stockholder seeks to exercise his Put Right. The redemptions will be funded by internal cash flows or alternative financing arrangements but AmPaM's obligation to make any redemption pursuant to this Section 18 will be subject to the covenants and restrictions contained in AmPaM's then existing private or public debt or equity instruments. 18.3 NOTICE; EXERCISE. The Stockholders may exercise their Put Right by giving written notice (the "Put Notice") to AmPaM within thirty (30) days of the third anniversary of the execution hereof. If any Stockholder does not provide AmPaM with a Put Notice within such thirty-day period, the Put Right applicable to such Stockholder shall expire. The date for closing the sale of any shares of AmPaM Stock pursuant to a proper exercise of a Put Right shall in no event be earlier than 90 days after the date AmPaM receives the Put Notice. Any such closing shall be at such time of day and place as shall be mutually agreed between such holder and AmPaM. At such closing AmPaM shall make payment for the AmPaM Stock to be repurchased by wire transfer of immediately available funds to a bank account designated by such Stockholder for such purpose and such Stockholder shall deliver to AmPaM certificates, duly endorsed for transfer, representing the shares of AmPaM Stock to be purchased and sold pursuant to the exercise of such Put Right. 18.4 ADDITIONAL REDEMPTIONS. In the event AmPaM has not consummated an IPO and notwithstanding the foregoing, to the extent the Stockholders who have received greater than 50% of their Aggregate Consideration in cash wish to tender AmPaM Stock to AmPaM for purchase, AmPaM will use its commercially reasonable efforts to continue to repurchase up to 10% of the AmPaM Stock held by such Stockholder annually. 18.5 TERMINATION OF REDEMPTION OBLIGATION. Put Rights with respect to any individual Stockholder will terminate upon receipt by such Stockholder of 50% of his Aggregate Consideration in cash; such termination will not, however, limit such Stockholders ability to participate in the additional redemptions provided in Section 18.4. Notwithstanding the foregoing, all of AmPaM's redemption obligations contained in this Section 18 shall terminate on the earlier to occur of (i) an IPO, (ii) any sale of all or substantially all of AmPaM's assets in one transaction or series of transactions, (iii) any merger or consolidation which involves AmPaM and in which AmPaM is not the surviving entity or (iv) any transaction after which the shares of AmPaM Common Stock, if any, 59 68 which are then held by persons other than the holders of AmPaM Common Stock as of the Closing Date constitute 50% or more of AmPaM Common Stock outstanding as of the date of the consummation of such transaction. 19. GENERAL 19.1 COOPERATION. The Company, Stockholders and AmPaM shall each deliver or cause to be delivered to the other on the Closing Date, and at such other times and places as shall be reasonably agreed to, such additional instruments as the other may reasonably request for the purpose of carrying out this Agreement. The Company will cooperate and use its reasonable efforts to have the present officers, directors and employees of the Company cooperate with AmPaM on and after the Closing Date in furnishing information, evidence, testimony and other assistance in connection with any tax return filing obligations, actions, proceedings, arrangements or disputes of any nature with respect to matters pertaining to all periods prior to the Closing Date. 19.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties hereunder may not be assigned (except by operation of law and except as provided in Section 17.5) and shall be binding upon and shall inure to the benefit of the parties hereto, the successors of AmPaM and the Company, and the heirs, successors and legal representatives of the Stockholders. 19.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits and annexes attached hereto) and the documents delivered pursuant hereto constitute the entire agreement and understanding among the Stockholders, the Company and AmPaM and supersede any prior agreement and understanding relating to the subject matter of this Agreement. This Agreement, upon execution, constitutes a valid and binding agreement of the parties hereto enforceable in accordance with its terms and may be modified or amended only by a written instrument executed by the Stockholders, the Company and AmPaM, acting through their respective officers or trustees, duly authorized by their respective Boards of Directors. Any disclosure made on any Schedule delivered pursuant hereto shall be deemed to have been disclosed for purposes of any other Schedule required hereby, provided that the Company shall make a good faith effort to cross reference disclosure, as necessary or advisable, between related Schedules. 19.4 COUNTERPARTS. This Agreement may be executed simultaneously in two (2) or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument. A telecopied facsimile of an executed counterpart of this Agreement shall be sufficient to evidence the binding agreement of each party to the terms hereof. However, each party agrees to return to the other parties an original, duly executed counterpart of this Agreement promptly after delivery of a telecopied facsimile thereof. 60 69 19.5 BROKERS AND AGENT. Except as disclosed on Schedule 18.5, each party hereto represents and warrants that it employed no broker or agent in connection with this transaction and agrees to indemnify the other parties hereto against all loss, cost, damages or expense arising out of claims for fees or commission of brokers employed or alleged to have been employed by such indemnifying party. 19.6 EXPENSES. Whether or not the transactions herein contemplated shall be consummated, AmPaM will pay the reasonable fees, expenses and disbursements of AmPaM and its agents, representatives, accountants and counsel incurred in connection with the subject matter of this Agreement and any amendments thereto, including all costs and expenses incurred in the performance and compliance with all conditions to be performed by AmPaM under this Agreement, including the fees and expenses of Arthur Andersen LLP, Andrews & Kurth L.L.P., and any other person or entity retained by AmPaM, and the costs of preparing the Private Placement Memorandum incurred in connection with the subject matter of this Agreement and any amendments thereto. In addition, whether or not the transactions contemplated herein shall be consummated, AmPaM will pay the reasonable fees and expenses of Bracewell & Patterson LLP incurred on behalf of the Company and the Stockholders in connection with the subject matter of this Agreement. Whether or not the transactions herein contemplated shall be consummated, the Company will pay all of its costs and expenses incurred on behalf of the Company and the Stockholders in connection with the subject matter of this Agreement except that (i) the Company shall not be required to pay any of the costs, fees and expenses specified above as to which AmPaM is responsible for the payment thereof and (ii) neither the Company nor the Stockholders shall be responsible for the payment of the costs, fees and expenses incurred by or on behalf of AmPaM. Whether or not the transactions herein contemplated shall be consummated, AmPaM shall reimburse Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any of the foregoing fees, expenses and disbursements paid by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) and shall repay Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any loans or advances made by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for the purpose of providing AmPaM funds to pay any such fees, expenses and disbursements, provided that such reimbursement and loan repayment obligation shall be limited to the foregoing fees, expenses, and disbursements which are out-of-pocket expenses of AmPaM, Sterling City Capital, LLC or any person or entity which is an Affiliate thereof. Sterling City Capital, LLC shall be reimbursed by AmPaM in the form of AmPaM Notes. AmPaM retains the right, within a reasonable period following the Closing Date, to conduct an audit of the expenses for which Sterling City Capital, LLC is reimbursed. Each Stockholder shall pay all sales, use, transfer, real property transfer, recording, gains, stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in connection with the purchase and sale of the Company Stock, other than Transfer Taxes, if any, imposed by the State of Delaware. Each Stockholder shall file all necessary documentation and Returns with respect to such Transfer Taxes. In addition, each Stockholder acknowledges that he, and not the Company or AmPaM, will pay all Taxes due by him upon receipt of the consideration payable pursuant to Section 1 hereof. The Stockholders acknowledge that the risks of the transactions contemplated hereby include Tax risks, with respect to which the Stockholders are relying substantially on the opinion contemplated by Section 8.12 hereof and representations by AmPaM in this Agreement. 61 70 19.7 NOTICES. All notices of communication required or permitted hereunder shall be in writing and may be given by depositing the same in United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested, or by delivering the same in person or via a nationally recognized courier service to an officer or agent of such party. (a) If to AmPaM addressed to it at: American Plumbing & Mechanical, Inc. 515 Post Oak Blvd., Suite 450 Houston, Texas 77027 Attention: Chief Executive Officer with copies to: Thomas P. Mason Andrews & Kurth L.L.P. 4200 Chase Tower Houston, Texas 77002 (b) If to the Stockholders, addressed to them at their addresses set forth on the signature pages hereto, with copies to: Bill Cauthen Cauthen & Feldman 215 N. Joanna Ave. Tampa, Florida 32778-3200 (c) If to the Company, addressed to it at: James A. Croson J.A. Croson Company of Florida 7420 East Colonial Orlando, Florida 32807 or to such other address or counsel as any party hereto shall specify pursuant to this Section 18.7 from time to time. 62 71 19.8 GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of Texas, excluding any conflicts of law, rule or principle that might refer same to the laws of another jurisdiction. 19.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations, warranties, covenants and agreements of the parties made herein and at the time of the Closing or in writing delivered pursuant to the provisions of this Agreement shall survive the consummation of the transactions contemplated hereby and any examination on behalf of the parties until the respective Expiration Dates referred to herein with respect thereto or, if no Expiration Date is applicable with respect thereto, until the expiration of all applicable statute of limitations periods. 19.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided herein, no delay of or omission in the exercise of any right, power or remedy accruing to any party as a result of any breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver. 19.11 TIME. Time is of the essence with respect to this Agreement. 19.12 REFORMATION AND SEVERABILITY. In case any provision of this Agreement shall be invalid, illegal or unenforceable, it shall, to the extent possible, be modified in such manner as to be valid, legal and enforceable but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement, and in either case the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. No provision of this Agreement shall be interpreted or construed against any party solely because that party or its legal representative drafted such provision. 19.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term of this Agreement shall be deemed exclusive but each shall be cumulative with all other rights, remedies and elections available at law or in equity. 19.14 CAPTIONS. The headings of this Agreement are inserted for convenience only, shall not constitute a part of this Agreement or be used to construe or interpret any provision hereof. 19.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived only with the written consent of AmPaM, the Company and Stockholders who would receive a majority of the Aggregate Consideration specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated. Any amendment or waiver effected in accordance with this Section 19.15 shall be binding upon each of the parties hereto, any other person receiving AmPaM Stock in connection with the purchase and sale of the Company Stock and each future holder of such AmPaM Stock. Any 63 72 consent of the Stockholders who would receive a majority of the Aggregate Consideration pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated shall be deemed to be the consent of the Stockholders for purposes of provisions of this Agreement as to which a consent of the Stockholders may be requested or required. 19.16 MEDIATION AND ARBITRATION. If a dispute arises out of or relates to this Agreement, or the breach thereof, and if said dispute cannot be settled through direct discussions, the parties agree to first endeavor to settle the dispute in an amicable manner by mediation administered by the American Arbitration Association under its then prevailing Commercial Mediation Rules, before resorting to arbitration. Thereafter, any unresolved controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association in accordance with its then prevailing Commercial Arbitration Rules. The enforcement, interpretation and procedural and substantive effect of the obligation to arbitrate created by this Section 19.16 shall be governed by the Federal Arbitration Act as amended from time to time, 9 U.S.C. Section 1 et seq. The parties hereby disclaim any intention to have the substantive or procedural law of any state or other jurisdiction, other than the law of the United States as embodied in the Federal Arbitration Act, applied to such obligation. Any such mediation or arbitration proceeding will be conducted in Houston, Texas. 19.17 INFORMATION PROVIDED FOR PRIVATE PLACEMENT MEMORANDUM. For purposes of this Agreement, the information provided by the Company in writing specifically for inclusion in the Private Placement Memorandum shall include solely (i) the Financial Statements (in the form that they appear in the Private Placement Memorandum), (ii) any financial statements provided to AmPaM pursuant to Section 7.9, (iii) the description of the Company contained in the Private Placement Memorandum under the caption "The Company", (iv) the description of the Company's results of operations and its liquidity and capital resources, if any, contained in the Private Placement Memorandum under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and (v) the description, if any, of matters related to the Company contained in the Private Placement Memorandum under the caption "Certain Transactions Transactions involving Certain Officers, Directors and Stockholders". For purposes of this Agreement, the information provided by a Stockholder in writing specifically for inclusion in the Private Placement Memorandum shall include only (i) the description, if any, of matters related to such Stockholder contained in the Private Placement Memorandum under the caption "Certain Transactions - Transactions involving Certain Officers, Directors and Stockholders" and (ii) the biographical description of such Stockholder, if any, contained in the Private Placement Memorandum under the caption "Management." 19.18 EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective upon (i) the execution and delivery of this Agreement by all of the parties hereto and (ii) the delivery to AmPaM of each Employment Agreement attached hereto as Annex VI-1 and Annex VI-2 executed by each of the Company, the employees named therein and AmPaM. 64 73 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. AMERICAN PLUMBING & MECHANICAL, INC. By: /s/ DAVID BAGGETT ------------------------------------- Name: David Baggett ----------------------------------- Title: Chief Financial Officer ---------------------------------- J.A. CROSON COMPANY OF FLORIDA By: /s/ JAMES A. CROSON ------------------------------------- James A. Croson Chief Executive Office [Remainder of page intentionally left blank] 65 74 STOCKHOLDERS: SPOUSES (WITHOUT PERSONAL LIABILITY AND SOLELY TO ACKNOWLEDGE THE SALE OF THE COMPANY STOCK BY THE STOCKHOLDER): /s/ JAMES A. CROSON /s/ JOANN CROSON - ---------------------------------- --------------------------------------- James A. Croson Joann Croson 3111 Lakeshore Drive Mt. Dora, Florida 32757 /s/ MARK F. LATOURELLE - ---------------------------------- Mark F. Latourelle 5341 Cypress Reserve Place Winter Park, Florida 32792 /s/ JAMES M. CROSON /s/ SHERIE A. LINDAMOOD - ---------------------------------- --------------------------------------- James M. Croson Sherie A. Lindamood 431 Selge Terrace Rochester, New York 14613 /s/ DAVID A. CROSON /s/ KATHERINE CROSON - ---------------------------------- --------------------------------------- David A. Croson Katherine Croson 5705 Lithopolis Road Lancheseter, Ohio 43130 /s/ JULIANA M. CROSON - ---------------------------------- Juliana M. Croson 1515 Carroll Eastern Avenue Rochester, New York 14613 /s/ JOSEPH W. CROSON /s/ JEANNETTE CROSON - ---------------------------------- --------------------------------------- Joseph W. Croson Jeannette Croson 902 Grove Street Eustis, Florida 32726 66 75 /s/ THOMAS A. CROSON /s/ KATHRYN L. CROSON - ---------------------------------- --------------------------------------- Thomas A. Croson Kathryn L. Croson 4659 Johnstown Road Gahanna, Ohio 43230 /s/ LAURA A. LARMAY /s/ GUY C. LARMAY - ---------------------------------- --------------------------------------- Laura A. Larmay Guy C. Larmay 815 Norman Drive Mt. Dora, Florida 32757 /s/ PAUL S. CROSON /s/ MELISSA A. CROSON - ---------------------------------- --------------------------------------- Paul S. Croson Melissa A. Croson 700 Jefferis Court Eustis, Florida 32726 /s/ JAMES M. CROSON - ---------------------------------- James M. Croson Custodian for Phoenix Amber Gayles /s/ JAMES M. CROSON - ---------------------------------- James M. Croson Custodian for Ferron Rhae Gayles /s/ JAMES M. CROSON - ---------------------------------- James M. Croson Custodian for Felecia Lynn Croson /s/ JAMES M. CROSON - ---------------------------------- James M. Croson Custodian for Brandon Paul Croson /s/ JAMES M. CROSON - ---------------------------------- James M. Croson Custodian for Jonathan Stephen Croson 67 76 /s/ JAMES M. CROSON - ---------------------------------- James M. Croson Custodian for Ryan James Carl Croson /s/ JAMES M. CROSON - ---------------------------------- James M. Croson Custodian for Kara Danielle Croson /s/ JAMES M. CROSON - ---------------------------------- James M. Croson Custodian for Thomas Andrew Croson, Jr. 68 EX-10.8 13 ACQUISITION AGMT. - NELSON MECHANICAL CONTRACTORS 1 EXHIBIT 10.8 Execution Copy - -------------------------------------------------------------------------------- ACQUISITION AGREEMENT dated as of the 11th day of February, 1999 by and among AMERICAN PLUMBING & MECHANICAL, INC. NELSON MECHANICAL CONTRACTORS, INC. and all of the STOCKHOLDERS of NELSON MECHANICAL CONTRACTORS, INC. - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page RECITALS .........................................................................................................1 1. ACQUISITION OF STOCK.....................................................................................5 1.1 Acquisition.....................................................................................5 1.2 Consideration...................................................................................5 1.3 Certain Information With Respect to the Capital Stock of the Company and AmPaM.......................................................................................5 2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY...........................................................5 2.1 Board of Directors..............................................................................5 2.2 Officers........................................................................................5 3. DELIVERY OF CONSIDERATION................................................................................6 3.1 Stockholders' Consideration.....................................................................6 3.2 Stockholders' Deliveries........................................................................6 4. CLOSING..................................................................................................6 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................6 5.1 Due Organization................................................................................7 5.2 Authorization...................................................................................7 5.3 Capital Stock of the Company....................................................................7 5.4 Transactions in Capital Stock...................................................................8 5.5 No Bonus Shares.................................................................................8 5.6 Subsidiaries; Ownership in Other Entities.......................................................8 5.7 Predecessor Status; etc.........................................................................8 5.8 Spin-off by the Company.........................................................................8 5.9 Financial Statements............................................................................8 5.10 Liabilities and Obligations.....................................................................9 5.11 Accounts and Notes Receivable..................................................................10 5.12 Licenses; Intellectual Property................................................................10 5.13 Environmental Matters..........................................................................11 5.14 Personal Property..............................................................................13 5.15 Significant Customers; Material Contracts and Commitments......................................13 5.16 Real Property..................................................................................14 5.17 Insurance......................................................................................14 5.18 Compensation; Employment Agreements; Labor Matters.............................................15 5.19 Employee Plans.................................................................................15 5.20 Compliance with ERISA..........................................................................16 5.21 Conformity with Law; Litigation................................................................17
-i- 3 5.22 Taxes..........................................................................................17 5.23 No Violations; No Consent Required, Etc........................................................18 5.24 Government Contracts...........................................................................19 5.25 Absence of Changes.............................................................................19 5.26 Deposit Accounts; Powers of Attorney...........................................................21 5.27 Validity of Obligations........................................................................21 5.28 Relations with Governments.....................................................................21 5.29 Disclosure.....................................................................................21 5.30 No Warranties or Insurance.....................................................................21 5.31 Interest in Customers and Suppliers and Related Party Transactions.............................22 5.32 Private Placement Memorandum...................................................................22 5.33 Authority; Ownership...........................................................................22 5.34 Preemptive Rights..............................................................................23 5.35 No Commitment to Dispose of AmPaM Stock........................................................23 5.36 Disclosure.....................................................................................23 6. REPRESENTATIONS OF AMPAM................................................................................23 6.1 Due Organization...............................................................................24 6.2 Authorization..................................................................................24 6.3 Capital Stock of AmPaM.........................................................................24 6.4 Transactions in Capital Stock..................................................................24 6.5 Subsidiaries...................................................................................25 6.6 Financial Statements...........................................................................25 6.7 Liabilities and Obligations....................................................................25 6.8 Conformity with Law; Litigation................................................................25 6.9 No Violations..................................................................................26 6.10 Validity of Obligations........................................................................27 6.11 AmPaM Stock....................................................................................27 6.12 AmPaM Notes....................................................................................28 6.13 No Side Agreements.............................................................................28 6.14 Business; Real Property; Material Agreements...................................................28 6.15 Relations with Governments.....................................................................28 6.16 Disclosure.....................................................................................28 6.17 Other Agreements...............................................................................29 7. COVENANTS PRIOR TO CLOSING..............................................................................29 7.1 Access and Cooperation; Due Diligence; Transfer of Real Estate.................................29 7.2 Conduct of Business Pending Closing............................................................30 7.3 Prohibited Activities..........................................................................31 7.4 No Shop........................................................................................32 7.5 Agreements.....................................................................................32 7.6 Notification of Certain Matters................................................................32 7.7 Amendment of Schedules.........................................................................33 7.8 Further Assurances.............................................................................33 7.9 Authorized Capital.............................................................................33
-ii- 4 7.10 Compliance with the Hart-Scott Act.............................................................33 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.............................................................................................34 8.1 Representations and Warranties; Performance of Obligations.....................................34 8.2 Satisfaction...................................................................................34 8.3 No Litigation..................................................................................34 8.4 Opinion of Counsel.............................................................................34 8.5 Consents and Approvals.........................................................................34 8.6 Good Standing Certificates.....................................................................35 8.7 No Material Adverse Change.....................................................................35 8.8 Secretary's Certificate........................................................................35 8.9 Tax Matters....................................................................................35 8.10 Other Founding Companies.......................................................................35 8.11 Company Release of Stockholders................................................................35 8.12 Sterling City Capital Transfer Restrictions....................................................35 8.13 Election of Chief Executive Officer............................................................36 8.14 Funding Availability...........................................................................36 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF AMPAM............................................................36 9.1 Representations and Warranties; Performance and Obligations....................................36 9.2 No Litigation..................................................................................36 9.3 Secretary's Certificate........................................................................36 9.4 No Material Adverse Effect.....................................................................37 9.5 Stockholders' Release..........................................................................37 9.6 Satisfaction...................................................................................37 9.7 Termination of Related Party Agreements........................................................37 9.8 Opinion of Counsel.............................................................................37 9.9 Consents and Approvals.........................................................................37 9.10 Good Standing Certificates.....................................................................38 9.11 Funding Availability...........................................................................38 9.12 FIRPTA Certificate.............................................................................38 9.13 Resignations of Directors and Officers.........................................................38 10. COVENANTS OF AMPAM AND THE STOCKHOLDERS AFTER CLOSING...................................................38 10.1 Release From Guarantees; Repayment of Certain Obligations......................................38 10.2 Preservation of Tax and Accounting Treatment...................................................39 10.3 Preparation and Filing of Tax Returns; Payment of Taxes........................................39 10.4 Directors......................................................................................40 10.5 Legal Opinions.................................................................................40 11. INDEMNIFICATION.........................................................................................40 11.1 General Indemnification by the Stockholders....................................................40 11.2 Indemnification by AmPaM.......................................................................41 11.3 Third Person Claims............................................................................42
-iii- 5 11.4 Exclusive Remedy...............................................................................43 11.5 Limitations on Indemnification.................................................................43 12. TERMINATION OF AGREEMENT................................................................................45 12.1 Termination....................................................................................45 12.2 Procedure and Effect of Termination............................................................45 13. NONCOMPETITION..........................................................................................46 13.1 Prohibited Activities..........................................................................46 13.2 Damages........................................................................................47 13.3 Reasonable Restraint...........................................................................47 13.4 Severability; Reformation......................................................................47 13.5 Independent Covenant...........................................................................48 13.6 Materiality....................................................................................48 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...............................................................48 14.1 Stockholders...................................................................................48 14.2 AmPaM..........................................................................................49 14.3 Damages........................................................................................49 14.4 Survival.......................................................................................49 14.5 Return of Information..........................................................................50 15. TRANSFER RESTRICTIONS...................................................................................50 15.1 Transfer Restrictions Relating to AmPaM Stock and AmPaM Notes..................................50 15.2 Transfer Restrictions Relating to Additional Consideration.....................................51 16. FEDERAL SECURITIES ACT REPRESENTATIONS..................................................................52 16.1 Compliance with Law............................................................................52 16.2 Economic Risk; Sophistication..................................................................52 16.3 Reliance by AmPaM..............................................................................53 17. REGISTRATION RIGHTS.....................................................................................53 17.1 Piggyback Registration Rights..................................................................53 17.2 Registration Procedures........................................................................54 17.3 Indemnification................................................................................56 17.4 Underwriting Agreement.........................................................................57 17.5 Transfer of Rights.............................................................................58 17.6 Rule 144 Reporting.............................................................................58 18. REDEMPTION OF AMPAM STOCK...............................................................................58 18.1 Redemption Trigger.............................................................................58 18.2 Minimum Redemption; Limitations................................................................59 18.3 Notice; Exercise...............................................................................59 18.4 Additional Redemptions.........................................................................59 18.5 Termination of Redemption Obligation...........................................................59
-iv- 6 19. GENERAL.................................................................................................60 19.1 Cooperation....................................................................................60 19.2 Successors and Assigns.........................................................................60 19.3 Entire Agreement...............................................................................60 19.4 Counterparts...................................................................................60 19.5 Brokers and Agent..............................................................................61 19.6 Expenses.......................................................................................61 19.7 Notices........................................................................................62 19.8 Governing Law..................................................................................63 19.9 Survival of Representations and Warranties.....................................................63 19.10 Exercise of Rights and Remedies................................................................63 19.11 Time...........................................................................................63 19.12 Reformation and Severability...................................................................63 19.13 Remedies Cumulative............................................................................63 19.14 Captions.......................................................................................63 19.15 Amendments and Waivers.........................................................................63 19.16 Mediation and Arbitration......................................................................64 19.17 Information Provided for Private Placement Memorandum..........................................64 19.18 Effective Date of Agreement....................................................................64
-v- 7 ANNEXES Annex I - Consideration to Be Paid to Stockholders Annex II - Amended and Restated Certificate of Incorporation and By-Laws of AmPaM Annex III - Form of Opinion of Counsel to AmPaM Annex IV - Form of Tax Opinion Annex V - Form of Opinion of Counsel to Company and Stockholders Annex VI-1 - Form of Employment Agreement -vi- 8 SCHEDULES 2.1 Board of Directors 2.2 Officers 5.1 Due Organization 5.2 Authorization 5.3 Capital Stock of the Company 5.4 Transactions in Capital Stock; Organization Accounting 5.5 No Bonus Shares 5.6 Subsidiaries; Ownership in Other Entities 5.7 Predecessor Status; etc 5.8 Spin-off by the Company 5.9 Financial Statements 5.10 Liabilities and Obligations 5.11 Accounts and Notes Receivable 5.12 Licenses; Intellectual Property (Schedules 5.12(a)(1), 5.12(a)(2), 5.12(b)(1) and 5.12(b)(2)) 5.13 Environmental Matters 5.14 Personal Property 5.15 Significant Customers; Material Contracts and Commitments (Schedules 5.15(a), 5.15(b) and 5.15 (c)) 5.16 Real Property 5.17 Insurance 5.18 Compensation; Employment Agreements; Labor Matters 5.19 Employee Plans 5.20 Compliance with ERISA 5.21 Conformity with Law; Litigation 5.22 Taxes (Schedules 5.22(a) and 5.22(b)) 5.23 No Violations, No Consents Required, Etc. (Schedules 5.23(a), 5.23(b), 5.23(c) and 5.23(e)) 5.24 Government Contracts 5.25 Absence of Changes 5.26 Deposit Accounts; Powers of Attorney 5.30 No Warranties or Insurance 5.31 Interest in Customers and Suppliers and Related Party Transactions 5.33 Authority; Ownership (Schedules 5.33(a) and 5.33(b)) 6.9 No Violations 7.1 Access and Cooperation; Due Diligence; Transfer of Real Estate 7.2 Conduct of Business Pending Closing 7.3 Prohibited Activities 7.5 Agreements 8.11 Employment Agreements 9.7 Termination of Related Party Agreements 10.1 Release From Guarantees; Repayment of Certain Obligations 16.2 Non-accredited Investors 18.5 Brokers and Agents
-vii- 9 ACQUISITION AGREEMENT THIS ACQUISITION AGREEMENT (the "Agreement") is made as of the 11th day of February, 1999 by and among AMERICAN PLUMBING & MECHANICAL, INC., a Delaware corporation ("AmPaM"), NELSON MECHANICAL CONTRACTORS, INC., a Florida corporation (the "Company"), and the stockholders listed on the signature pages of this Agreement (the "Stockholders"), which are all the stockholders of the Company. RECITALS WHEREAS, the Company is engaged in the plumbing and mechanical services business; WHEREAS, as of the date hereof, the Stockholders own, and as of the Closing Date the Stockholders will own, all of the issued and outstanding capital stock of the Company (the "Company Stock"); WHEREAS, AmPaM is entering into other separate agreements simultaneously with this Agreement that are substantially the same as this Agreement (the "Other Agreements"), each of which is entitled "Acquisition Agreement," with each of the Other Founding Companies (as defined herein) and their respective stockholders in order for AmPaM to acquire additional companies engaged in the plumbing and mechanical services business; WHEREAS, this Agreement and the Other Agreements constitute the "AmPaM Plan of Organization;" WHEREAS, the Stockholders and the boards of directors and the stockholders of AmPaM, and each of the Other Founding Companies that are parties to the Other Agreements, have approved and adopted the AmPaM Plan of Organization as an integrated plan pursuant to which the Stockholders and the stockholders of each of the other Founding Companies will contribute the capital stock of each of the Founding Companies to AmPaM, and the Stockholders and the stockholders of each of the other Founding Companies will acquire the stock of AmPaM (but not cash or other property) as a tax-free transfer of property under Section 351 of the Code; WHEREAS, in consideration of the agreements of the Other Founding Companies pursuant to the Other Agreements, the Stockholders have approved this Agreement as part of the AmPaM Plan of Organization in order to transfer all of the issued and outstanding capital stock of the Company to AmPaM; and NOW, THEREFORE, in consideration of the premises and of the mutual agreements, representations, warranties, provisions and covenants herein contained, the parties hereto hereby agree as follows: 10 Unless the context otherwise requires, capitalized terms used in this Agreement or in any schedule attached hereto and not otherwise defined shall have the following meanings for all purposes of this Agreement: "1933 Act" means the Securities Act of 1933, as amended. "Acquired Party" means the Company, any subsidiary of the Company and any member of a Relevant Group. "Affiliates" means with respect to any person or entity, any other person or entity that directly or indirectly, controls, is controlled by, or is under common control with such person or entity. "AmPaM" has the meaning set forth in the first paragraph of this Agreement. "AmPaM Charter Documents" has the meaning set forth in Section 6.1. "AmPaM Plan of Organization" has the meaning set forth in the recitals of this Agreement. "AmPaM Stock" means the common stock, par value $.01 per share, of AmPaM. "AmPaM Notes" means those notes issued by AmPaM to the Stockholders as a portion of the consideration to be received hereunder and in substantially the form to Annex I as Appendix A. "Balance Sheet Date" has the meaning set forth in Section 5.9. "Charter Documents" has the meaning set forth in Section 5.1. "Closing" has the meaning set forth in Section 4. "Closing Date" has the meaning set forth in Section 4. "Code" means the Internal Revenue Code of 1986, as amended. "Company" has the meaning set forth in the first paragraph of this Agreement. "Company Stock" has the meaning set forth in the recitals of this Agreement. "Delaware GCL" means the General Corporation Law of the State of Delaware. "Environmental Laws" has the meaning set forth in Section 5.13(b). "Expiration Date" has the meaning set forth in Section 5(A) and Section 6, as applicable. 2 11 "Founding Companies" means the following companies: Christianson Enterprises, Inc., a Texas corporation; Christianson Services, Inc., a Texas corporation; GGR Leasing Corporation, a Texas corporation; J.A. Croson Company of Florida, a Florida corporation; J.A. Croson Company, an Ohio corporation; Franklin Fire Sprinkler Company, an Ohio corporation; Keith Riggs Plumbing, Inc., an Arizona corporation; Miller Mechanical Contractors, Inc., a Georgia corporation; Nelson Mechanical Contractors, Inc., a Florida corporation; Power Plumbing Inc., a Delaware corporation; R.C.R. Plumbing, Inc., a California corporation; Sherwood Mechanical Inc., a California corporation; and Teepe's River City Mechanical, Inc., an Ohio corporation. "GAAP" means generally accepted accounting principles as consistently applied in the United States. "Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Hazardous Substance" has the meaning set forth in Section 5.13(c). "IPO" means a firm commitment underwritten initial public offering of AmPaM Stock managed by one or more nationally recognized national investment banking firms. "known" or "knowledge," when used in reference to a statement regarding the existence or absence of facts in this Agreement, is intended by the parties to mean that the only information to be attributed to such person is information actually known to (a) the person in the case of an individual, (b) in the case of a corporation or other entity other than the Company, an officer or director of such corporation or entity or (c) in the case of the Company and its Subsidiaries, an officer of the Company listed on Schedule 2.2 hereto, except for David Baggett. "Material Adverse Change" means a material adverse change in the business, operations, properties, assets or condition (financial or otherwise), of the subject entity and its subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on the business, operations, properties, assets or condition (financial or otherwise), of the subject entity and its subsidiaries taken as a whole. "Material Documents" has the meaning set forth in Section 5.23. 3 12 "Ordinary Course of Business" means the ordinary course of business consistent with past customs and practice (including with respect to quantity and frequency). "Other Agreements" has the meaning set forth in the recitals of this Agreement. "Other Founding Companies" means all of the Founding Companies other than the Company. "Plans" has the meaning set forth in Section 5.19. "Private Placement Memorandum" means the Private Placement Memorandum, dated as of February 11, 1999, provided to each Stockholder prior to the execution and delivery of this Agreement which sets forth certain information relating to the transactions contemplated by this Agreement and the Other Agreements. "Qualified Plans" has the meaning set forth in Section 5.20. "Relevant Group" means the Company and any affiliated, combined, consolidated, unitary or similar group of which the Company is or was a member. "Restricted Common Stock" has the meaning set forth in Section 1.3(ii). "Returns" means any returns, reports or statements (including any information returns) required to be filed for purposes of a particular Tax. "Schedule" means each Schedule attached hereto, which shall reference the relevant sections of this Agreement, on which parties hereto disclose information as part of their respective representations, warranties and covenants. "SEC" means the United States Securities and Exchange Commission. "State of Incorporation" means the State of Florida. "Stockholders" has the meaning set forth in the first paragraph of this Agreement. "Subsidiaries" means with respect to a person or entity, any corporation or other entity in which such person or entity owns a 5% or greater ownership interest. "Tax" or "Taxes" means all federal, state, local or foreign net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value added, franchise, withholding, employment, excise, property, deed, stamp, alternative or add-on minimum, or other taxes, assessments, duties, fees, levies or other governmental charges, whether disputed or not, together with any interest, penalties, additions to tax or additional amounts with respect thereto. 4 13 1. ACQUISITION OF STOCK 1.1 ACQUISITION. Upon the terms and subject to the conditions contained in this Agreement and in reliance upon the representations, warranties, covenants and agreements contained in this Agreement, on the Closing Date, the Stockholders shall convey and transfer to AmPaM all of the issued and outstanding shares of Company Stock as set forth in Annex I hereto. 1.2 CONSIDERATION. The consideration for the Company Stock shall be as set forth on Annex I to this Agreement. 1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY AND AMPAM. The respective designations and numbers of outstanding shares and voting rights of each class of outstanding capital stock of the Company and AmPaM as of the date of this Agreement are as follows: (i) as of the date of this Agreement, the authorized and outstanding Company Stock is as set forth on Schedule 5.3 hereto; and (ii) immediately prior to the Closing Date, the authorized capital stock of AmPaM will consist of (A) 100,000,000 shares of AmPaM Stock, of which the number of issued and outstanding shares will be set forth in the Private Placement Memorandum, (B) 10,000,000 shares of redeemable preferred stock, of which the number of issued and outstanding shares will be set forth in the Private Placement Memorandum, and (C) 5,000,000 shares of Restricted Voting Common Stock, $.01 per value (the "Restricted Common Stock"), all of which will be issued and outstanding except as otherwise set forth in the Private Placement Memorandum. 2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY 2.1 BOARD OF DIRECTORS. The Company and the Stockholders shall take action, including solicitation of resignation of directors, necessary so that the Board of Directors of the Company as of the Closing Date shall consist only of the persons identified on Schedule 2.1 hereto. 2.2 OFFICERS. The Company and the Stockholders shall take action, including solicitation of resignation of officers, necessary so that the officers of the Company as of the Closing Date shall consist only of the persons identified on Schedule 2.2 hereto. 5 14 3. DELIVERY OF CONSIDERATION 3.1 STOCKHOLDERS' CONSIDERATION. On the Closing Date, the Stockholders shall, upon surrender of certificates evidencing the Company Stock, receive from AmPaM the respective number of shares of AmPaM Stock, the amount of cash and the principal amount of AmPaM Notes described on Annex I hereto specified with respect to each such Stockholder as payable on the Closing Date. All payments of cash shall be made by certified check or wire transfer of immediately available funds. Consideration consisting of AmPaM Notes shall be substantially in the form of Appendix A to Annex I. 3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at the Closing the certificates representing Company Stock, duly endorsed in blank by the Stockholders, or accompanied by blank stock powers, and with all necessary transfer tax and other revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The Stockholders agree promptly to cure any deficiencies with respect to the endorsement of the stock certificates or other documents of conveyance with respect to such Company Stock or with respect to the stock powers accompanying any Company Stock. 4. CLOSING The consummation of the transactions contemplated by Section 3 (the "Closing") shall take place on March 31, 1999 or such date not later than May 31, 1999 as AmPaM shall determine by giving written notice of such other date as provided in Section 18.7 (the "Closing Date") at the offices of Andrews & Kurth L.L.P., 4200 Chase Tower, 600 Travis, Houston, Texas 77002. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY (A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in the disclosure schedules attached hereto and except as otherwise qualified below, the Company represents and warrants that all of the following representations and warranties in this Section 5(A) are true at the date of this Agreement and, subject to Section 7.7 hereto, shall be true at the time of the Closing, and that such representations and warranties shall survive the Closing Date for a period of eighteen months (the last day of such period being the "Expiration Date"), except that the representations and warranties set forth in Sections 5.3, 5.22 and 5.32 hereof shall survive until such time as the applicable statute of limitations period has run, which shall be deemed to be the Expiration Date for the representations and warranties set forth in Sections 5.3, 5.22 and 5.32. For purposes of this Section 5, the term "Company" shall mean and refer to the Company and all of its Subsidiaries, if any, and any reference to a Material Adverse Effect on the Company or Material Adverse Change with respect to the Company shall mean the Company and its Subsidiaries, taken as a whole. Except as expressly set forth in this Agreement, the Company expressly disclaims any representation or warranty (express, implied or otherwise) relating to the 6 15 Company and any Subsidiary thereof including, without limitation, any warranty of merchantability or fitness for a particular purpose. 5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of Incorporation, and has the requisite power and authority to carry on its business as it is now being conducted. The Company is duly qualified or authorized to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or authorization necessary except where the failure to be so qualified or authorized to do business would not have a Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all states in which the Company is authorized or qualified to do business, which list indicates which of such entities is authorized or qualified to do business in such states. True, complete and correct copies of the Certificate or Articles of Incorporation and By-laws, each as amended, of the Company (the "Charter Documents") are all attached to Schedule 5.1. The Company has delivered to AmPaM complete and correct copies of (i) the stock records of the Company and (ii) all minutes of meetings, written consents and other evidence, if any, of deliberations of or actions taken by the Company's Board of Directors, any committees of the Board of Directors and stockholders during the last five years. 5.2 AUTHORIZATION. (i) The officers or other representatives of the Company executing this Agreement have the authority to enter into and bind the Company to the terms of this Agreement and (ii) the Company has the full legal right, power and authority to enter into this Agreement and consummate the transactions contemplated hereby. Copies of the most recent resolutions adopted by the Board of Directors of the Company and the most recent resolutions adopted by the Stockholders, which approve this Agreement and the transactions contemplated hereby in all respects, certified by the Secretary or an Assistant Secretary of the Company as being in full force and effect on the date hereof, are attached hereto as Schedule 5.2. 5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the Company and each of its Subsidiaries is as set forth on Schedule 5.3(a). All of the issued and outstanding shares of the capital stock of the Company are owned by the Stockholders in the amounts set forth in Schedule 5.3(a). Except as set forth on Schedule 5.3(a), all of the issued and outstanding capital stock of each Subsidiary is owned by the Company. All of the issued and outstanding shares of the capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable, are owned of record by the Stockholders and further, such shares were offered, issued, sold and delivered by the Company in compliance with all applicable state and Federal laws concerning the issuance of securities. Further, none of such shares were issued in violation of any preemptive rights of any past or present stockholder. 7 16 5.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 5.4(a), the Company has not acquired or redeemed any shares of capital stock of the Company since January 1, 1996. Except as set forth on Schedule 5.4(b), (i) no option, warrant, call, conversion right or commitment of any kind exists which obligates the Company to issue any of its authorized but unissued capital stock; (ii) the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof; and (iii) neither the voting stock structure of the Company nor the relative ownership of shares among any of its Stockholders has been altered or changed in contemplation of the AmPaM Plan of Organization. There are no voting trusts, proxies or other agreements or understandings to which the Company is a party or is bound with respect to the voting of any shares of capital stock of the Company. 5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the shares of Company Stock was issued pursuant to awards, grants or bonuses in contemplation of the AmPaM Plan of Organization. 5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set forth on Schedule 5.6(a), the Company has no Subsidiaries. Except as set forth in Schedule 5.6(b), the Company does not presently own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity nor is the Company, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. 5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7(a) is a list of all predecessor companies of the Company, including the names of any entities acquired by the Company (by stock purchase, merger or otherwise) or owned by the Company or from whom the Company previously acquired material assets, in any case, from the earliest date upon which any Stockholder acquired his or her stock in any Company. Except as disclosed on Schedule 5.7(b), the Company has not been, within such period of time, a subsidiary or division of another corporation or a part of an acquisition which was later rescinded. 5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there has not been any sale, spin-off or split-up of material assets of either the Company or any other person or entity that is an Affiliate of the Company since January 1, 1996. 5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 is a copy of: (i) the balance sheets of the Company as of April 30, 1997 and 1998 and the related statements of operations, stockholders' equity and cash flows for the two-year period ended April 30, 1998, together with the related notes and schedules (such balance sheets, the related statements of operations, stockholders' equity and cash flows and the related notes and schedules are referred to herein as the "Year-end Financial Statements"); 8 17 (ii) the balance sheet of the Company as of September 30, 1998 (the "Balance Sheet Date") and the related statements of operations, stockholders' equity and cash flows for the nine-month periods ended September 30, 1997 and 1998 (such balance sheets, the related statements of operations, stockholders' equity and cash flows are referred to herein as the "Nine-Month Interim Financial Statements"); and (iii) the income statement of the Company for the 12-month period ended June 30, 1998 (the "Valuation Income Statement"). The Year-end Financial Statements, the Nine-Month Interim Financial Statements and the Valuation Income Statement are collectively called the "Financial Statements". The Financial Statements, including those included in the Private Placement Memorandum, have been prepared in accordance with GAAP applied on a consistent basis and fairly present the financial position of the Company as of the dates thereof and the results of its operations and changes in financial position for the periods then ended, subject, in the case of the Nine-Month Interim Financial Statements, to normal year-end audit adjustments and any other adjustments described therein and the absence of certain footnote disclosures. 5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10(a) sets forth an accurate list as of the Balance Sheet Date of (i) all material liabilities of the Company which are not reflected on the balance sheet of the Company at the Balance Sheet Date or otherwise reflected in the Company Financial Statements at the Balance Sheet Date which by their nature would be required in accordance with GAAP to be reflected in the balance sheet, and (ii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages, pledges or other security agreements to which the Company is a party or by which its properties may be bound other than bid bonds and performance bonds made in the Ordinary Course of Business. Except as set forth on Schedule 5.10(b), since the Balance Sheet Date, the Company has not incurred any material liabilities or obligations of any kind, character or description, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than liabilities incurred in the Ordinary Course of Business. The Company has also delivered to AmPaM, on Schedule 5.10(c), a list of contingent liabilities related to pending litigation or litigation that has been threatened in writing, or other material liabilities which are not fixed or otherwise accrued or reserved. For each such contingent liability of the Company or liability of the Company for which the amount is not fixed or is contested, the Company has provided to AmPaM the following information: 9 18 (i) a summary description of the liability together with the following: (a) copies of all relevant documentation in the possession of the Company or its directors, officers or stockholders relating thereto; (b) amounts claimed and any other action or relief sought; and (c) name of claimant and all other parties to the claim, suit or proceeding; (ii) the name of each court or agency before which such claim, suit or proceeding is pending; (iii) the date such claim, suit or proceeding was instituted; and (iv) a good faith estimate of the maximum amount, if any, which the Company expects, based on information available, is likely to become payable with respect to each such liability and the amount, if any, accrued or reserved for each such potential liability on the Financial Statements. AmPaM acknowledges that all estimates referred to above and set forth on Schedule 5.10(c) are only good faith estimates, and that the Company and the Stockholders expressly do not represent or warrant that the actual amounts of such liabilities will be equal to, or more or less than, the amounts of such estimates. 5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11(a) sets forth an accurate list, in all material respects, of the accounts and notes receivable of the Company, as of the Balance Sheet Date, including any such amounts which are not reflected in the balance sheet as of the Balance Sheet Date, and including all receivables from and advances to employees and the Stockholders, which are identified as such. Schedule 5.11(a) also sets forth a materially accurate aging of all accounts and notes receivable as of the Balance Sheet Date showing amounts due in 30-day aging categories. Except to the extent reflected on Schedule 5.11(b), such accounts, notes and other receivables are collectible in the amounts shown on Schedule 5.11(a), net of reserves reflected in the balance sheet as of the Balance Sheet Date. 5.12 LICENSES; INTELLECTUAL PROPERTY. (a) The Company or its employees hold all licenses, franchises, permits and other governmental authorizations ("Licenses") necessary to conduct the business of the Company, the absence of which would cause a Material Adverse Effect on the Company, and the Company has delivered to AmPaM a list that is accurate, in all material respects, and summary description (which is set forth on Schedule 5.12(a)(1)) of all such Licenses. At or prior to the Closing, all such Licenses owned or held by any employee of the Company will be assigned or licensed to the Company for no additional consideration. The Licenses listed on Schedule 5.12(a)(1) are valid, and the Company has not received any notice that any person intends to cancel, terminate or not renew any such License. The Company has conducted and is conducting its business in compliance in all material respects with the requirements, standards, criteria and 10 19 conditions set forth in the Licenses listed on Schedule 5.12(a)(1) and is not in violation of any of the foregoing in any material respect. Except as specifically provided in Schedule 5.12(a)(2), the consummation by the Company of the transactions contemplated by this Agreement will not result in a default under or a breach or violation of, or adversely affect the rights and benefits afforded to the Company by, any such Licenses. (b) The Company owns or possesses adequate licenses or other rights to use (without making any payment or granting rights to any person in exchange) all patents, patent applications, trademarks, copyrights, service marks and trade names (collectively, the "Intellectual Property") necessary to conduct its business as currently conducted. A description of any Intellectual Property licensed by the Company, including the material terms of any such license, is described on Schedule 5.12(b)(1). Neither the validity of the Intellectual Property nor the title thereto or use thereof by the Company is being questioned in any pending litigation, and the conduct of the Company's business, as currently conducted, does not conflict with licenses, copyrights, uncopyrighted works, trade marks, service marks, trade names, trade name rights, patents, patent rights, unpatented inventions or trade secrets of others. Neither the validity of the Intellectual Property nor the title thereto or use thereof by the Company is being questioned in any pending or, to the knowledge of the Company, threatened infringement claims or litigation, and the conduct of the Company's business, as now conducted, does not conflict with licenses, copyrights, uncopyrighted works, trade marks, service marks, trade names, trade name rights, patents, patent rights, unpatented inventions or trade secrets of others. Except as specifically provided in Schedule 5.12(b)(2), the consummation by the Company of the transactions contemplated by this Agreement will not adversely affect the rights and benefits afforded to the Company by any such Intellectual Property. 5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule 5.13 attached hereto, (i) the Company has conducted its businesses in compliance in all material respects with all applicable Environmental Laws, including, without limitation, having all environmental permits, licenses and other approvals and authorizations necessary for the operation of its business as presently conducted, except where the failure to have such permit, license, approval or authorization would not have a Material Adverse Effect on the Company, (ii) none of the properties owned by the Company contain any Hazardous Substance as a result of any activity of the Company in amounts exceeding the levels permitted by applicable Environmental Laws, except where amounts in excess of such levels would not have a Material Adverse Effect on the Company, (iii) the Company has not received any notices, demand letters or requests for information from any Federal, state, local or foreign governmental entity or third party indicating that the Company may be in violation of, or liable under, any Environmental Law in connection with the ownership or operation of its business, (iv) there are no civil, criminal or administrative actions, suits, demands, claims, hearings, investigations or proceedings pending or, to the knowledge of the Company, threatened, against the Company relating to any violation, or alleged violation, of any Environmental Law, except where such violation would not have a Material Adverse Effect on the Company, (v) no reports have been filed, or are required to be filed, by the Company concerning the release of any Hazardous Substance or the threatened or actual violation of any Environmental Law, (vi) no Hazardous Substance has 11 20 been disposed of, released or transported in violation of any applicable Environmental Law from any properties owned by the Company as a result of any activity of the Company during the time such properties were owned, leased or operated by the Company, (vii) there have been no environmental investigations, studies, audits, tests, reviews or other analyses regarding compliance or non-compliance with any applicable Environmental Law conducted by or which are in the possession of the Company relating to the activities of the Company which are not listed on Schedule 5.13 attached hereto prior to the date hereof, (viii) to the knowledge of the Company, (A) there are no underground storage tanks on, in or under any properties owned by the Company and (B) no underground storage tanks have been closed or removed from any of such properties during the time such properties were owned, leased or operated by the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the Company, (A) there is no asbestos or asbestos-containing material present in any material quantity in any of the properties owned by the Company, and (B) no asbestos has been removed from any of such properties during the time such properties were owned, leased or operated by the Company, and (x) neither the Company nor any of its properties are subject to any material liabilities or expenditures (fixed or contingent) relating to any suit, settlement, court order, administrative order, regulatory requirement, judgment or claim asserted or arising under any Environmental Law. (b) As used herein, "Environmental Law" means, as of the Closing Date, any Federal, state, local or foreign law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction or agreement with any governmental entity to which the Company is a party or subject relating to (x) the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource) or to human health or safety or (y) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances, in each case as amended and as in effect on the Closing Date. The term Environmental Law includes, without limitation, (i) the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as amended and as in effect on the Closing Date, and (ii) any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of, effects of or exposure to any Hazardous Substance. (c) As used herein, "Hazardous Substance" means any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive, or dangerous, or otherwise regulated, under any Environmental Law. Hazardous Substance includes any substance to which exposure is regulated by any government authority or any Environmental Law including, without 12 21 limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste, industrial substance or petroleum or any derivative or by-product thereof, radon, radioactive material, asbestos or asbestos-containing material, urea formaldehyde foam insulation, lead or polychlorinated biphenyls. 5.14 PERSONAL PROPERTY. The Company has delivered to AmPaM an accurate list (which is set forth on Schedule 5.14(a)) of (x) all personal property material to the operations of the Company as of the Balance Sheet Date included in "plant, property and equipment" on the balance sheet of the Company as of such date, (y) all other items of personal property owned by the Company with an individual value in excess of $15,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all material leases and agreements in respect of personal property, including, in the case of each of (x), (y) and (z), (1) true, complete and correct copies of all such leases and (2) an indication as to which assets are currently owned, or were formerly owned, by Stockholders, relatives of Stockholders, or Affiliates of the Company. Except as set forth on Schedule 5.14(b), (i) all personal property material to, and used by, the Company in its business is either owned by the Company or leased by the Company pursuant to a lease included on Schedule 5.14(a), (ii) all of the personal property listed on Schedule 5.14(a) or replacement property thereof is in working order and condition, ordinary wear and tear excepted and (iii) all leases and agreements included on Schedule 5.14(a) are in full force and effect and constitute valid and binding agreements of the Company, in each case in accordance with their respective terms. 5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. (a) The Company has delivered to AmPaM a materially accurate list (which is set forth on Schedule 5.15(a)(1)) of all customers (persons or entities) representing 5% or more of the Company's annual revenues for any period covered by any of the Financial Statements. Except to the extent set forth on Schedule 5.15(a)(2), none of such customers has canceled or, to the knowledge of the Company, are currently threatening to cancel a currently effective contract with the Company. (b) The Company has listed on Schedule 5.15(b) all material contracts, commitments and similar agreements to which the Company is a party or by which it or any of its properties are bound (including, but not limited to, contracts with customers listed on Schedule 5.15(a), joint venture or partnership agreements, contracts with any labor organizations, strategic alliances and options to purchase land), other than agreements listed on Schedules 5.10(a), Schedule 5.14(a) or Schedule 5.16(a), (a) in existence as of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and in each case has delivered or made available to AmPaM true, complete and correct copies of such agreements. For purposes of the preceding sentence, a contract, commitment or similar agreement is "material" if it (i) has a term of more than one year (other than contracts, commitments or agreements that are cancelable without liability or penalty within 30 days of notice from the Company of cancellation or that can be terminated by the Company without material penalty upon notice of 30 days or less) or (ii) requires the payment by or to the Company of more than $100,000 during any 12-month period. Except for expenditures in the ordinary course of 13 22 business, the Company has also indicated on Schedule 5.15(b) a summary description of all plans or projects involving the opening of new operations, expansion of existing operations, or the acquisition of any personal property, business or assets requiring, in any event, the payment of more than $50,000 by the Company during any 12-month period. (c) Except as set forth on Schedule 5.15(c), the Company is not required to provide any bonding or other financial security arrangements in any material amount in connection with any contract listed on Schedule 5.15(b). 5.16 REAL PROPERTY. Schedule 5.16(a) includes a list of all real property owned or leased by the Company at the date hereof and all other real property, if any, used by the Company in the conduct of its business. The Company has good and insurable title to any real property owned by it that is shown on Schedule 5.16(a), other than property intended to be sold or distributed prior to the Closing Date as provided in Section 7.1(c) of this Agreement, and all real property so owned is subject to no mortgage, pledge, lien, conditional sales agreement, encumbrance, lease, possessory rights of third parties or charge, except for: (i) liens reflected on Schedule 5.10(a) or Schedule 5.16(b) as securing specified liabilities (with respect to which no material default by the Company exists); (ii) liens for current taxes not yet payable and assessments not in default; (iii) easements for utilities serving the property; and (iv) easements, covenants and restrictions and other exceptions to title which do not adversely affect the current use of the property. Copies of all leases and agreements in respect of such real property leased by the Company, which are true, complete and correct in all material respects, are attached to Schedule 5.16(a), and an indication as to which such properties, if any, are currently owned, or were formerly owned, by Stockholders or Affiliates of the Company or Stockholders is included in Schedule 5.16(a). Except as set forth on Schedule 5.16(b), all of such leases included on Schedule 5.16(a) are, as to the Company, in full force and effect and constitute valid and binding agreements of the Company in accordance with their respective terms. 5.17 INSURANCE. The Company has delivered to AmPaM (i) an accurate list as of the Balance Sheet Date of all insurance policies carried by the Company and (ii) an accurate list of all insurance loss runs or workers compensation claims received for the past three policy years (which lists are set forth on Schedule 5.17). The Company has also delivered or made available to AmPaM true, complete and correct copies of all insurance policies currently in effect that are referred in Schedule 5.17. Such insurance policies evidence all of the insurance the Company is required to carry pursuant to all of its contracts and other agreements and pursuant to all applicable laws. All of such insurance policies are currently in full force and effect except as stated in Schedule 5.17. 14 23 Since January 1, 1996, no insurance carried by the Company has been canceled by the insurer and the Company has not been denied coverage under any such policy. 5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS. (a) The Company has delivered to AmPaM an accurate list (which is set forth on Schedule 5.18(a)(1)) showing all officers, directors and key employees of the Company, listing all employment agreements with such officers, directors and key employees and the rate of compensation (and the portions thereof attributable to salary, bonus and other compensation, respectively) of each of such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The Company has provided to AmPaM true, complete and correct copies of any employment agreements for persons listed on Schedule 5.18(a)(1). Since the Balance Sheet Date, except as disclosed on Schedule 5.18(a)(2), there have been no increases in the compensation payable or any bonuses to any officer, director, key employee or other employee, except ordinary salary increases implemented on a basis consistent with past practices and except for bonuses paid on a basis consistent with past practices. (b) Except as set forth on Schedule 5.18(b), (i) the Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any arrangement with any labor union, (ii) to the knowledge of the Company, no campaign to establish such arrangement is in progress and (iii) there is no pending or, to the Company's knowledge, threatened labor dispute involving the Company and any group of its employees nor has the Company experienced any labor interruptions over the past three years. The Company believes its relationship with employees to be generally good. (c) Except as set forth in Schedule 5.18(c) attached hereto, (i) there are no claims, actions or proceedings pending or, to the knowledge of the Company, threatened between the Company and any of its employees, (ii) the Company has complied in all material respects with all laws relating to the employment of labor, including, without limitation, any provisions thereof relating to wages, hours, collective bargaining, and the payment of social security and similar taxes, and (iii) the Company has not received written notice from any person asserting that the Company is liable in any material amount for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. 5.19 EMPLOYEE PLANS. The Company has delivered to AmPaM accurate schedule (Schedule 5.19(a)) showing all employee benefit plans of the Company, including all employment agreements and other agreements or arrangements containing "golden parachute" or other similar provisions, and deferred compensation agreements, together with true, complete and correct copies of such plans, agreements and any trusts related thereto, and classifications of employees covered thereby as of the Balance Sheet Date and as of the date of this Agreement. Except for the employee benefit plans, if any, described on Schedule 5.19(a), the Company does not sponsor, maintain or contribute to any plan program, fund or arrangement that constitutes an "employee pension benefit plan", and neither the Company nor any Subsidiary has any obligation to contribute to or accrue or 15 24 pay any benefits under any deferred compensation or retirement funding arrangement on behalf of any employee or employees (such as, for example, and without limitation, any individual retirement account or annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred compensation arrangement). For the purposes of this Agreement, the term "employee pension benefit plan" shall have the same meaning as is given that term in Section 3(2) of ERISA. The Company has not sponsored, maintained or contributed to any employee pension benefit plan other than the plans set forth on Schedule 5.19(a), and, except as described on Schedule 5.19(b), the Company is not or could not be required to contribute to any retirement plan pursuant to the provisions of any collective bargaining agreement establishing the terms and conditions or employment of any of the Company's employees. Except as set forth on Schedule 5.19(c), the Company is not now, or will not as a result of its past activities become, liable to the Pension Benefit Guaranty Corporation or to any multiemployer employee pension benefit plan under the provisions of Title IV of ERISA. All employee benefit plans listed on Schedule 5.19(a) and the administration thereof are in compliance in all material respects with their terms and all applicable provisions of ERISA and the regulations issued thereunder, as well as with all other applicable federal, state and local statutes, ordinances and regulations. All accrued contribution obligations of the Company as of the Balance Sheet Date with respect to any plan listed on Schedule 5.19(a) have either been fulfilled in their entirety or are fully reflected on the balance sheet of the Company as of the Balance Sheet Date. 5.20 COMPLIANCE WITH ERISA. All plans listed on Schedule 5.19(a) that are intended to qualify under Section 401 (a) of the Code (the "Qualified Plans") are, and have been so qualified and have been determined by the Internal Revenue Service to be so qualified, and copies of such determination letters are attached to Schedule 5.19(a). Except as disclosed on Schedule 5.20, all reports and other documents required to be filed with any governmental agency or distributed to plan participants or beneficiaries (including, but not limited to, actuarial reports, audits or tax returns) since January 1, 1992 have been timely filed or distributed, and copies thereof have been made available to AmPaM. No such plan listed on Schedule 5.19(a) nor the Company has engaged in any transaction prohibited under the provisions of Section 4975 of the Code or Section 406 of ERISA. No such Plan listed on Schedule 5.19(a) has incurred an accumulated funding deficiency, as defined in Section 412(a) of the Code and Section 302(l) of ERISA; and the Company has not incurred any liability for excise tax or penalty due to the Internal Revenue Service nor any liability to the Pension Benefit Guaranty Corporation. The Company further represents that except as set forth on Schedule 5.20 hereto: (i) there have been no terminations, partial terminations or discontinuations of contributions to any Qualified Plan intended to qualify under Section 401(a) of the Code without notice to and approval by the Internal Revenue Service; 16 25 (ii) no plan listed on Schedule 5.19(a) subject to the provisions of Title IV of ERISA has been terminated; (iii) there have been no "reportable events" (as that phrase is defined in Section 4043 of ERISA) with respect to any such plan listed in Schedule 5.19(a); (iv) the Company (including any Subsidiaries) has not incurred liability under Section 4062 of ERISA; and (v) no circumstances exist pursuant to which the Company could have any direct or indirect liability whatsoever (including, but not limited to, any liability to any multiemployer plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for any excise tax or penalty, or being subject to any statutory lien to secure payment of any such liability) with respect to any plan now or heretofore maintained or contributed to by any entity other than the Company that is, or at any time was, a member of a "controlled group" (as defined in Section 412(n)(6)(B) of the Code) that includes the Company. 5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on Schedule 5.21 or Schedule 5.13, the Company has not violated within the five years prior to the date of this Agreement and is not currently in violation of any law or regulation or any order of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it other than violations that would not have a Material Adverse Effect on the Company; and except to the extent set forth on Schedule 5.10(c) or Schedule 5.13, there are no claims, actions, suits or proceedings, pending or, to the knowledge of the Company, threatened in writing against the Company, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over the Company and no written notice of any claim, action, suit or proceeding, whether pending or threatened, has been received by the Company, and to the knowledge of the Company there is no valid basis for any such claim, action, suit or proceeding that could reasonably be expected to have a Material Adverse Effect on the Company. 5.22 TAXES. (a) The Company has timely filed all requisite Federal, state and other Tax Returns or extension requests for all fiscal periods ended on or before the Balance Sheet Date; and except as set forth on Schedule 5.22(a), there are no examinations in progress or claims pending against the Company for federal, state and other Taxes (including penalties and interest) for any period or periods prior to and including the Balance Sheet Date and no notice of any claim for Taxes, whether pending or threatened, has been received. All Tax, including interest and penalties (whether or not shown on any Tax Return), due by the Company has been paid. The amounts shown as accruals for Taxes on the Financial Statements are sufficient for the payment of all Taxes of the kinds indicated (including penalties and interest) for all fiscal periods ended on or before the date of the respective Financial Statements. Copies of (i) any tax examinations, (ii) extensions of statutory limitations and 17 26 (iii) the federal and local income Tax Returns and franchise Tax Returns of Company for their last three (3) fiscal years, or such shorter period of time as any of them shall have existed, are attached hereto as Schedule 5.22(a) or have otherwise been delivered to AmPaM. The Company has a taxable year ended April 30. Except as set forth on Schedule 5.22(a), the Company uses the accrual method of accounting for income tax purposes, and the Company's methods of accounting have not changed in any material respect in the past five years (except as required to conform to changes in GAAP). The Company is not an investment company as defined in Section 351(e)(1) of the Code. The Company is not and has not during the last five years been a party to any tax sharing agreement or agreement of similar effect. Except as set forth on Schedule 5.22(a), the Company is not and has not during the last five years been a member of any consolidated group for federal tax purposes. The Company has not received, been denied, or applied for any private letter ruling from the IRS during the last ten years. (b) The Stockholders have made a valid election under the provisions of Subchapter S of the Code and, except as set forth on Schedule 5.22(b), the Company has not, within the past five years, been subject to Federal income Taxes under the provisions of Subchapter C of the Code. 5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC. (a) The Company is not in violation of any Charter Document. Except as set forth on Schedule 5.23(a), the Company is not in default under any lease, instrument, agreement, license, or permit set forth on Schedule 5.12(a), Schedule 5.14(a), Schedule 5.15(b) or Schedule 5.16(a) (collectively, the "Material Documents"). (b) Except as set forth on Schedule 5.23(b)(1), the execution and delivery of this Agreement by each of the Company and the Stockholders do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company under any of the terms, conditions or provisions of (i) the Charter Documents of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to the Company or any of its properties or assets, or (iii) any Material Document to which the Company is now a party or by which the Company or any of its properties or assets may be bound or affected. The consummation by the Company and the Stockholders of the transactions contemplated hereby will not result in any material violation, conflict, breach, right of termination or acceleration or creation of liens under any of the terms, conditions or provisions of the items described in clauses (i) through (iii) of the preceding sentence, subject, in the case of the terms, conditions or provisions of the items described in clause (iii) above, to obtaining (prior to the Effective Time) such consents as may be required from commercial lenders, lessors or other third parties as listed on Schedule 5.23(b)(2). 18 27 (c) Except as set forth on Schedule 5.23(c) and except for the Hart-Scott Act, none of the Material Documents requires notice to, or the consent or approval of, any governmental agency or other third party with respect to the consummation by the Company and the Stockholders of any of the transactions contemplated hereby in order to remain in full force and effect, and consummation by the Company and the Stockholders of the transactions contemplated hereby will not give rise to any right to termination, cancellation or acceleration or loss of any material right or benefit under any Material Document. (d) Except for (i) any filings to be made with the SEC pursuant to the 1933 Act or with any state securities authorities in connection with the offer and sale of AmPaM Stock and AmPaM Notes pursuant to this Agreement and (ii) any filing required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby. (e) Except as set forth on Schedule 5.23(e), none of the Material Documents prohibits the disclosure or publication by the Company or AmPaM of the name of any other party to such Material Document, and none of the Material Documents prohibits or restricts the Company from freely providing services or selling products to any other customer or potential customer of the Company, AmPaM or any Other Founding Company. 5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the Company is not now a party to any governmental contract subject to price redetermination or renegotiation. 5.25 ABSENCE OF CHANGES. (a) Since the Balance Sheet Date, except as set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not been: (i) any Material Adverse Change in the Company; (ii) any damage, destruction or casualty loss (whether or not covered by insurance), alone or in the aggregate, which has caused a Material Adverse Effect on the Company; (iii) any change in the authorized capital of the Company or its outstanding securities or any change in its ownership interests or any grant of any options, warrants, calls, conversion rights or commitments; (iv) any declaration or payment of any dividend or distribution in respect of the capital stock or any direct or indirect redemption, purchase or other acquisition of any of the capital stock of the Company except for distributions that would have been permitted after the date hereof under Section 7.3(iii) hereof, 19 28 (v) any increase in the compensation, bonus, sales commissions or fee arrangement payable or to become payable by the Company to any of its officers, directors, Stockholders, employees, consultants or agents, except for ordinary and customary bonuses and salary increases for employees in accordance with past practice; (vi) any work interruptions, labor grievances or claims filed, or any event or condition of any character, which has caused a Material Adverse Effect on the Company; (vii) any sale or transfer, or any agreement to sell or transfer, any material assets, property or rights of the Company to any person, including, without limitation, the Stockholders and their affiliates, except inventory sold or transferred in the Ordinary Course of Business; (viii) any cancellation, or agreement to cancel, any indebtedness or other obligation owing to the Company, including without limitation any indebtedness or obligation of any Stockholders or any Affiliate thereof; (ix) any plan, agreement or arrangement granting any preferential rights to purchase or acquire any interest in any of the material assets, property or rights of the Company or requiring consent of any party to the transfer and assignment of any such assets, property or rights; (x) any purchase or acquisition of, or agreement, plan or arrangement to purchase or acquire, any property, rights or assets outside of the Ordinary Course of Business; (xi) any waiver of any material rights or claims of the Company; (xii) any amendment or termination of any Material Document to which the Company is a party except for the termination of a Material Document in accordance with its terms without any action on the part of the Company; (xiii) any transaction by the Company outside the Ordinary Course of Business; (xiv) any cancellation or termination of a material contract with a customer or client listed on Schedule 5.15(a) prior to the scheduled termination date thereof; or (xv) any other distribution of property or assets by the Company other than in the Ordinary Course of Business, other than (a) distributions of nonoperating assets specifically identified on Schedule 5.25, (b) distributions of real estate required by Section 7.1(c) of this Agreement and (c) distributions of cash or promissory notes permitted by Annex I hereto. (b) Except as set forth on Schedule 5.25, the Company has not, between the Balance Sheet Date and the date hereof, taken any of the actions set forth in Section 7.3. 20 29 5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to AmPaM an accurate schedule (which is set forth on Schedule 5.26) as of the date of the Agreement of: (i) the name of each financial institution in which the Company has an account or safe deposit box; (ii) the names in which the accounts or boxes are held; (iii) the type of account and account number; and (iv) the name of each person authorized to draw thereon or have access thereto. Schedule 5.26 also sets forth the name of each person, corporation, firm or other entity holding a general or special power of attorney from the Company and a description of the terms of such power. 5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement by the Company and the performance of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of the Company and this Agreement has been duly and validly authorized by all necessary corporate action and is a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. 5.28 RELATIONS WITH GOVERNMENTS. The Company has not, and to the knowledge of the Company none of the Stockholders or any Affiliate of any of them has, given or offered anything of value to any governmental official, political party or candidate for government office or otherwise taken any action which would cause the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. 5.29 DISCLOSURE. This Agreement, including the Annexes and Schedules hereto, and the completed questionnaire related to the Hart-Scott Act furnished to AmPaM by the Company, do not contain an untrue statement of a material fact concerning the Company or omit to state a material fact concerning the Company necessary to make the statements herein and therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing does not apply to statements contained in or omitted from any of such documents made or omitted in reliance upon information furnished in writing by AmPaM. 5.30 NO WARRANTIES OR INSURANCE. Except for warranty liability under applicable law and except for warranty liability under the warranties issued by the Company of the types described on Schedule 5.30, the Company has no liability to any person under any warranty and the Company does not offer or sell insurance or consumer protection plans or other arrangements that could result in the Company being required to make any payment to or perform any service for any person. 21 30 5.31 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY TRANSACTIONS. Except as described on Schedule 5.31 or in Section 8.11, no Stockholder, officer, director or Affiliate of the Company (i) owns, directly or indirectly, any financial interest in, or is a director, officer, employee or affiliate of, any corporation, firm, association or business organization that is a client, supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or will be a party to an agreement or relationship with the Company other than through a customary "at will" employment relationship. 5.32 PRIVATE PLACEMENT MEMORANDUM. None of the information supplied or to be supplied by the Company in writing specifically for inclusion in the Private Placement Memorandum contained or, as of the Closing Date, will contain any untrue statement of a material fact concerning the Company or omitted or will omit to state any material fact required to be stated therein or necessary in order to make the statements contained in such information supplied or to be supplied by the Company concerning the Company, in light of the circumstances under which they are made, not misleading. (B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS. Each Stockholder severally represents and warrants that the representations and warranties set forth below are true as of the date of this Agreement and, subject to Section 7.7 hereof, shall be true at the time of Closing, and that the representations and warranties set forth in this Section 5(B) shall survive the Closing Date. 5.33 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right, power and authority to enter into this Agreement, and this Agreement is a legal, valid and binding obligation of such Stockholder, enforceable against the Stockholder in accordance with its terms. Except as set forth on Schedule 5.33(a), the execution and delivery of this Agreement by such Stockholder does not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of such Stockholder under any of the terms, conditions or provisions of (i) the Charter Documents of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to such Stockholder or any of such Stockholder's properties or assets, or (iii) any lease, instrument, agreement, license or permit to which such Stockholder is now a party or by which such Stockholder or any of such Stockholder's properties or assets may be bound or affected. Except for (i) any filings to be made with the SEC pursuant to the 1933 Act and any state securities authorities in connection with the offer and sale of AmPaM Stock and AmPaM Notes pursuant to this Agreement, (ii) any filing required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by such Stockholder or the consummation by such Stockholder of the transactions contemplated hereby. Except as set forth on 22 31 Schedule 5.33(b), such Stockholder owns beneficially and of record all of the shares of the Company Stock identified on Annex I hereto as being owned by such Stockholder, and, such Company Stock is owned free and clear of all liens, security interests, pledges, charges, voting trusts, voting agreements, restrictions, encumbrances and claims of every kind. 5.34 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby waives, any preemptive or other right to acquire shares of Company Stock or AmPaM Stock that such Stockholder has or may have had. Nothing herein, however, shall limit or restrict the rights of any Stockholder to acquire AmPaM Stock pursuant to (i) this Agreement, (ii) any option granted or to be granted by AmPaM to such Stockholder, (iii) a purchase through a broker in a regular stock market transaction or (iv) a purchase from a stockholder of a Founding Company (subject to compliance with any contractual restrictions or securities law restrictions applicable thereto specified in Section 15 hereof). 5.35 NO COMMITMENT TO DISPOSE OF AMPAM STOCK. No Stockholder is under any binding commitment or contract to sell, exchange or otherwise dispose of shares of AmPaM Stock or AmPaM Notes received pursuant to this Agreement. 5.36 DISCLOSURE. The completed Director and Officer Questionnaires with respect to such Stockholder (if any), the completed investor questionnaire furnished to AmPaM by such Stockholder in connection with the proposed acquisition by such Stockholder of AmPaM Stock and AmPaM Notes and any other information provided to AmPaM in writing by such Stockholder relating specifically to such Stockholder for inclusion in the Private Placement Memorandum do not contain an untrue statement of a material fact concerning such Stockholder or omit to state a material fact concerning such Stockholder necessary to make the statements herein and therein, in light of the circumstances under which they were made, not misleading. 6. REPRESENTATIONS OF AMPAM Except as otherwise qualified below, AmPaM represents and warrants that all of the following representations and warranties in this Section 6 are true at the date of this Agreement and, subject to Section 7.7 hereof, shall be true at the time of Closing, and that such representations and warranties shall survive the Closing Date for a period of eighteen months (the last day of such period being the "Expiration Date" for purposes of the representations and warranties set forth in this Section 6), except that the representations and warranties set forth in Section 6.3, 6.11 and 6.15 shall survive until such time as the applicable statute of limitations period has run, which shall be deemed to be the Expiration Date for the representations and warranties set forth in Sections 6.3, 6.11 and 6.15. AmPaM acknowledges that in purchasing the shares of Company Stock, it is relying upon its own independent investigation as well as the representations and warranties of the Company and the Stockholders as set forth in this Agreement. 23 32 6.1 DUE ORGANIZATION. AmPaM is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of Delaware, and has the requisite power and authority to carry on its business as it is now being conducted and as contemplated by the Private Placement Memorandum. AmPaM is duly qualified or authorized to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or authorization necessary, except where the failure to be so qualified or authorized to do business would not have a Material Adverse Effect. True, complete and correct copies of the Certificate of Incorporation and By-laws, each as proposed to be amended and as such documents shall be in effect as of the Closing Date, of AmPaM (the "AmPaM Charter Documents") are attached hereto as Annex II. 6.2 AUTHORIZATION. (i) The officers of AmPaM executing this Agreement have the authority to enter into and bind AmPaM to the terms of this Agreement and (ii) AmPaM has the full legal right, power and authority to enter into this Agreement and consummate the transactions contemplated hereby. All corporate acts and other proceedings required to have been taken by AmPaM to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and properly taken. 6.3 CAPITAL STOCK OF AMPAM. The authorized capital stock of AmPaM is as set forth in Section 1.3(ii). Immediately prior to the Closing Date, all of the issued and outstanding shares of the capital stock of AmPaM will be as set forth in the Private Placement Memorandum, free and clear of all liens, security interests, pledges, charges, voting trusts, restrictions, encumbrances and claims of every kind other than any restrictions described in the Private Placement Memorandum. All of the issued and outstanding shares of the capital stock of AmPaM have been duly authorized and validly issued, are fully paid and nonassessable and such shares were offered, issued, sold and delivered by AmPaM in compliance with all applicable state and Federal laws concerning the issuance of securities. Further, none of such shares were issued in violation of the preemptive rights of any past or present stockholder of AmPaM. Upon the Closing Date, the authorized, issued and outstanding shares of capital stock of AmPaM will be as set forth in the Private Placement Memorandum under the caption "Capitalization." Upon the Closing Date, the aggregate number of shares of AmPaM Stock issued and outstanding on the Closing Date that are owned by Sterling City Capital, LLC, any Affiliates of Sterling City Capital, LLC and the officers and directors of AmPaM will not be greater than the number of shares of AmPaM Stock reflected in the Private Placement Memorandum as the aggregate number of shares of AmPaM Stock to be issued and outstanding and owned by Sterling City Capital, LLC, any Affiliates of Sterling City Capital, LLC and the officers and directors of AmPaM. 6.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements and except as set forth in the Private Placement Memorandum, (i) no option, warrant, call, conversion right or commitment of any kind exists as of the date of this Agreement which obligates AmPaM to issue any of its authorized but unissued capital stock; and (ii) AmPaM has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof. The material terms of any 24 33 options, warrants or other rights to acquire shares of the stock of AmPaM referred to in the preceding sentence will be as described in the Private Placement Memorandum. 6.5 SUBSIDIARIES. As of the date of this Agreement, AmPaM has no subsidiaries. As of the date of this Agreement, AmPaM does not own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity, and AmPaM is not, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. 6.6 FINANCIAL STATEMENTS. The historical financial statements of AmPaM included in the Private Placement Memorandum (the "AmPaM Financial Statements") have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except as noted thereon), and the balance sheet included therein presents fairly the financial position of AmPaM as of its date. Management of AmPaM believes that the assumptions underlying the pro forma adjustments utilized in the preparation of such pro forma financial statements are reasonable, and such pro forma adjustments have been properly applied to the historical financial amounts in the compilation of the pro forma financial statements. Based on the representations in Section 5.9 of this Agreement and in Section 5.9 of each of the Other Agreements, the pro forma financial information of AmPaM fairly presents the pro forma financial position, results of operations and other information purported to be shown therein at the respective dates and for the respective periods specified. 6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Private Placement Memorandum, as of the date of this Agreement, AmPaM has no material liabilities or obligations of any kind, character or description, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than liabilities incurred in the ordinary course of business and consistent with past practices, liabilities or obligations set forth in or contemplated by this Agreement and the Other Agreements and except for fees incurred in connection with the transactions contemplated hereby and thereby. 6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the Private Placement Memorandum, AmPaM is not in violation of any law or regulation or any order of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it and its stockholders and, there are no claims, actions, suits or proceedings, pending or, to the knowledge of AmPaM, threatened against or affecting, AmPaM, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it and no notice of any claim, action, suit or proceeding, whether pending or threatened, has been received. AmPaM has conducted and is conducting its businesses in compliance in all material respects with the requirements, standards, criteria and conditions set forth in applicable Federal, state and local statutes, ordinances, permits, licenses, orders, approvals, variances, rules and regulations and is not in violation, in any material respect, of any of the foregoing. 25 34 6.9 NO VIOLATIONS. (a) AmPaM is not in violation of any AmPaM Charter Document. AmPaM is not in default under any lease, instrument, agreement, license, or permit to which AmPaM is a party or by which AmPaM or any of its properties are bound (collectively, the "AmPaM Documents"). (b) The execution and delivery of this Agreement by AmPaM do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of AmPaM under any of the terms, conditions or provisions of (i) the AmPaM Charter Documents, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to AmPaM or any of its properties or assets, or (iii) any AmPaM Document; provided that the representations and warranties specified in clause (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. The consummation by AmPaM of the transactions contemplated hereby will not result in any material violation, conflict, breach, right of termination or acceleration or creation of liens under any of the terms, conditions or provisions of the items described in clauses (i) through (iii) of the preceding sentence, subject, in the case of the terms, conditions or provisions of the items described in clause (iii) above, to obtaining (prior to the Closing Date) (x) such approvals, consents or orders from the SEC, state blue sky authorities and authorities administering the Hart-Scott Act and (y) such other consents as may be required from commercial lenders, lessors or other third parties which are listed on Schedule 6.9. (c) Except for (i) any filings to be made with the SEC pursuant to the 1933 Act and filings with various state securities authorities in connection with the transactions contemplated by this Agreement, and (ii) any filings required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, none of the AmPaM Documents requires notice to, or the consent or approval of, any governmental agency or other third party with respect to the consummation by AmPaM of any of the transactions contemplated hereby in order to remain in full force and effect, and consummation by AmPaM of the transactions contemplated hereby will not give rise to any right to termination, cancellation or acceleration or loss of any material right or benefit under the AmPaM Documents; provided that the representations and warranties specified in clauses (i) and (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the 26 35 stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. (d) Except for (i) any filings with the SEC pursuant to the 1933 Act and filings with various state securities authorities in connection with the transactions contemplated by this Agreement and (ii) any filings required under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by AmPaM or the consummation by AmPaM of the transactions contemplated hereby; provided that the representations and warranties specified in clauses (i) and (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. 6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement by AmPaM and the performance of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of AmPaM and this Agreement has been duly and validly authorized by all necessary corporate action and is a legal, valid and binding obligation of AmPaM, enforceable against AmPaM in accordance with its terms. 6.11 AMPAM STOCK. At the time of issuance thereof and delivery to the Stockholders, the AmPaM Stock to be delivered to the Stockholders pursuant to this Agreement will constitute valid, duly authorized and legally issued shares of AmPaM, fully paid and nonassessable, and with the exception of restrictions upon resale set forth in Sections 15 and 16 hereof, will be identical in all substantive respects (which do not include the form of certificate upon which it is printed or the presence or absence of a CUSIP number on any such certificate) to the AmPaM Stock issued and outstanding as of the date hereof, other than the Restricted Common Stock. The AmPaM Stock issued and delivered to the Stockholders shall at the time of such issuance and delivery be free and clear of any liens, claims or encumbrances of any kind or character. The offer and sale of the shares of AmPaM Stock to be issued to the Stockholders pursuant to this Agreement are not required to be registered under the 1933 Act; provided that the representations and warranties specified in this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are 27 36 subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. 6.12 AMPAM NOTES. The AmPaM Notes have been duly authorized and, at the Closing Date, will have been duly executed by AmPaM and, when authenticated, issued and delivered, will constitute valid and binding obligations of AmPaM, enforceable against AmPaM in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers) reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). 6.13 NO SIDE AGREEMENTS. AmPaM has not entered into any agreement with any of the Founding Companies or any of the Stockholders of the Founding Companies other than this Agreement, the Other Agreements, the agreements referred to in this Agreement and in the Other Agreements and the Private Placement Memorandum. AmPaM has not entered into any agreements providing for rights to register shares of AmPaM Stock under the 1933 Act except as provided in Section 17 of this Agreement, in Section 17 of the Other Agreements and in an agreement with Sterling City Capital, LLC, its Affiliates and officers and directors of AmPaM having terms substantially similar to those set forth in Section 17 hereof. 6.14 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. AmPaM was formed in June 1998 and has conducted no material business since the date of its inception except for activities related to the transaction contemplated by this Agreement, the Other Agreements and the Private Placement Memorandum. Except as described in the Private Placement Memorandum, as of the date of this Agreement, AmPaM does not own any real property or any material personal property and is not a party to any other material agreement other than this Agreement, the Other Agreements and the agreements contemplated hereby and thereby. 6.15 RELATIONS WITH GOVERNMENTS. Neither AmPaM nor any of its directors, officers or Affiliates has given or offered anything of value to any government official, political party or candidate for government office, nor has AmPaM, any of its directors, officers or Affiliates of any of them otherwise taken any action, which would cause AmPaM to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. 6.16 DISCLOSURE. The Private Placement Memorandum delivered to the Company and the Stockholders does not as of the date hereof contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing does not apply to statements contained in or omitted from any of such documents made or omitted in reliance upon, and in conformity with, information furnished to AmPaM by the Company or the Stockholders in writing specifically for inclusion in the Private Placement Memorandum. 28 37 6.17 OTHER AGREEMENTS. The Other Agreements have been duly authorized, executed and delivered by AmPaM and constitute the legal, valid and binding obligation of AmPaM enforceable against AmPaM in accordance with their respective terms. The terms and conditions of the Other Agreements (excluding the terms relating to the consideration payable by AmPaM thereunder) are identical in all material respects to the terms and conditions in this Agreement. 7. COVENANTS PRIOR TO CLOSING 7.1 ACCESS AND COOPERATION; DUE DILIGENCE; TRANSFER OF REAL ESTATE. (a) Between the date of this Agreement and the Closing Date, the Company will afford to the officers and authorized representatives of AmPaM reasonable access during normal business hours to all of the Company's sites, properties, books and records and will furnish AmPaM with such additional financial and operating data and other information as to the business and properties of the Company as AmPaM may from time to time reasonably request. The Company will cooperate with AmPaM, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. AmPaM, the Stockholders and the Company will treat all information obtained in connection with the negotiation and performance of this Agreement or the due diligence investigations conducted with respect to the Company as confidential in accordance with the provisions of Section 14 hereof. (b) Between the date of this Agreement and the Closing Date, AmPaM will afford to the officers and authorized representatives of the Company access to all of AmPaM's sites, properties, books and records and will furnish the Company with such additional financial and operating data and other information as to the business and properties of AmPaM and the Other Founding Companies as the Company may from time to time reasonably request. AmPaM will cooperate with the Company, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. The Company will cause all information obtained pursuant to this Section 7.1(b) or obtained in connection with the negotiation and performance of this Agreement to be treated as confidential in accordance with the provisions of Section 14 hereof. (c) Except as set forth on Schedule 7.1, any real property owned by the Company will be sold or distributed by the Company on terms mutually acceptable to AmPaM and the Company and leased back by the Company on terms no less favorable to the Company than those available from an unaffiliated party and otherwise reasonably acceptable to AmPaM at or prior to the Closing Date. 29 38 7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this Agreement and the Closing Date, the Company will, except as set forth on Schedule 7.2: (i) carry on its businesses in the Ordinary Course of Business and not introduce any material new method of management, operation or accounting; (ii) use all commercially reasonable efforts to maintain its properties and facilities, including those held under leases, in as good working order and condition as at present, ordinary wear and tear, depreciation and insured losses excepted; (iii) perform in all material respects all of its obligations under all Material Documents relating to or affecting its respective assets, properties or rights; (iv) use its commercially reasonable efforts to keep in full force and effect present insurance policies or other comparable insurance coverage; (v) use its commercially reasonable efforts to maintain and preserve its business organization intact, retain its respective present key employees and maintain its relationships with suppliers, customers and others having business relations with the Company; (vi) use its commercially reasonable efforts to maintain compliance with all material permits, laws, rules and regulations, consent orders, and all other orders of applicable courts, regulatory agencies and similar governmental authorities; (vii) maintain present debt and lease instruments in accordance with their terms and not enter into new or amended debt or lease instruments without the knowledge and consent of AmPaM (which consent shall not be unreasonably withheld), provided that debt and/or lease instruments may be replaced without the consent of AmPaM if such replacement instruments are on terms at least as favorable to the Company as the instruments being replaced; (viii) maintain or reduce present salaries and commission levels for all officers, directors, employees and agents except for ordinary and customary bonus and salary increases for employees in accordance with past practices; and (ix) use commercially reasonable efforts to cause the actual amount of its Current Assets (as defined in Annex I hereto) to be not less than 150% of the actual amount of its Current Liabilities (as defined in Annex I hereto). 30 39 7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between the date hereof and the Closing Date, the Company will not, without prior written consent of AmPaM: (i) make any change in its Charter Documents; (ii) issue any securities, options, warrants, calls, conversion rights or commitments relating to its securities of any kind other than in connection with the exercise of options or warrants listed in Schedule 5.4; (iii) except as permitted pursuant to the terms and conditions for distributions described in Annex I, declare or pay any dividend, or make any distribution in respect of its stock whether now or hereafter outstanding, or purchase, redeem or otherwise acquire or retire for value any shares of its stock; (iv) enter into any contract or commitment or incur or agree to incur any liability or make any capital expenditures, except if it is in the Ordinary Course of Business or involves an amount not in excess of three percent (3%) of the Company's gross revenues for fiscal 1997; (v) create, assume or permit to exist any mortgage, pledge or other lien or encumbrance upon any assets or properties whether now owned or hereafter acquired, except (1) with respect to purchase money liens incurred in connection with the acquisition of equipment with an aggregate cost not in excess of three percent (3%) of the Company's gross revenues for fiscal 1997 necessary or desirable for the conduct of the businesses of the Company, (2) (A) liens for taxes either not yet due or being contested in good faith and by appropriate proceedings (and for which contested taxes adequate reserves have been established and are being maintained) or (B) materialmen's, mechanics', workers', repairmen's, employees' or other like liens arising in the Ordinary Course of Business (the liens set forth in clause (2) being referred to herein as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or Schedule 5.15 hereto; (vi) sell, assign, lease or otherwise transfer or dispose of any property or equipment except in the Ordinary Course of Business and other than distributions of real estate and other assets as permitted in this Agreement (including Annex I hereto); (vii) negotiate for the acquisition of any business or the start-up of any new business; (viii) merge or consolidate or agree to merge or consolidate with or into any other corporation; 31 40 (ix) waive any material rights or claims of the Company, provided that the Company may negotiate and adjust bills and accounts in the course of good faith disputes with customers in a manner consistent with past practice; (x) amend or terminate any Material Document except for the termination of a Material Document in accordance with its terms without any action on the part of the Company; or (xi) enter into any other material transaction outside the Ordinary Course of Business or any transaction prohibited hereunder. 7.4 NO SHOP. None of the Stockholders, the Company, nor any agent, officer, director, trustee or any representative of any of the foregoing will, during the period commencing on the date of this Agreement and ending with the earlier to occur of the Closing Date or the termination of this Agreement in accordance with its terms, directly or indirectly: (i) solicit or initiate the submission of proposals or offers from any person for, (ii) participate in any discussions pertaining to, or (iii) furnish any information to any person other than AmPaM or its authorized agents relating to, any acquisition or purchase of all or a material amount of the assets of, or any equity interest in, the Company or a merger, consolidation or business combination of the Company. 7.5 AGREEMENTS. Except as disclosed on Schedule 7.5(a), the Stockholders and the Company shall terminate (i) any stockholders agreements, voting agreements, voting trusts, agreements providing for the grant by the Company of any options, warrants and employment agreements between the Company and any employee listed on Schedule 8.11 hereto and (ii) except as otherwise provided in this Agreement, any existing agreement between the Company and any Stockholder, on or prior to the Closing Date provided that nothing herein shall prohibit or prevent the Company from paying (either prior to or on the Closing Date) notes or other obligations from the Company to the Stockholders described in Schedule 7.5(b) in accordance with the terms thereof. 7.6 NOTIFICATION OF CERTAIN MATTERS. Each Stockholder and the Company shall give prompt notice to AmPaM upon obtaining knowledge of (i) the occurrence or non-occurrence of any event the occurrence or nonoccurrence of which would be likely to cause any representation or warranty of the Company or such Stockholder contained herein to be untrue or inaccurate in any material respect at or prior to the Closing and (ii) any material failure of such Stockholder or the Company to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by such person hereunder. AmPaM shall give prompt notice to the Company of (i) the occurrence or non-occurrence of any event the occurrence or non-occurrence of which would be likely to cause any representation or warranty of AmPaM contained herein to be untrue or inaccurate 32 41 in any material respect at or prior to the Closing, (ii) any material failure of AmPaM to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; (iii) any termination of any Other Agreement for any reason; and (iv) the issuance by the SEC or any state securities regulatory authority of any issuance of or threatened issuance of any order challenging the availability of an exemption from registration or suspending the qualification of any securities described in the Private Placement Memorandum for sale in any jurisdiction. However, subject to the provisions of Section 7.7, such notification shall not relieve either the Company or such Stockholder of their respective obligations under this Agreement. The delivery of any notice pursuant to this Section 7.6 shall not be deemed to (i) modify the representations or warranties hereunder of the party delivering such notice, which modification may only be made pursuant to Section 7.7, (ii) modify the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect the remedies available hereunder to the party receiving such notice. 7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to the representations and warranties of such party contained in this Agreement, such party shall have the continuing obligation until 24 hours prior to the Closing Date to notify AmPaM with respect to any matter (i) hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or described in the Schedules or (ii) which may have been omitted from the Schedules previously provided by such party. Notwithstanding the foregoing sentence, no amendment or supplement to a Schedule prepared by the Company may be made unless AmPaM consents to such amendment or supplement; and provided further, that no amendment or supplement to a Schedule prepared by AmPaM may be made unless the Stockholders consent to such amendment or supplement. For all purposes of this Agreement, including without limitation for purposes of determining whether the conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules hereto, as amended or supplemented with the consent of AmPaM or the Stockholders, as the case may be, as provided above, shall be deemed to be the Schedules to this Agreement. 7.8 FURTHER ASSURANCES. The parties hereto agree to execute and deliver, or cause to be executed and delivered, such further instruments or documents or take such other action as may be reasonably necessary or appropriate to carry out the transactions contemplated hereby and to cause the conditions to the Closing Date to be satisfied as promptly as practicable. 7.9 AUTHORIZED CAPITAL. Prior to the Closing Date, AmPaM shall maintain its authorized capital stock as set forth in the Private Placement Memorandum. 7.10 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this Agreement hereby recognize that one or more filings under the Hart-Scott Act may be required in connection with the transactions contemplated herein. If it is determined by the parties to this Agreement that filings under the Hart-Scott Act are required, then: (i) each of the parties hereto agrees to cooperate and use its best efforts to comply with the Hart-Scott Act and (ii) such compliance by the Stockholders and the parties agree to cooperate and use their best efforts to cause all filings required under the Hart- Scott Act to be made. If filings under the Hart-Scott Act are required, the costs and expenses thereof (including filing fees) shall be borne by AmPaM. 33 42 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY The obligations of the Stockholders and the Company with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the following conditions. As of the Closing Date, if any such applicable conditions have not been satisfied, any one or more of the Stockholders who would be entitled to receive a majority of the Aggregate Consideration (as defined herein) received by all the Stockholders if the transactions contemplated hereby were consummated shall have the right to waive any condition not so satisfied. Any act or action of the Stockholders in consummating the Closing or delivering the certificates representing Company Stock as of the Closing Date shall constitute a waiver of any conditions not so satisfied. However, no such waiver shall be deemed to affect the survival of the representations and warranties of AmPaM contained in Section 6 hereof. 8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All representations and warranties of AmPaM contained in Section 6 shall be true and correct as of the Closing Date as though such representations and warranties had been made as of that time; all of the terms, covenants and conditions of this Agreement to be complied with and performed by AmPaM on or before the Closing Date shall have been duly complied with and performed in all material respects; and certificates to the foregoing effect dated the Closing Date and signed by the President or any Vice President of AmPaM shall have been delivered to the Stockholders. 8.2 SATISFACTION. All actions, proceedings, instruments and documents that are not within the control of the Company or the Stockholders and that are required to carry out this Agreement or incidental hereto shall be reasonably satisfactory to the Company, the Stockholders and their counsel. 8.3 NO LITIGATION. No action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock. 8.4 OPINION OF COUNSEL. The Company shall have received opinions from counsel for AmPaM, dated the Closing Date, addressed to the Company and the Stockholders in the form annexed hereto as Annex III. 8.5 CONSENTS AND APPROVALS. All necessary consents of and filings with any governmental authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made; any waiting periods under the Hart-Scott Act, if applicable, shall have expired or been terminated; all consents and approvals of third parties listed on Schedule 6.9 shall have been obtained; and no action or proceeding shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock and no governmental agency or body shall have taken any other action or made any request of Company as a result of which Company deems it inadvisable to proceed with the transactions hereunder. 34 43 8.6 GOOD STANDING CERTIFICATES. AmPaM shall have delivered to the Company a certificate, dated as of a date no later than ten days prior to the Closing Date, duly issued by the Delaware Secretary of State and in each state in which AmPaM is authorized to do business, showing that AmPaM is in good standing and authorized to do business and that all state franchise and/or income tax returns and taxes for AmPaM for all periods prior to the Closing have been filed and paid. 8.7 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have occurred which would constitute a Material Adverse Change with respect to AmPaM from the date of the Private Placement Memorandum. 8.8 SECRETARY'S CERTIFICATE. The Company shall have received a certificate or certificates, dated the Closing Date and signed by the secretary of AmPaM, certifying the truth and correctness of attached copies of AmPaM's Certificate of Incorporation (including amendments thereto), By-Laws (including amendments thereto), and resolutions of the board of directors and, if required, the stockholders of AmPaM approving AmPaM's entering into this Agreement and the Other Agreements and the consummation of the transactions contemplated hereby and thereby. 8.9 TAX MATTERS. The Stockholders shall have received an opinion of Andrews & Kurth L.L.P., in substantially the form of Annex IV hereto, that the AmPaM Plan of Organization will qualify as a tax-free transfer of property under Section 351 of the Code and that the Stockholders will not recognize gain to the extent the Stockholders exchange Company Stock for AmPaM Stock (but not cash or other property) pursuant to this Agreement in connection with the AmPaM Plan of Organization. 8.10 OTHER FOUNDING COMPANIES. The transactions contemplated by the Other Agreements are consummated simultaneously with the consummation of the transactions contemplated by this Agreement. 8.11 COMPANY RELEASE OF STOCKHOLDERS. The Company shall have delivered to the Stockholders an instrument dated the Closing Date, in form reasonably satisfactory to AmPaM and the Stockholders, which shall be effective only upon the occurrence of the Closing Date, releasing the Stockholders from (i) any and all claims of the Company against the Stockholders, known and unknown, and (ii) obligations of the Stockholders to the Company, except for (x) items specifically identified on Schedule 5.10(a) and Schedule 5.15(b) as being claims of or obligations to the Company and (y) continuing obligations to the Company relating to their employment by the Company pursuant to any employment agreement entered into pursuant to Section 8.11 hereof. 8.12 STERLING CITY CAPITAL TRANSFER RESTRICTIONS. Sterling City Capital, LLC and each of its Affiliates which owns AmPaM Stock shall have entered into an agreement with AmPaM containing substantially the same terms and conditions as are contained in Section 15 and Section 17. 35 44 8.13 ELECTION OF CHIEF EXECUTIVE OFFICER. AmPaM shall have taken all corporate action necessary to elect Robert A. Christianson as Chief Executive Officer of AmPaM effective immediately following the Closing Date. 8.14 FUNDING AVAILABILITY. AmPaM shall have entered into binding agreements with financial institutions, lenders or investors that provide AmPaM with sufficient funds to pay (i) the cash amounts specified in Annex I hereto as payable to the Stockholders upon the Closing and (ii) the aggregate cash amounts specified in Annex I to each of the Other Agreements as payable to the stockholders of the Other Founding Companies upon the Closing; and all conditions to the funding of the cash amounts necessary to make such payments specified in the agreements related to such financing arrangements, other than the closing of the transactions contemplated by this Agreement and the Other Agreements, shall have been satisfied as of the Closing Date. 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF AMPAM The obligations of AmPaM with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the following conditions. As of the Closing Date, if any such conditions have not been satisfied, AmPaM shall have the right to terminate this Agreement, or waive any such condition, but no such waiver shall be deemed to affect the survival of the representations and warranties contained in Section 5 hereof. 9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS. All the representations and warranties of the Stockholders and the Company contained in this Agreement shall be true and correct as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date; all of the terms, covenants and conditions of this Agreement to be complied with or performed by the Stockholders and the Company on or before the Closing Date shall have been duly performed or complied with in all material respects; and the Stockholders shall have delivered to AmPaM certificates dated the Closing Date and signed by them to such effect. 9.2 NO LITIGATION. No action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock. 9.3 SECRETARY'S CERTIFICATE. AmPaM shall have received a certificate, dated the Closing Date and signed by the secretary of the Company, certifying the truth and correctness of attached copies of the Company's Articles or Certificate of Incorporation (including amendments thereto), By-Laws (including amendments thereto), and resolutions of the board of directors and the Stockholders approving the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby. 36 45 9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have occurred with respect to the Company which would constitute a Material Adverse Effect, and the Company shall not have suffered any material loss or damages to any of its properties or assets, whether or not covered by insurance, which change, loss or damage materially affects or impairs the ability of the Company to conduct its business. 9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to AmPaM an instrument dated the Closing Date which shall be effective only upon the occurrence of the Closing releasing the Company and AmPaM from (i) any and all claims of the Stockholders against the Company and AmPaM and (ii) obligations of the Company and AmPaM to the Stockholders, except for (A) items specifically identified on Schedule 5.31 as being claims of or obligations to the Stockholders, (B) continuing obligations to Stockholders relating to their employment by the Company pursuant to employment agreements entered into as specified in Section 8.11 hereof, (C) obligations arising under this Agreement or the transactions contemplated hereby and (D) claims of Stockholders against the Company for unreimbursed business expenses incurred by the Stockholders on behalf of the Company (other than expenses related to the transactions contemplated by this Agreement) prior to the Closing Date or unreimbursed medical expenses of the Stockholders incurred prior to the Closing Date which are covered by the Company's existing health insurance coverage. In the event that the Closing Date does not occur, then the release instrument referenced herein shall be void and of no further force or effect. 9.6 SATISFACTION. All actions, proceedings, instruments and documents that are not within the control of AmPaM and that are required to carry out the transactions contemplated by this Agreement or incidental hereto shall have been reasonably approved by counsel to AmPaM. 9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on Schedule 9.7, all existing agreements between the Company and the Stockholders (and between the Company and entities controlled by the Stockholders) specified on Schedule 5.31 shall have been terminated effective prior to or as of the Closing Date without any payment being made by the Company other than payments made for services rendered, materials provided or other benefits provided to the Company prior to the Closing Date pursuant to the terms of such agreements as in effect as of the date of this Agreement. 9.8 OPINION OF COUNSEL. AmPaM shall have received opinions from counsel to the Company and the Stockholders, dated the Closing Date, substantially in the form annexed hereto as Annex V. 9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any governmental authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made; any waiting periods under the Hart-Scott Act, if applicable, shall have expired or been terminated; all consents and approvals of third parties listed on Schedule 5.23(b)(2) shall have been obtained; and no action or proceeding shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock and no 37 46 governmental agency or body shall have taken any other action or made any request of AmPaM as a result of which AmPaM deems it inadvisable to proceed with the transactions hereunder. 9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to AmPaM a certificate, dated as of a date no earlier than ten days prior to the Closing Date, duly issued by the appropriate governmental authority in the Company's state of incorporation and, unless waived by AmPaM, in each state in which the Company is authorized to do business, showing the Company is in good standing and authorized to do business and that all state franchise and/or income tax returns and taxes for the Company for all periods prior to the Closing have been filed and paid. 9.11 FUNDING AVAILABILITY. AmPaM shall have entered into binding agreements with financial institutions, lenders or investors that provide AmPaM with sufficient funds to pay (i) the cash amounts specified in Annex I hereto as payable to the Stockholders upon the Closing and (ii) the aggregate cash amounts specified in Annex I to each of the Other Agreements as payable to the stockholders of the Other Founding Companies upon the Closing; and all conditions to the funding of the cash amounts necessary to make such payments specified in the agreements related to such financing arrangements, other than the closing of the transactions contemplated by this Agreement and the Other Agreements, shall have been satisfied as of the Closing Date. 9.12 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to AmPaM a certificate to the effect that he is not a foreign person pursuant to Section 1.1445-2(b) of the Treasury regulations. 9.13 RESIGNATIONS OF DIRECTORS AND OFFICERS. Any directors of the Company, other than those identified on Schedule 2.1, shall have resigned as directors of the Company. Any officers of the Company, other than those identified on Schedule 2.2, shall have resigned as officers of the Company. 10. COVENANTS OF AMPAM AND THE STOCKHOLDERS AFTER CLOSING 10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. AmPaM shall use reasonable efforts to have the Stockholders released from any and all guarantees of the Company's indebtedness, including bond obligations, identified on Schedule 10.1. Prior to obtaining the release of such guarantees, AmPaM shall provide its guarantee of such indebtedness to the lenders thereof. In the event that AmPaM cannot obtain such releases from the lenders of any such guaranteed indebtedness identified on Schedule 10.1 on or prior to 90 days subsequent to the Closing Date, AmPaM shall promptly pay off or otherwise refinance or retire such indebtedness such that the Stockholders' personal liability shall be released. AmPaM will indemnify the Stockholders against any loss or damage suffered as a result of the personal guarantees. 38 47 10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated by this Agreement, after the Closing Date, AmPaM shall not and shall not permit any of its Subsidiaries to undertake any act that would jeopardize the tax-free status of the exchange of Company Stock for AmPaM Stock (but not cash or other property), including without limitation: (a) the retirement or reacquisition, directly or indirectly, of all or part of the AmPaM Stock issued in connection with the transactions contemplated hereby; or (b) the entering into of financial arrangements for the benefit of the Stockholders other than as described in the Private Placement Memorandum or as described in this Agreement. 10.3 PREPARATION AND FILING OF TAX RETURNS; PAYMENT OF TAXES. (a) The Company, if possible, or otherwise the Stockholders shall file or cause to be filed all income Tax Returns (federal, state, local or otherwise) of any Acquired Party for all taxable periods that end on or before the Closing Date, and shall permit AmPaM to review all such Tax Returns prior to such filings. Unless the Company is a C corporation, the Stockholders shall pay or cause to be paid all income Tax liabilities (in excess of all amounts already paid with respect thereto or properly accrued or reserved with respect thereto on the Financial Statements) with respect to the Company's operations for all periods through and including the Closing Date. (b) AmPaM shall file or cause to be filed all separate Returns of, or that include, any Acquired Party for all taxable periods ending after the Closing Date. (c) Unless required by applicable law, regulations or government proceedings, AmPaM shall not take any action, including any amendment of a Tax Return of any Acquired Party, if such action would result in additional Tax liabilities payable by any of the Stockholders for periods ending on or prior to the Closing Date. (d) Each party hereto shall, and shall cause its subsidiaries and Affiliates to, provide to each of the other parties hereto such cooperation and information as any of them reasonably may request in filing any Return, amended Return or claim for refund, determining a liability for Taxes or a right to refund of Taxes or in conducting any audit or other proceeding in respect of Taxes. Such cooperation and information shall include providing copies of all relevant portions of relevant Returns, together with relevant accompanying schedules and relevant work papers, relevant documents relating to rulings or other determinations by Taxing Authorities and relevant records concerning the ownership and Tax basis of property, which such party may possess. Each party shall make its employees reasonably available on a mutually convenient basis at its cost to provide explanation of any documents or information so provided. Subject to the preceding sentence, each party required to file Returns pursuant to this Agreement shall bear all costs of filing such Returns. 39 48 (e) Each of the Company, AmPaM and each Stockholder shall comply with the tax reporting requirements of Section 1.351-3 of the Treasury Regulations promulgated under the Code, and treat the transaction as a tax-free contribution under Section 351(a) of the Code subject to gain, if any, recognized on the receipt of cash or other property under Section 351(b) of the Code. 10.4 DIRECTORS. The persons named in the Private Placement Memorandum shall be appointed as directors and elected as officers of AmPaM, as and to the extent set forth in the Private Placement Memorandum, promptly following the Closing Date; provided, however, that the parties hereto acknowledge that if the Company consummates an IPO, the persons who will serve as directors and executive officers of AmPaM will be adjusted as appropriate for a publicly traded entity, with any such changes being subject to the approval of the majority of the Board of Directors of AmPaM. 10.5 LEGAL OPINIONS. If required by the lenders pursuant to the terms of any agreements related to financing of the cash amounts referred to in Section 9.11 hereof, the Company shall cause its counsel to deliver to such lenders, at the Closing, an opinion of counsel in substantially the form attached hereto as Annex V. 11. INDEMNIFICATION The Stockholders and AmPaM each make the following covenants that are applicable to them, respectively: 11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. (a) Each Stockholder covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement until the applicable Expiration Date (as defined in the introductory paragraph to Section 5(A)), provided that for purposes of clause (iii) below, the applicable Expiration Date shall be the date on which the applicable statute of limitations expires), from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM as a result of or arising from (i) any breach of the representations and warranties of the Company set forth herein or on the schedules attached hereto or certificates delivered pursuant to this Agreement, (ii) any breach of any covenant or agreement on the part of the Company under this Agreement, or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating solely to the Company which was based upon information provided to AmPaM or its counsel in writing by the Company specifically for inclusion in the Private Placement Memorandum and is contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact relating to the Company required to be stated therein or necessary to make the statements therein not misleading; provided, however, that no Stockholder shall be liable for any 40 49 indemnification obligation pursuant to this Section 11.1 in excess of such Stockholder's pro rata share thereof determined by reference to the aggregate value of the Base Cash Amount (as defined in Annex I of this Agreement), the principal amount of AmPaM Notes and the shares of AmPaM Stock (valued at a price of $13.00 per share) received by such Stockholder pursuant to Section I.A. of Annex I hereto (without giving effect to the adjustments provided in Sections I.B. and I.C. thereof) (giving effect to the value of such AmPaM Stock and without giving effect to such adjustments, collectively, the "Aggregate Consideration") such Stockholder would receive pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated in relation to the total Aggregate Consideration all Stockholders would receive pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated. (b) Each Stockholder covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement, from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM as a result of or arising from (i) any breach of the representations and warranties of such Stockholder set forth in Section 5(B) hereof, (ii) any breach of any covenant or agreement on the part of such Stockholder under this Agreement, or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating solely to such Stockholder which was based upon information provided to AmPaM or its counsel in writing by such Stockholder specifically for inclusion in the Private Placement Memorandum and is contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact relating solely to such Stockholder required to be stated therein or necessary to make the statements therein in light of the circumstances in which such statements were made not misleading. (c) AmPaM acknowledges and agrees that other than the representations and warranties of the Company or the Stockholders specifically contained in this Agreement, there are no representations or warranties of the Company or the Stockholders, either express or implied, with respect to the transactions contemplated by this Agreement, the Company or its assets, liabilities and business. 11.2 INDEMNIFICATION BY AMPAM. AmPaM covenants and agrees that it will indemnify, defend, protect and hold harmless the Company and the Stockholders at all times from and after the date of this Agreement until the applicable Expiration Date (as defined in the introductory paragraph of Section 6, provided that for purposes of clause (iii) below, the applicable Expiration Date shall be the date on which the applicable statute of limitations expires), from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by the Company or the Stockholders as a result of or arising from (i) any breach by AmPaM of its representations and warranties set forth herein or on the schedules attached 41 50 hereto or certificates delivered pursuant to this Agreement, (ii) any breach of any agreement on the part of AmPaM under this Agreement; or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except to the extent such is based upon an untrue statement or alleged untrue statement, or omission or alleged omission, made therein in reliance upon, and in conformity with, the representations and warranties of the Company or the Stockholders specifically contained in this Agreement or other information furnished to AmPaM by the Company or the Stockholders in writing specifically for inclusion therein. 11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the "Indemnified Party") has received notice of or has knowledge of any claim by a person not a party to this Agreement ("Third Person"), or the commencement of any action or proceeding by a Third Person, the Indemnified Party shall, as a condition precedent to a claim with respect thereto being made against any party obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying Party written notice of such claim or the commencement of such action or proceeding. Such notice shall state the nature and the basis of such claim and a reasonable estimate of the amount thereof. The Indemnifying Party shall have the right to defend and settle, at its own expense and by its own counsel reasonably satisfactory to the Indemnified Party, any such matter so long as the Indemnifying Party pursues the same in good faith and diligently, provided that the Indemnifying Party shall not settle any criminal proceeding without the written consent of the Indemnified Party. If the Indemnifying Party undertakes to defend or settle, it shall promptly notify the Indemnified Party of its intention to do so, and the Indemnified Party shall cooperate with the Indemnifying Party and its counsel in the defense thereof and in any settlement thereof. Such cooperation shall include, but shall not be limited to, furnishing the Indemnifying Party with any books, records or information reasonably requested by the Indemnifying Party that are in the Indemnified Party's possession or control. All Indemnified Parties shall use the same counsel, which shall be the counsel selected by Indemnifying Party, provided that if counsel to the Indemnifying Party shall have a conflict of interest or a conflict of interest is reasonably likely to arise that prevents counsel for the Indemnifying Party from representing such Indemnified Party, Indemnified Party shall have the right to participate in such matter through counsel of its own choosing and Indemnifying Party will reimburse the Indemnified Party for the reasonable expenses of its counsel. After the Indemnifying Party has notified the Indemnified Party of its intention to undertake to defend or settle any such asserted liability, and for so long as the Indemnifying Party diligently pursues such defense, the Indemnifying Party shall not be liable for any additional legal expenses incurred by the Indemnified Party in connection with any defense or settlement of such asserted liability, except (i) as set forth in the preceding sentence and (ii) to the extent such participation is requested by the Indemnifying Party, in which event the Indemnified Party shall be reimbursed by the Indemnifying Party for reasonable additional legal expenses and out-of-pocket expenses. If the Indemnifying Party desires to accept a final and complete settlement of any such Third Person claim and the Indemnified Party refuses to consent to such settlement, then the 42 51 Indemnifying Party's liability under this Section with respect to such Third Person claim shall be limited to the amount so offered in settlement by said Third Person. Upon agreement as to such settlement between said Third Person and the Indemnifying Party, the Indemnifying Party shall, in exchange for a complete release from the Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in such settlement. If the Indemnifying Party does not undertake to defend such matter to which the Indemnified Party is entitled to indemnification hereunder, or fails diligently to pursue such defense, the Indemnified Party may undertake such defense through counsel of its choice, at the cost and expense of the Indemnifying Party, and the Indemnified Party may settle such matter, and the Indemnifying Party shall pay the Indemnified Party for the settlement amount and any other liabilities or expenses incurred by the Indemnified Party in connection therewith, provided, however, that under no circumstances shall the Indemnified Party settle any Third Person claim without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. All settlements hereunder shall effect a complete release of the Indemnified Party, unless the Indemnified Party otherwise agrees in writing. With respect to any account, note or other receivable as to which the Stockholders have paid in full any indemnification obligation pursuant to this Section 11 as a result of a breach of the representation and warranty made pursuant to Section 5.11 or as to which a claim in respect thereof has been asserted pursuant to this Section 11 that has been applied against the Indemnification Threshold with respect to the Stockholders as a result of a breach of the representation and warranty made pursuant to Section 5.11, AmPaM shall cause the Company to assign such account, note or other receivable to the Stockholders. The parties hereto will make appropriate adjustments for insurance proceeds in determining the amount of any indemnification obligation under this Section. 11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any action seeking damages or any other form of monetary relief brought by any party to this Agreement against another party to this Agreement with respect to any provision of this Agreement, provided that, nothing herein shall be construed to limit the right of a party, in a proper case, to seek injunctive relief for a breach of this Agreement. AmPaM hereby waives, to the fullest extent permitted under applicable law, any and all other rights, claims and causes of action, known or unknown, it or any indemnified person may have against the Company or any Stockholder relating to this Agreement or the transactions pursuant to this Agreement arising under or based upon any Federal, state, local or foreign statute, law, rule, regulation or otherwise. Any indemnity payment under this Section 11 shall be treated as an adjustment to the exchange consideration for Tax purposes unless a final determination (which shall include the execution of a Form 870-AD or successor form) with respect to the Indemnified Party or any of its Affiliate causes any such payment not to be treated as an adjustment to the exchange consideration for U.S. Federal income Tax purposes. 11.5 LIMITATIONS ON INDEMNIFICATION. (a) AmPaM shall not assert any claim for indemnification under this Section 11 against the Stockholders until such time as, and solely to the extent that, the aggregate of all claims which AmPaM may have against the Stockholders shall exceed the greater of (a) 3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section 1.2 plus (ii) the value of the AmPaM Stock delivered to the Stockholders pursuant to Section 1.2 43 52 (calculated as provided in this Section 11.5) plus (iii) the principal amount of the AmPaM Notes delivered to the Stockholders pursuant to Section 1.2, or (b) $50,000 (the "Indemnification Threshold"). Stockholders shall not assert any claim for indemnification hereunder against AmPaM until such time as, and solely to the extent that, the aggregate of all claims which Stockholders may have against AmPaM shall exceed $50,000; provided, however, that this sentence shall not be applicable with respect of any failure by AmPaM to (i) deliver the consideration specified in Annex I hereto on the Closing Date upon the satisfaction, or waiver by AmPaM, of all conditions to the occurrence of the Closing Date specified in Section 9 or (ii) comply with its obligations pursuant to Section 10.1. After the $50,000 threshold for AmPaM (subject to the proviso in the preceding sentence) or the Indemnification Threshold for a Stockholder has been met, all claims must be made in $10,000 increments, which claims may be cumulated in order to meet such $10,000 thresholds. For purposes of this paragraph, the AmPaM Stock delivered to the Stockholders shall be valued at $13.00 per share. (b) No person shall be entitled to indemnification under this Section 11 if and to the extent that such person's claim for indemnification is directly or indirectly related to a breach by such person of any representation, warranty, covenant or other agreement set forth in this Agreement. No claim for indemnification against the Stockholders shall limit, diminish or change any obligation of AmPaM pursuant to Section 10.1 hereof. (c) Notwithstanding any other term of this Agreement, no Stockholder shall be liable under this Section 11 for an amount which exceeds eighty-five percent (85%) of the amount of proceeds received by such Stockholder (valued as of the Closing Date) in connection with the purchase and sale of the Company Stock. For purposes of this paragraph, the AmPaM Stock shall be valued at $13.00 per share. (d) A Stockholder may pay any indemnification obligation under Section 11 by means of the payment of cash or a combination of the payment of cash, the forgiveness of amounts owed pursuant to the AmPaM Notes and the delivery to AmPaM of shares of AmPaM Stock; provided that the percentage of the indemnification obligation satisfied by means of the delivery of shares of AmPaM Stock does not exceed the percentage of AmPaM Stock comprising the total consideration paid to such Stockholder by AmPaM to such Stockholder pursuant to Annex I. For the purpose of crediting Stockholders for payments made to AmPaM by means of delivery of shares of AmPaM Stock, the AmPaM Stock shall be valued at $13.00 per share. (e) In determining the amount of any loss, liability or expense for which any party is entitled to indemnification under this Agreement, the gross amount thereof will be reduced by any correlative insurance proceeds or other third party indemnity or reimbursement proceeds realized or to be realized by such party (or, in the case of AmPaM, by AmPaM, the Company or any subsidiary of AmPaM or the Company) and such correlative insurance proceeds or other third party indemnity or reimbursement proceeds shall be net of any insurance premium or other incremental cost or expense owed or payable to any third party which becomes due as a result of such claim. AmPaM 44 53 shall use commercially reasonable efforts to pursue any available insurance coverage or other rights of indemnity or reimbursement from third parties with respect to any such loss, liability or expense. 12. TERMINATION OF AGREEMENT 12.1 TERMINATION. This Agreement may be terminated at any time prior to the Closing Date solely: (i) by mutual consent of AmPaM and the Stockholders; (ii) by the Stockholders, if the transactions contemplated by this Agreement to take place at the Closing Date shall not have been consummated by June 30, 1999, unless the failure of such transactions to be consummated is due to a breach of this Agreement by the Company or the Stockholders prior to or on the Closing Date; (iii) by AmPaM, if the transactions contemplated by this Agreement to take place at the Closing Date shall not have been consummated by June 30, 1999, unless the failure of such transactions to be consummated is due to a breach of this Agreement by AmPaM prior to or on the Closing Date; (iv) by the Stockholders, if a material breach or default shall be made by AmPaM in the observance or in the due and timely performance of any of the covenants or agreements contained herein relating to AmPaM, and the curing of such default shall not have been made (or in the reasonable judgment of such Stockholders cannot be made) on or before the Closing Date; (v) by AmPaM, if a material breach or default shall be made by the Company or the Stockholders in the observance or in the due and timely performance of any of the covenants or agreements contained herein relating to the Company or the Stockholders, and the curing of such default shall not have been made (or in the reasonable judgment of AmPaM cannot be made) on or before the Closing Date; (vi) by the Stockholders, if the conditions set forth in Section 8 hereof have not been satisfied or waived as of the Closing Date; or (vii) by AmPaM, if the conditions set forth in Section 9 hereof have not been satisfied or waived as of the Closing Date. 12.2 PROCEDURE AND EFFECT OF TERMINATION. A determination to terminate this Agreement by AmPaM pursuant to Section 12.1 shall be valid and effective only if a written notice of termination, accompanied by a certified copy of resolutions of the board of directors of AmPaM that evidence the authorization of the officer of AmPaM to deliver a written notice of termination of this Agreement pursuant to Section 12.1, is given to the Stockholders in the manner specified for notices 45 54 in this Agreement. A determination to terminate this Agreement by the Stockholders pursuant to Section 12.1 shall be valid and effective only if a written notice of termination, signed by Stockholders who would be entitled to receive a majority of the shares of AmPaM Stock specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated, is given to AmPaM in the manner specified for notices in this Agreement. Upon the giving of notice of termination of this Agreement pursuant to Section 12.1 as specified in the preceding sentence, this Agreement shall terminate, and the transactions contemplated hereby shall be abandoned, without further action by any of the parties hereto. Immediately upon any such termination, AmPaM shall deliver written notice of such termination to the Other Founding Companies. If this Agreement is terminated as provided in this Section 12, no party hereto shall have any liability or further obligation hereunder to any other party, except as provided in Section 14 and Section 18.6, provided, that, the termination of this Agreement will in no way limit any obligation or liability of any party based on or arising from a breach or default by such party with respect to any of its representations, warranties, covenants or agreements contained in this Agreement including, but not limited to, legal and audit costs and out of pocket expenses that occurred prior to such termination. 13. NONCOMPETITION 13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the prior written consent of AmPaM, for a period of two (2) years following the Closing Date, for any reason whatsoever, directly or indirectly, for themselves or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature: (i) engage, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, whether paid or unpaid, in any plumbing, piping, mechanical, heating, ventilation or air conditioning contracting, installation or services business or operation, whether for residential, commercial, industrial or governmental customers, or any ancillary contracting, installation or services business directly related thereto (such business and operations referred to herein as the "Plumbing and Mechanical Business"), within 100 miles of where the Company or any of its subsidiaries conducted business within two (2) years prior to the Closing Date (the "Territory"); (ii) call upon any person who is, at the Closing Date, within the Territory, an employee of AmPaM or any subsidiary thereof for the purpose or with the intent of enticing such employee away from or out of the employ of AmPaM or any subsidiary thereof; (iii) call upon any person or entity which is, at the Closing Date, or which has been within three (3) years prior to the Closing Date, a customer of AmPaM or any subsidiary thereof, of the Company or of any of the Other Founding Companies for the purpose of soliciting customers, orders or contracts for any Plumbing and Mechanical Business in direct competition with AmPaM within the Territory; 46 55 (iv) call upon any prospective acquisition candidate, on any Stockholder's own behalf or on behalf of any competitor in the Plumbing and Mechanical Business, which candidate, to the actual knowledge of such Stockholder after due inquiry, was called upon by AmPaM or any subsidiary thereof or for which, to the actual knowledge of such Stockholder after due inquiry, AmPaM or any subsidiary thereof made an acquisition analysis, for the purpose of acquiring such entity; or (v) disclose to any person, firm, partnership, corporation or business the names or identities of any person, firm, partnership, corporation or business which has been a customer of the Company or any of its subsidiaries within the two (2) years prior to the Closing Date for any reason or purpose whatsoever except to the extent that the Company has in the past disclosed such information to the public for valid business reasons; or (vi) testify as an expert witness in matters related to the Plumbing and Mechanical Business for an adverse party to AmPaM, the Company or any Other Founding Companies in litigation. Notwithstanding the above, the foregoing covenant shall not be deemed to prohibit any Stockholder from acquiring as a passive investment (i) not more than one percent (1%) of the capital stock of a competing business whose stock is traded on a national securities exchange, the NASDAQ Stock Market or over-the-counter, or (ii) not more than five percent (5%) of the capital stock of a competing business whose stock is not publicly traded if the Board of Directors of AmPaM consents to such acquisition. 13.2 DAMAGES. Because of the difficulty of measuring economic losses to AmPaM as a result of a breach of the foregoing covenant, and because of the immediate and irreparable damage that could be caused to AmPaM for which it would have no other adequate remedy, each Stockholder agrees that the foregoing covenant may be enforced by AmPaM in the event of breach by such Stockholder, by injunctions and restraining orders. 13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the foregoing covenants in this Section 13 impose a reasonable restraint on the Stockholders in light of the activities and business of AmPaM and the subsidiaries thereof on the date of the execution of this Agreement and the current plans of AmPaM as described in the Private Placement Memorandum. 13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant. Moreover, in the event any court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which the court deems reasonable, and the Agreement shall thereby be reformed. 47 56 13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of any Stockholder against AmPaM or any subsidiary thereof, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by AmPaM of such covenants. It is specifically agreed that the period of two (2) years stated at the beginning of this Section 13, during which the agreements and covenants of each Stockholder made in this Section 13 shall be effective, shall be computed by excluding from such computation any time during which such Stockholder is found to be in violation of any provision of this Section 13 as determined by any of (i) a written agreement to such effect executed and delivered by AmPaM and such Stockholder, (ii) a determination by an arbitration panel pursuant to an arbitration conducted pursuant to Section 18.16 hereof or (iii) a non-appealable judgment of a court of competent jurisdiction. The covenants contained in Section 13 shall not be affected by any breach of any other provision hereof by any party hereto. The covenants contained in Section 13 shall have no effect if the transactions contemplated by this Agreement are not consummated. 13.6 MATERIALITY. The Company and the Stockholders hereby agree that the covenants contained in this Section 13 are a material and substantial part of this transaction. 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION 14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they had in the past, currently have, and in the future may possibly have, access to certain confidential information of the Company, the Other Founding Companies, and/or AmPaM, such as operational policies, customer lists, and pricing and cost policies that are valuable, special and unique assets of the Company's, the Other Founding Companies' and/or AmPaM's respective businesses. The Stockholders agree that they will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, except (a) to authorized representatives of AmPaM, (b) following the Closing, such information may be disclosed by the Stockholders as is required in the course of performing their duties for AmPaM or the Company and (c) to its counsel and other advisers, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section 14.1; provided, however that (i) the foregoing disclosure prohibition shall not apply in the event that (i) such information becomes known to the public generally through no fault of the Stockholders, (ii) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (ii), the Stockholders shall, if possible, give prior written notice thereof to AmPaM and provide AmPaM with the opportunity to contest such disclosure, or (iii) the disclosing party reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party. In the event of a breach or threatened breach by any of the Stockholders of the provisions of this Section, AmPaM shall be entitled to an injunction restraining such Stockholders from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting AmPaM from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. In the event the transactions contemplated 48 57 by this Agreement are not consummated, Stockholders shall have none of the above-mentioned restrictions on their ability to disseminate confidential information with respect to the Company. 14.2 AmPaM. AmPaM recognizes and acknowledges that it had in the past and currently has access to certain confidential information of the Company, such as operational policies, customer lists, and pricing and cost policies that are valuable, special and unique assets of the Company's business. AmPaM agrees that, prior to the Closing, or if the transactions contemplated by this Agreement are not consummated, it will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, except (a) to authorized representatives of the Company, (b) to its counsel and other advisers, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section 14.2, (c) to the Other Founding Companies and their representatives pursuant to Section 7.1(b) of the Other Agreements and (d) to potential purchasers of securities of AmPaM to the extent necessary or advisable in connection with the applicable securities laws; provided, however that the foregoing disclosure prohibition shall not apply in the event that (A) such information becomes known to the public generally through no fault of AmPaM, (B) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (B), AmPaM shall, if possible, give prior written notice thereof to the Company and the Stockholders and provide the Company and the Stockholders with the opportunity to contest such disclosure, or (C) the disclosing party reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party. In the event of a breach or threatened breach by AmPaM of the provisions of this Section 14.2, the Company and the Stockholders shall be entitled to an injunction restraining AmPaM from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting the Company and the Stockholders from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. In the event the transactions contemplated by this Agreement are not consummated for any reason, AmPaM shall nevertheless remain subject to this Section 14.2, except that it shall not be permitted to make any disclosures otherwise than pursuant to clause (A), (B) or (C) above. 14.3 DAMAGES. Because of the difficulty of measuring economic losses as a result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and because of the immediate and irreparable damage that would be caused for which they would have no other adequate remedy, the parties hereto agree that, in the event of a breach by any of them of the foregoing covenants, the covenant may be enforced against the other parties by injunctions and restraining orders. 14.4 SURVIVAL. The obligations of the parties under this Article 14 shall survive the termination of this Agreement for a period of five years from the Closing Date. 49 58 14.5 RETURN OF INFORMATION. If the transactions contemplated by this Agreement are not consummated, AmPaM will return or destroy all confidential information regarding the Company. 15. TRANSFER RESTRICTIONS 15.1 TRANSFER RESTRICTIONS RELATING TO AMPAM STOCK AND AMPAM NOTES. For a period of two years from the Closing Date or, in the event that the Company completes an IPO, for a period through the second anniversary of the date of the closing of such IPO (the "Restricted Period"), no Stockholder shall (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any shares of AmPaM Stock or AmPaM Notes received by the Stockholders pursuant to this Agreement or any securities convertible into, exchangeable or exercisable for any shares of AmPaM Stock or AmPaM Notes received by such Stockholder pursuant to this Agreement, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any shares of AmPaM Stock or AmPaM Notes received by such Stockholder pursuant to this Agreement, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the AmPaM Stock or AmPaM Notes, whether any such swap or transaction is to be settled by delivery of shares of AmPaM Stock or AmPam Notes or other securities, by the delivery or payment of cash or otherwise, except, in the case of clauses (i), (ii) or (iii) above, (A) as otherwise agreed by AmPaM, (B) for the sale of shares of AmPaM Stock, and entering into agreements relating to the sale of shares of AmPaM Stock, pursuant to Section 17 hereof, (C) for transfers to (I) immediate family members of such Stockholder who agree with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (II) trusts, limited partnerships or other estate planning entities for the benefit of such Stockholder or family members of such Stockholder which have agreed with AmPaM in writing, through action taken by the trustees, partners or other persons having authority to bind the trust, limited partnership or other estate planning entity, to be bound by the restrictions set forth in this Section 15.1, (III) any charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code which agrees with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (D) for transfers of AmPaM Stock or AmPaM Notes to AmPaM pursuant to Section 11.5(d), (E) for transfers to another Stockholder, to another person or entity who receives shares of AmPaM Stock or AmPaM Notes or AmPaM Series A Preferred Stock pursuant to the Other Agreements or to Sterling City Capital LLC or any of its Affiliates provided that (1) such transaction is exempt from the registration requirements of the 1933 Act as evidenced by the delivery to AmPaM of an opinion of counsel in form and substance reasonably satisfactory to AmPaM and (2) any such transferee agrees in writing to be bound by the restrictions set forth in this Section 15.1, (F) transfers of shares of AmPaM Notes, shares of AmPaM Stock, or grants of options to purchase shares of AmPaM Stock, by such Stockholder to employees of the Company of up to an aggregate of 15% of the shares of AmPaM Stock received by such Stockholder pursuant to this Agreement provided that (1) any such transaction is exempt from the registration requirements of the 1933 Act as evidenced by the delivery to AmPaM of an opinion of counsel in form and substance reasonably satisfactory to AmPaM and (2) any such employee agrees with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1 or (G) the sale by such Stockholder in an IPO of shares of AmPaM Stock representing not more than 10% of the Aggregate Consideration in cash; provided, 50 59 however, that in no circumstance will a Stockholder be entitled to sell shares of AmPaM Stock in an IPO to the extent that the sale of such shares by such Stockholder would result in such Stockholder receiving in excess of 45% of the Aggregate Consideration in cash; and, provided further, if AmPaM is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under Section 17.1 that the number of shares to be sold by persons other than AmPaM is greater than the number of such shares which can be offered without adversely affecting the success of the offering, AmPaM may reduce pro rata (among the Stockholders and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. During the Restricted Period, the certificates evidencing the AmPaM Stock or AmPaM Notes delivered to the Stockholders pursuant to Section 3 of this Agreement will bear a legend substantially in the form set forth below: THE [SHARES/NOTES] REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO THE TERMS OF THE ACQUISITION AGREEMENT PURSUANT TO WHICH SUCH SHARES WERE ISSUED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, PLEDGE OR OTHER DISPOSITION PRIOR TO EXPIRATION OF THE RESTRICTED PERIOD REFERRED TO IN THE ACQUISITION AGREEMENT EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH AGREEMENT. SUCH RESTRICTIONS ON TRANSFER ARE SET FORTH IN AN ACQUISITION AGREEMENT, A COPY OF WHICH IS MAINTAINED AT THE PRINCIPAL OFFICES OF THE ISSUER. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE. 15.2 TRANSFER RESTRICTIONS RELATING TO ADDITIONAL CONSIDERATION. No Stockholder shall (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any right to receive any consideration pursuant to Section II of Annex I to this Agreement (the "Additional Consideration Right") or any securities convertible into, exchangeable or exercisable for any Additional Consideration Right, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any Additional Consideration Right, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of any Additional Consideration Right, whether any such swap or transaction is to be settled by delivery of shares of AmPaM Stock or other securities, by the delivery or payment of cash or otherwise. 51 60 16. FEDERAL SECURITIES ACT REPRESENTATIONS 16.1 COMPLIANCE WITH LAW. Each Stockholder acknowledges that the shares of AmPaM Stock, the Additional Consideration Right and any AmPaM Notes to be delivered to such Stockholder pursuant to this Agreement have not been and will not be registered under the 1933 Act (except as provided in Section 17 hereof) and therefore may not be sold, assigned, exchanged, transferred, pledged or otherwise disposed of without compliance with the 1933 Act which, among other matters, would require registration under the 1933 Act unless exemption from the registration requirements is available for such transaction. The AmPaM Stock, the Additional Consideration Right and any AmPaM Notes to be acquired by each Stockholder pursuant to this Agreement is being acquired solely for such Stockholder's own account, for investment purposes only, and with no present intention of selling, assigning, exchanging, transferring, pledging, or otherwise disposing of it. Each Stockholder covenants, warrants and represents that neither the shares of AmPaM Stock, the Additional Consideration Right nor any AmPaM Notes issued to such Stockholder will be offered, sold, assigned, exchanged, pledged, transferred or otherwise disposed of except after full compliance with all of the applicable provisions of the 1933 Act and the rules and regulations of the SEC. All certificates representing the AmPaM Stock shall bear the following legend in addition to the legend required under Section 15 of this Agreement: THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE FEDERAL AND STATE SECURITIES LAWS. 16.2 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear the economic risk of an investment in the AmPaM Stock and AmPaM Notes to be acquired pursuant to this Agreement and can afford to sustain a total loss of such investment. Each Stockholder has substantial knowledge and experience in making investment decisions of this type (or is relying on qualified purchaser representatives with such knowledge and experience in making this decision), and is capable, either individually or with such purchaser representatives, of evaluating the merits and risks of this investment. Each Stockholder has had an adequate opportunity to ask questions and receive answers from the officers of AmPaM concerning any and all matters relating to the transactions described herein including, without limitation, the background and experience of the current and proposed officers and directors of AmPaM, the plans for the operations of the business of AmPaM, the business, operations and financial condition of the Founding Companies other than the Company, and any plans for additional acquisitions. Each Stockholder has asked any and all questions of the nature described in the preceding sentence and all questions have been answered to such Stockholder's satisfaction. Except as set forth on Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule 501(a) of the 1933 Act. Neither the foregoing nor any investigation made by the Stockholders referred to above shall in any way affect the representations, warranties, covenants and agreements of AmPaM made herein except to the extent that AmPaM is relying upon the representations of the Stockholders in Section 16.1 and in this Section 16.2 for purposes of 52 61 AmPaM's representations and warranties in Sections 6.9, 6.11, 6.15 and 6.17 hereof as specified therein. 16.3 RELIANCE BY AmPaM. Each Stockholder acknowledges that AmPaM in relying upon the representations and covenants of such Stockholder set forth in Section 16.1 and Section 16.2 for purposes of compliance by AmPaM with Federal and state securities laws related to the issuance of AmPaM Stock pursuant to this Agreement and the Other Agreements. 17. REGISTRATION RIGHTS 17.1 PIGGYBACK REGISTRATION RIGHTS. Whenever AmPaM proposes to register any AmPaM Stock for its own or other's account under the 1933 Act for a public offering, other than (i) any shelf or other registration of shares to be used as consideration for acquisitions of additional businesses by AmPaM and (ii) registrations relating to employee benefit plans, AmPaM shall give each of the Stockholders prompt written notice of its intent to do so. Upon the written request of any of the Stockholders given within 15 calendar days after receipt of such notice, notwithstanding the provisions of Section 15 (except as specified below with respect to an IPO), AmPaM shall cause to be included in such registration all of the AmPaM Stock issued to such Stockholders pursuant to this Agreement (including any stock issued as or issuable upon the conversion or exchange of any convertible security, warrant, right or other security which is issued by AmPaM as a stock split, dividend or other distribution with respect to, or in exchange for, or in replacement of such AmPaM Stock) which any such Stockholder requests, other than shares of AmPaM Stock which may then be immediately sold under Rule 144(k) (or any similar or successor provision) promulgated under the 1933 Act, and other than shares of AmPaM Stock that have been theretofore sold by the Stockholder in accordance with the 1933 Act, provided that AmPaM shall have the right to reduce pro rata the number of shares of each selling Stockholder included in such registration to the extent that inclusion of such shares would, in the written opinion of tax counsel to AmPaM or its independent auditors, jeopardize the status of the transactions contemplated hereby and by the Private Placement Memorandum as a tax-free organization under Section 351 of the Code; provided, however, that with respect to a proposal by AmPaM to register AmPaM Stock under the 1933 Act in connection with an IPO, no Stockholder shall be permitted pursuant to this Section 17.1 to have included in such registration more shares of AmPaM Stock than permitted to be sold by such Stockholder pursuant to Section 15.1. In addition, if AmPaM is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under this Section 17.1 that the number of shares to be sold by persons other than AmPaM is greater than the number of such shares which can be offered without adversely affecting the success of the offering, AmPaM may reduce pro rata (among the Stockholders and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. If any Stockholder disapproves of the terms of the underwriting, that Stockholder may elect to withdraw therefrom by written notice to AmPaM and the managing underwriter. That Stockholder's shares of AmPaM Stock so withdrawn shall also be withdrawn from registration; provided, however, that, if by the withdrawal of such shares a greater number of shares of AmPaM 53 62 Stock held by other Stockholders may be included in such registration, then AmPaM shall offer to all other Stockholders of AmPaM the right to include additional shares in the same proportion used in effecting the above limitations. AmPaM shall not, for a period of two years following the Closing Date, grant to any other person any rights to cause AmPaM to register any securities in priority over, or in precedent to, the rights granted to the Stockholders hereunder and to the stockholders of the Other Founding Companies pursuant to Section 17 of the Other Agreements. 17.2 REGISTRATION PROCEDURES. Whenever AmPaM is required to register shares of AmPaM Stock pursuant to Section 17.1, AmPaM will, as expeditiously as possible: (i) Prepare and file with the SEC a registration statement with respect to such shares and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements or term sheets thereto, AmPaM will furnish a representative of the Stockholders with copies of all such documents proposed to be filed) as promptly as practical; (ii) Notify the Stockholders of any stop order issued or threatened by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered; (iii) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 120 days, cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the 1933 Act; and comply with the provisions of the 1933 Act applicable to it with respect to the disposition of all securities covered by such registration statement during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement or supplement to the prospectus; (iv) Furnish to each Stockholder who so requests such number of copies of such registration statement, each amendment and supplement thereto and the prospectus included in such registration statement (including each preliminary prospectus and any term sheet associated therewith), and such other documents as such Stockholder may reasonably request in order to facilitate the disposition of the relevant shares; (v) Make "generally available to its security holders" (within the meaning of Rule 158) an earnings statement satisfying the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no later than 90 days after the end of the 12-month period beginning with the first day of AmPaM's first fiscal quarter commencing after the effective date of the registration statement; 54 63 (vi) Make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible moment; (vii) If requested by the managing underwriter or underwriters, if any, or any participating Stockholder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters or any participating Stockholder, as the case may be, reasonably requests to be included therein, including, without limitation, information with respect to the number of shares of AmPaM Stock being sold by participating Stockholders to any underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any other terms of an underwritten offering of the shares of AmPaM Stock to be sold in such offering, and promptly make all required filings of such prospectus by supplement or post-effective amendment; (viii) Make available for inspection by participating Stockholders, any underwriter participating in any disposition pursuant to such registration statement, and the counsel retained by the participating Stockholders, counsel for the underwriters and any accountant or other agent retained by participating Stockholders or any such underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of AmPaM (the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause AmPaM's officers, directors and employees to supply all information reasonably requested by any such Inspectors in connection with such registration statement; provided, that records which AmPaM determines, in good faith, to be confidential and which AmPaM notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction after delivery of sufficient notice to AmPaM to enable AmPaM to contest such subpoena or order; (ix) Take all other steps reasonably necessary to effect the registration of the shares of AmPaM Stock contemplated hereby; (x) Use its best efforts to register or qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Stockholders, and to keep such registration or qualification effective during the period such registration statement is required to be kept effective, provided that AmPaM shall not be required to become subject to taxation, to qualify generally to do business or to file a general consent to service of process in any such states or jurisdictions; (xi) Cause all such shares of AmPaM Stock to be listed or included not later than the date of the first sale of shares of AmPaM Stock under such registration statement on any 55 64 securities exchanges or trading systems on which similar securities issued by AmPaM are then listed or included; and (xii) Notify each Stockholder at any time when a prospectus relating thereto is required to be delivered under the 1933 Act within the period that AmPaM is required to keep the registration statement effective of the happening of any event as a result of which the prospectus included in such registration statement (as then in effect), together with any associated term sheet, contains an untrue statement of a material fact or omits to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading, and, at the request of such Stockholder, AmPaM promptly will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of the covered shares, such prospectus will not contain an untrue statement of material fact or omit to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading. All expenses incurred in connection with the registration under this Article 17 and compliance with securities and blue sky laws (including all registration, filing, listing, escrow agent, qualification, legal, printer and accounting fees, but excluding underwriting commissions and discounts), shall be borne by AmPaM. 17.3 INDEMNIFICATION. (a) In connection with any registration under Section 17.1, AmPaM shall indemnify, to the extent permitted by law, each selling Stockholder (an "Indemnified Party") against all losses, claims, damages, liabilities and expenses arising out of or resulting from any untrue or alleged untrue statement of material fact contained or incorporated by reference in any registration statement, prospectus or preliminary prospectus or associated term sheet or any omission or alleged omission to state or incorporated by reference therein a material fact required to be stated or incorporated by reference therein or necessary to make the statements therein not misleading except insofar as the same are caused by or contained in or omitted from any information furnished in writing to AmPaM by such Indemnified Party expressly for use therein or by any Indemnified Parties' failure to deliver a copy of the registration statement or prospectus or any amendment or supplements thereto after AmPaM has furnished such Indemnified Party with a sufficient number of copies of the same. (b) In connection with any registration under Section 17.1, each selling Stockholder shall furnish to AmPaM in writing such information concerning the Stockholder and his or her proposed offering of shares as is reasonably requested by AmPaM for use in any such registration statement or prospectus and will indemnify, to the extent permitted by law, AmPaM, its directors and officers and each person who controls AmPaM (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged 56 65 untrue statement of a material fact or any omission or alleged omission to state therein a material fact required to be stated in the registration statement or prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, but only to the extent that such untrue or alleged untrue statement or omission or alleged omission is contained in or omitted from information so furnished in writing to AmPaM by such Stockholder expressly for use in the registration statement. Notwithstanding the foregoing, the liability of a Stockholder under this Section 17.3 shall be limited to an amount equal to the net proceeds actually received by such Stockholder from the sale of the relevant shares covered by the registration statement. (c) Any person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified parties' reasonable judgment, a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. Any failure to give prompt notice shall deprive a party of its right to indemnification hereunder only to the extent that such failure shall have adversely affected the indemnifying party. If the defense of any claim is assumed, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent shall not be unreasonably withheld). An indemnifying party that is not entitled or elects not, to assume the defense of a claim, will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. 17.4 UNDERWRITING AGREEMENT. In connection with each registration pursuant to Sections 17.1 covering an underwritten registered offering, (i) each participating Stockholder shall execute and deliver to AmPaM a written power of attorney instrument that (A) appoints an officer of AmPaM as such Stockholder's attorney-in-fact for purposes of executing and delivering an underwriting agreement among AmPaM, the underwriters named therein and such Stockholder specifying the terms and conditions applicable to the sale of AmPaM Stock of such Stockholder in such offering and (B) otherwise is in such form and containing such provisions as are customary in the securities business for such an arrangement in connection with an underwritten registered offering in which one or more stockholders of the issuer are participants, including a provision that authorizes the attorney-in-fact appointed by such Stockholder to execute and deliver such an underwriting agreement in the event that the net price per share to be received by such Stockholder from the sale of the shares of AmPaM Stock to be sold in such offering is not less than a price specified in such instrument and (iii) AmPaM and each participating Stockholder agree to enter into a written agreement with the managing underwriters in such form and containing such provisions as are customary in the securities business for such an arrangement between such managing underwriters and companies of AmPaM's size and investment stature, including indemnification; provided, however, that (A) such Stockholder shall be exempt and excluded from any indemnification of the managing underwriters other than with respect to information provided by such Stockholder with respect to such Stockholder to AmPaM or the managing underwriters 57 66 specifically for inclusion in any such registration statement and (B) such Stockholder shall not be obligated to enter into such an underwriting agreement in the event that the net price per share to be received by such Stockholder from the sale of shares of AmPaM Stock to be sold in such offering is less than the floor price specified in the power of attorney instrument executed and delivered to AmPaM pursuant to clause (i) above. 17.5 TRANSFER OF RIGHTS. The right to cause AmPaM to register shares of AmPaM Stock under this Agreement may be assigned to a transferee or assignee of any Stockholder to the extent that such transferee or assignee is a member of the immediate family of a Stockholder, a trust, limited partnership or other estate planning entity for the benefit of any such persons or a charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code. 17.6 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the SEC that may permit the sale of AmPaM stock to the public without registration, following an IPO AmPaM agrees to use its reasonable efforts, from and after the completion of an IPO, to: (i) make and keep public information regarding AmPaM available as those terms are understood and defined in Rule 144 under the 1933 Act beginning 90 days following the effective date of a registration statement relating to an IPO; (ii) file with the SEC in a timely manner all reports and other documents required of AmPaM under the 1933 Act and the 1934 Act at any time after it has become subject to such reporting requirements; and (iii) so long as a Stockholder owns any restricted AmPaM Stock, furnish to each Stockholder forthwith upon written request a written statement by AmPaM as to its compliance with the current public information requirements of Rule 144 (at any time from and after 90 days following the effective date of a registration statement relating to an IPO), and of the 1933 Act and the 1934 Act (any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of AmPaM, and such other reports and documents so filed as a Stockholder may reasonably request in availing itself of any rule or regulation of the SEC allowing a Stockholder to sell any such shares without registration. 18. REDEMPTION OF AMPAM STOCK 18.1 REDEMPTION TRIGGER. In the event that, within three years of the Closing Date, (i) AmPaM has not consummated an IPO and (ii) any Stockholder has not received cash (including proceeds from the public or private sale of AmPaM Stock received as consideration hereunder and the receipt of principal payments, if any, made with respect to AmPaM Notes held by such Stockholder) equal to or exceeding 50% of the Aggregate Consideration on or prior to the third anniversary of the Closing Date, such Stockholder shall have the right (the "Put Right"), but not the 58 67 obligation, commencing on the third anniversary date of the Closing Date to require AmPaM to purchase a number of shares of AmPaM Stock then owned by such Stockholder, subject to the limitations set forth in Section 18.2 below. The purchase price for such redemption shall be $13.00 per share, such price to be subject to appropriate adjustment to reflect any reclassification, stock dividend, subdivision, split-up or combination of shares of AmPaM Stock after the date hereof. 18.2 MINIMUM REDEMPTION; LIMITATIONS. If the events specified in Section 18.1(i) and 18.1(ii), with Section 18.1(ii) being determined on an individual Stockholder basis, have not occurred within the time specified, AmPaM shall be obligated to purchase from each eligible Stockholder no less than 10% of the AmPaM Stock held by such Stockholder annually; provided, however, that the Stockholders shall not be entitled to exercise their Put Rights if and to the extent the Company has not achieved the Target Net Income (as defined in Annex I hereto) for the year preceding the year in which a Stockholder seeks to exercise his Put Right. The redemptions will be funded by internal cash flows or alternative financing arrangements but AmPaM's obligation to make any redemption pursuant to this Section 18 will be subject to the covenants and restrictions contained in AmPaM's then existing private or public debt or equity instruments. 18.3 NOTICE; EXERCISE. The Stockholders may exercise their Put Right by giving written notice (the "Put Notice") to AmPaM within thirty (30) days of the third anniversary of the execution hereof. If any Stockholder does not provide AmPaM with a Put Notice within such thirty-day period, the Put Right applicable to such Stockholder shall expire. The date for closing the sale of any shares of AmPaM Stock pursuant to a proper exercise of a Put Right shall in no event be earlier than 90 days after the date AmPaM receives the Put Notice. Any such closing shall be at such time of day and place as shall be mutually agreed between such holder and AmPaM. At such closing AmPaM shall make payment for the AmPaM Stock to be repurchased by wire transfer of immediately available funds to a bank account designated by such Stockholder for such purpose and such Stockholder shall deliver to AmPaM certificates, duly endorsed for transfer, representing the shares of AmPaM Stock to be purchased and sold pursuant to the exercise of such Put Right. 18.4 ADDITIONAL REDEMPTIONS. In the event AmPaM has not consummated an IPO and notwithstanding the foregoing, to the extent the Stockholders who have received greater than 50% of their Aggregate Consideration in cash wish to tender AmPaM Stock to AmPaM for purchase, AmPaM will use its commercially reasonable efforts to continue to repurchase up to 10% of the AmPaM Stock held by such Stockholder annually. 18.5 TERMINATION OF REDEMPTION OBLIGATION. Put Rights with respect to any individual Stockholder will terminate upon receipt by such Stockholder of 50% of his Aggregate Consideration in cash; such termination will not, however, limit such Stockholders ability to participate in the additional redemptions provided in Section 18.4. Notwithstanding the foregoing, all of AmPaM's redemption obligations contained in this Section 18 shall terminate on the earlier to occur of (i) an IPO, (ii) any sale of all or substantially all of AmPaM's assets in one transaction or series of transactions, (iii) any merger or consolidation which involves AmPaM and in which AmPaM is not the surviving entity or (iv) any transaction after which the shares of AmPaM Common Stock, if any, 59 68 which are then held by persons other than the holders of AmPaM Common Stock as of the Closing Date constitute 50% or more of AmPaM Common Stock outstanding as of the date of the consummation of such transaction. 19. GENERAL 19.1 COOPERATION. The Company, Stockholders and AmPaM shall each deliver or cause to be delivered to the other on the Closing Date, and at such other times and places as shall be reasonably agreed to, such additional instruments as the other may reasonably request for the purpose of carrying out this Agreement. The Company will cooperate and use its reasonable efforts to have the present officers, directors and employees of the Company cooperate with AmPaM on and after the Closing Date in furnishing information, evidence, testimony and other assistance in connection with any tax return filing obligations, actions, proceedings, arrangements or disputes of any nature with respect to matters pertaining to all periods prior to the Closing Date. 19.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties hereunder may not be assigned (except by operation of law and except as provided in Section 17.5) and shall be binding upon and shall inure to the benefit of the parties hereto, the successors of AmPaM and the Company, and the heirs, successors and legal representatives of the Stockholders. 19.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits and annexes attached hereto) and the documents delivered pursuant hereto constitute the entire agreement and understanding among the Stockholders, the Company and AmPaM and supersede any prior agreement and understanding relating to the subject matter of this Agreement. This Agreement, upon execution, constitutes a valid and binding agreement of the parties hereto enforceable in accordance with its terms and may be modified or amended only by a written instrument executed by the Stockholders, the Company and AmPaM, acting through their respective officers or trustees, duly authorized by their respective Boards of Directors. Any disclosure made on any Schedule delivered pursuant hereto shall be deemed to have been disclosed for purposes of any other Schedule required hereby, provided that the Company shall make a good faith effort to cross reference disclosure, as necessary or advisable, between related Schedules. 19.4 COUNTERPARTS. This Agreement may be executed simultaneously in two (2) or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument. A telecopied facsimile of an executed counterpart of this Agreement shall be sufficient to evidence the binding agreement of each party to the terms hereof. However, each party agrees to return to the other parties an original, duly executed counterpart of this Agreement promptly after delivery of a telecopied facsimile thereof. 60 69 19.5 BROKERS AND AGENT. Except as disclosed on Schedule 18.5, each party hereto represents and warrants that it employed no broker or agent in connection with this transaction and agrees to indemnify the other parties hereto against all loss, cost, damages or expense arising out of claims for fees or commission of brokers employed or alleged to have been employed by such indemnifying party. 19.6 EXPENSES. Whether or not the transactions herein contemplated shall be consummated, AmPaM will pay the reasonable fees, expenses and disbursements of AmPaM and its agents, representatives, accountants and counsel incurred in connection with the subject matter of this Agreement and any amendments thereto, including all costs and expenses incurred in the performance and compliance with all conditions to be performed by AmPaM under this Agreement, including the fees and expenses of Arthur Andersen LLP, Andrews & Kurth L.L.P., and any other person or entity retained by AmPaM, and the costs of preparing the Private Placement Memorandum incurred in connection with the subject matter of this Agreement and any amendments thereto. In addition, whether or not the transactions contemplated herein shall be consummated, AmPaM will pay the reasonable fees and expenses of Bracewell & Patterson LLP incurred on behalf of the Company and the Stockholders in connection with the subject matter of this Agreement. Whether or not the transactions herein contemplated shall be consummated, the Company will pay all of its costs and expenses incurred on behalf of the Company and the Stockholders in connection with the subject matter of this Agreement except that (i) the Company shall not be required to pay any of the costs, fees and expenses specified above as to which AmPaM is responsible for the payment thereof and (ii) neither the Company nor the Stockholders shall be responsible for the payment of the costs, fees and expenses incurred by or on behalf of AmPaM. Whether or not the transactions herein contemplated shall be consummated, AmPaM shall reimburse Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any of the foregoing fees, expenses and disbursements paid by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) and shall repay Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any loans or advances made by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for the purpose of providing AmPaM funds to pay any such fees, expenses and disbursements, provided that such reimbursement and loan repayment obligation shall be limited to the foregoing fees, expenses, and disbursements which are out-of-pocket expenses of AmPaM, Sterling City Capital, LLC or any person or entity which is an Affiliate thereof. Sterling City Capital, LLC shall be reimbursed by AmPaM in the form of AmPaM Notes. AmPaM retains the right, within a reasonable period following the Closing Date, to conduct an audit of the expenses for which Sterling City Capital, LLC is reimbursed. Each Stockholder shall pay all sales, use, transfer, real property transfer, recording, gains, stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in connection with the purchase and sale of the Company Stock, other than Transfer Taxes, if any, imposed by the State of Delaware. Each Stockholder shall file all necessary documentation and Returns with respect to such Transfer Taxes. In addition, each Stockholder acknowledges that he, and not the Company or AmPaM, will pay all Taxes due by him upon receipt of the consideration payable pursuant to Section 1 hereof. The Stockholders acknowledge that the risks of the transactions contemplated hereby include Tax risks, with respect to which the Stockholders are relying substantially on the opinion contemplated by Section 8.12 hereof and representations by AmPaM in this Agreement. 61 70 19.7 NOTICES. All notices of communication required or permitted hereunder shall be in writing and may be given by depositing the same in United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested, or by delivering the same in person or via a nationally recognized courier service to an officer or agent of such party. (a) If to AmPaM addressed to it at: American Plumbing & Mechanical, Inc. 515 Post Oak Blvd., Suite 450 Houston, Texas 77027 Attention: Chief Executive Officer with copies to: Thomas P. Mason Andrews & Kurth L.L.P. 4200 Chase Tower Houston, Texas 77002 (b) If to the Stockholders, addressed to them at their addresses set forth on the signature pages hereto, with copies to: Bob Hart Clark, Partington & Hart 125 W. Romana St., Suite 800 Pensacola, Florida 32501 (c) If to the Company, addressed to it at: Gilbert Nelson Nelson Mechanical Contractors, Inc. 211 E. Brent Pensacola, Florida 32503 or to such other address or counsel as any party hereto shall specify pursuant to this Section 18.7 from time to time. 62 71 19.8 GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of Texas, excluding any conflicts of law, rule or principle that might refer same to the laws of another jurisdiction. 19.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations, warranties, covenants and agreements of the parties made herein and at the time of the Closing or in writing delivered pursuant to the provisions of this Agreement shall survive the consummation of the transactions contemplated hereby and any examination on behalf of the parties until the respective Expiration Dates referred to herein with respect thereto or, if no Expiration Date is applicable with respect thereto, until the expiration of all applicable statute of limitations periods. 19.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided herein, no delay of or omission in the exercise of any right, power or remedy accruing to any party as a result of any breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver. 19.11 TIME. Time is of the essence with respect to this Agreement. 19.12 REFORMATION AND SEVERABILITY. In case any provision of this Agreement shall be invalid, illegal or unenforceable, it shall, to the extent possible, be modified in such manner as to be valid, legal and enforceable but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement, and in either case the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. No provision of this Agreement shall be interpreted or construed against any party solely because that party or its legal representative drafted such provision. 19.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term of this Agreement shall be deemed exclusive but each shall be cumulative with all other rights, remedies and elections available at law or in equity. 19.14 CAPTIONS. The headings of this Agreement are inserted for convenience only, shall not constitute a part of this Agreement or be used to construe or interpret any provision hereof. 19.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived only with the written consent of AmPaM, the Company and Stockholders who would receive a majority of the Aggregate Consideration specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated. Any amendment or waiver effected in accordance with this Section 19.15 shall be binding upon each of the parties hereto, any other person receiving AmPaM Stock in connection with the purchase and sale of the Company Stock and each future holder of such AmPaM Stock. Any 63 72 consent of the Stockholders who would receive a majority of the Aggregate Consideration pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated shall be deemed to be the consent of the Stockholders for purposes of provisions of this Agreement as to which a consent of the Stockholders may be requested or required. 19.16 MEDIATION AND ARBITRATION. If a dispute arises out of or relates to this Agreement, or the breach thereof, and if said dispute cannot be settled through direct discussions, the parties agree to first endeavor to settle the dispute in an amicable manner by mediation administered by the American Arbitration Association under its then prevailing Commercial Mediation Rules, before resorting to arbitration. Thereafter, any unresolved controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association in accordance with its then prevailing Commercial Arbitration Rules. The enforcement, interpretation and procedural and substantive effect of the obligation to arbitrate created by this Section 19.16 shall be governed by the Federal Arbitration Act as amended from time to time, 9 U.S.C. Section 1 et seq. The parties hereby disclaim any intention to have the substantive or procedural law of any state or other jurisdiction, other than the law of the United States as embodied in the Federal Arbitration Act, applied to such obligation. Any such mediation or arbitration proceeding will be conducted in Houston, Texas. 19.17 INFORMATION PROVIDED FOR PRIVATE PLACEMENT MEMORANDUM. For purposes of this Agreement, the information provided by the Company in writing specifically for inclusion in the Private Placement Memorandum shall include solely (i) the Financial Statements (in the form that they appear in the Private Placement Memorandum), (ii) any financial statements provided to AmPaM pursuant to Section 7.9, (iii) the description of the Company contained in the Private Placement Memorandum under the caption "The Company", (iv) the description of the Company's results of operations and its liquidity and capital resources, if any, contained in the Private Placement Memorandum under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and (v) the description, if any, of matters related to the Company contained in the Private Placement Memorandum under the caption "Certain Transactions Transactions involving Certain Officers, Directors and Stockholders". For purposes of this Agreement, the information provided by a Stockholder in writing specifically for inclusion in the Private Placement Memorandum shall include only (i) the description, if any, of matters related to such Stockholder contained in the Private Placement Memorandum under the caption "Certain Transactions - Transactions involving Certain Officers, Directors and Stockholders" and (ii) the biographical description of such Stockholder, if any, contained in the Private Placement Memorandum under the caption "Management." 19.18 EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective upon (i) the execution and delivery of this Agreement by all of the parties hereto and (ii) the delivery to AmPaM of each Employment Agreement attached hereto as Annex VI-1 executed by each of the Company, the employees named therein and AmPaM. 64 73 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. AMERICAN PLUMBING & MECHANICAL, INC. By: /s/ DAVID BAGGETT ------------------------------------- Name: David Baggett ----------------------------------- Title: Chief Financial Officer ---------------------------------- NELSON MECHANICAL CONTRACTORS, INC. By: /s/ GILBERT NELSON ------------------------------------- Gilbert Nelson President [Remainder of page intentionally left blank] 65 74 STOCKHOLDERS: SPOUSES (WITHOUT PERSONAL LIABILITY AND SOLELY TO ACKNOWLEDGE THE SALE OF THE COMPANY STOCK BY THE STOCKHOLDER): /s/ GILBERT NELSON /s/ THERESA B. NELSON - ----------------------------------- ----------------------------------------- Gilbert Nelson Theresa B. Nelson 6076 Forest Green Road Pensacola, Florida 32505 /s/ JOHN GILBERT NELSON - ----------------------------------- John Gilbert Nelson 208 Sixth Street Atlanta, Georgia 30308 /s/ MICHAEL ALAN NELSON - ----------------------------------- Michael Alan Nelson 204 Sixth Street Atlanta, Georgia 30308 /s/ JAN ELIZABETH NELSON - ----------------------------------- Jan Elizabeth Nelson 6076 Forest Green Road Pensacola, Florida 32505 66 EX-10.9 14 ACQUISITION AGMT. - MILLER MECHANICAL CONTRACTORS 1 EXHIBIT 10.9 Execution Copy - -------------------------------------------------------------------------------- ACQUISITION AGREEMENT dated as of the 11th day of February, 1999 by and among AMERICAN PLUMBING & MECHANICAL, INC. MILLER MECHANICAL CONTRACTORS, INC. and all of the STOCKHOLDERS of MILLER MECHANICAL CONTRACTORS, INC. - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page RECITALS ...........................................................................................1 1. ACQUISITION OF STOCK.......................................................................5 1.1 Acquisition.......................................................................5 1.2 Consideration.....................................................................5 1.3 Certain Information With Respect to the Capital Stock of the Company and AmPaM.........................................................................5 2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY.............................................5 2.1 Board of Directors................................................................5 2.2 Officers..........................................................................5 3. DELIVERY OF CONSIDERATION..................................................................6 3.1 Stockholders' Consideration.......................................................6 3.2 Stockholders' Deliveries..........................................................6 4. CLOSING....................................................................................6 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................................6 5.1 Due Organization..................................................................7 5.2 Authorization.....................................................................7 5.3 Capital Stock of the Company......................................................7 5.4 Transactions in Capital Stock.....................................................8 5.5 No Bonus Shares...................................................................8 5.6 Subsidiaries; Ownership in Other Entities.........................................8 5.7 Predecessor Status; etc...........................................................8 5.8 Spin-off by the Company...........................................................8 5.9 Financial Statements..............................................................8 5.10 Liabilities and Obligations.......................................................9 5.11 Accounts and Notes Receivable....................................................10 5.12 Licenses; Intellectual Property..................................................10 5.13 Environmental Matters............................................................11 5.14 Personal Property................................................................13 5.15 Significant Customers; Material Contracts and Commitments........................13 5.16 Real Property....................................................................14 5.17 Insurance........................................................................14 5.18 Compensation; Employment Agreements; Labor Matters...............................15 5.19 Employee Plans...................................................................15 5.20 Compliance with ERISA............................................................16 5.21 Conformity with Law; Litigation..................................................17
-i- 3 5.22 Taxes.........................................................................17 5.23 No Violations; No Consent Required, Etc.......................................18 5.24 Government Contracts..........................................................19 5.25 Absence of Changes............................................................19 5.26 Deposit Accounts; Powers of Attorney..........................................21 5.27 Validity of Obligations.......................................................21 5.28 Relations with Governments....................................................21 5.29 Disclosure....................................................................21 5.30 No Warranties or Insurance....................................................21 5.31 Interest in Customers and Suppliers and Related Party Transactions............22 5.32 Private Placement Memorandum..................................................22 5.33 Authority; Ownership..........................................................22 5.34 Preemptive Rights.............................................................23 5.35 No Commitment to Dispose of AmPaM Stock.......................................23 5.36 Disclosure....................................................................23 6. REPRESENTATIONS OF AmPaM...............................................................23 6.1 Due Organization..............................................................24 6.2 Authorization.................................................................24 6.3 Capital Stock of AmPaM........................................................24 6.4 Transactions in Capital Stock.................................................24 6.5 Subsidiaries..................................................................25 6.6 Financial Statements..........................................................25 6.7 Liabilities and Obligations...................................................25 6.8 Conformity with Law; Litigation...............................................25 6.9 No Violations.................................................................26 6.10 Validity of Obligations.......................................................27 6.11 AmPaM Stock...................................................................27 6.12 AmPaM Notes...................................................................28 6.13 No Side Agreements............................................................28 6.14 Business; Real Property; Material Agreements..................................28 6.15 Relations with Governments....................................................28 6.16 Disclosure....................................................................29 6.17 Other Agreements..............................................................29 7. COVENANTS PRIOR TO CLOSING.............................................................29 7.1 Access and Cooperation; Due Diligence; Transfer of Real Estate................29 7.2 Conduct of Business Pending Closing...........................................30 7.3 Prohibited Activities.........................................................31 7.4 No Shop.......................................................................32 7.5 Agreements....................................................................32 7.6 Notification of Certain Matters...............................................32 7.7 Amendment of Schedules........................................................33 7.8 Further Assurances............................................................33 7.9 Authorized Capital............................................................33
-ii- 4 7.10 Compliance with the Hart-Scott Act...........................................................33 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY...........................................................................................34 8.1 Representations and Warranties; Performance of Obligations...................................34 8.2 Satisfaction.................................................................................34 8.3 No Litigation................................................................................34 8.4 Opinion of Counsel...........................................................................34 8.5 Consents and Approvals.......................................................................34 8.6 Good Standing Certificates...................................................................35 8.7 No Material Adverse Change...................................................................35 8.8 Secretary's Certificate......................................................................35 8.9 Tax Matters..................................................................................35 8.10 Other Founding Companies.....................................................................35 8.11 Company Release of Stockholders..............................................................35 8.12 Sterling City Capital Transfer Restrictions..................................................36 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF AmPaM..........................................................36 9.1 Representations and Warranties; Performance and Obligations..................................36 9.2 No Litigation................................................................................36 9.3 Secretary's Certificate......................................................................36 9.4 No Material Adverse Effect...................................................................37 9.5 Stockholders' Release........................................................................37 9.6 Satisfaction.................................................................................37 9.7 Termination of Related Party Agreements......................................................37 9.8 Opinion of Counsel...........................................................................37 9.9 Consents and Approvals.......................................................................37 9.10 Good Standing Certificates...................................................................38 9.11 Funding Availability.........................................................................38 9.12 FIRPTA Certificate...........................................................................38 9.13 Resignations of Directors and Officers.......................................................38 10. COVENANTS OF AMPAM AND THE STOCKHOLDERS AFTER CLOSING.................................................38 10.1 Release From Guarantees; Repayment of Certain Obligations....................................38 10.2 Preservation of Tax and Accounting Treatment.................................................39 10.3 Preparation and Filing of Tax Returns; Payment of Taxes......................................39 10.4 Directors....................................................................................40 10.5 Legal Opinions...............................................................................40 11. INDEMNIFICATION.......................................................................................40 11.1 General Indemnification by the Stockholders..................................................40 11.2 Indemnification by AmPaM.....................................................................41 11.3 Third Person Claims..........................................................................42 11.4 Exclusive Remedy.............................................................................43 11.5 Limitations on Indemnification...............................................................44
-iii- 5 12. TERMINATION OF AGREEMENT..................................................................................45 12.1 Termination......................................................................................45 12.2 Procedure and Effect of Termination..............................................................45 13. NONCOMPETITION............................................................................................46 13.1 Prohibited Activities............................................................................46 13.2 Damages..........................................................................................47 13.3 Reasonable Restraint.............................................................................47 13.4 Severability; Reformation........................................................................47 13.5 Independent Covenant.............................................................................48 13.6 Materiality......................................................................................48 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.................................................................48 14.1 Stockholders.....................................................................................48 14.2 AmPaM............................................................................................49 14.3 Damages..........................................................................................49 14.4 Survival.........................................................................................49 14.5 Return of Information............................................................................50 15. TRANSFER RESTRICTIONS.....................................................................................50 15.1 Transfer Restrictions Relating to AmPaM Stock and AmPaM Notes....................................50 15.2 Transfer Restrictions Relating to Additional Consideration.......................................51 16. FEDERAL SECURITIES ACT REPRESENTATIONS....................................................................52 16.1 Compliance with Law..............................................................................52 16.2 Economic Risk; Sophistication....................................................................52 16.3 Reliance by AmPaM................................................................................53 17. REGISTRATION RIGHTS.......................................................................................53 17.1 Piggyback Registration Rights....................................................................53 17.2 Registration Procedures..........................................................................54 17.3 Indemnification..................................................................................56 17.4 Underwriting Agreement...........................................................................57 17.5 Transfer of Rights...............................................................................58 17.6 Rule 144 Reporting...............................................................................58 18. REDEMPTION OF AmPaM STOCK.................................................................................58 18.1 Redemption Trigger...............................................................................58 18.2 Minimum Redemption; Limitations..................................................................59 18.3 Notice; Exercise.................................................................................59 18.4 Additional Redemptions...........................................................................59 18.5 Termination of Redemption Obligation.............................................................59
-iv- 6 19. GENERAL........................................................................................60 19.1 Cooperation...........................................................................60 19.2 Successors and Assigns................................................................60 19.3 Entire Agreement......................................................................60 19.4 Counterparts..........................................................................60 19.5 Brokers and Agent.....................................................................61 19.6 Expenses..............................................................................61 19.7 Notices...............................................................................62 19.8 Governing Law.........................................................................62 19.9 Survival of Representations and Warranties............................................62 19.10 Exercise of Rights and Remedies.......................................................63 19.11 Time..................................................................................63 19.12 Reformation and Severability..........................................................63 19.13 Remedies Cumulative...................................................................63 19.14 Captions..............................................................................63 19.15 Amendments and Waivers................................................................63 19.16 Mediation and Arbitration.............................................................63 19.17 Information Provided for Private Placement Memorandum.................................64 19.18 Effective Date of Agreement...........................................................64
-v- 7 ANNEXES Annex I - Consideration to Be Paid to Stockholders Annex II - Amended and Restated Certificate of Incorporation and By-Laws of AmPaM Annex III - Form of Opinion of Counsel to AmPaM Annex IV - Form of Tax Opinion Annex V - Form of Opinion of Counsel to Company and Stockholders Annex VI-1 - Form of Employment Agreement -vi- 8 SCHEDULES 2.1 Board of Directors 2.2 Officers 5.1 Due Organization 5.2 Authorization 5.3 Capital Stock of the Company 5.4 Transactions in Capital Stock; Organization Accounting 5.5 No Bonus Shares 5.6 Subsidiaries; Ownership in Other Entities 5.7 Predecessor Status; etc 5.8 Spin-off by the Company 5.9 Financial Statements 5.10 Liabilities and Obligations 5.11 Accounts and Notes Receivable 5.12 Licenses; Intellectual Property (Schedules 5.12(a)(1), 5.12(a)(2), 5.12(b)(1) and 5.12(b)(2)) 5.13 Environmental Matters 5.14 Personal Property 5.15 Significant Customers; Material Contracts and Commitments (Schedules 5.15(a), 5.15(b) and 5.15 (c)) 5.16 Real Property 5.17 Insurance 5.18 Compensation; Employment Agreements; Labor Matters 5.19 Employee Plans 5.20 Compliance with ERISA 5.21 Conformity with Law; Litigation 5.22 Taxes (Schedules 5.22(a) and 5.22(b)) 5.23 No Violations, No Consents Required, Etc. (Schedules 5.23(a), 5.23(b), 5.23(c) and 5.23(e)) 5.24 Government Contracts 5.25 Absence of Changes 5.26 Deposit Accounts; Powers of Attorney 5.30 No Warranties or Insurance 5.31 Interest in Customers and Suppliers and Related Party Transactions 5.33 Authority; Ownership (Schedules 5.33(a) and 5.33(b)) 6.9 No Violations 7.1 Access and Cooperation; Due Diligence; Transfer of Real Estate 7.2 Conduct of Business Pending Closing 7.3 Prohibited Activities 7.5 Agreements 8.11 Employment Agreements 9.7 Termination of Related Party Agreements 10.1 Release From Guarantees; Repayment of Certain Obligations 16.2 Non-accredited Investors 18.5 Brokers and Agents -vii- 9 ACQUISITION AGREEMENT THIS ACQUISITION AGREEMENT (the "Agreement") is made as of the 11th day of February, 1999 by and among AMERICAN PLUMBING & MECHANICAL, INC., a Delaware corporation ("AmPaM"), MILLER MECHANICAL CONTRACTORS, INC. a Georgia corporation (the "Company"), and the stockholders listed on the signature pages of this Agreement (the "Stockholders"), which are all the stockholders of the Company. RECITALS WHEREAS, the Company is engaged in the plumbing and mechanical services business; WHEREAS, as of the date hereof, the Stockholders own, and as of the Closing Date the Stockholders will own, all of the issued and outstanding capital stock of the Company (the "Company Stock"); WHEREAS, AmPaM is entering into other separate agreements simultaneously with this Agreement that are substantially the same as this Agreement (the "Other Agreements"), each of which is entitled "Acquisition Agreement," with each of the Other Founding Companies (as defined herein) and their respective stockholders in order for AmPaM to acquire additional companies engaged in the plumbing and mechanical services business; WHEREAS, this Agreement and the Other Agreements constitute the "AmPaM Plan of Organization;" WHEREAS, the Stockholders and the boards of directors and the stockholders of AmPaM, and each of the Other Founding Companies that are parties to the Other Agreements, have approved and adopted the AmPaM Plan of Organization as an integrated plan pursuant to which the Stockholders and the stockholders of each of the other Founding Companies will contribute the capital stock of each of the Founding Companies to AmPaM, and the Stockholders and the stockholders of each of the other Founding Companies will acquire the stock of AmPaM (but not cash or other property) as a tax-free transfer of property under Section 351 of the Code; WHEREAS, in consideration of the agreements of the Other Founding Companies pursuant to the Other Agreements, the Stockholders have approved this Agreement as part of the AmPaM Plan of Organization in order to transfer all of the issued and outstanding capital stock of the Company to AmPaM; and NOW, THEREFORE, in consideration of the premises and of the mutual agreements, representations, warranties, provisions and covenants herein contained, the parties hereto hereby agree as follows: 10 Unless the context otherwise requires, capitalized terms used in this Agreement or in any schedule attached hereto and not otherwise defined shall have the following meanings for all purposes of this Agreement: "1933 Act" means the Securities Act of 1933, as amended. "Acquired Party" means the Company, any subsidiary of the Company and any member of a Relevant Group. "Affiliates" means with respect to any person or entity, any other person or entity that directly or indirectly, controls, is controlled by, or is under common control with such person or entity. "AmPaM" has the meaning set forth in the first paragraph of this Agreement. "AmPaM Charter Documents" has the meaning set forth in Section 6.1. "AmPaM Plan of Organization" has the meaning set forth in the recitals of this Agreement. "AmPaM Stock" means the common stock, par value $.01 per share, of AmPaM. "AmPaM Notes" means those notes issued by AmPaM to the Stockholders as a portion of the consideration to be received hereunder and in substantially the form to Annex I as Appendix A. "Balance Sheet Date" has the meaning set forth in Section 5.9. "Charter Documents" has the meaning set forth in Section 5.1. "Closing" has the meaning set forth in Section 4. "Closing Date" has the meaning set forth in Section 4. "Code" means the Internal Revenue Code of 1986, as amended. "Company" has the meaning set forth in the first paragraph of this Agreement. "Company Stock" has the meaning set forth in the recitals of this Agreement. "Delaware GCL" means the General Corporation Law of the State of Delaware. "Environmental Laws" has the meaning set forth in Section 5.13(b). "Expiration Date" has the meaning set forth in Section 5(A) and Section 6, as applicable. 2 11 "Founding Companies" means the following companies: Christianson Enterprises, Inc., a Texas corporation; Christianson Services, Inc., a Texas corporation; GGR Leasing Corporation, a Texas corporation; J.A. Croson Company of Florida, a Florida corporation; J.A. Croson Company, an Ohio corporation; Franklin Fire Sprinkler Company, an Ohio corporation; Keith Riggs Plumbing, Inc., an Arizona corporation; Miller Mechanical Contractors, Inc., a Georgia corporation; Nelson Mechanical Contractors, Inc., a Florida corporation; Power Plumbing Inc., a Delaware corporation; R.C.R. Plumbing, Inc., a California corporation; Sherwood Mechanical, Inc., a California corporation; and Teepe's River City Mechanical, Inc., an Ohio corporation. "GAAP" means generally accepted accounting principles as consistently applied in the United States. "Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Hazardous Substance" has the meaning set forth in Section 5.13(c). "IPO" means a firm commitment underwritten initial public offering of AmPaM Stock managed by one or more nationally recognized national investment banking firms. "known" or "knowledge," when used in reference to a statement regarding the existence or absence of facts in this Agreement, is intended by the parties to mean that the only information to be attributed to such person is information actually known to (a) the person in the case of an individual, (b) in the case of a corporation or other entity other than the Company, an officer or director of such corporation or entity or (c) in the case of the Company and its Subsidiaries, an officer of the Company listed on Schedule 2.2 hereto, except for David Baggett. "Material Adverse Change" means a material adverse change in the business, operations, properties, assets or condition (financial or otherwise), of the subject entity and its subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on the business, operations, properties, assets or condition (financial or otherwise), of the subject entity and its subsidiaries taken as a whole. "Material Documents" has the meaning set forth in Section 5.23. 3 12 "Ordinary Course of Business" means the ordinary course of business consistent with past customs and practice (including with respect to quantity and frequency). "Other Agreements" has the meaning set forth in the recitals of this Agreement. "Other Founding Companies" means all of the Founding Companies other than the Company. "Plans" has the meaning set forth in Section 5.19. "Private Placement Memorandum" means the Private Placement Memorandum, dated as of February 11, 1999, provided to each Stockholder prior to the execution and delivery of this Agreement which sets forth certain information relating to the transactions contemplated by this Agreement and the Other Agreements. "Qualified Plans" has the meaning set forth in Section 5.20. "Relevant Group" means the Company and any affiliated, combined, consolidated, unitary or similar group of which the Company is or was a member. "Restricted Common Stock" has the meaning set forth in Section 1.3(ii). "Returns" means any returns, reports or statements (including any information returns) required to be filed for purposes of a particular Tax. "Schedule" means each Schedule attached hereto, which shall reference the relevant sections of this Agreement, on which parties hereto disclose information as part of their respective representations, warranties and covenants. "SEC" means the United States Securities and Exchange Commission. "State of Incorporation" means the State of Georgia. "Stockholders" has the meaning set forth in the first paragraph of this Agreement. "Subsidiaries" means with respect to a person or entity, any corporation or other entity in which such person or entity owns a 5% or greater ownership interest. "Tax" or "Taxes" means all federal, state, local or foreign net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value added, franchise, withholding, employment, excise, property, deed, stamp, alternative or add-on minimum, or other taxes, assessments, duties, fees, levies or other governmental charges, whether disputed or not, together with any interest, penalties, additions to tax or additional amounts with respect thereto. 4 13 1. ACQUISITION OF STOCK 1.1 ACQUISITION. Upon the terms and subject to the conditions contained in this Agreement and in reliance upon the representations, warranties, covenants and agreements contained in this Agreement, on the Closing Date, the Stockholders shall convey and transfer to AmPaM all of the issued and outstanding shares of Company Stock as set forth in Annex I hereto. 1.2 CONSIDERATION. The consideration for the Company Stock shall be as set forth on Annex I to this Agreement. 1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY AND AMPAM. The respective designations and numbers of outstanding shares and voting rights of each class of outstanding capital stock of the Company and AmPaM as of the date of this Agreement are as follows: (i) as of the date of this Agreement, the authorized and outstanding Company Stock is as set forth on Schedule 5.3 hereto; and (ii) immediately prior to the Closing Date, the authorized capital stock of AmPaM will consist of (A) 100,000,000 shares of AmPaM Stock, of which the number of issued and outstanding shares will be set forth in the Private Placement Memorandum, (B) 10,000,000 shares of redeemable preferred stock, of which the number of issued and outstanding shares will be set forth in the Private Placement Memorandum, and (C) 5,000,000 shares of Restricted Voting Common Stock, $.01 per value (the "Restricted Common Stock"), all of which will be issued and outstanding except as otherwise set forth in the Private Placement Memorandum. 2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY 2.1 BOARD OF DIRECTORS. The Company and the Stockholders shall take action, including solicitation of resignation of directors, necessary so that the Board of Directors of the Company as of the Closing Date shall consist only of the persons identified on Schedule 2.1 hereto. 2.2 OFFICERS. The Company and the Stockholders shall take action, including solicitation of resignation of officers, necessary so that the officers of the Company as of the Closing Date shall consist only of the persons identified on Schedule 2.2 hereto. 5 14 3. DELIVERY OF CONSIDERATION 3.1 STOCKHOLDERS' CONSIDERATION. On the Closing Date, the Stockholders shall, upon surrender of certificates evidencing the Company Stock, receive from AmPaM the respective number of shares of AmPaM Stock, the amount of cash and the principal amount of AmPaM Notes described on Annex I hereto specified with respect to each such Stockholder as payable on the Closing Date. All payments of cash shall be made by certified check or wire transfer of immediately available funds. Consideration in consisting of AmPaM Notes shall be substantially in the form of Appendix A to Annex I. 3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at the Closing the certificates representing Company Stock, duly endorsed in blank by the Stockholders, or accompanied by blank stock powers, and with all necessary transfer tax and other revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The Stockholders agree promptly to cure any deficiencies with respect to the endorsement of the stock certificates or other documents of conveyance with respect to such Company Stock or with respect to the stock powers accompanying any Company Stock. 4. CLOSING The consummation of the transactions contemplated by Section 3 (the "Closing") shall take place on March 31, 1999 or such date not later than May 31, 1999 as AmPaM shall determine by giving written notice of such other date as provided in Section 18.7 (the "Closing Date") at the offices of Andrews & Kurth L.L.P., 4200 Chase Tower, 600 Travis, Houston, Texas 77002. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY (A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in the disclosure schedules attached hereto and except as otherwise qualified below, the Company represents and warrants that all of the following representations and warranties in this Section 5(A) are true at the date of this Agreement and, subject to Section 7.7 hereto, shall be true at the time of the Closing, and that such representations and warranties shall survive the Closing Date for a period of eighteen months (the last day of such period being the "Expiration Date"), except that the representations and warranties set forth in Sections 5.3, 5.22 and 5.32 hereof shall survive until such time as the applicable statute of limitations period has run, which shall be deemed to be the Expiration Date for the representations and warranties set forth in Sections 5.3, 5.22 and 5.32. For purposes of this Section 5, the term "Company" shall mean and refer to the Company and all of its Subsidiaries, if any, and any reference to a Material Adverse Effect on the Company or Material Adverse Change with respect to the Company shall mean the Company and its Subsidiaries, taken as a whole. Except as expressly set forth in this Agreement, the Company expressly disclaims any representation or warranty (express, implied or otherwise) relating to the Company and any Subsidiary thereof including, without limitation, any warranty of merchantability or fitness for a particular purpose. 6 15 5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of Incorporation, and has the requisite power and authority to carry on its business as it is now being conducted. The Company is duly qualified or authorized to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or authorization necessary except where the failure to be so qualified or authorized to do business would not have a Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all states in which the Company is authorized or qualified to do business, which list indicates which of such entities is authorized or qualified to do business in such states. True, complete and correct copies of the Certificate or Articles of Incorporation and By-laws, each as amended, of the Company (the "Charter Documents") are all attached to Schedule 5.1. The Company has delivered to AmPaM complete and correct copies of (i) the stock records of the Company and (ii) all minutes of meetings, written consents and other evidence, if any, of deliberations of or actions taken by the Company's Board of Directors, any committees of the Board of Directors and stockholders during the last five years. 5.2 AUTHORIZATION. (i) The officers or other representatives of the Company executing this Agreement have the authority to enter into and bind the Company to the terms of this Agreement and (ii) the Company has the full legal right, power and authority to enter into this Agreement and consummate the transactions contemplated hereby. Copies of the most recent resolutions adopted by the Board of Directors of the Company and the most recent resolutions adopted by the Stockholders, which approve this Agreement and the transactions contemplated hereby in all respects, certified by the Secretary or an Assistant Secretary of the Company as being in full force and effect on the date hereof, are attached hereto as Schedule 5.2. 5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the Company and each of its Subsidiaries is as set forth on Schedule 5.3(a). All of the issued and outstanding shares of the capital stock of the Company are owned by the Stockholders in the amounts set forth in Schedule 5.3(a). Except as set forth on Schedule 5.3(a), all of the issued and outstanding capital stock of each Subsidiary is owned by the Company. All of the issued and outstanding shares of the capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable, are owned of record by the Stockholders and further, such shares were offered, issued, sold and delivered by the Company in compliance with all applicable state and Federal laws concerning the issuance of securities. Further, none of such shares were issued in violation of any preemptive rights of any past or present stockholder. 7 16 5.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 5.4(a), the Company has not acquired or redeemed any shares of capital stock of the Company since January 1, 1996. Except as set forth on Schedule 5.4(b), (i) no option, warrant, call, conversion right or commitment of any kind exists which obligates the Company to issue any of its authorized but unissued capital stock; (ii) the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof; and (iii) neither the voting stock structure of the Company nor the relative ownership of shares among any of its Stockholders has been altered or changed in contemplation of the AmPaM Plan of Organization. There are no voting trusts, proxies or other agreements or understandings to which the Company is a party or is bound with respect to the voting of any shares of capital stock of the Company. 5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the shares of Company Stock was issued pursuant to awards, grants or bonuses in contemplation of the AmPaM Plan of Organization. 5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set forth on Schedule 5.6(a), the Company has no Subsidiaries. Except as set forth in Schedule 5.6(b), the Company does not presently own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity nor is the Company, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. 5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7(a) is a list of all predecessor companies of the Company, including the names of any entities acquired by the Company (by stock purchase, merger or otherwise) or owned by the Company or from whom the Company previously acquired material assets, in any case, from the earliest date upon which any Stockholder acquired his or her stock in any Company. Except as disclosed on Schedule 5.7(b), the Company has not been, within such period of time, a subsidiary or division of another corporation or a part of an acquisition which was later rescinded. 5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there has not been any sale, spin-off or split-up of material assets of either the Company or any other person or entity that is an Affiliate of the Company since January 1, 1996. 5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 is a copy of: (i) the balance sheet of the Company as of September 30, 1997 and the related statements of operations, stockholders' equity and cash flows for the one-year period ended September 30, 1997, together with the related notes and schedules (such balance sheets, the related statements of operations, stockholders' equity and cash flows and the related notes and schedules are referred to herein as the "Year-end Financial Statements"); 8 17 (ii) the balance sheet of the Company as of June 30, 1998 and the related statements of operations, stockholders' equity and cash flows for the nine-month periods ended June 30, 1997 and 1998, together with the related notes and schedules (such balance sheets, the related statements of operations, stockholders' equity and cash flows and the related notes and schedules are referred to herein as the "Nine-Month Interim Financial Statements"); (iii) the balance sheet of the Company as of September 30, 1998 (the "Balance Sheet Date") and the related statements of operations, stockholders' equity and cash flows for the twelve-month periods ended September 30, 1997 and 1998 (such balance sheets, the related statements of operations, stockholders' equity and cash flows are referred to herein as the "Twelve-Month Interim Financial Statements"); and (iv) the income statement of the Company for the 12-month period ended June 30, 1998 (the "Valuation Income Statement"). The Year-end Financial Statements, the Nine-Month Interim Financial Statements, the Twelve-Month Interim Financial Statements and the Valuation Income Statement are collectively called the "Financial Statements". The Financial Statements, including those included in the Private Placement Memorandum, have been prepared in accordance with GAAP applied on a consistent basis and fairly present the financial position of the Company as of the dates thereof and the results of its operations and changes in financial position for the periods then ended, subject, in the case of the Nine-Month Interim Financial Statements and the Twelve-Month Interim Financial Statements, to normal year-end audit adjustments and any other adjustments described therein and the absence of certain footnote disclosures. 5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10(a) sets forth an accurate list as of the Balance Sheet Date of (i) all material liabilities of the Company which are not reflected on the balance sheet of the Company at the Balance Sheet Date or otherwise reflected in the Company Financial Statements at the Balance Sheet Date which by their nature would be required in accordance with GAAP to be reflected in the balance sheet, and (ii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages, pledges or other security agreements to which the Company is a party or by which its properties may be bound other than bid bonds and performance bonds made in the Ordinary Course of Business. Except as set forth on Schedule 5.10(b), since the Balance Sheet Date, the Company has not incurred any material liabilities or obligations of any kind, character or description, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than liabilities incurred in the Ordinary Course of Business. The Company has also delivered to AmPaM, on Schedule 5.10(c), a list of contingent liabilities related to pending litigation or litigation that has been threatened in writing, or other material liabilities which are not fixed or otherwise accrued or reserved. For each such contingent liability of the Company or liability of the Company for which the amount is not fixed or is contested, the Company has provided to AmPaM the following information: 9 18 (i) a summary description of the liability together with the following: (a) copies of all relevant documentation in the possession of the Company or its directors, officers or stockholders relating thereto; (b) amounts claimed and any other action or relief sought; and (c) name of claimant and all other parties to the claim, suit or proceeding; (ii) the name of each court or agency before which such claim, suit or proceeding is pending; (iii) the date such claim, suit or proceeding was instituted; and (iv) a good faith estimate of the maximum amount, if any, which the Company expects, based on information available, is likely to become payable with respect to each such liability and the amount, if any, accrued or reserved for each such potential liability on the Financial Statements. AmPaM acknowledges that all estimates referred to above and set forth on Schedule 5.10(c) are only good faith estimates, and that the Company and the Stockholders expressly do not represent or warrant that the actual amounts of such liabilities will be equal to, or more or less than, the amounts of such estimates. 5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11(a) sets forth an accurate list, in all material respects, of the accounts and notes receivable of the Company, as of the Balance Sheet Date, including any such amounts which are not reflected in the balance sheet as of the Balance Sheet Date, and including all receivables from and advances to employees and the Stockholders, which are identified as such. Schedule 5.11(a) also sets forth a materially accurate aging of all accounts and notes receivable as of the Balance Sheet Date showing amounts due in 30-day aging categories. Except to the extent reflected on Schedule 5.11(b), such accounts, notes and other receivables are collectible in the amounts shown on Schedule 5.11(a), net of reserves reflected in the balance sheet as of the Balance Sheet Date. 5.12 LICENSES; INTELLECTUAL PROPERTY. (a) The Company or its employees hold all licenses, franchises, permits and other governmental authorizations ("Licenses") necessary to conduct the business of the Company, the absence of which would cause a Material Adverse Effect on the Company, and the Company has delivered to AmPaM a list that is accurate, in all material respects, and summary description (which is set forth on Schedule 5.12(a)(1)) of all such Licenses. At or prior to the Closing, all such Licenses owned or held by any employee of the Company will be assigned or licensed to the Company for no additional consideration. The Licenses listed on Schedule 5.12(a)(1) are valid, and the Company has not received any notice that any person intends to cancel, terminate or not renew any such License. The Company has conducted and is conducting its business in compliance in all material respects with the requirements, standards, criteria and 10 19 conditions set forth in the Licenses listed on Schedule 5.12(a)(1) and is not in violation of any of the foregoing in any material respect. Except as specifically provided in Schedule 5.12(a)(2), the consummation by the Company of the transactions contemplated by this Agreement will not result in a default under or a breach or violation of, or adversely affect the rights and benefits afforded to the Company by, any such Licenses. (b) The Company owns or possesses adequate licenses or other rights to use (without making any payment or granting rights to any person in exchange) all patents, patent applications, trademarks, copyrights, service marks and trade names (collectively, the "Intellectual Property") necessary to conduct its business as currently conducted. A description of any Intellectual Property licensed by the Company, including the material terms of any such license, is described on Schedule 5.12(b)(1). Neither the validity of the Intellectual Property nor the title thereto or use thereof by the Company is being questioned in any pending litigation, and the conduct of the Company's business, as currently conducted, does not conflict with licenses, copyrights, uncopyrighted works, trade marks, service marks, trade names, trade name rights, patents, patent rights, unpatented inventions or trade secrets of others. Neither the validity of the Intellectual Property nor the title thereto or use thereof by the Company is being questioned in any pending or, to the knowledge of the Company, threatened infringement claims or litigation, and the conduct of the Company's business, as now conducted, does not conflict with licenses, copyrights, uncopyrighted works, trade marks, service marks, trade names, trade name rights, patents, patent rights, unpatented inventions or trade secrets of others. Except as specifically provided in Schedule 5.12(b)(2), the consummation by the Company of the transactions contemplated by this Agreement will not adversely affect the rights and benefits afforded to the Company by any such Intellectual Property. 5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule 5.13 attached hereto, (i) the Company has conducted its businesses in compliance in all material respects with all applicable Environmental Laws, including, without limitation, having all environmental permits, licenses and other approvals and authorizations necessary for the operation of its business as presently conducted, except where the failure to have such permit, license, approval or authorization would not have a Material Adverse Effect on the Company, (ii) none of the properties owned by the Company contain any Hazardous Substance as a result of any activity of the Company in amounts exceeding the levels permitted by applicable Environmental Laws, except where amounts in excess of such levels would not have a Material Adverse Effect on the Company, (iii) the Company has not received any notices, demand letters or requests for information from any Federal, state, local or foreign governmental entity or third party indicating that the Company may be in violation of, or liable under, any Environmental Law in connection with the ownership or operation of its business, (iv) there are no civil, criminal or administrative actions, suits, demands, claims, hearings, investigations or proceedings pending or, to the knowledge of the Company, threatened, against the Company relating to any violation, or alleged violation, of any Environmental Law, except where such violation would not have a Material Adverse Effect on the Company, (v) no reports have been filed, or are required to be filed, by the Company concerning the release of any Hazardous Substance or the threatened or actual violation of any Environmental Law, (vi) no Hazardous Substance has 11 20 been disposed of, released or transported in violation of any applicable Environmental Law from any properties owned by the Company as a result of any activity of the Company during the time such properties were owned, leased or operated by the Company, (vii) there have been no environmental investigations, studies, audits, tests, reviews or other analyses regarding compliance or non-compliance with any applicable Environmental Law conducted by or which are in the possession of the Company relating to the activities of the Company which are not listed on Schedule 5.13 attached hereto prior to the date hereof, (viii) to the knowledge of the Company, (A) there are no underground storage tanks on, in or under any properties owned by the Company and (B) no underground storage tanks have been closed or removed from any of such properties during the time such properties were owned, leased or operated by the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the Company, (A) there is no asbestos or asbestos-containing material present in any material quantity in any of the properties owned by the Company, and (B) no asbestos has been removed from any of such properties during the time such properties were owned, leased or operated by the Company, and (x) neither the Company nor any of its properties are subject to any material liabilities or expenditures (fixed or contingent) relating to any suit, settlement, court order, administrative order, regulatory requirement, judgment or claim asserted or arising under any Environmental Law. (b) As used herein, "Environmental Law" means, as of the Closing Date, any Federal, state, local or foreign law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction or agreement with any governmental entity to which the Company is a party or subject relating to (x) the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource) or to human health or safety or (y) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances, in each case as amended and as in effect on the Closing Date. The term Environmental Law includes, without limitation, (i) the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as amended and as in effect on the Closing Date, and (ii) any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of, effects of or exposure to any Hazardous Substance. (c) As used herein, "Hazardous Substance" means any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive, or dangerous, or otherwise regulated, under any Environmental Law. Hazardous Substance includes any substance to which exposure is regulated by any government authority or any Environmental Law including, without 12 21 limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste, industrial substance or petroleum or any derivative or by-product thereof, radon, radioactive material, asbestos or asbestos-containing material, urea formaldehyde foam insulation, lead or polychlorinated biphenyls. 5.14 PERSONAL PROPERTY. The Company has delivered to AmPaM an accurate list (which is set forth on Schedule 5.14(a)) of (x) all personal property material to the operations of the Company as of the Balance Sheet Date included in "plant, property and equipment" on the balance sheet of the Company as of such date, (y) all other items of personal property owned by the Company with an individual value in excess of $15,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all material leases and agreements in respect of personal property, including, in the case of each of (x), (y) and (z), (1) true, complete and correct copies of all such leases and (2) an indication as to which assets are currently owned, or were formerly owned, by Stockholders, relatives of Stockholders, or Affiliates of the Company. Except as set forth on Schedule 5.14(b), (i) all personal property material to, and used by, the Company in its business is either owned by the Company or leased by the Company pursuant to a lease included on Schedule 5.14(a), (ii) all of the personal property listed on Schedule 5.14(a) or replacement property thereof is in working order and condition, ordinary wear and tear excepted and (iii) all leases and agreements included on Schedule 5.14(a) are in full force and effect and constitute valid and binding agreements of the Company, in each case in accordance with their respective terms. 5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. (a) The Company has delivered to AmPaM a materially accurate list (which is set forth on Schedule 5.15(a)(1)) of all customers (persons or entities) representing 5% or more of the Company's annual revenues for any period covered by any of the Financial Statements. Except to the extent set forth on Schedule 5.15(a)(2), none of such customers has canceled or, to the knowledge of the Company, are currently threatening to cancel a currently effective contract with the Company. (b) The Company has listed on Schedule 5.15(b) all material contracts, commitments and similar agreements to which the Company is a party or by which it or any of its properties are bound (including, but not limited to, contracts with customers listed on Schedule 5.15(a), joint venture or partnership agreements, contracts with any labor organizations, strategic alliances and options to purchase land), other than agreements listed on Schedules 5.10(a), Schedule 5.14(a) or Schedule 5.16(a), (a) in existence as of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and in each case has delivered or made available to AmPaM true, complete and correct copies of such agreements. For purposes of the preceding sentence, a contract, commitment or similar agreement is "material" if it (i) has a term of more than one year (other than contracts, commitments or agreements that are cancelable without liability or penalty within 30 days of notice from the Company of cancellation or that can be terminated by the Company without material penalty upon notice of 30 days or less) or (ii) requires the payment by or to the Company of more than $100,000 during any 12-month period. Except for expenditures in the ordinary course of 13 22 business, the Company has also indicated on Schedule 5.15(b) a summary description of all plans or projects involving the opening of new operations, expansion of existing operations, or the acquisition of any personal property, business or assets requiring, in any event, the payment of more than $50,000 by the Company during any 12-month period. (c) Except as set forth on Schedule 5.15(c), the Company is not required to provide any bonding or other financial security arrangements in any material amount in connection with any contract listed on Schedule 5.15(b). 5.16 REAL PROPERTY. Schedule 5.16(a) includes a list of all real property owned or leased by the Company at the date hereof and all other real property, if any, used by the Company in the conduct of its business. The Company has good and insurable title to any real property owned by it that is shown on Schedule 5.16(a), other than property intended to be sold or distributed prior to the Closing Date as provided in Section 7.1(c) of this Agreement, and all real property so owned is subject to no mortgage, pledge, lien, conditional sales agreement, encumbrance, lease, possessory rights of third parties or charge, except for: (i) liens reflected on Schedule 5.10(a) or Schedule 5.16(b) as securing specified liabilities (with respect to which no material default by the Company exists); (ii) liens for current taxes not yet payable and assessments not in default; (iii) easements for utilities serving the property; and (iv) easements, covenants and restrictions and other exceptions to title which do not adversely affect the current use of the property. Copies of all leases and agreements in respect of such real property leased by the Company, which are true, complete and correct in all material respects, are attached to Schedule 5.16(a), and an indication as to which such properties, if any, are currently owned, or were formerly owned, by Stockholders or Affiliates of the Company or Stockholders is included in Schedule 5.16(a). Except as set forth on Schedule 5.16(b), all of such leases included on Schedule 5.16(a) are, as to the Company, in full force and effect and constitute valid and binding agreements of the Company in accordance with their respective terms. 5.17 INSURANCE. The Company has delivered to AmPaM (i) an accurate list as of the Balance Sheet Date of all insurance policies carried by the Company and (ii) an accurate list of all insurance loss runs or workers compensation claims received for the past three policy years (which lists are set forth on Schedule 5.17). The Company has also delivered or made available to AmPaM true, complete and correct copies of all insurance policies currently in effect that are referred in Schedule 5.17. Such insurance policies evidence all of the insurance the Company is required to carry pursuant to all of its contracts and other agreements and pursuant to all applicable laws. All of such insurance policies are currently in full force and effect except as stated in Schedule 5.17. 14 23 Since January 1, 1996, no insurance carried by the Company has been canceled by the insurer and the Company has not been denied coverage under any such policy. 5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS. (a) The Company has delivered to AmPaM an accurate list (which is set forth on Schedule 5.18(a)(1)) showing all officers, directors and key employees of the Company, listing all employment agreements with such officers, directors and key employees and the rate of compensation (and the portions thereof attributable to salary, bonus and other compensation, respectively) of each of such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The Company has provided to AmPaM true, complete and correct copies of any employment agreements for persons listed on Schedule 5.18(a)(1). Since the Balance Sheet Date, except as disclosed on Schedule 5.18(a)(2), there have been no increases in the compensation payable or any bonuses to any officer, director, key employee or other employee, except ordinary salary increases implemented on a basis consistent with past practices and except for bonuses paid on a basis consistent with past practices. (b) Except as set forth on Schedule 5.18(b), (i) the Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any arrangement with any labor union, (ii) to the knowledge of the Company, no campaign to establish such arrangement is in progress and (iii) there is no pending or, to the Company's knowledge, threatened labor dispute involving the Company and any group of its employees nor has the Company experienced any labor interruptions over the past three years. The Company believes its relationship with employees to be generally good. (c) Except as set forth in Schedule 5.18(c) attached hereto, (i) there are no claims, actions or proceedings pending or, to the knowledge of the Company, threatened between the Company and any of its employees, (ii) the Company has complied in all material respects with all laws relating to the employment of labor, including, without limitation, any provisions thereof relating to wages, hours, collective bargaining, and the payment of social security and similar taxes, and (iii) the Company has not received written notice from any person asserting that the Company is liable in any material amount for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. 5.19 EMPLOYEE PLANS. The Company has delivered to AmPaM accurate schedule (Schedule 5.19(a)) showing all employee benefit plans of the Company, including all employment agreements and other agreements or arrangements containing "golden parachute" or other similar provisions, and deferred compensation agreements, together with true, complete and correct copies of such plans, agreements and any trusts related thereto, and classifications of employees covered thereby as of the Balance Sheet Date and as of the date of this Agreement. Except for the employee benefit plans, if any, described on Schedule 5.19(a), the Company does not sponsor, maintain or contribute to any plan program, fund or arrangement that constitutes an "employee pension benefit plan", and neither the Company nor any Subsidiary has any obligation to contribute to or accrue or 15 24 pay any benefits under any deferred compensation or retirement funding arrangement on behalf of any employee or employees (such as, for example, and without limitation, any individual retirement account or annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred compensation arrangement). For the purposes of this Agreement, the term "employee pension benefit plan" shall have the same meaning as is given that term in Section 3(2) of ERISA. The Company has not sponsored, maintained or contributed to any employee pension benefit plan other than the plans set forth on Schedule 5.19(a), and, except as described on Schedule 5.19(b), the Company is not or could not be required to contribute to any retirement plan pursuant to the provisions of any collective bargaining agreement establishing the terms and conditions or employment of any of the Company's employees. Except as set forth on Schedule 5.19(c), the Company is not now, or will not as a result of its past activities become, liable to the Pension Benefit Guaranty Corporation or to any multiemployer employee pension benefit plan under the provisions of Title IV of ERISA. All employee benefit plans listed on Schedule 5.19(a) and the administration thereof are in compliance in all material respects with their terms and all applicable provisions of ERISA and the regulations issued thereunder, as well as with all other applicable federal, state and local statutes, ordinances and regulations. All accrued contribution obligations of the Company as of the Balance Sheet Date with respect to any plan listed on Schedule 5.19(a) have either been fulfilled in their entirety or are fully reflected on the balance sheet of the Company as of the Balance Sheet Date. 5.20 COMPLIANCE WITH ERISA. All plans listed on Schedule 5.19(a) that are intended to qualify under Section 401 (a) of the Code (the "Qualified Plans") are, and have been so qualified and have been determined by the Internal Revenue Service to be so qualified, and copies of such determination letters are attached to Schedule 5.19(a). Except as disclosed on Schedule 5.20, all reports and other documents required to be filed with any governmental agency or distributed to plan participants or beneficiaries (including, but not limited to, actuarial reports, audits or tax returns) since January 1, 1992 have been timely filed or distributed, and copies thereof have been made available to AmPaM. No such plan listed on Schedule 5.19(a) nor the Company has engaged in any transaction prohibited under the provisions of Section 4975 of the Code or Section 406 of ERISA. No such Plan listed on Schedule 5.19(a) has incurred an accumulated funding deficiency, as defined in Section 412(a) of the Code and Section 302(l) of ERISA; and the Company has not incurred any liability for excise tax or penalty due to the Internal Revenue Service nor any liability to the Pension Benefit Guaranty Corporation. The Company further represents that except as set forth on Schedule 5.20 hereto: (i) there have been no terminations, partial terminations or discontinuations of contributions to any Qualified Plan intended to qualify under Section 401(a) of the Code without notice to and approval by the Internal Revenue Service; 16 25 (ii) no plan listed on Schedule 5.19(a) subject to the provisions of Title IV of ERISA has been terminated; (iii) there have been no "reportable events" (as that phrase is defined in Section 4043 of ERISA) with respect to any such plan listed in Schedule 5.19(a); (iv) the Company (including any Subsidiaries) has not incurred liability under Section 4062 of ERISA; and (v) no circumstances exist pursuant to which the Company could have any direct or indirect liability whatsoever (including, but not limited to, any liability to any multiemployer plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for any excise tax or penalty, or being subject to any statutory lien to secure payment of any such liability) with respect to any plan now or heretofore maintained or contributed to by any entity other than the Company that is, or at any time was, a member of a "controlled group" (as defined in Section 412(n)(6)(B) of the Code) that includes the Company. 5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on Schedule 5.21 or Schedule 5.13, the Company has not violated within the five years prior to the date of this Agreement and is not currently in violation of any law or regulation or any order of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it other than violations that would not have a Material Adverse Effect on the Company; and except to the extent set forth on Schedule 5.10(c) or Schedule 5.13, there are no claims, actions, suits or proceedings, pending or, to the knowledge of the Company, threatened in writing against the Company, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over the Company and no written notice of any claim, action, suit or proceeding, whether pending or threatened, has been received by the Company, and to the knowledge of the Company there is no valid basis for any such claim, action, suit or proceeding that could reasonably be expected to have a Material Adverse Effect on the Company. 5.22 TAXES. The Company has timely filed all requisite Federal, state and other Tax Returns or extension requests for all fiscal periods ended on or before the Balance Sheet Date; and except as set forth on Schedule 5.22(a), there are no examinations in progress or claims pending against the Company for federal, state and other Taxes (including penalties and interest) for any period or periods prior to and including the Balance Sheet Date and no notice of any claim for Taxes, whether pending or threatened, has been received. All Tax, including interest and penalties (whether or not shown on any Tax Return), due by the Company has been paid. The amounts shown as accruals for Taxes on the Financial Statements are sufficient for the payment of all Taxes of the kinds indicated (including penalties and interest) for all fiscal periods ended on or before the date of the respective Financial Statements. Copies of (i) any tax examinations, (ii) extensions of statutory limitations and (iii) the federal and local income Tax Returns and franchise Tax Returns of Company for their last three (3) fiscal years, or such shorter period of time as any of them shall 17 26 have existed, are attached hereto as Schedule 5.22(a) or have otherwise been delivered to AmPaM. The Company has a taxable year ended September 30.. Except as set forth on Schedule 5.22(a), the Company uses the accrual method of accounting for income tax purposes, and the Company's methods of accounting have not changed in any material respect in the past five years (except as required to conform to changes in GAAP). The Company is not an investment company as defined in Section 351(e)(1) of the Code. The Company is not and has not during the last five years been a party to any tax sharing agreement or agreement of similar effect. Except as set forth on Schedule 5.22(a), the Company is not and has not during the last five years been a member of any consolidated group for federal tax purposes. The Company has not received, been denied, or applied for any private letter ruling from the IRS during the last ten years. 5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC. (a) The Company is not in violation of any Charter Document. Except as set forth on Schedule 5.23(a), the Company is not in default under any lease, instrument, agreement, license, or permit set forth on Schedule 5.12(a), Schedule 5.14(a), Schedule 5.15(b) or Schedule 5.16(a) (collectively, the "Material Documents"). (b) Except as set forth on Schedule 5.23(b)(1), the execution and delivery of this Agreement by each of the Company and the Stockholders do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company under any of the terms, conditions or provisions of (i) the Charter Documents of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to the Company or any of its properties or assets, or (iii) any Material Document to which the Company is now a party or by which the Company or any of its properties or assets may be bound or affected. The consummation by the Company and the Stockholders of the transactions contemplated hereby will not result in any material violation, conflict, breach, right of termination or acceleration or creation of liens under any of the terms, conditions or provisions of the items described in clauses (i) through (iii) of the preceding sentence, subject, in the case of the terms, conditions or provisions of the items described in clause (iii) above, to obtaining (prior to the Effective Time) such consents as may be required from commercial lenders, lessors or other third parties as listed on Schedule 5.23(b)(2). (c) Except as set forth on Schedule 5.23(c) and except for the Hart-Scott Act, none of the Material Documents requires notice to, or the consent or approval of, any governmental agency or other third party with respect to the consummation by the Company and the Stockholders of any of the transactions contemplated hereby in order to remain in full force and effect, and consummation by the Company and the Stockholders of the transactions contemplated hereby will not give rise to any right to termination, cancellation or acceleration or loss of any material right or benefit under any Material Document. 18 27 (d) Except for (i) any filings to be made with the SEC pursuant to the 1933 Act or with any state securities authorities in connection with the offer and sale of AmPaM Stock and AmPaM Notes pursuant to this Agreement and (ii) any filing required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby. (e) Except as set forth on Schedule 5.23(e), none of the Material Documents prohibits the disclosure or publication by the Company or AmPaM of the name of any other party to such Material Document, and none of the Material Documents prohibits or restricts the Company from freely providing services or selling products to any other customer or potential customer of the Company, AmPaM or any Other Founding Company. 5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the Company is not now a party to any governmental contract subject to price redetermination or renegotiation. 5.25 ABSENCE OF CHANGES. (a) Since the Balance Sheet Date, except as set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not been: (i) any Material Adverse Change in the Company; (ii) any damage, destruction or casualty loss (whether or not covered by insurance), alone or in the aggregate, which has caused a Material Adverse Effect on the Company; (iii) any change in the authorized capital of the Company or its outstanding securities or any change in its ownership interests or any grant of any options, warrants, calls, conversion rights or commitments; (iv) any declaration or payment of any dividend or distribution in respect of the capital stock or any direct or indirect redemption, purchase or other acquisition of any of the capital stock of the Company except for distributions that would have been permitted after the date hereof under Section 7.3(iii) hereof, (v) any increase in the compensation, bonus, sales commissions or fee arrangement payable or to become payable by the Company to any of its officers, directors, Stockholders, employees, consultants or agents, except for ordinary and customary bonuses and salary increases for employees in accordance with past practice and except for salary increases for employees in accordance with past practice and except for the establishment of a deferred stock compensation plan for the benefit of certain Company employees and the arrangements to contribute shares of AmPaM Stock thereto as described in Annex I hereto; 19 28 (vi) any work interruptions, labor grievances or claims filed, or any event or condition of any character, which has caused a Material Adverse Effect on the Company; (vii) any sale or transfer, or any agreement to sell or transfer, any material assets, property or rights of the Company to any person, including, without limitation, the Stockholders and their affiliates, except inventory sold or transferred in the Ordinary Course of Business; (viii) any cancellation, or agreement to cancel, any indebtedness or other obligation owing to the Company, including without limitation any indebtedness or obligation of any Stockholders or any Affiliate thereof; (ix) any plan, agreement or arrangement granting any preferential rights to purchase or acquire any interest in any of the material assets, property or rights of the Company or requiring consent of any party to the transfer and assignment of any such assets, property or rights; (x) any purchase or acquisition of, or agreement, plan or arrangement to purchase or acquire, any property, rights or assets outside of the Ordinary Course of Business; (xi) any waiver of any material rights or claims of the Company; (xii) any amendment or termination of any Material Document to which the Company is a party except for the termination of a Material Document in accordance with its terms without any action on the part of the Company; (xiii) any transaction by the Company outside the Ordinary Course of Business; (xiv) any cancellation or termination of a material contract with a customer or client listed on Schedule 5.15(a) prior to the scheduled termination date thereof; or (xv) any other distribution of property or assets by the Company other than in the Ordinary Course of Business, other than (a) distributions of nonoperating assets specifically identified on Schedule 5.25, (b) distributions of real estate required by Section 7.1(c) of this Agreement and (c) distributions of cash or promissory notes permitted by Annex I hereto. (b) Except as set forth on Schedule 5.25, the Company has not, between the Balance Sheet Date and the date hereof, taken any of the actions set forth in Section 7.3. 20 29 5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to AmPaM an accurate schedule (which is set forth on Schedule 5.26) as of the date of the Agreement of: (i) the name of each financial institution in which the Company has an account or safe deposit box; (ii) the names in which the accounts or boxes are held; (iii) the type of account and account number; and (iv) the name of each person authorized to draw thereon or have access thereto. Schedule 5.26 also sets forth the name of each person, corporation, firm or other entity holding a general or special power of attorney from the Company and a description of the terms of such power. 5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement by the Company and the performance of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of the Company and this Agreement has been duly and validly authorized by all necessary corporate action and is a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. 5.28 RELATIONS WITH GOVERNMENTS. The Company has not, and to the knowledge of the Company none of the Stockholders or any Affiliate of any of them has, given or offered anything of value to any governmental official, political party or candidate for government office or otherwise taken any action which would cause the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. 5.29 DISCLOSURE. This Agreement, including the Annexes and Schedules hereto, and the completed questionnaire related to the Hart-Scott Act furnished to AmPaM by the Company, do not contain an untrue statement of a material fact concerning the Company or omit to state a material fact concerning the Company necessary to make the statements herein and therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing does not apply to statements contained in or omitted from any of such documents made or omitted in reliance upon information furnished in writing by AmPaM. 5.30 NO WARRANTIES OR INSURANCE. Except for warranty liability under applicable law and except for warranty liability under the warranties issued by the Company of the types described on Schedule 5.30, the Company has no liability to any person under any warranty and the Company does not offer or sell insurance or consumer protection plans or other arrangements that could result in the Company being required to make any payment to or perform any service for any person. 21 30 5.31 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY TRANSACTIONS. Except as described on Schedule 5.31 or in Section 8.11, no Stockholder, officer, director or Affiliate of the Company (i) owns, directly or indirectly, any financial interest in, or is a director, officer, employee or affiliate of, any corporation, firm, association or business organization that is a client, supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or will be a party to an agreement or relationship with the Company other than through a customary "at will" employment relationship. 5.32 PRIVATE PLACEMENT MEMORANDUM. None of the information supplied or to be supplied by the Company in writing specifically for inclusion in the Private Placement Memorandum contained or, as of the Closing Date, will contain any untrue statement of a material fact concerning the Company or omitted or will omit to state any material fact required to be stated therein or necessary in order to make the statements contained in such information supplied or to be supplied by the Company concerning the Company, in light of the circumstances under which they are made, not misleading. (B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS. Each Stockholder severally represents and warrants that the representations and warranties set forth below are true as of the date of this Agreement and, subject to Section 7.7 hereof, shall be true at the time of Closing, and that the representations and warranties set forth in this Section 5(B) shall survive the Closing Date. 5.33 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right, power and authority to enter into this Agreement, and this Agreement is a legal, valid and binding obligation of such Stockholder, enforceable against the Stockholder in accordance with its terms. Except as set forth on Schedule 5.33(a), the execution and delivery of this Agreement by such Stockholder does not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of such Stockholder under any of the terms, conditions or provisions of (i) the Charter Documents of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to such Stockholder or any of such Stockholder's properties or assets, or (iii) any lease, instrument, agreement, license or permit to which such Stockholder is now a party or by which such Stockholder or any of such Stockholder's properties or assets may be bound or affected. Except for (i) any filings to be made with the SEC pursuant to the 1933 Act and any state securities authorities in connection with the offer and sale of AmPaM Stock and AmPaM Notes pursuant to this Agreement, (ii) any filing required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by such Stockholder or the consummation by such Stockholder of the transactions contemplated hereby. Except as set forth on 22 31 Schedule 5.33(b), such Stockholder owns beneficially and of record all of the shares of the Company Stock identified on Annex I hereto as being owned by such Stockholder, and, such Company Stock is owned free and clear of all liens, security interests, pledges, charges, voting trusts, voting agreements, restrictions, encumbrances and claims of every kind. 5.34 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby waives, any preemptive or other right to acquire shares of Company Stock or AmPaM Stock that such Stockholder has or may have had. Nothing herein, however, shall limit or restrict the rights of any Stockholder to acquire AmPaM Stock pursuant to (i) this Agreement, (ii) any option granted or to be granted by AmPaM to such Stockholder, (iii) a purchase through a broker in a regular stock market transaction or (iv) a purchase from a stockholder of a Founding Company (subject to compliance with any contractual restrictions or securities law restrictions applicable thereto specified in Section 15 hereof). 5.35 NO COMMITMENT TO DISPOSE OF AMPAM STOCK. No Stockholder is under any binding commitment or contract to sell, exchange or otherwise dispose of shares of AmPaM Stock or AmPaM Notes received pursuant to this Agreement. 5.36 DISCLOSURE. The completed Director and Officer Questionnaires with respect to such Stockholder (if any), the completed investor questionnaire furnished to AmPaM by such Stockholder in connection with the proposed acquisition by such Stockholder of AmPaM Stock and AmPaM Notes and any other information provided to AmPaM in writing by such Stockholder relating specifically to such Stockholder for inclusion in the Private Placement Memorandum do not contain an untrue statement of a material fact concerning such Stockholder or omit to state a material fact concerning such Stockholder necessary to make the statements herein and therein, in light of the circumstances under which they were made, not misleading. 6. REPRESENTATIONS OF AmPaM Except as otherwise qualified below, AmPaM represents and warrants that all of the following representations and warranties in this Section 6 are true at the date of this Agreement and, subject to Section 7.7 hereof, shall be true at the time of Closing, and that such representations and warranties shall survive the Closing Date for a period of eighteen months (the last day of such period being the "Expiration Date" for purposes of the representations and warranties set forth in this Section 6), except that the representations and warranties set forth in Section 6.3, 6.11 and 6.15 shall survive until such time as the applicable statute of limitations period has run, which shall be deemed to be the Expiration Date for the representations and warranties set forth in Sections 6.3, 6.11 and 6.15. AmPaM acknowledges that in purchasing the shares of Company Stock, it is relying upon its own independent investigation as well as the representations and warranties of the Company and the Stockholders as set forth in this Agreement. 23 32 6.1 DUE ORGANIZATION. AmPaM is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of Delaware, and has the requisite power and authority to carry on its business as it is now being conducted and as contemplated by the Private Placement Memorandum. AmPaM is duly qualified or authorized to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or authorization necessary, except where the failure to be so qualified or authorized to do business would not have a Material Adverse Effect. True, complete and correct copies of the Certificate of Incorporation and By-laws, each as proposed to be amended and as such documents shall be in effect as of the Closing Date, of AmPaM (the "AmPaM Charter Documents") are attached hereto as Annex II. 6.2 AUTHORIZATION. (i) The officers of AmPaM executing this Agreement have the authority to enter into and bind AmPaM to the terms of this Agreement and (ii) AmPaM has the full legal right, power and authority to enter into this Agreement and consummate the transactions contemplated hereby. All corporate acts and other proceedings required to have been taken by AmPaM to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and properly taken. 6.3 CAPITAL STOCK OF AmPaM. The authorized capital stock of AmPaM is as set forth in Section 1.3(ii). Immediately prior to the Closing Date, all of the issued and outstanding shares of the capital stock of AmPaM will be as set forth in the Private Placement Memorandum, free and clear of all liens, security interests, pledges, charges, voting trusts, restrictions, encumbrances and claims of every kind other than any restrictions described in the Private Placement Memorandum. All of the issued and outstanding shares of the capital stock of AmPaM have been duly authorized and validly issued, are fully paid and nonassessable and such shares were offered, issued, sold and delivered by AmPaM in compliance with all applicable state and Federal laws concerning the issuance of securities. Further, none of such shares were issued in violation of the preemptive rights of any past or present stockholder of AmPaM. Upon the Closing Date, the authorized, issued and outstanding shares of capital stock of AmPaM will be as set forth in the Private Placement Memorandum under the caption "Capitalization." Upon the Closing Date, the aggregate number of shares of AmPaM Stock issued and outstanding on the Closing Date that are owned by Sterling City Capital, LLC, any Affiliates of Sterling City Capital, LLC and the officers and directors of AmPaM will not be greater than the number of shares of AmPaM Stock reflected in the Private Placement Memorandum as the aggregate number of shares of AmPaM Stock to be issued and outstanding and owned by Sterling City Capital, LLC, any Affiliates of Sterling City Capital, LLC and the officers and directors of AmPaM. 6.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements, except for the arrangements to contribute AmPaM Stock to a deferred stock compensation plan for the benefit of certain employees as described in Annex I hereto, and except as set forth in the Private Placement Memorandum, (i) no option, warrant, call, conversion right or commitment of any kind exists as of the date of this Agreement which obligates AmPaM to issue any of its authorized but unissued capital stock; and (ii) AmPaM has no obligation (contingent or otherwise) to purchase, redeem or 24 33 otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof. The material terms of any options, warrants or other rights to acquire shares of the stock of AmPaM referred to in the preceding sentence will be as described in the Private Placement Memorandum. 6.5 SUBSIDIARIES. As of the date of this Agreement, AmPaM has no subsidiaries. As of the date of this Agreement, AmPaM does not own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity, and AmPaM is not, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. 6.6 FINANCIAL STATEMENTS. The historical financial statements of AmPaM included in the Private Placement Memorandum (the "AmPaM Financial Statements") have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except as noted thereon), and the balance sheet included therein presents fairly the financial position of AmPaM as of its date. Management of AmPaM believes that the assumptions underlying the pro forma adjustments utilized in the preparation of such pro forma financial statements are reasonable, and such pro forma adjustments have been properly applied to the historical financial amounts in the compilation of the pro forma financial statements. Based on the representations in Section 5.9 of this Agreement and in Section 5.9 of each of the Other Agreements, the pro forma financial information of AmPaM fairly presents the pro forma financial position, results of operations and other information purported to be shown therein at the respective dates and for the respective periods specified. 6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Private Placement Memorandum, as of the date of this Agreement, AmPaM has no material liabilities or obligations of any kind, character or description, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than liabilities incurred in the ordinary course of business and consistent with past practices, liabilities or obligations set forth in or contemplated by this Agreement and the Other Agreements and except for fees incurred in connection with the transactions contemplated hereby and thereby. 6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the Private Placement Memorandum, AmPaM is not in violation of any law or regulation or any order of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it and its stockholders and, there are no claims, actions, suits or proceedings, pending or, to the knowledge of AmPaM, threatened against or affecting, AmPaM, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it and no notice of any claim, action, suit or proceeding, whether pending or threatened, has been received. AmPaM has conducted and is conducting its businesses in compliance in all material respects with the requirements, standards, criteria and conditions set forth in applicable Federal, state 25 34 and local statutes, ordinances, permits, licenses, orders, approvals, variances, rules and regulations and is not in violation, in any material respect, of any of the foregoing. 6.9 NO VIOLATIONS. (a) AmPaM is not in violation of any AmPaM Charter Document. AmPaM is not in default under any lease, instrument, agreement, license, or permit to which AmPaM is a party or by which AmPaM or any of its properties are bound (collectively, the "AmPaM Documents"). (b) The execution and delivery of this Agreement by AmPaM do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of AmPaM under any of the terms, conditions or provisions of (i) the AmPaM Charter Documents, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to AmPaM or any of its properties or assets, or (iii) any AmPaM Document; provided that the representations and warranties specified in clause (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. The consummation by AmPaM of the transactions contemplated hereby will not result in any material violation, conflict, breach, right of termination or acceleration or creation of liens under any of the terms, conditions or provisions of the items described in clauses (i) through (iii) of the preceding sentence, subject, in the case of the terms, conditions or provisions of the items described in clause (iii) above, to obtaining (prior to the Closing Date) (x) such approvals, consents or orders from the SEC, state blue sky authorities and authorities administering the Hart-Scott Act and (y) such other consents as may be required from commercial lenders, lessors or other third parties which are listed on Schedule 6.9. (c) Except for (i) any filings to be made with the SEC pursuant to the 1933 Act and filings with various state securities authorities in connection with the transactions contemplated by this Agreement, and (ii) any filings required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, none of the AmPaM Documents requires notice to, or the consent or approval of, any governmental agency or other third party with respect to the consummation by AmPaM of any of the transactions contemplated hereby in order to remain in full force and effect, and consummation by AmPaM of the transactions contemplated hereby will not give rise to any right to termination, cancellation or acceleration or loss of any material right or benefit under the AmPaM Documents; provided that the representations and warranties specified in clauses (i) and (ii) of this sentence (A) are based on information in the investor questionnaires and 26 35 related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. (d) Except for (i) any filings with the SEC pursuant to the 1933 Act and filings with various state securities authorities in connection with the transactions contemplated by this Agreement and (ii) any filings required under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by AmPaM or the consummation by AmPaM of the transactions contemplated hereby; provided that the representations and warranties specified in clauses (i) and (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. 6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement by AmPaM and the performance of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of AmPaM and this Agreement has been duly and validly authorized by all necessary corporate action and is a legal, valid and binding obligation of AmPaM, enforceable against AmPaM in accordance with its terms. 6.11 AmPaM STOCK. At the time of issuance thereof and delivery to the Stockholders, the AmPaM Stock to be delivered to the Stockholders pursuant to this Agreement will constitute valid, duly authorized and legally issued shares of AmPaM, fully paid and nonassessable, and with the exception of restrictions upon resale set forth in Sections 15 and 16 hereof, will be identical in all substantive respects (which do not include the form of certificate upon which it is printed or the presence or absence of a CUSIP number on any such certificate) to the AmPaM Stock issued and outstanding as of the date hereof, other than the Restricted Common Stock. The AmPaM Stock issued and delivered to the Stockholders shall at the time of such issuance and delivery be free and clear of any liens, claims or encumbrances of any kind or character. The offer and sale of the shares of AmPaM Stock to be issued to the Stockholders pursuant to this Agreement are not required to be registered under the 1933 Act; provided that the representations and warranties specified in this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the 27 36 stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. 6.12 AmPaM NOTES. The AmPaM Notes have been duly authorized and, at the Closing Date, will have been duly executed by AmPaM and, when authenticated, issued and delivered, will constitute valid and binding obligations of AmPaM, enforceable against AmPaM in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers) reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). 6.13 NO SIDE AGREEMENTS. AmPaM has not entered into any agreement with any of the Founding Companies or any of the Stockholders of the Founding Companies other than this Agreement, the Other Agreements, the agreements referred to in this Agreement and in the Other Agreements and the Private Placement Memorandum. AmPaM has not entered into any agreements providing for rights to register shares of AmPaM Stock under the 1933 Act except as provided in Section 17 of this Agreement, in Section 17 of the Other Agreements and in an agreement with Sterling City Capital, LLC, its Affiliates and officers and directors of AmPaM having terms substantially similar to those set forth in Section 17 hereof. 6.14 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. AmPaM was formed in June 1998 and has conducted no material business since the date of its inception except for activities related to the transaction contemplated by this Agreement, the Other Agreements and the Private Placement Memorandum. Except as described in the Private Placement Memorandum, as of the date of this Agreement, AmPaM does not own any real property or any material personal property and is not a party to any other material agreement other than this Agreement, the Other Agreements and the agreements contemplated hereby and thereby. 6.15 RELATIONS WITH GOVERNMENTS. Neither AmPaM nor any of its directors, officers or Affiliates has given or offered anything of value to any government official, political party or candidate for government office, nor has AmPaM, any of its directors, officers or Affiliates of any of them otherwise taken any action, which would cause AmPaM to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. 28 37 6.16 DISCLOSURE. The Private Placement Memorandum delivered to the Company and the Stockholders does not as of the date hereof contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing does not apply to statements contained in or omitted from any of such documents made or omitted in reliance upon, and in conformity with, information furnished to AmPaM by the Company or the Stockholders in writing specifically for inclusion in the Private Placement Memorandum. 6.17 OTHER AGREEMENTS. The Other Agreements have been duly authorized, executed and delivered by AmPaM and constitute the legal, valid and binding obligation of AmPaM enforceable against AmPaM in accordance with their respective terms. The terms and conditions of the Other Agreements (excluding the terms relating to the consideration payable by AmPaM thereunder) are identical in all material respects to the terms and conditions in this Agreement. 7. COVENANTS PRIOR TO CLOSING 7.1 ACCESS AND COOPERATION; DUE DILIGENCE; TRANSFER OF REAL ESTATE. (a) Between the date of this Agreement and the Closing Date, the Company will afford to the officers and authorized representatives of AmPaM reasonable access during normal business hours to all of the Company's sites, properties, books and records and will furnish AmPaM with such additional financial and operating data and other information as to the business and properties of the Company as AmPaM may from time to time reasonably request. The Company will cooperate with AmPaM, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. AmPaM, the Stockholders and the Company will treat all information obtained in connection with the negotiation and performance of this Agreement or the due diligence investigations conducted with respect to the Company as confidential in accordance with the provisions of Section 14 hereof. (b) Between the date of this Agreement and the Closing Date, AmPaM will afford to the officers and authorized representatives of the Company access to all of AmPaM's sites, properties, books and records and will furnish the Company with such additional financial and operating data and other information as to the business and properties of AmPaM and the Other Founding Companies as the Company may from time to time reasonably request. AmPaM will cooperate with the Company, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. The Company will cause all information obtained pursuant to this Section 7.1(b) or obtained in connection with the negotiation and performance of this Agreement to be treated as confidential in accordance with the provisions of Section 14 hereof. (c) Except as set forth on Schedule 7.1, any real property owned by the Company will be sold or distributed by the Company on terms mutually acceptable to AmPaM and the Company 29 38 and leased back by the Company on terms no less favorable to the Company than those available from an unaffiliated party and otherwise reasonably acceptable to AmPaM at or prior to the Closing Date. 7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this Agreement and the Closing Date, the Company will, except as set forth on Schedule 7.2: (i) carry on its businesses in the Ordinary Course of Business and not introduce any material new method of management, operation or accounting; (ii) use all commercially reasonable efforts to maintain its properties and facilities, including those held under leases, in as good working order and condition as at present, ordinary wear and tear, depreciation and insured losses excepted; (iii) perform in all material respects all of its obligations under all Material Documents relating to or affecting its respective assets, properties or rights; (iv) use its commercially reasonable efforts to keep in full force and effect present insurance policies or other comparable insurance coverage; (v) use its commercially reasonable efforts to maintain and preserve its business organization intact, retain its respective present key employees and maintain its relationships with suppliers, customers and others having business relations with the Company; (vi) use its commercially reasonable efforts to maintain compliance with all material permits, laws, rules and regulations, consent orders, and all other orders of applicable courts, regulatory agencies and similar governmental authorities; (vii) maintain present debt and lease instruments in accordance with their terms and not enter into new or amended debt or lease instruments without the knowledge and consent of AmPaM (which consent shall not be unreasonably withheld), provided that debt and/or lease instruments may be replaced without the consent of AmPaM if such replacement instruments are on terms at least as favorable to the Company as the instruments being replaced; (viii) maintain or reduce present salaries and commission levels for all officers, directors, employees and agents except for ordinary and customary bonus and salary increases for employees in accordance with past practices; and (ix) use commercially reasonable efforts to cause the actual amount of its Current Assets (as defined in Annex I hereto) to be not less than 150% of the actual amount of its Current Liabilities (as defined in Annex I hereto). 30 39 7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between the date hereof and the Closing Date, the Company will not, without prior written consent of AmPaM: (i) make any change in its Charter Documents; (ii) issue any securities, options, warrants, calls, conversion rights or commitments relating to its securities of any kind other than in connection with the exercise of options or warrants listed in Schedule 5.4; (iii) except as permitted pursuant to the terms and conditions for distributions described in Annex I, declare or pay any dividend, or make any distribution in respect of its stock whether now or hereafter outstanding, or purchase, redeem or otherwise acquire or retire for value any shares of its stock; (iv) enter into any contract or commitment or incur or agree to incur any liability or make any capital expenditures, except if it is in the Ordinary Course of Business or involves an amount not in excess of three percent (3%) of the Company's gross revenues for fiscal 1997; (v) create, assume or permit to exist any mortgage, pledge or other lien or encumbrance upon any assets or properties whether now owned or hereafter acquired, except (1) with respect to purchase money liens incurred in connection with the acquisition of equipment with an aggregate cost not in excess of three percent (3%) of the Company's gross revenues for fiscal 1997 necessary or desirable for the conduct of the businesses of the Company, (2) (A) liens for taxes either not yet due or being contested in good faith and by appropriate proceedings (and for which contested taxes adequate reserves have been established and are being maintained) or (B) materialmen's, mechanics', workers', repairmen's, employees' or other like liens arising in the Ordinary Course of Business (the liens set forth in clause (2) being referred to herein as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or Schedule 5.15 hereto; (vi) sell, assign, lease or otherwise transfer or dispose of any property or equipment except in the Ordinary Course of Business and other than distributions of real estate and other assets as permitted in this Agreement (including Annex I hereto); (vii) negotiate for the acquisition of any business or the start-up of any new business; (viii) merge or consolidate or agree to merge or consolidate with or into any other corporation; 31 40 (ix) waive any material rights or claims of the Company, provided that the Company may negotiate and adjust bills and accounts in the course of good faith disputes with customers in a manner consistent with past practice; (x) amend or terminate any Material Document except for the termination of a Material Document in accordance with its terms without any action on the part of the Company; or (xi) enter into any other material transaction outside the Ordinary Course of Business or any transaction prohibited hereunder. 7.4 NO SHOP. None of the Stockholders, the Company, nor any agent, officer, director, trustee or any representative of any of the foregoing will, during the period commencing on the date of this Agreement and ending with the earlier to occur of the Closing Date or the termination of this Agreement in accordance with its terms, directly or indirectly: (i) solicit or initiate the submission of proposals or offers from any person for, (ii) participate in any discussions pertaining to, or (iii) furnish any information to any person other than AmPaM or its authorized agents relating to, any acquisition or purchase of all or a material amount of the assets of, or any equity interest in, the Company or a merger, consolidation or business combination of the Company. 7.5 AGREEMENTS. Except as disclosed on Schedule 7.5(a), the Stockholders and the Company shall terminate (i) any stockholders agreements, voting agreements, voting trusts, agreements providing for the grant by the Company of any options, warrants and employment agreements between the Company and any employee listed on Schedule 8.11 hereto and (ii) except as otherwise provided in this Agreement, any existing agreement between the Company and any Stockholder, on or prior to the Closing Date provided that nothing herein shall prohibit or prevent the Company from paying (either prior to or on the Closing Date) notes or other obligations from the Company to the Stockholders described in Schedule 7.5(b) in accordance with the terms thereof. 7.6 NOTIFICATION OF CERTAIN MATTERS. Each Stockholder and the Company shall give prompt notice to AmPaM upon obtaining knowledge of (i) the occurrence or non-occurrence of any event the occurrence or nonoccurrence of which would be likely to cause any representation or warranty of the Company or such Stockholder contained herein to be untrue or inaccurate in any material respect at or prior to the Closing and (ii) any material failure of such Stockholder or the Company to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by such person hereunder. AmPaM shall give prompt notice to the Company of (i) the occurrence or non-occurrence of any event the occurrence or non-occurrence of which would be likely to cause any representation or warranty of AmPaM contained herein to be untrue or inaccurate 32 41 in any material respect at or prior to the Closing, (ii) any material failure of AmPaM to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; (iii) any termination of any Other Agreement for any reason; and (iv) the issuance by the SEC or any state securities regulatory authority of any issuance of or threatened issuance of any order challenging the availability of an exemption from registration or suspending the qualification of any securities described in the Private Placement Memorandum for sale in any jurisdiction. However, subject to the provisions of Section 7.7, such notification shall not relieve either the Company or such Stockholder of their respective obligations under this Agreement. The delivery of any notice pursuant to this Section 7.6 shall not be deemed to (i) modify the representations or warranties hereunder of the party delivering such notice, which modification may only be made pursuant to Section 7.7, (ii) modify the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect the remedies available hereunder to the party receiving such notice. 7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to the representations and warranties of such party contained in this Agreement, such party shall have the continuing obligation until 24 hours prior to the Closing Date to notify AmPaM with respect to any matter (i) hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or described in the Schedules or (ii) which may have been omitted from the Schedules previously provided by such party. Notwithstanding the foregoing sentence, no amendment or supplement to a Schedule prepared by the Company may be made unless AmPaM consents to such amendment or supplement; and provided further, that no amendment or supplement to a Schedule prepared by AmPaM may be made unless the Stockholders consent to such amendment or supplement. For all purposes of this Agreement, including without limitation for purposes of determining whether the conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules hereto, as amended or supplemented with the consent of AmPaM or the Stockholders, as the case may be, as provided above, shall be deemed to be the Schedules to this Agreement. 7.8 FURTHER ASSURANCES. The parties hereto agree to execute and deliver, or cause to be executed and delivered, such further instruments or documents or take such other action as may be reasonably necessary or appropriate to carry out the transactions contemplated hereby and to cause the conditions to the Closing Date to be satisfied as promptly as practicable. 7.9 AUTHORIZED CAPITAL. Prior to the Closing Date, AmPaM shall maintain its authorized capital stock as set forth in the Private Placement Memorandum. 7.10 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this Agreement hereby recognize that one or more filings under the Hart-Scott Act may be required in connection with the transactions contemplated herein. If it is determined by the parties to this Agreement that filings under the Hart-Scott Act are required, then: (i) each of the parties hereto agrees to cooperate and use its best efforts to comply with the Hart-Scott Act and (ii) such compliance by the Stockholders and the parties agree to cooperate and use their best efforts to cause all filings required under the Hart- Scott Act to be made. If filings under the Hart-Scott Act are required, the costs and expenses thereof (including filing fees) shall be borne by AmPaM. 33 42 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY The obligations of the Stockholders and the Company with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the following conditions. As of the Closing Date, if any such applicable conditions have not been satisfied, any one or more of the Stockholders who would be entitled to receive a majority of the Aggregate Consideration (as defined herein) received by all Stockholders if the transactions contemplated hereby were consummated shall have the right to waive any condition not so satisfied. Any act or action of the Stockholders in consummating the Closing or delivering the certificates representing Company Stock as of the Closing Date shall constitute a waiver of any conditions not so satisfied. However, no such waiver shall be deemed to affect the survival of the representations and warranties of AmPaM contained in Section 6 hereof. 8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All representations and warranties of AmPaM contained in Section 6 shall be true and correct as of the Closing Date as though such representations and warranties had been made as of that time; all of the terms, covenants and conditions of this Agreement to be complied with and performed by AmPaM on or before the Closing Date shall have been duly complied with and performed in all material respects; and certificates to the foregoing effect dated the Closing Date and signed by the President or any Vice President of AmPaM shall have been delivered to the Stockholders. 8.2 SATISFACTION. All actions, proceedings, instruments and documents that are not within the control of the Company or the Stockholders and that are required to carry out this Agreement or incidental hereto shall be reasonably satisfactory to the Company, the Stockholders and their counsel. 8.3 NO LITIGATION. No action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock. 8.4 OPINION OF COUNSEL. The Company shall have received opinions from counsel for AmPaM, dated the Closing Date, addressed to the Company and the Stockholders in the form annexed hereto as Annex III. 8.5 CONSENTS AND APPROVALS. All necessary consents of and filings with any governmental authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made; any waiting periods under the Hart-Scott Act, if applicable, shall have expired or been terminated; all consents and approvals of third parties listed on Schedule 6.9 shall have been obtained; and no action or proceeding shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock and no governmental agency or body shall have taken any other action or made any request of Company as a result of which Company deems it inadvisable to proceed with the transactions hereunder. 34 43 8.6 GOOD STANDING CERTIFICATES. AmPaM shall have delivered to the Company a certificate, dated as of a date no later than ten days prior to the Closing Date, duly issued by the Delaware Secretary of State and in each state in which AmPaM is authorized to do business, showing that AmPaM is in good standing and authorized to do business and that all state franchise and/or income tax returns and taxes for AmPaM for all periods prior to the Closing have been filed and paid. 8.7 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have occurred which would constitute a Material Adverse Change with respect to AmPaM from the date of the Private Placement Memorandum. 8.8 SECRETARY'S CERTIFICATE. The Company shall have received a certificate or certificates, dated the Closing Date and signed by the secretary of AmPaM, certifying the truth and correctness of attached copies of AmPaM's Certificate of Incorporation (including amendments thereto), By-Laws (including amendments thereto), and resolutions of the board of directors and, if required, the stockholders of AmPaM approving AmPaM's entering into this Agreement and the Other Agreements and the consummation of the transactions contemplated hereby and thereby. 8.9 TAX MATTERS. The Stockholders shall have received an opinion of Andrews & Kurth L.L.P., in substantially the form of Annex IV hereto, that the AmPaM Plan of Organization will qualify as a tax-free transfer of property under Section 351 of the Code and that the Stockholders will not recognize gain to the extent the Stockholders exchange Company Stock for AmPaM Stock (but not cash or other property) pursuant to this Agreement in connection with the AmPaM Plan of Organization. 8.10 OTHER FOUNDING COMPANIES. The transactions contemplated by the Other Agreements are consummated simultaneously with the consummation of the transactions contemplated by this Agreement. 8.11 COMPANY RELEASE OF STOCKHOLDERS. The Company shall have delivered to the Stockholders an instrument dated the Closing Date, in form reasonably satisfactory to AmPaM and the Stockholders, which shall be effective only upon the occurrence of the Closing Date, releasing the Stockholders from (i) any and all claims of the Company against the Stockholders, known and unknown, and (ii) obligations of the Stockholders to the Company, except for (x) items specifically identified on Schedule 5.10(a) and Schedule 5.15(b) as being claims of or obligations to the Company and (y) continuing obligations to the Company relating to their employment by the Company pursuant to any employment agreement entered into pursuant to Section 8.11 hereof. 8.12 STERLING CITY CAPITAL TRANSFER RESTRICTIONS. Sterling City Capital, LLC and each of its Affiliates which owns AmPaM Stock shall have entered into an agreement with AmPaM containing substantially the same terms and conditions as are contained in Section 15 and Section 17. 35 44 8.13 ELECTION OF CHIEF EXECUTIVE OFFICER. AmPaM shall have taken all corporate action necessary to elect Robert A. Christianson as Chief Executive Officer of AmPaM effective immediately following the Closing Date. 8.14 FUNDING AVAILABILITY. AmPaM shall have entered into binding agreements with financial institutions, lenders or investors that provide AmPaM with sufficient funds to pay (i) the cash amounts specified in Annex I hereto as payable to the Stockholders upon the Closing and (ii) the aggregate cash amounts specified in Annex I to each of the Other Agreements as payable to the stockholders of the Other Founding Companies upon the Closing; and all conditions to the funding of the cash amounts necessary to make such payments specified in the agreements related to such financing arrangements, other than the closing of the transactions contemplated by this Agreement and the Other Agreements, shall have been satisfied as of the Closing Date. 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF AmPaM The obligations of AmPaM with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the following conditions. As of the Closing Date, if any such conditions have not been satisfied, AmPaM shall have the right to terminate this Agreement, or waive any such condition, but no such waiver shall be deemed to affect the survival of the representations and warranties contained in Section 5 hereof. 9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS. All the representations and warranties of the Stockholders and the Company contained in this Agreement shall be true and correct as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date; all of the terms, covenants and conditions of this Agreement to be complied with or performed by the Stockholders and the Company on or before the Closing Date shall have been duly performed or complied with in all material respects; and the Stockholders shall have delivered to AmPaM certificates dated the Closing Date and signed by them to such effect. 9.2 NO LITIGATION. No action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock. 9.3 SECRETARY'S CERTIFICATE. AmPaM shall have received a certificate, dated the Closing Date and signed by the secretary of the Company, certifying the truth and correctness of attached copies of the Company's Articles or Certificate of Incorporation (including amendments thereto), By-Laws (including amendments thereto), and resolutions of the board of directors and the Stockholders approving the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby. 36 45 9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have occurred with respect to the Company which would constitute a Material Adverse Effect, and the Company shall not have suffered any material loss or damages to any of its properties or assets, whether or not covered by insurance, which change, loss or damage materially affects or impairs the ability of the Company to conduct its business. 9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to AmPaM an instrument dated the Closing Date which shall be effective only upon the occurrence of the Closing releasing the Company and AmPaM from (i) any and all claims of the Stockholders against the Company and AmPaM and (ii) obligations of the Company and AmPaM to the Stockholders, except for (A) items specifically identified on Schedule 5.31 as being claims of or obligations to the Stockholders, (B) continuing obligations to Stockholders relating to their employment by the Company pursuant to employment agreements entered into as specified in Section 8.11 hereof, (C) obligations arising under this Agreement or the transactions contemplated hereby and (D) claims of Stockholders against the Company for unreimbursed business expenses incurred by the Stockholders on behalf of the Company (other than expenses related to the transactions contemplated by this Agreement) prior to the Closing Date or unreimbursed medical expenses of the Stockholders incurred prior to the Closing Date which are covered by the Company's existing health insurance coverage. In the event that the Closing Date does not occur, then the release instrument referenced herein shall be void and of no further force or effect. 9.6 SATISFACTION. All actions, proceedings, instruments and documents that are not within the control of AmPaM and that are required to carry out the transactions contemplated by this Agreement or incidental hereto shall have been reasonably approved by counsel to AmPaM. 9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on Schedule 9.7, all existing agreements between the Company and the Stockholders (and between the Company and entities controlled by the Stockholders) specified on Schedule 5.31 shall have been terminated effective prior to or as of the Closing Date without any payment being made by the Company other than payments made for services rendered, materials provided or other benefits provided to the Company prior to the Closing Date pursuant to the terms of such agreements as in effect as of the date of this Agreement. 9.8 OPINION OF COUNSEL. AmPaM shall have received opinions from counsel to the Company and the Stockholders, dated the Closing Date, substantially in the form annexed hereto as Annex V. 9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any governmental authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made; any waiting periods under the Hart-Scott Act, if applicable, shall have expired or been terminated; all consents and approvals of third parties listed on Schedule 5.23(b)(2) shall have been obtained; and no action or proceeding shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock and no 37 46 governmental agency or body shall have taken any other action or made any request of AmPaM as a result of which AmPaM deems it inadvisable to proceed with the transactions hereunder. 9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to AmPaM a certificate, dated as of a date no earlier than ten days prior to the Closing Date, duly issued by the appropriate governmental authority in the Company's state of incorporation and, unless waived by AmPaM, in each state in which the Company is authorized to do business, showing the Company is in good standing and authorized to do business and that all state franchise and/or income tax returns and taxes for the Company for all periods prior to the Closing have been filed and paid. 9.11 FUNDING AVAILABILITY. AmPaM shall have entered into binding agreements with financial institutions, lenders or investors that provide AmPaM with sufficient funds to pay (i) the cash amounts specified in Annex I hereto as payable to the Stockholders upon the Closing and (ii) the aggregate cash amounts specified in Annex I to each of the Other Agreements as payable to the stockholders of the Other Founding Companies upon the Closing; and all conditions to the funding of the cash amounts necessary to make such payments specified in the agreements related to such financing arrangements, other than the closing of the transactions contemplated by this Agreement and the Other Agreements, shall have been satisfied as of the Closing Date. 9.12 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to AmPaM a certificate to the effect that he is not a foreign person pursuant to Section 1.1445-2(b) of the Treasury regulations. 9.13 RESIGNATIONS OF DIRECTORS AND OFFICERS. Any directors of the Company, other than those identified on Schedule 2.1, shall have resigned as directors of the Company. Any officers of the Company, other than those identified on Schedule 2.2, shall have resigned as officers of the Company. 10. COVENANTS OF AMPAM AND THE STOCKHOLDERS AFTER CLOSING 10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. AmPaM shall use reasonable efforts to have the Stockholders released from any and all guarantees of the Company's indebtedness, including bond obligations, identified on Schedule 10.1. Prior to obtaining the release of such guarantees, AmPaM shall provide its guarantee of such indebtedness to the lenders thereof. In the event that AmPaM cannot obtain such releases from the lenders of any such guaranteed indebtedness identified on Schedule 10.1 on or prior to 90 days subsequent to the Closing Date, AmPaM shall promptly pay off or otherwise refinance or retire such indebtedness such that the Stockholders' personal liability shall be released. AmPaM will indemnify the Stockholders against any loss or damage suffered as a result of the personal guarantees. 38 47 10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated by this Agreement, after the Closing Date, AmPaM shall not and shall not permit any of its Subsidiaries to undertake any act that would jeopardize the tax-free status of the exchange of Company Stock for AmPaM Stock (but not cash or other property), including without limitation: (a) the retirement or reacquisition, directly or indirectly, of all or part of the AmPaM Stock issued in connection with the transactions contemplated hereby; or (b) the entering into of financial arrangements for the benefit of the Stockholders other than as described in the Private Placement Memorandum or as described in this Agreement. 10.3 PREPARATION AND FILING OF TAX RETURNS; PAYMENT OF TAXES. (a) The Company, if possible, or otherwise the Stockholders shall file or cause to be filed all income Tax Returns (federal, state, local or otherwise) of any Acquired Party for all taxable periods that end on or before the Closing Date, and shall permit AmPaM to review all such Tax Returns prior to such filings. Unless the Company is a C corporation, the Stockholders shall pay or cause to be paid all income Tax liabilities (in excess of all amounts already paid with respect thereto or properly accrued or reserved with respect thereto on the Financial Statements) with respect to the Company's operations for all periods through and including the Closing Date. (b) AmPaM shall file or cause to be filed all separate Returns of, or that include, any Acquired Party for all taxable periods ending after the Closing Date. (c) Unless required by applicable law, regulations or government proceedings, AmPaM shall not take any action, including any amendment of a Tax Return of any Acquired Party, if such action would result in additional Tax liabilities payable by any of the Stockholders for periods ending on or prior to the Closing Date. (d) Each party hereto shall, and shall cause its subsidiaries and Affiliates to, provide to each of the other parties hereto such cooperation and information as any of them reasonably may request in filing any Return, amended Return or claim for refund, determining a liability for Taxes or a right to refund of Taxes or in conducting any audit or other proceeding in respect of Taxes. Such cooperation and information shall include providing copies of all relevant portions of relevant Returns, together with relevant accompanying schedules and relevant work papers, relevant documents relating to rulings or other determinations by Taxing Authorities and relevant records concerning the ownership and Tax basis of property, which such party may possess. Each party shall make its employees reasonably available on a mutually convenient basis at its cost to provide explanation of any documents or information so provided. Subject to the preceding sentence, each party required to file Returns pursuant to this Agreement shall bear all costs of filing such Returns. 39 48 (e) Each of the Company, AmPaM and each Stockholder shall comply with the tax reporting requirements of Section 1.351-3 of the Treasury Regulations promulgated under the Code, and treat the transaction as a tax-free contribution under Section 351(a) of the Code subject to gain, if any, recognized on the receipt of cash or other property under Section 351(b) of the Code. 10.4 DIRECTORS. The persons named in the Private Placement Memorandum shall be appointed as directors and elected as officers of AmPaM, as and to the extent set forth in the Private Placement Memorandum, promptly following the Closing Date; provided, however, that the parties hereto acknowledge that if the Company consummates an IPO, the persons who will serve as directors and executive officers of AmPaM will be adjusted as appropriate for a publicly traded entity, with any such changes being subject to the approval of the majority of the Board of Directors of AmPaM. 10.5 LEGAL OPINIONS. If required by the lenders pursuant to the terms of any agreements related to financing of the cash amounts referred to in Section 9.11 hereof, the Company shall cause its counsel to deliver to such lenders, at the Closing, an opinion of counsel in substantially the form attached hereto as Annex V. 11. INDEMNIFICATION The Stockholders and AmPaM each make the following covenants that are applicable to them, respectively: 11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. (a) Each Stockholder covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement until the applicable Expiration Date (as defined in the introductory paragraph to Section 5(A)), provided that for purposes of clause (iii) below, the applicable Expiration Date shall be the date on which the applicable statute of limitations expires), from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM as a result of or arising from (i) any breach of the representations and warranties of the Company set forth herein or on the schedules attached hereto or certificates delivered pursuant to this Agreement, (ii) any breach of any covenant or agreement on the part of the Company under this Agreement, or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating solely to the Company which was based upon information provided to AmPaM or its counsel in writing by the Company specifically for inclusion in the Private Placement Memorandum and is contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact relating to the Company required to be stated therein or necessary to make the statements therein not misleading; provided, however, that no Stockholder shall be liable for any 40 49 indemnification obligation pursuant to this Section 11.1 in excess of such Stockholder's pro rata share thereof determined by reference to the aggregate value of the Base Cash Amount (as defined in Annex I of this Agreement), the principal amount of AmPaM Notes and the shares of AmPaM Stock (valued at a price of $13.00 per share) received by such Stockholder pursuant to Section I.A. of Annex I hereto (without giving effect to the adjustments provided in Sections I.B. and I.C. thereof) (giving effect to the value of such AmPaM Stock and without giving effect to such adjustments, collectively, the "Aggregate Consideration") such Stockholder would receive pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated in relation to the total Aggregate Consideration all Stockholders would receive pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated. (b) Each Stockholder covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement, from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM as a result of or arising from (i) any breach of the representations and warranties of such Stockholder set forth in Section 5(B) hereof, (ii) any breach of any covenant or agreement on the part of such Stockholder under this Agreement, or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating solely to such Stockholder which was based upon information provided to AmPaM or its counsel in writing by such Stockholder specifically for inclusion in the Private Placement Memorandum and is contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact relating solely to such Stockholder required to be stated therein or necessary to make the statements therein in light of the circumstances in which such statements were made not misleading. (c) AmPaM acknowledges and agrees that other than the representations and warranties of the Company or the Stockholders specifically contained in this Agreement, there are no representations or warranties of the Company or the Stockholders, either express or implied, with respect to the transactions contemplated by this Agreement, the Company or its assets, liabilities and business. 11.2 INDEMNIFICATION BY AmPaM. AmPaM covenants and agrees that it will indemnify, defend, protect and hold harmless the Company and the Stockholders at all times from and after the date of this Agreement until the applicable Expiration Date (as defined in the introductory paragraph of Section 6, provided that for purposes of clause (iii) below, the applicable Expiration Date shall be the date on which the applicable statute of limitations expires), from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by the Company or the Stockholders as a result of or arising from (i) any breach by AmPaM of its representations and warranties set forth herein or on the schedules attached 41 50 hereto or certificates delivered pursuant to this Agreement, (ii) any breach of any agreement on the part of AmPaM under this Agreement; or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except to the extent such is based upon an untrue statement or alleged untrue statement, or omission or alleged omission, made therein in reliance upon, and in conformity with, the representations and warranties of the Company or the Stockholders specifically contained in this Agreement or other information furnished to AmPaM by the Company or the Stockholders in writing specifically for inclusion therein. 11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the "Indemnified Party") has received notice of or has knowledge of any claim by a person not a party to this Agreement ("Third Person"), or the commencement of any action or proceeding by a Third Person, the Indemnified Party shall, as a condition precedent to a claim with respect thereto being made against any party obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying Party written notice of such claim or the commencement of such action or proceeding. Such notice shall state the nature and the basis of such claim and a reasonable estimate of the amount thereof. The Indemnifying Party shall have the right to defend and settle, at its own expense and by its own counsel reasonably satisfactory to the Indemnified Party, any such matter so long as the Indemnifying Party pursues the same in good faith and diligently, provided that the Indemnifying Party shall not settle any criminal proceeding without the written consent of the Indemnified Party. If the Indemnifying Party undertakes to defend or settle, it shall promptly notify the Indemnified Party of its intention to do so, and the Indemnified Party shall cooperate with the Indemnifying Party and its counsel in the defense thereof and in any settlement thereof. Such cooperation shall include, but shall not be limited to, furnishing the Indemnifying Party with any books, records or information reasonably requested by the Indemnifying Party that are in the Indemnified Party's possession or control. All Indemnified Parties shall use the same counsel, which shall be the counsel selected by Indemnifying Party, provided that if counsel to the Indemnifying Party shall have a conflict of interest or a conflict of interest is reasonably likely to arise that prevents counsel for the Indemnifying Party from representing such Indemnified Party, Indemnified Party shall have the right to participate in such matter through counsel of its own choosing and Indemnifying Party will reimburse the Indemnified Party for the reasonable expenses of its counsel. After the Indemnifying Party has notified the Indemnified Party of its intention to undertake to defend or settle any such asserted liability, and for so long as the Indemnifying Party diligently pursues such defense, the Indemnifying Party shall not be liable for any additional legal expenses incurred by the Indemnified Party in connection with any defense or settlement of such asserted liability, except (i) as set forth in the preceding sentence and (ii) to the extent such participation is requested by the Indemnifying Party, in which event the Indemnified Party shall be reimbursed by the Indemnifying Party for reasonable additional legal expenses and out-of-pocket expenses. If the Indemnifying Party desires to accept a final and complete settlement of any such Third Person claim and the Indemnified Party refuses to consent to such settlement, then the 42 51 Indemnifying Party's liability under this Section with respect to such Third Person claim shall be limited to the amount so offered in settlement by said Third Person. Upon agreement as to such settlement between said Third Person and the Indemnifying Party, the Indemnifying Party shall, in exchange for a complete release from the Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in such settlement. If the Indemnifying Party does not undertake to defend such matter to which the Indemnified Party is entitled to indemnification hereunder, or fails diligently to pursue such defense, the Indemnified Party may undertake such defense through counsel of its choice, at the cost and expense of the Indemnifying Party, and the Indemnified Party may settle such matter, and the Indemnifying Party shall pay the Indemnified Party for the settlement amount and any other liabilities or expenses incurred by the Indemnified Party in connection therewith, provided, however, that under no circumstances shall the Indemnified Party settle any Third Person claim without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. All settlements hereunder shall effect a complete release of the Indemnified Party, unless the Indemnified Party otherwise agrees in writing. With respect to any account, note or other receivable as to which the Stockholders have paid in full any indemnification obligation pursuant to this Section 11 as a result of a breach of the representation and warranty made pursuant to Section 5.11 or as to which a claim in respect thereof has been asserted pursuant to this Section 11 that has been applied against the Indemnification Threshold with respect to the Stockholders as a result of a breach of the representation and warranty made pursuant to Section 5.11, AmPaM shall cause the Company to assign such account, note or other receivable to the Stockholders. The parties hereto will make appropriate adjustments for insurance proceeds in determining the amount of any indemnification obligation under this Section. 11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any action seeking damages or any other form of monetary relief brought by any party to this Agreement against another party to this Agreement with respect to any provision of this Agreement, provided that, nothing herein shall be construed to limit the right of a party, in a proper case, to seek injunctive relief for a breach of this Agreement. AmPaM hereby waives, to the fullest extent permitted under applicable law, any and all other rights, claims and causes of action, known or unknown, it or any indemnified person may have against the Company or any Stockholder relating to this Agreement or the transactions pursuant to this Agreement arising under or based upon any Federal, state, local or foreign statute, law, rule, regulation or otherwise. Any indemnity payment under this Section 11 shall be treated as an adjustment to the exchange consideration for Tax purposes unless a final determination (which shall include the execution of a Form 870-AD or successor form) with respect to the Indemnified Party or any of its Affiliate causes any such payment not to be treated as an adjustment to the exchange consideration for U.S. Federal income Tax purposes. 11.5 LIMITATIONS ON INDEMNIFICATION. (a) AmPaM shall not assert any claim for indemnification under this Section 11 against the Stockholders until such time as, and solely to the extent that, the aggregate of all claims which AmPaM may have against the Stockholders shall exceed the greater of (a) 3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section 1.2 plus (ii) the value of the AmPaM Stock delivered to the Stockholders pursuant to Section 1.2 43 52 (calculated as provided in this Section 11.5) plus (iii) the principal amount of the AmPaM Notes delivered to the Stockholders pursuant to Section 1.2, or (b) $50,000 (the "Indemnification Threshold"). Stockholders shall not assert any claim for indemnification hereunder against AmPaM until such time as, and solely to the extent that, the aggregate of all claims which Stockholders may have against AmPaM shall exceed $50,000; provided, however, that this sentence shall not be applicable with respect of any failure by AmPaM to (i) deliver the consideration specified in Annex I hereto on the Closing Date upon the satisfaction, or waiver by AmPaM, of all conditions to the occurrence of the Closing Date specified in Section 9 or (ii) comply with its obligations pursuant to Section 10.1. After the $50,000 threshold for AmPaM (subject to the proviso in the preceding sentence) or the Indemnification Threshold for a Stockholder has been met, all claims must be made in $10,000 increments, which claims may be cumulated in order to meet such $10,000 thresholds. For purposes of this paragraph, the AmPaM Stock delivered to the Stockholders shall be valued at $13.00 per share. (b) No person shall be entitled to indemnification under this Section 11 if and to the extent that such person's claim for indemnification is directly or indirectly related to a breach by such person of any representation, warranty, covenant or other agreement set forth in this Agreement. No claim for indemnification against the Stockholders shall limit, diminish or change any obligation of AmPaM pursuant to Section 10.1 hereof. (c) Notwithstanding any other term of this Agreement, no Stockholder shall be liable under this Section 11 for an amount which exceeds eighty-five percent (85%) of the amount of proceeds received by such Stockholder (valued as of the Closing Date) in connection with the purchase and sale of the Company Stock. For purposes of this paragraph, the AmPaM Stock shall be valued at $13.00 per share. (d) A Stockholder may pay any indemnification obligation under Section 11 by means of the payment of cash or a combination of the payment of cash, the forgiveness of amounts owed pursuant to the AmPaM Notes and the delivery to AmPaM of shares of AmPaM Stock; provided that the percentage of the indemnification obligation satisfied by means of the delivery of shares of AmPaM Stock does not exceed the percentage of AmPaM Stock comprising the total consideration paid to such Stockholder by AmPaM to such Stockholder pursuant to Annex I. For the purpose of crediting Stockholders for payments made to AmPaM by means of delivery of shares of AmPaM Stock, the AmPaM Stock shall be valued at $13.00 per share. (e) In determining the amount of any loss, liability or expense for which any party is entitled to indemnification under this Agreement, the gross amount thereof will be reduced by any correlative insurance proceeds or other third party indemnity or reimbursement proceeds realized or to be realized by such party (or, in the case of AmPaM, by AmPaM, the Company or any subsidiary of AmPaM or the Company) and such correlative insurance proceeds or other third party indemnity or reimbursement proceeds shall be net of any insurance premium or other incremental cost or expense owed or payable to any third party which becomes due as a result of such claim. AmPaM shall use commercially reasonable efforts to pursue any available insurance coverage or other rights of indemnity or reimbursement from third parties with respect to any such loss, liability or expense. 44 53 12. TERMINATION OF AGREEMENT 12.1 TERMINATION. This Agreement may be terminated at any time prior to the Closing Date solely: (i) by mutual consent of AmPaM and the Stockholders; (ii) by the Stockholders, if the transactions contemplated by this Agreement to take place at the Closing Date shall not have been consummated by June 30, 1999, unless the failure of such transactions to be consummated is due to a breach of this Agreement by the Company or the Stockholders prior to or on the Closing Date; (iii) by AmPaM, if the transactions contemplated by this Agreement to take place at the Closing Date shall not have been consummated by June 30, 1999, unless the failure of such transactions to be consummated is due to a breach of this Agreement by AmPaM prior to or on the Closing Date; (iv) by the Stockholders, if a material breach or default shall be made by AmPaM in the observance or in the due and timely performance of any of the covenants or agreements contained herein relating to AmPaM, and the curing of such default shall not have been made (or in the reasonable judgment of such Stockholders cannot be made) on or before the Closing Date; (v) by AmPaM, if a material breach or default shall be made by the Company or the Stockholders in the observance or in the due and timely performance of any of the covenants or agreements contained herein relating to the Company or the Stockholders, and the curing of such default shall not have been made (or in the reasonable judgment of AmPaM cannot be made) on or before the Closing Date; (vi) by the Stockholders, if the conditions set forth in Section 8 hereof have not been satisfied or waived as of the Closing Date; or (vii) by AmPaM, if the conditions set forth in Section 9 hereof have not been satisfied or waived as of the Closing Date. 12.2 PROCEDURE AND EFFECT OF TERMINATION. A determination to terminate this Agreement by AmPaM pursuant to Section 12.1 shall be valid and effective only if a written notice of termination, accompanied by a certified copy of resolutions of the board of directors of AmPaM that evidence the authorization of the officer of AmPaM to deliver a written notice of termination of this Agreement pursuant to Section 12.1, is given to the Stockholders in the manner specified for notices 45 54 in this Agreement. A determination to terminate this Agreement by the Stockholders pursuant to Section 12.1 shall be valid and effective only if a written notice of termination, signed by Stockholders who would be entitled to receive a majority of the shares of AmPaM Stock specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated, is given to AmPaM in the manner specified for notices in this Agreement. Upon the giving of notice of termination of this Agreement pursuant to Section 12.1 as specified in the preceding sentence, this Agreement shall terminate, and the transactions contemplated hereby shall be abandoned, without further action by any of the parties hereto. Immediately upon any such termination, AmPaM shall deliver written notice of such termination to the Other Founding Companies. If this Agreement is terminated as provided in this Section 12, no party hereto shall have any liability or further obligation hereunder to any other party, except as provided in Section 14 and Section 18.6, provided, that, the termination of this Agreement will in no way limit any obligation or liability of any party based on or arising from a breach or default by such party with respect to any of its representations, warranties, covenants or agreements contained in this Agreement including, but not limited to, legal and audit costs and out of pocket expenses that occurred prior to such termination. 13. NONCOMPETITION 13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the prior written consent of AmPaM, for a period of two (2) years following the Closing Date, for any reason whatsoever, directly or indirectly, for themselves or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature: (i) engage, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, whether paid or unpaid, in any plumbing, piping, mechanical, heating, ventilation or air conditioning contracting, installation or services business or operation, whether for residential, commercial, industrial or governmental customers, or any ancillary contracting, installation or services business directly related thereto (such business and operations referred to herein as the "Plumbing and Mechanical Business"), within 100 miles of where the Company or any of its subsidiaries conducted business within two (2) years prior to the Closing Date (the "Territory"); (ii) call upon any person who is, at the Closing Date, within the Territory, an employee of AmPaM or any subsidiary thereof for the purpose or with the intent of enticing such employee away from or out of the employ of AmPaM or any subsidiary thereof; (iii) call upon any person or entity which is, at the Closing Date, or which has been within three (3) years prior to the Closing Date, a customer of AmPaM or any subsidiary thereof, of the Company or of any of the Other Founding Companies for the purpose of soliciting customers, orders or contracts for any Plumbing and Mechanical Business in direct competition with AmPaM within the Territory; 46 55 (iv) call upon any prospective acquisition candidate, on any Stockholder's own behalf or on behalf of any competitor in the Plumbing and Mechanical Business, which candidate, to the actual knowledge of such Stockholder after due inquiry, was called upon by AmPaM or any subsidiary thereof or for which, to the actual knowledge of such Stockholder after due inquiry, AmPaM or any subsidiary thereof made an acquisition analysis, for the purpose of acquiring such entity; or (v) disclose to any person, firm, partnership, corporation or business the names or identities of any person, firm, partnership, corporation or business which has been a customer of the Company or any of its subsidiaries within the two (2) years prior to the Closing Date for any reason or purpose whatsoever except to the extent that the Company has in the past disclosed such information to the public for valid business reasons; or (vi) testify as an expert witness in matters related to the Plumbing and Mechanical Business for an adverse party to AmPaM, the Company or any Other Founding Companies in litigation. Notwithstanding the above, the foregoing covenant shall not be deemed to prohibit any Stockholder from acquiring as a passive investment (i) not more than one percent (1%) of the capital stock of a competing business whose stock is traded on a national securities exchange, the NASDAQ Stock Market or over-the-counter, or (ii) not more than five percent (5%) of the capital stock of a competing business whose stock is not publicly traded if the Board of Directors of AmPaM consents to such acquisition. 13.2 DAMAGES. Because of the difficulty of measuring economic losses to AmPaM as a result of a breach of the foregoing covenant, and because of the immediate and irreparable damage that could be caused to AmPaM for which it would have no other adequate remedy, each Stockholder agrees that the foregoing covenant may be enforced by AmPaM in the event of breach by such Stockholder, by injunctions and restraining orders. 13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the foregoing covenants in this Section 13 impose a reasonable restraint on the Stockholders in light of the activities and business of AmPaM and the subsidiaries thereof on the date of the execution of this Agreement and the current plans of AmPaM as described in the Private Placement Memorandum. 13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant. Moreover, in the event any court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which the court deems reasonable, and the Agreement shall thereby be reformed. 47 56 13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of any Stockholder against AmPaM or any subsidiary thereof, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by AmPaM of such covenants. It is specifically agreed that the period of two (2) years stated at the beginning of this Section 13, during which the agreements and covenants of each Stockholder made in this Section 13 shall be effective, shall be computed by excluding from such computation any time during which such Stockholder is found to be in violation of any provision of this Section 13 as determined by any of (i) a written agreement to such effect executed and delivered by AmPaM and such Stockholder, (ii) a determination by an arbitration panel pursuant to an arbitration conducted pursuant to Section 18.16 hereof or (iii) a non-appealable judgment of a court of competent jurisdiction. The covenants contained in Section 13 shall not be affected by any breach of any other provision hereof by any party hereto. The covenants contained in Section 13 shall have no effect if the transactions contemplated by this Agreement are not consummated. 13.6 MATERIALITY. The Company and the Stockholders hereby agree that the covenants contained in this Section 13 are a material and substantial part of this transaction. 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION 14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they had in the past, currently have, and in the future may possibly have, access to certain confidential information of the Company, the Other Founding Companies, and/or AmPaM, such as operational policies, customer lists, and pricing and cost policies that are valuable, special and unique assets of the Company's, the Other Founding Companies' and/or AmPaM's respective businesses. The Stockholders agree that they will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, except (a) to authorized representatives of AmPaM, (b) following the Closing, such information may be disclosed by the Stockholders as is required in the course of performing their duties for AmPaM or the Company and (c) to its counsel and other advisers, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section 14.1; provided, however that (i) the foregoing disclosure prohibition shall not apply in the event that (i) such information becomes known to the public generally through no fault of the Stockholders, (ii) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (ii), the Stockholders shall, if possible, give prior written notice thereof to AmPaM and provide AmPaM with the opportunity to contest such disclosure, or (iii) the disclosing party reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party. In the event of a breach or threatened breach by any of the Stockholders of the provisions of this Section, AmPaM shall be entitled to an injunction restraining such Stockholders from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting AmPaM from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. In the event the transactions contemplated 48 57 by this Agreement are not consummated, Stockholders shall have none of the above-mentioned restrictions on their ability to disseminate confidential information with respect to the Company. 14.2 AmPaM. AmPaM recognizes and acknowledges that it had in the past and currently has access to certain confidential information of the Company, such as operational policies, customer lists, and pricing and cost policies that are valuable, special and unique assets of the Company's business. AmPaM agrees that, prior to the Closing, or if the transactions contemplated by this Agreement are not consummated, it will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, except (a) to authorized representatives of the Company, (b) to its counsel and other advisers, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section 14.2, (c) to the Other Founding Companies and their representatives pursuant to Section 7.1(b) of the Other Agreements and (d) to potential purchasers of securities of AmPaM to the extent necessary or advisable in connection with the applicable securities laws; provided, however that the foregoing disclosure prohibition shall not apply in the event that (A) such information becomes known to the public generally through no fault of AmPaM, (B) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (B), AmPaM shall, if possible, give prior written notice thereof to the Company and the Stockholders and provide the Company and the Stockholders with the opportunity to contest such disclosure, or (C) the disclosing party reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party. In the event of a breach or threatened breach by AmPaM of the provisions of this Section 14.2, the Company and the Stockholders shall be entitled to an injunction restraining AmPaM from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting the Company and the Stockholders from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. In the event the transactions contemplated by this Agreement are not consummated for any reason, AmPaM shall nevertheless remain subject to this Section 14.2, except that it shall not be permitted to make any disclosures otherwise than pursuant to clause (A), (B) or (C) above. 14.3 DAMAGES. Because of the difficulty of measuring economic losses as a result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and because of the immediate and irreparable damage that would be caused for which they would have no other adequate remedy, the parties hereto agree that, in the event of a breach by any of them of the foregoing covenants, the covenant may be enforced against the other parties by injunctions and restraining orders. 14.4 SURVIVAL. The obligations of the parties under this Article 14 shall survive the termination of this Agreement for a period of five years from the Closing Date. 49 58 14.5 RETURN OF INFORMATION. If the transactions contemplated by this Agreement are not consummated, AmPaM will return or destroy all confidential information regarding the Company. 15. TRANSFER RESTRICTIONS 15.1 TRANSFER RESTRICTIONS RELATING TO AmPaM STOCK AND AmPaM NOTES. For a period of two years from the Closing Date or, in the event that the Company completes an IPO, for a period through the second anniversary of the date of the closing of such IPO (the "Restricted Period"), no Stockholder shall (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any shares of AmPaM Stock or AmPaM Notes received by the Stockholders pursuant to this Agreement or any securities convertible into, exchangeable or exercisable for any shares of AmPaM Stock or AmPaM Notes received by such Stockholder pursuant to this Agreement, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any shares of AmPaM Stock or AmPaM Notes received by such Stockholder pursuant to this Agreement, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the AmPaM Stock or AmPaM Notes, whether any such swap or transaction is to be settled by delivery of shares of AmPaM Stock or AmPaM Notes or other securities, by the delivery or payment of cash or otherwise, except, in the case of clauses (i), (ii) or (iii) above, (A) as otherwise agreed by AmPaM, (B) for the sale of shares of AmPaM Stock, and entering into agreements relating to the sale of shares of AmPaM Stock, pursuant to Section 17 hereof, (C) for transfers to (I) immediate family members of such Stockholder who agree with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (II) trusts, limited partnerships or other estate planning entities for the benefit of such Stockholder or family members of such Stockholder which have agreed with AmPaM in writing, through action taken by the trustees, partners or other persons having authority to bind the trust, limited partnership or other estate planning entity, to be bound by the restrictions set forth in this Section 15.1, (III) any charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code which agrees with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (D) for transfers of AmPaM Stock or AmPaM Notes to AmPaM pursuant to Section 11.5(d), (E) for transfers to another Stockholder, to another person or entity who receives shares of AmPaM Stock or AmPaM Notes or AmPaM Series A Preferred Stock pursuant to the Other Agreements or to Sterling City Capital LLC or any of its Affiliates provided that (1) such transaction is exempt from the registration requirements of the 1933 Act as evidenced by the delivery to AmPaM of an opinion of counsel in form and substance reasonably satisfactory to AmPaM and (2) any such transferee agrees in writing to be bound by the restrictions set forth in this Section 15.1, (F) transfers of shares of AmPaM Notes, shares of AmPaM Stock, or grants of options to purchase shares of AmPaM Stock, by such Stockholder to employees of the Company of up to an aggregate of 15% of the shares of AmPaM Stock received by such Stockholder pursuant to this Agreement provided that (1) any such transaction is exempt from the registration requirements of the 1933 Act as evidenced by the delivery to AmPaM of an opinion of counsel in form and substance reasonably satisfactory to AmPaM and (2) any such employee agrees with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1 or (G) the sale by such Stockholder in an IPO of shares of AmPaM Stock representing not more than 10% of the Aggregate Consideration in cash; provided, 50 59 however, that in no circumstance will a Stockholder be entitled to sell shares of AmPaM Stock in an IPO to the extent that the sale of such shares by such Stockholder would result in such Stockholder receiving in excess of 45% of the Aggregate Consideration in cash; and, provided further, if AmPaM is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under Section 17.1 that the number of shares to be sold by persons other than AmPaM is greater than the number of such shares which can be offered without adversely affecting the success of the offering, AmPaM may reduce pro rata (among the Stockholders and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. During the Restricted Period, the certificates evidencing the AmPaM Stock or AmPaM Notes delivered to the Stockholders pursuant to Section 3 of this Agreement will bear a legend substantially in the form set forth below: THE [SHARES/NOTES] REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO THE TERMS OF THE ACQUISITION AGREEMENT PURSUANT TO WHICH SUCH SHARES WERE ISSUED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, PLEDGE OR OTHER DISPOSITION PRIOR TO EXPIRATION OF THE RESTRICTED PERIOD REFERRED TO IN THE ACQUISITION AGREEMENT EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH AGREEMENT. SUCH RESTRICTIONS ON TRANSFER ARE SET FORTH IN AN ACQUISITION AGREEMENT, A COPY OF WHICH IS MAINTAINED AT THE PRINCIPAL OFFICES OF THE ISSUER. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE. 15.2 TRANSFER RESTRICTIONS RELATING TO ADDITIONAL CONSIDERATION. No Stockholder shall (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any right to receive any consideration pursuant to Section II of Annex I to this Agreement (the "Additional Consideration Right") or any securities convertible into, exchangeable or exercisable for any Additional Consideration Right, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any Additional Consideration Right, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of any Additional Consideration Right, whether any such swap or transaction is to be settled by delivery of shares of AmPaM Stock or other securities, by the delivery or payment of cash or otherwise. 51 60 16. FEDERAL SECURITIES ACT REPRESENTATIONS 16.1 COMPLIANCE WITH LAW. Each Stockholder acknowledges that the shares of AmPaM Stock, the Additional Consideration Right and any AmPaM Notes to be delivered to such Stockholder pursuant to this Agreement have not been and will not be registered under the 1933 Act (except as provided in Section 17 hereof) and therefore may not be sold, assigned, exchanged, transferred, pledged or otherwise disposed of without compliance with the 1933 Act which, among other matters, would require registration under the 1933 Act unless exemption from the registration requirements is available for such transaction. The AmPaM Stock, the Additional Consideration Right and any AmPaM Notes to be acquired by each Stockholder pursuant to this Agreement is being acquired solely for such Stockholder's own account, for investment purposes only, and with no present intention of selling, assigning, exchanging, transferring, pledging, or otherwise disposing of it. Each Stockholder covenants, warrants and represents that neither the shares of AmPaM Stock, the Additional Consideration Right nor any AmPaM Notes issued to such Stockholder will be offered, sold, assigned, exchanged, pledged, transferred or otherwise disposed of except after full compliance with all of the applicable provisions of the 1933 Act and the rules and regulations of the SEC. All certificates representing the AmPaM Stock shall bear the following legend in addition to the legend required under Section 15 of this Agreement: THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE FEDERAL AND STATE SECURITIES LAWS. 16.2 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear the economic risk of an investment in the AmPaM Stock and AmPaM Notes to be acquired pursuant to this Agreement and can afford to sustain a total loss of such investment. Each Stockholder has substantial knowledge and experience in making investment decisions of this type (or is relying on qualified purchaser representatives with such knowledge and experience in making this decision), and is capable, either individually or with such purchaser representatives, of evaluating the merits and risks of this investment. Each Stockholder has had an adequate opportunity to ask questions and receive answers from the officers of AmPaM concerning any and all matters relating to the transactions described herein including, without limitation, the background and experience of the current and proposed officers and directors of AmPaM, the plans for the operations of the business of AmPaM, the business, operations and financial condition of the Founding Companies other than the Company, and any plans for additional acquisitions. Each Stockholder has asked any and all questions of the nature described in the preceding sentence and all questions have been answered to such Stockholder's satisfaction. Except as set forth on Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule 501(a) of the 1933 Act. Neither the foregoing nor any investigation made by the Stockholders referred to above shall in any way affect the representations, warranties, covenants and agreements of AmPaM made herein except to the extent that AmPaM is relying upon the representations of the Stockholders in Section 16.1 and in this Section 16.2 for purposes of AmPaM's representations and warranties in Sections 6.9, 6.11, 6.15 and 6.17 hereof as specified therein. 52 61 16.3 RELIANCE BY AmPaM. Each Stockholder acknowledges that AmPaM in relying upon the representations and covenants of such Stockholder set forth in Section 16.1 and Section 16.2 for purposes of compliance by AmPaM with Federal and state securities laws related to the issuance of AmPaM Stock pursuant to this Agreement and the Other Agreements. 17. REGISTRATION RIGHTS 17.1 PIGGYBACK REGISTRATION RIGHTS. Whenever AmPaM proposes to register any AmPaM Stock for its own or other's account under the 1933 Act for a public offering, other than (i) any shelf or other registration of shares to be used as consideration for acquisitions of additional businesses by AmPaM and (ii) registrations relating to employee benefit plans, AmPaM shall give each of the Stockholders prompt written notice of its intent to do so. Upon the written request of any of the Stockholders given within 15 calendar days after receipt of such notice, notwithstanding the provisions of Section 15 (except as specified below with respect to an IPO), AmPaM shall cause to be included in such registration all of the AmPaM Stock issued to such Stockholders pursuant to this Agreement (including any stock issued as or issuable upon the conversion or exchange of any convertible security, warrant, right or other security which is issued by AmPaM as a stock split, dividend or other distribution with respect to, or in exchange for, or in replacement of such AmPaM Stock) which any such Stockholder requests, other than shares of AmPaM Stock which may then be immediately sold under Rule 144(k) (or any similar or successor provision) promulgated under the 1933 Act, and other than shares of AmPaM Stock that have been theretofore sold by the Stockholder in accordance with the 1933 Act, provided that AmPaM shall have the right to reduce pro rata the number of shares of each selling Stockholder included in such registration to the extent that inclusion of such shares would, in the written opinion of tax counsel to AmPaM or its independent auditors, jeopardize the status of the transactions contemplated hereby and by the Private Placement Memorandum as a tax-free organization under Section 351 of the Code; provided, however, that with respect to a proposal by AmPaM to register AmPaM Stock under the 1933 Act in connection with an IPO, no Stockholder shall be permitted pursuant to this Section 17.1 to have included in such registration more shares of AmPaM Stock than permitted to be sold by such Stockholder pursuant to Section 15.1. In addition, if AmPaM is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under this Section 17.1 that the number of shares to be sold by persons other than AmPaM is greater than the number of such shares which can be offered without adversely affecting the success of the offering, AmPaM may reduce pro rata (among the Stockholders and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. If any Stockholder disapproves of the terms of the underwriting, that Stockholder may elect to withdraw therefrom by written notice to AmPaM and the managing underwriter. That Stockholder's shares of AmPaM Stock so withdrawn shall also be withdrawn from registration; provided, however, that, if by the withdrawal of such shares a greater number of shares of AmPaM 53 62 Stock held by other Stockholders may be included in such registration, then AmPaM shall offer to all other Stockholders of AmPaM the right to include additional shares in the same proportion used in effecting the above limitations. AmPaM shall not, for a period of two years following the Closing Date, grant to any other person any rights to cause AmPaM to register any securities in priority over, or in precedent to, the rights granted to the Stockholders hereunder and to the stockholders of the Other Founding Companies pursuant to Section 17 of the Other Agreements. 17.2 REGISTRATION PROCEDURES. Whenever AmPaM is required to register shares of AmPaM Stock pursuant to Section 17.1, AmPaM will, as expeditiously as possible: (i) Prepare and file with the SEC a registration statement with respect to such shares and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements or term sheets thereto, AmPaM will furnish a representative of the Stockholders with copies of all such documents proposed to be filed) as promptly as practical; (ii) Notify the Stockholders of any stop order issued or threatened by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered; (iii) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 120 days, cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the 1933 Act; and comply with the provisions of the 1933 Act applicable to it with respect to the disposition of all securities covered by such registration statement during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement or supplement to the prospectus; (iv) Furnish to each Stockholder who so requests such number of copies of such registration statement, each amendment and supplement thereto and the prospectus included in such registration statement (including each preliminary prospectus and any term sheet associated therewith), and such other documents as such Stockholder may reasonably request in order to facilitate the disposition of the relevant shares; (v) Make "generally available to its security holders" (within the meaning of Rule 158) an earnings statement satisfying the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no later than 90 days after the end of the 12-month period beginning with the first day of AmPaM's first fiscal quarter commencing after the effective date of the registration statement; 54 63 (vi) Make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible moment; (vii) If requested by the managing underwriter or underwriters, if any, or any participating Stockholder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters or any participating Stockholder, as the case may be, reasonably requests to be included therein, including, without limitation, information with respect to the number of shares of AmPaM Stock being sold by participating Stockholders to any underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any other terms of an underwritten offering of the shares of AmPaM Stock to be sold in such offering, and promptly make all required filings of such prospectus by supplement or post-effective amendment; (viii) Make available for inspection by participating Stockholders, any underwriter participating in any disposition pursuant to such registration statement, and the counsel retained by the participating Stockholders, counsel for the underwriters and any accountant or other agent retained by participating Stockholders or any such underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of AmPaM (the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause AmPaM's officers, directors and employees to supply all information reasonably requested by any such Inspectors in connection with such registration statement; provided, that records which AmPaM determines, in good faith, to be confidential and which AmPaM notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction after delivery of sufficient notice to AmPaM to enable AmPaM to contest such subpoena or order; (ix) Take all other steps reasonably necessary to effect the registration of the shares of AmPaM Stock contemplated hereby; (x) Use its best efforts to register or qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Stockholders, and to keep such registration or qualification effective during the period such registration statement is required to be kept effective, provided that AmPaM shall not be required to become subject to taxation, to qualify generally to do business or to file a general consent to service of process in any such states or jurisdictions; (xi) Cause all such shares of AmPaM Stock to be listed or included not later than the date of the first sale of shares of AmPaM Stock under such registration statement on any securities exchanges or trading systems on which similar securities issued by AmPaM are then listed or included; and 56 64 (xii) Notify each Stockholder at any time when a prospectus relating thereto is required to be delivered under the 1933 Act within the period that AmPaM is required to keep the registration statement effective of the happening of any event as a result of which the prospectus included in such registration statement (as then in effect), together with any associated term sheet, contains an untrue statement of a material fact or omits to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading, and, at the request of such Stockholder, AmPaM promptly will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of the covered shares, such prospectus will not contain an untrue statement of material fact or omit to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading. All expenses incurred in connection with the registration under this Article 17 and compliance with securities and blue sky laws (including all registration, filing, listing, escrow agent, qualification, legal, printer and accounting fees, but excluding underwriting commissions and discounts), shall be borne by AmPaM. 17.3 INDEMNIFICATION. (a) In connection with any registration under Section 17.1, AmPaM shall indemnify, to the extent permitted by law, each selling Stockholder (an "Indemnified Party") against all losses, claims, damages, liabilities and expenses arising out of or resulting from any untrue or alleged untrue statement of material fact contained or incorporated by reference in any registration statement, prospectus or preliminary prospectus or associated term sheet or any omission or alleged omission to state or incorporated by reference therein a material fact required to be stated or incorporated by reference therein or necessary to make the statements therein not misleading except insofar as the same are caused by or contained in or omitted from any information furnished in writing to AmPaM by such Indemnified Party expressly for use therein or by any Indemnified Parties' failure to deliver a copy of the registration statement or prospectus or any amendment or supplements thereto after AmPaM has furnished such Indemnified Party with a sufficient number of copies of the same. (b) In connection with any registration under Section 17.1, each selling Stockholder shall furnish to AmPaM in writing such information concerning the Stockholder and his or her proposed offering of shares as is reasonably requested by AmPaM for use in any such registration statement or prospectus and will indemnify, to the extent permitted by law, AmPaM, its directors and officers and each person who controls AmPaM (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged 56 65 untrue statement of a material fact or any omission or alleged omission to state therein a material fact required to be stated in the registration statement or prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, but only to the extent that such untrue or alleged untrue statement or omission or alleged omission is contained in or omitted from information so furnished in writing to AmPaM by such Stockholder expressly for use in the registration statement. Notwithstanding the foregoing, the liability of a Stockholder under this Section 17.3 shall be limited to an amount equal to the net proceeds actually received by such Stockholder from the sale of the relevant shares covered by the registration statement. (c) Any person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified parties' reasonable judgment, a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. Any failure to give prompt notice shall deprive a party of its right to indemnification hereunder only to the extent that such failure shall have adversely affected the indemnifying party. If the defense of any claim is assumed, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent shall not be unreasonably withheld). An indemnifying party that is not entitled or elects not, to assume the defense of a claim, will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. 17.4 UNDERWRITING AGREEMENT. In connection with each registration pursuant to Sections 17.1 covering an underwritten registered offering, (i) each participating Stockholder shall execute and deliver to AmPaM a written power of attorney instrument that (A) appoints an officer of AmPaM as such Stockholder's attorney-in-fact for purposes of executing and delivering an underwriting agreement among AmPaM, the underwriters named therein and such Stockholder specifying the terms and conditions applicable to the sale of AmPaM Stock of such Stockholder in such offering and (B) otherwise is in such form and containing such provisions as are customary in the securities business for such an arrangement in connection with an underwritten registered offering in which one or more stockholders of the issuer are participants, including a provision that authorizes the attorney-in-fact appointed by such Stockholder to execute and deliver such an underwriting agreement in the event that the net price per share to be received by such Stockholder from the sale of the shares of AmPaM Stock to be sold in such offering is not less than a price specified in such instrument and (iii) AmPaM and each participating Stockholder agree to enter into a written agreement with the managing underwriters in such form and containing such provisions as are customary in the securities business for such an arrangement between such managing underwriters and companies of AmPaM's size and investment stature, including indemnification; provided, however, that (A) such Stockholder shall be exempt and excluded from any indemnification of the managing underwriters other than with respect to information provided by such Stockholder with respect to such Stockholder to AmPaM or the managing underwriters 57 66 specifically for inclusion in any such registration statement and (B) such Stockholder shall not be obligated to enter into such an underwriting agreement in the event that the net price per share to be received by such Stockholder from the sale of shares of AmPaM Stock to be sold in such offering is less than the floor price specified in the power of attorney instrument executed and delivered to AmPaM pursuant to clause (i) above. 17.5 TRANSFER OF RIGHTS. The right to cause AmPaM to register shares of AmPaM Stock under this Agreement may be assigned to a transferee or assignee of any Stockholder to the extent that such transferee or assignee is a member of the immediate family of a Stockholder, a trust, limited partnership or other estate planning entity for the benefit of any such persons or a charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code. 17.6 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the SEC that may permit the sale of AmPaM stock to the public without registration, following an IPO AmPaM agrees to use its reasonable efforts, from and after the completion of an IPO, to: (i) make and keep public information regarding AmPaM available as those terms are understood and defined in Rule 144 under the 1933 Act beginning 90 days following the effective date of a registration statement relating to an IPO; (ii) file with the SEC in a timely manner all reports and other documents required of AmPaM under the 1933 Act and the 1934 Act at any time after it has become subject to such reporting requirements; and (iii) so long as a Stockholder owns any restricted AmPaM Stock, furnish to each Stockholder forthwith upon written request a written statement by AmPaM as to its compliance with the current public information requirements of Rule 144 (at any time from and after 90 days following the effective date of a registration statement relating to an IPO), and of the 1933 Act and the 1934 Act (any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of AmPaM, and such other reports and documents so filed as a Stockholder may reasonably request in availing itself of any rule or regulation of the SEC allowing a Stockholder to sell any such shares without registration. 18. REDEMPTION OF AmPaM STOCK 18.1 REDEMPTION TRIGGER. In the event that, within three years of the Closing Date, (i) AmPaM has not consummated an IPO and (ii) any Stockholder has not received cash (including proceeds from the public or private sale of AmPaM Stock received as consideration hereunder and the receipt of principal payments, if any, made with respect to AmPaM Notes held by such Stockholder) equal to or exceeding 50% of the Aggregate Consideration on or prior to the third anniversary of the Closing Date, such Stockholder shall have the right (the "Put Right"), but not the 58 67 obligation, commencing on the third anniversary of the Closing Date to require AmPaM to purchase a number of shares of AmPaM Stock then owned by such Stockholder, subject to the limitations set forth in Section 18.2 below. The purchase price for such redemption shall be $13.00 per share, such price to be subject to appropriate adjustment to reflect any reclassification, stock dividend, subdivision, split-up or combination of shares of AmPaM Stock after the date hereof. 18.2 MINIMUM REDEMPTION; LIMITATIONS. If the events specified in Section 18.1(i) and 18.1(ii), with Section 18.1(ii) being determined on an individual Stockholder basis, have not occurred within the time specified, AmPaM shall be obligated to purchase from each eligible Stockholder no less than 10% of the AmPaM Stock held by such Stockholder annually; provided, however, that the Stockholders shall not be entitled to exercise their Put Rights if and to the extent the Company has not achieved the Target Net Income (as defined in Annex I hereto) for the year preceding the year in which a Stockholder seeks to exercise his Put Right. The redemptions will be funded by internal cash flows or alternative financing arrangements but AmPaM's obligation to make any redemption pursuant to this Section 18 will be subject to the covenants and restrictions contained in AmPaM's then existing private or public debt or equity instruments. 18.3 NOTICE; EXERCISE. The Stockholders may exercise their Put Right by giving written notice (the "Put Notice") to AmPaM within thirty (30) days of the third anniversary of the execution hereof. If any Stockholder does not provide AmPaM with a Put Notice within such thirty-day period, the Put Right applicable to such Stockholder shall expire. The date for closing the sale of any shares of AmPaM Stock pursuant to a proper exercise of a Put Right shall in no event be earlier than 90 days after the date AmPaM receives the Put Notice. Any such closing shall be at such time of day and place as shall be mutually agreed between such holder and AmPaM. At such closing AmPaM shall make payment for the AmPaM Stock to be repurchased by wire transfer of immediately available funds to a bank account designated by such Stockholder for such purpose and such Stockholder shall deliver to AmPaM certificates, duly endorsed for transfer, representing the shares of AmPaM Stock to be purchased and sold pursuant to the exercise of such Put Right. 18.4 ADDITIONAL REDEMPTIONS. In the event AmPaM has not consummated an IPO and notwithstanding the foregoing, to the extent the Stockholders who have received greater than 50% of their Aggregate Consideration in cash wish to tender AmPaM Stock to AmPaM for purchase, AmPaM will use its commercially reasonable efforts to continue to repurchase up to 10% of the AmPaM Stock held by such Stockholder annually. 18.5 TERMINATION OF REDEMPTION OBLIGATION. Put Rights with respect to any individual Stockholder will terminate upon receipt by such Stockholder of 50% of his Aggregate Consideration in cash; such termination will not, however, limit such Stockholders ability to participate in the additional redemptions provided in Section 18.4. Notwithstanding the foregoing, all of AmPaM's redemption obligations contained in this Section 18 shall terminate on the earlier to occur of (i) an IPO, (ii) any sale of all or substantially all of AmPaM's assets in one transaction or series of transactions, (iii) any merger or consolidation which involves AmPaM and in which AmPaM is not the surviving entity or (iv) any transaction after which the shares of AmPaM Common Stock, if any, 59 68 which are then held by persons other than the holders of AmPaM Common Stock as of the Closing Date constitute 50% or more of AmPaM Common Stock outstanding as of the date of the consummation of such transaction. 19. GENERAL 19.1 COOPERATION. The Company, Stockholders and AmPaM shall each deliver or cause to be delivered to the other on the Closing Date, and at such other times and places as shall be reasonably agreed to, such additional instruments as the other may reasonably request for the purpose of carrying out this Agreement. The Company will cooperate and use its reasonable efforts to have the present officers, directors and employees of the Company cooperate with AmPaM on and after the Closing Date in furnishing information, evidence, testimony and other assistance in connection with any tax return filing obligations, actions, proceedings, arrangements or disputes of any nature with respect to matters pertaining to all periods prior to the Closing Date. 19.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties hereunder may not be assigned (except by operation of law and except as provided in Section 17.5) and shall be binding upon and shall inure to the benefit of the parties hereto, the successors of AmPaM and the Company, and the heirs, successors and legal representatives of the Stockholders. 19.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits and annexes attached hereto) and the documents delivered pursuant hereto constitute the entire agreement and understanding among the Stockholders, the Company and AmPaM and supersede any prior agreement and understanding relating to the subject matter of this Agreement. This Agreement, upon execution, constitutes a valid and binding agreement of the parties hereto enforceable in accordance with its terms and may be modified or amended only by a written instrument executed by the Stockholders, the Company and AmPaM, acting through their respective officers or trustees, duly authorized by their respective Boards of Directors. Any disclosure made on any Schedule delivered pursuant hereto shall be deemed to have been disclosed for purposes of any other Schedule required hereby, provided that the Company shall make a good faith effort to cross reference disclosure, as necessary or advisable, between related Schedules. 19.4 COUNTERPARTS. This Agreement may be executed simultaneously in two (2) or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument. A telecopied facsimile of an executed counterpart of this Agreement shall be sufficient to evidence the binding agreement of each party to the terms hereof. However, each party agrees to return to the other parties an original, duly executed counterpart of this Agreement promptly after delivery of a telecopied facsimile thereof. 60 69 19.5 BROKERS AND AGENT. Except as disclosed on Schedule 18.5, each party hereto represents and warrants that it employed no broker or agent in connection with this transaction and agrees to indemnify the other parties hereto against all loss, cost, damages or expense arising out of claims for fees or commission of brokers employed or alleged to have been employed by such indemnifying party. 19.6 EXPENSES. Whether or not the transactions herein contemplated shall be consummated, AmPaM will pay the reasonable fees, expenses and disbursements of AmPaM and its agents, representatives, accountants and counsel incurred in connection with the subject matter of this Agreement and any amendments thereto, including all costs and expenses incurred in the performance and compliance with all conditions to be performed by AmPaM under this Agreement, including the fees and expenses of Arthur Andersen LLP, Andrews & Kurth L.L.P., and any other person or entity retained by AmPaM, and the costs of preparing the Private Placement Memorandum incurred in connection with the subject matter of this Agreement and any amendments thereto. In addition, whether or not the transactions contemplated herein shall be consummated, AmPaM will pay the reasonable fees and expenses of Bracewell & Patterson LLP incurred on behalf of the Company and the Stockholders in connection with the subject matter of this Agreement. Whether or not the transactions herein contemplated shall be consummated, the Company will pay all of its costs and expenses incurred on behalf of the Company and the Stockholders in connection with the subject matter of this Agreement except that (i) the Company shall not be required to pay any of the costs, fees and expenses specified above as to which AmPaM is responsible for the payment thereof and (ii) neither the Company nor the Stockholders shall be responsible for the payment of the costs, fees and expenses incurred by or on behalf of AmPaM. Whether or not the transactions herein contemplated shall be consummated, AmPaM shall reimburse Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any of the foregoing fees, expenses and disbursements paid by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) and shall repay Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any loans or advances made by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for the purpose of providing AmPaM funds to pay any such fees, expenses and disbursements, provided that such reimbursement and loan repayment obligation shall be limited to the foregoing fees, expenses, and disbursements which are out-of-pocket expenses of AmPaM, Sterling City Capital, LLC or any person or entity which is an Affiliate thereof. Sterling City Capital, LLC shall be reimbursed by AmPaM in the form of AmPaM Notes. AmPaM retains the right, within a reasonable period following the Closing Date, to conduct an audit of the expenses for which Sterling City Capital, LLC is reimbursed. Each Stockholder shall pay all sales, use, transfer, real property transfer, recording, gains, stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in connection with the purchase and sale of the Company Stock, other than Transfer Taxes, if any, imposed by the State of Delaware. Each Stockholder shall file all necessary documentation and Returns with respect to such Transfer Taxes. In addition, each Stockholder acknowledges that he, and not the Company or AmPaM, will pay all Taxes due by him upon receipt of the consideration payable pursuant to Section 1 hereof. The Stockholders acknowledge that the risks of the transactions contemplated hereby include Tax risks, with respect to which the Stockholders are relying substantially on the opinion contemplated by Section 8.12 hereof and representations by AmPaM in this Agreement. 61 70 19.7 NOTICES. All notices of communication required or permitted hereunder shall be in writing and may be given by depositing the same in United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested, or by delivering the same in person or via a nationally recognized courier service to an officer or agent of such party. (a) If to AmPaM addressed to it at: American Plumbing & Mechanical, Inc. 515 Post Oak Blvd., Suite 450 Houston, Texas 77027 Attention: Chief Executive Officer with copies to: Thomas P. Mason Andrews & Kurth L.L.P. 4200 Chase Tower Houston, Texas 77002 (b) If to the Stockholders, addressed to them at their addresses set forth on the signature pages hereto. (c) If to the Company, addressed to it at: Bill Gehman Miller Mechanical Contractors, Inc. 1976 Airport Industrial Park Dr. Marietta, Georgia 30062 or to such other address or counsel as any party hereto shall specify pursuant to this Section 18.7 from time to time. 19.8 GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of Texas, excluding any conflicts of law, rule or principle that might refer same to the laws of another jurisdiction. 19.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations, warranties, covenants and agreements of the parties made herein and at the time of the Closing or in writing delivered pursuant to the provisions of this Agreement shall survive the consummation of the transactions contemplated hereby and any examination on behalf of the parties until the respective Expiration Dates referred to herein with respect thereto or, if no Expiration Date is applicable with respect thereto, until the expiration of all applicable statute of limitations periods. 62 71 19.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided herein, no delay of or omission in the exercise of any right, power or remedy accruing to any party as a result of any breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver. 19.11 TIME. Time is of the essence with respect to this Agreement. 19.12 REFORMATION AND SEVERABILITY. In case any provision of this Agreement shall be invalid, illegal or unenforceable, it shall, to the extent possible, be modified in such manner as to be valid, legal and enforceable but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement, and in either case the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. No provision of this Agreement shall be interpreted or construed against any party solely because that party or its legal representative drafted such provision. 19.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term of this Agreement shall be deemed exclusive but each shall be cumulative with all other rights, remedies and elections available at law or in equity. 19.14 CAPTIONS. The headings of this Agreement are inserted for convenience only, shall not constitute a part of this Agreement or be used to construe or interpret any provision hereof. 19.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived only with the written consent of AmPaM, the Company and Stockholders who would receive a majority of the Aggregate Consideration specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated. Any amendment or waiver effected in accordance with this Section 19.15 shall be binding upon each of the parties hereto, any other person receiving AmPaM Stock in connection with the purchase and sale of the Company Stock and each future holder of such AmPaM Stock. Any consent of the Stockholders who would receive a majority of the shares of the Aggregate Consideration pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated shall be deemed to be the consent of the Stockholders for purposes of provisions of this Agreement as to which a consent of the Stockholders may be requested or required. 19.16 MEDIATION AND ARBITRATION. If a dispute arises out of or relates to this Agreement, or the breach thereof, and if said dispute cannot be settled through direct discussions, the parties agree to first endeavor to settle the dispute in an amicable manner by mediation administered by the American Arbitration Association under its then prevailing Commercial Mediation Rules, before resorting to arbitration. Thereafter, any unresolved controversy or claim arising out of or relating 63 72 to this Agreement, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association in accordance with its then prevailing Commercial Arbitration Rules. The enforcement, interpretation and procedural and substantive effect of the obligation to arbitrate created by this Section 19.16 shall be governed by the Federal Arbitration Act as amended from time to time, 9 U.S.C. Section 1 et seq. The parties hereby disclaim any intention to have the substantive or procedural law of any state or other jurisdiction, other than the law of the United States as embodied in the Federal Arbitration Act, applied to such obligation. Any such mediation or arbitration proceeding will be conducted in Houston, Texas. 19.17 INFORMATION PROVIDED FOR PRIVATE PLACEMENT MEMORANDUM. For purposes of this Agreement, the information provided by the Company in writing specifically for inclusion in the Private Placement Memorandum shall include solely (i) the Financial Statements (in the form that they appear in the Private Placement Memorandum), (ii) any financial statements provided to AmPaM pursuant to Section 7.9, (iii) the description of the Company contained in the Private Placement Memorandum under the caption "The Company", (iv) the description of the Company's results of operations and its liquidity and capital resources, if any, contained in the Private Placement Memorandum under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and (v) the description, if any, of matters related to the Company contained in the Private Placement Memorandum under the caption "Certain Transactions Transactions involving Certain Officers, Directors and Stockholders". For purposes of this Agreement, the information provided by a Stockholder in writing specifically for inclusion in the Private Placement Memorandum shall include only (i) the description, if any, of matters related to such Stockholder contained in the Private Placement Memorandum under the caption "Certain Transactions - Transactions involving Certain Officers, Directors and Stockholders" and (ii) the biographical description of such Stockholder, if any, contained in the Private Placement Memorandum under the caption "Management." 19.18 EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective upon (i) the execution and delivery of this Agreement by all of the parties hereto and (ii) the delivery to AmPaM of each Employment Agreement attached hereto as Annex VI executed by each of the Company, the employees named therein and AmPaM. 64 73 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. AMERICAN PLUMBING & MECHANICAL, INC. By: /s/ DAVID BAGGETT ------------------------------------- Name: David Baggett ----------------------------------- Title: Chief Financial Officer ---------------------------------- MILLER MECHANICAL CONTRACTORS, INC. By: /s/ JOSEPH H. MILLER ------------------------------------- Joseph H. Miller President [Remainder of page intentionally left blank] 65 74 STOCKHOLDERS: SPOUSES (WITHOUT PERSONAL LIABILITY AND SOLELY TO ACKNOWLEDGE THE SALE OF THE COMPANY STOCK BY THE STOCKHOLDER): /s/ JOSEPH H. MILLER /s/ LENA R. MILLER - ------------------------------- ---------------------------------------- Joseph H. Miller Lena R. Miller 1244 Timberland Drive Marietta, Georgia 30067 /s/ JOSEPH E. MILLER /s/ ALICE M. MILLER - ------------------------------- ---------------------------------------- Joseph E. Miller Alice M. Miller 4450 Club Lake Circle Marietta, Georgia 30067 66 EX-10.10 15 ACQUISITION AGMT. - R.C.R. PLUMBING, INC. 1 EXHIBIT 10.10 Execution Copy - -------------------------------------------------------------------------------- ACQUISITION AGREEMENT dated as of the 11th day of February, 1999 by and among AMERICAN PLUMBING & MECHANICAL, INC. R.C.R. PLUMBING, INC. and all of the STOCKHOLDERS of R.C.R. PLUMBING, INC. - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page RECITALS .........................................................................................................1 1. ACQUISITION OF STOCK.....................................................................................5 1.1 Acquisition.....................................................................................5 1.2 Consideration...................................................................................5 1.3 Certain Information With Respect to the Capital Stock of the Company and AmPaM.......................................................................................5 2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY...........................................................5 2.1 Board of Directors..............................................................................5 2.2 Officers........................................................................................5 3. DELIVERY OF CONSIDERATION................................................................................6 3.1 Stockholders' Consideration.....................................................................6 3.2 Stockholders' Deliveries........................................................................6 4. CLOSING..................................................................................................6 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................6 5.1 Due Organization................................................................................7 5.2 Authorization...................................................................................7 5.3 Capital Stock of the Company....................................................................7 5.4 Transactions in Capital Stock...................................................................8 5.5 No Bonus Shares.................................................................................8 5.6 Subsidiaries; Ownership in Other Entities.......................................................8 5.7 Predecessor Status; etc.........................................................................8 5.8 Spin-off by the Company.........................................................................8 5.9 Financial Statements............................................................................8 5.10 Liabilities and Obligations.....................................................................9 5.11 Accounts and Notes Receivable..................................................................10 5.12 Licenses; Intellectual Property................................................................10 5.13 Environmental Matters..........................................................................11 5.14 Personal Property..............................................................................13 5.15 Significant Customers; Material Contracts and Commitments......................................13 5.16 Real Property..................................................................................14 5.17 Insurance......................................................................................14 5.18 Compensation; Employment Agreements; Labor Matters.............................................15 5.19 Employee Plans.................................................................................15 5.20 Compliance with ERISA..........................................................................16 5.21 Conformity with Law; Litigation................................................................17
-i- 3 5.22 Taxes..........................................................................................17 5.23 No Violations; No Consent Required, Etc........................................................18 5.24 Government Contracts...........................................................................19 5.25 Absence of Changes.............................................................................19 5.26 Deposit Accounts; Powers of Attorney...........................................................21 5.27 Validity of Obligations........................................................................21 5.28 Relations with Governments.....................................................................21 5.29 Disclosure.....................................................................................21 5.30 No Warranties or Insurance.....................................................................21 5.31 Interest in Customers and Suppliers and Related Party Transactions.............................22 5.32 Private Placement Memorandum...................................................................22 5.33 Authority; Ownership...........................................................................22 5.34 Preemptive Rights..............................................................................23 5.35 No Commitment to Dispose of AmPaM Stock........................................................23 5.36 Disclosure.....................................................................................23 6. REPRESENTATIONS OF AmPaM................................................................................23 6.1 Due Organization...............................................................................24 6.2 Authorization..................................................................................24 6.3 Capital Stock of AmPaM.........................................................................24 6.4 Transactions in Capital Stock..................................................................24 6.5 Subsidiaries...................................................................................25 6.6 Financial Statements...........................................................................25 6.7 Liabilities and Obligations....................................................................25 6.8 Conformity with Law; Litigation................................................................25 6.9 No Violations..................................................................................26 6.10 Validity of Obligations........................................................................27 6.11 AmPaM Stock....................................................................................27 6.12 AmPaM Notes....................................................................................28 6.13 No Side Agreements.............................................................................28 6.14 Business; Real Property; Material Agreements...................................................28 6.15 Relations with Governments.....................................................................28 6.16 Disclosure.....................................................................................28 6.17 Other Agreements...............................................................................29 7. COVENANTS PRIOR TO CLOSING..............................................................................29 7.1 Access and Cooperation; Due Diligence; Transfer of Real Estate.................................29 7.2 Conduct of Business Pending Closing............................................................30 7.3 Prohibited Activities..........................................................................31 7.4 No Shop........................................................................................32 7.5 Agreements.....................................................................................32 7.6 Notification of Certain Matters................................................................32 7.7 Amendment of Schedules.........................................................................33 7.8 Further Assurances.............................................................................33 7.9 Authorized Capital.............................................................................33
-ii- 4 7.10 Compliance with the Hart-Scott Act.............................................................33 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.............................................................................................34 8.1 Representations and Warranties; Performance of Obligations.....................................34 8.2 Satisfaction...................................................................................34 8.3 No Litigation..................................................................................34 8.4 Opinion of Counsel.............................................................................34 8.5 Consents and Approvals.........................................................................34 8.6 Good Standing Certificates.....................................................................35 8.7 No Material Adverse Change.....................................................................35 8.8 Secretary's Certificate........................................................................35 8.9 Tax Matters....................................................................................35 8.10 Other Founding Companies.......................................................................35 8.11 Company Release of Stockholders................................................................35 8.12 Sterling City Capital Transfer Restrictions....................................................36 8.13 Election of Class Executive Officer............................................................36 8.14 Funding Availability...........................................................................36 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF AmPaM............................................................36 9.1 Representations and Warranties; Performance and Obligations....................................36 9.2 No Litigation..................................................................................36 9.3 Secretary's Certificate........................................................................36 9.4 No Material Adverse Effect.....................................................................37 9.5 Stockholders' Release..........................................................................37 9.6 Satisfaction...................................................................................37 9.7 Termination of Related Party Agreements........................................................37 9.8 Opinion of Counsel.............................................................................37 9.9 Consents and Approvals.........................................................................38 9.10 Good Standing Certificates.....................................................................38 9.11 Funding Availability...........................................................................38 9.12 FIRPTA Certificate.............................................................................38 9.13 Resignations of Directors and Officers.........................................................38 10. COVENANTS OF AmPaM AND THE STOCKHOLDERS AFTER CLOSING...................................................38 10.1 Release From Guarantees; Repayment of Certain Obligations......................................38 10.2 Preservation of Tax and Accounting Treatment...................................................39 10.3 Preparation and Filing of Tax Returns; Payment of Taxes........................................39 10.4 Directors......................................................................................40 10.5 Legal Opinions.................................................................................40 11. INDEMNIFICATION.........................................................................................40 11.1 General Indemnification by the Stockholders....................................................40 11.2 Indemnification by AmPaM.......................................................................42 11.3 Third Person Claims............................................................................42
-iii- 5 11.4 Exclusive Remedy...............................................................................43 11.5 Limitations on Indemnification.................................................................44 12. TERMINATION OF AGREEMENT................................................................................45 12.1 Termination....................................................................................45 12.2 Procedure and Effect of Termination............................................................46 13. NONCOMPETITION..........................................................................................46 13.1 Prohibited Activities..........................................................................46 13.2 Prohibited Activities (Baker)..................................................................47 13.3 Damages........................................................................................49 13.4 Reasonable Restraint...........................................................................49 13.5 Severability; Reformation......................................................................49 13.6 Independent Covenant...........................................................................49 13.7 Materiality....................................................................................50 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...............................................................50 14.1 Stockholders...................................................................................50 14.2 AmPaM..........................................................................................50 14.3 Damages........................................................................................51 14.4 Survival.......................................................................................51 14.5 Return of Information..........................................................................51 15. TRANSFER RESTRICTIONS...................................................................................51 15.1 Transfer Restrictions Relating to AmPaM Stock and AmPaM Notes..................................51 15.2 Transfer Restrictions Relating to Additional Consideration.....................................53 16. FEDERAL SECURITIES ACT REPRESENTATIONS..................................................................53 16.1 Compliance with Law............................................................................53 16.2 Economic Risk; Sophistication..................................................................54 16.3 Reliance by AmPaM..............................................................................54 17. REGISTRATION RIGHTS.....................................................................................54 17.1 Piggyback Registration Rights..................................................................54 17.2 Registration Procedures........................................................................55 17.3 Indemnification................................................................................58 17.4 Underwriting Agreement.........................................................................59 17.5 Transfer of Rights.............................................................................59 17.6 Rule 144 Reporting.............................................................................59 18. REDEMPTION OF AmPaM STOCK...............................................................................60 18.1 Redemption Trigger.............................................................................60 18.2 Minimum Redemption; Limitations................................................................60 18.3 Notice; Exercise...............................................................................61 18.4 Additional Redemptions.........................................................................61
-iv- 6 18.5 Termination of Redemption Obligation...........................................................61 19. GENERAL.................................................................................................61 19.1 Cooperation....................................................................................61 19.2 Successors and Assigns.........................................................................62 19.3 Entire Agreement...............................................................................62 19.4 Counterparts...................................................................................62 19.5 Brokers and Agent..............................................................................62 19.6 Expenses.......................................................................................62 19.7 Notices........................................................................................63 19.8 Governing Law..................................................................................64 19.9 Survival of Representations and Warranties.....................................................64 19.10 Exercise of Rights and Remedies................................................................64 19.11 Time...........................................................................................64 19.12 Reformation and Severability...................................................................64 19.13 Remedies Cumulative............................................................................65 19.14 Captions.......................................................................................65 19.15 Amendments and Waivers.........................................................................65 19.16 Mediation and Arbitration......................................................................65 19.17 Information Provided for Private Placement Memorandum..........................................65 19.18 Effective Date of Agreement....................................................................66
-v- 7 ANNEXES Annex I - Consideration to Be Paid to Stockholders Annex II - Amended and Restated Certificate of Incorporation and By-Laws of AmPaM Annex III - Form of Opinion of Counsel to AmPaM Annex IV - Form of Tax Opinion Annex V - Form of Opinion of Counsel to Company and Stockholders -vi- 8 SCHEDULES 2.1 Board of Directors 2.2 Officers 5.1 Due Organization 5.2 Authorization 5.3 Capital Stock of the Company 5.4 Transactions in Capital Stock; Organization Accounting 5.5 No Bonus Shares 5.6 Subsidiaries; Ownership in Other Entities 5.7 Predecessor Status; etc 5.8 Spin-off by the Company 5.9 Financial Statements 5.10 Liabilities and Obligations 5.11 Accounts and Notes Receivable 5.12 Licenses; Intellectual Property (Schedules 5.12(a)(1), 5.12(a)(2), 5.12(b)(1) and 5.12(b)(2)) 5.13 Environmental Matters 5.14 Personal Property 5.15 Significant Customers; Material Contracts and Commitments (Schedules 5.15(a), 5.15(b) and 5.15 (c)) 5.16 Real Property 5.17 Insurance 5.18 Compensation; Employment Agreements; Labor Matters 5.19 Employee Plans 5.20 Compliance with ERISA 5.21 Conformity with Law; Litigation 5.22 Taxes (Schedules 5.22(a) and 5.22(b)) 5.23 No Violations, No Consents Required, Etc. (Schedules 5.23(a), 5.23(b), 5.23(c) and 5.23(e)) 5.24 Government Contracts 5.25 Absence of Changes 5.26 Deposit Accounts; Powers of Attorney 5.30 No Warranties or Insurance 5.31 Interest in Customers and Suppliers and Related Party Transactions 5.33 Authority; Ownership (Schedules 5.33(a) and 5.33(b)) 6.9 No Violations 7.1 Access and Cooperation; Due Diligence; Transfer of Real Estate 7.2 Conduct of Business Pending Closing 7.3 Prohibited Activities 7.5 Agreements 8.11 Employment Agreements 9.7 Termination of Related Party Agreements 10.1 Release From Guarantees; Repayment of Certain Obligations 16.2 Non-accredited Investors 18.5 Brokers and Agents
-vii- 9 ACQUISITION AGREEMENT THIS ACQUISITION AGREEMENT (the "Agreement") is made as of the 11th day of February, 1999 by and among AMERICAN PLUMBING & MECHANICAL, INC., a Delaware corporation ("AmPaM"), R.C.R. PLUMBING, INC., a California corporation (the "Company"), and the stockholders listed on the signature pages of this Agreement (the "Stockholders"), which are all the stockholders of the Company. RECITALS WHEREAS, the Company is engaged in the plumbing and mechanical services business; WHEREAS, as of the date hereof, the Stockholders own, and as of the Closing Date the Stockholders will own, all of the issued and outstanding capital stock of the Company (the "Company Stock"); WHEREAS, AmPaM is entering into other separate agreements simultaneously with this Agreement that are substantially the same as this Agreement (the "Other Agreements"), each of which is entitled "Acquisition Agreement," with each of the Other Founding Companies (as defined herein) and their respective stockholders in order for AmPaM to acquire additional companies engaged in the plumbing and mechanical services business; WHEREAS, this Agreement and the Other Agreements constitute the "AmPaM Plan of Organization;" WHEREAS, the Stockholders and the boards of directors and the stockholders of AmPaM, and each of the Other Founding Companies that are parties to the Other Agreements, have approved and adopted the AmPaM Plan of Organization as an integrated plan pursuant to which the Stockholders and the stockholders of each of the other Founding Companies will contribute the capital stock of each of the Founding Companies to AmPaM, and the Stockholders and the stockholders of each of the other Founding Companies will acquire the stock of AmPaM (but not cash or other property) as a tax-free transfer of property under Section 351 of the Code; WHEREAS, in consideration of the agreements of the Other Founding Companies pursuant to the Other Agreements, the Stockholders have approved this Agreement as part of the AmPaM Plan of Organization in order to transfer all of the issued and outstanding capital stock of the Company to AmPaM; and NOW, THEREFORE, in consideration of the premises and of the mutual agreements, representations, warranties, provisions and covenants herein contained, the parties hereto hereby agree as follows: 10 Unless the context otherwise requires, capitalized terms used in this Agreement or in any schedule attached hereto and not otherwise defined shall have the following meanings for all purposes of this Agreement: "1933 Act" means the Securities Act of 1933, as amended. "Acquired Party" means the Company, any subsidiary of the Company and any member of a Relevant Group. "Affiliates" means with respect to any person or entity, any other person or entity that directly or indirectly, controls, is controlled by, or is under common control with such person or entity. "AmPaM" has the meaning set forth in the first paragraph of this Agreement. "AmPaM Charter Documents" has the meaning set forth in Section 6.1. "AmPaM Plan of Organization" has the meaning set forth in the recitals of this Agreement. "AmPaM Stock" means the common stock, par value $.01 per share, of AmPaM. "AmPaM Notes" means those notes issued by AmPaM to the Stockholders as a portion of the consideration to be received hereunder and in substantially the form to Annex I as Appendix A. "Balance Sheet Date" has the meaning set forth in Section 5.9. "Charter Documents" has the meaning set forth in Section 5.1. "Closing" has the meaning set forth in Section 4. "Closing Date" has the meaning set forth in Section 4. "Code" means the Internal Revenue Code of 1986, as amended. "Company" has the meaning set forth in the first paragraph of this Agreement. "Company Stock" has the meaning set forth in the recitals of this Agreement. "Delaware GCL" means the General Corporation Law of the State of Delaware. "Environmental Laws" has the meaning set forth in Section 5.13(b). "Expiration Date" has the meaning set forth in Section 5(A) and Section 6, as applicable. 2 11 "Founding Companies" means the following companies: Christianson Enterprises, Inc., a Texas corporation; Christianson Services, Inc., a Texas corporation; GGR Leasing Corporation, a Texas corporation; J.A. Croson Company of Florida, a Florida corporation; J.A. Croson Company, an Ohio corporation; Franklin Fire Sprinkler Company, an Ohio corporation; Keith Riggs Plumbing, Inc., an Arizona corporation; Miller Mechanical Contractors, Inc., a Georgia corporation; Nelson Mechanical Contractors, Inc., a Florida corporation; Power Plumbing Inc., a Delaware corporation; R.C.R. Plumbing, Inc., a California corporation; Sherwood Mechanical, Inc., a California corporation; and Teepe's River City Mechanical, Inc., an Ohio corporation. "GAAP" means generally accepted accounting principles as consistently applied in the United States. "Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Hazardous Substance" has the meaning set forth in Section 5.13(c). "IPO" means a firm commitment underwritten initial public offering of AmPaM Stock managed by one or more nationally recognized national investment banking firms. "known" or "knowledge," when used in reference to a statement regarding the existence or absence of facts in this Agreement, is intended by the parties to mean that the only information to be attributed to such person is information actually known to (a) the person in the case of an individual, (b) in the case of a corporation or other entity other than the Company, an officer or director of such corporation or entity or (c) in the case of the Company and its Subsidiaries, an officer of the Company listed on Schedule 2.2 hereto, except for David Baggett. "Material Adverse Change" means a material adverse change in the business, operations, properties, assets or condition (financial or otherwise), of the subject entity and its subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on the business, operations, properties, assets or condition (financial or otherwise), of the subject entity and its subsidiaries taken as a whole. "Material Documents" has the meaning set forth in Section 5.23. 3 12 "Ordinary Course of Business" means the ordinary course of business consistent with past customs and practice (including with respect to quantity and frequency). "Other Agreements" has the meaning set forth in the recitals of this Agreement. "Other Founding Companies" means all of the Founding Companies other than the Company. "Plans" has the meaning set forth in Section 5.19. "Private Placement Memorandum" means the Private Placement Memorandum, dated as of February 11, 1999, provided to each Stockholder prior to the execution and delivery of this Agreement which sets forth certain information relating to the transactions contemplated by this Agreement and the Other Agreements. "Qualified Plans" has the meaning set forth in Section 5.20. "Relevant Group" means the Company and any affiliated, combined, consolidated, unitary or similar group of which the Company is or was a member. "Restricted Common Stock" has the meaning set forth in Section 1.3(ii). "Returns" means any returns, reports or statements (including any information returns) required to be filed for purposes of a particular Tax. "Schedule" means each Schedule attached hereto, which shall reference the relevant sections of this Agreement, on which parties hereto disclose information as part of their respective representations, warranties and covenants. "SEC" means the United States Securities and Exchange Commission. "State of Incorporation" means the State of California. "Stockholders" has the meaning set forth in the first paragraph of this Agreement. "Subsidiaries" means with respect to a person or entity, any corporation or other entity in which such person or entity owns a 5% or greater ownership interest. "Tax" or "Taxes" means all federal, state, local or foreign net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value added, franchise, withholding, employment, excise, property, deed, stamp, alternative or add-on minimum, or other taxes, assessments, duties, fees, levies or other governmental charges, whether disputed or not, together with any interest, penalties, additions to tax or additional amounts with respect thereto. 4 13 1. ACQUISITION OF STOCK 1.1 ACQUISITION. Upon the terms and subject to the conditions contained in this Agreement and in reliance upon the representations, warranties, covenants and agreements contained in this Agreement, on the Closing Date, the Stockholders shall convey and transfer to AmPaM all of the issued and outstanding shares of Company Stock as set forth in Annex I hereto. 1.2 CONSIDERATION. The consideration for the Company Stock shall be as set forth on Annex I to this Agreement. 1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY AND AMPAM. The respective designations and numbers of outstanding shares and voting rights of each class of outstanding capital stock of the Company and AmPaM as of the date of this Agreement are as follows: (i) as of the date of this Agreement, the authorized and outstanding Company Stock is as set forth on Schedule 5.3 hereto; and (ii) immediately prior to the Closing Date, the authorized capital stock of AmPaM will consist of (A) 100,000,000 shares of AmPaM Stock, of which the number of issued and outstanding shares will be set forth in the Private Placement Memorandum, (B) 10,000,000 shares of redeemable preferred stock, of which the number of issued and outstanding shares will be set forth in the Private Placement Memorandum, and (C) 5,000,000 shares of Restricted Voting Common Stock, $.01 per value (the "Restricted Common Stock"), all of which will be issued and outstanding except as otherwise set forth in the Private Placement Memorandum. 2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY 2.1 BOARD OF DIRECTORS. The Company and the Stockholders shall take action, including solicitation of resignation of directors, necessary so that the Board of Directors of the Company as of the Closing Date shall consist only of the persons identified on Schedule 2.1 hereto. 2.2 OFFICERS. The Company and the Stockholders shall take action, including solicitation of resignation of officers, necessary so that the officers of the Company as of the Closing Date shall consist only of the persons identified on Schedule 2.2 hereto. 5 14 3. DELIVERY OF CONSIDERATION 3.1 STOCKHOLDERS' CONSIDERATION. On the Closing Date, the Stockholders shall, upon surrender of certificates evidencing the Company Stock, receive from AmPaM the respective number of shares of AmPaM Stock, the amount of cash and the principal amount of AmPaM Notes described on Annex I hereto specified with respect to each such Stockholder as payable on the Closing Date. All payments of cash shall be made by certified check or wire transfer of immediately available funds. Consideration consisting of AmPaM Notes shall be substantially in the form of Appendix A to Annex I. 3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at the Closing the certificates representing Company Stock, duly endorsed in blank by the Stockholders, or accompanied by blank stock powers, and with all necessary transfer tax and other revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The Stockholders agree promptly to cure any deficiencies with respect to the endorsement of the stock certificates or other documents of conveyance with respect to such Company Stock or with respect to the stock powers accompanying any Company Stock. 4. CLOSING The consummation of the transactions contemplated by Section 3 (the "Closing") shall take place on March 31, 1999 or such date not later than May 31, 1999 as AmPaM shall determine by giving written notice of such other date as provided in Section 18.7 (the "Closing Date") at the offices of Andrews & Kurth L.L.P., 4200 Chase Tower, 600 Travis, Houston, Texas 77002. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY (A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in the disclosure schedules attached hereto and except as otherwise qualified below, the Company represents and warrants that all of the following representations and warranties in this Section 5(A) are true at the date of this Agreement and, subject to Section 7.7 hereto, shall be true at the time of the Closing, and that such representations and warranties shall survive the Closing Date for a period of eighteen months (the last day of such period being the "Expiration Date"), except that the representations and warranties set forth in Sections 5.3, 5.22 and 5.32 hereof shall survive until such time as the applicable statute of limitations period has run, which shall be deemed to be the Expiration Date for the representations and warranties set forth in Sections 5.3, 5.22 and 5.32. For purposes of this Section 5, the term "Company" shall mean and refer to the Company and all of its Subsidiaries, if any, and any reference to a Material Adverse Effect on the Company or Material Adverse Change with respect to the Company shall mean the Company and its Subsidiaries, taken as a whole. Except as expressly set forth in this Agreement, the Company expressly disclaims any representation or warranty (express, implied or otherwise) relating to the 6 15 Company and any Subsidiary thereof including, without limitation, any warranty of merchantability or fitness for a particular purpose. 5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of Incorporation, and has the requisite power and authority to carry on its business as it is now being conducted. The Company is duly qualified or authorized to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or authorization necessary except where the failure to be so qualified or authorized to do business would not have a Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all states in which the Company is authorized or qualified to do business, which list indicates which of such entities is authorized or qualified to do business in such states. True, complete and correct copies of the Certificate or Articles of Incorporation and By-laws, each as amended, of the Company (the "Charter Documents") are all attached to Schedule 5.1. The Company has delivered to AmPaM complete and correct copies of (i) the stock records of the Company and (ii) all minutes of meetings, written consents and other evidence, if any, of deliberations of or actions taken by the Company's Board of Directors, any committees of the Board of Directors and stockholders during the last five years. 5.2 AUTHORIZATION. (i) The officers or other representatives of the Company executing this Agreement have the authority to enter into and bind the Company to the terms of this Agreement and (ii) the Company has the full legal right, power and authority to enter into this Agreement and consummate the transactions contemplated hereby. Copies of the most recent resolutions adopted by the Board of Directors of the Company and the most recent resolutions adopted by the Stockholders, which approve this Agreement and the transactions contemplated hereby in all respects, certified by the Secretary or an Assistant Secretary of the Company as being in full force and effect on the date hereof, are attached hereto as Schedule 5.2. 5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the Company and each of its Subsidiaries is as set forth on Schedule 5.3(a). All of the issued and outstanding shares of the capital stock of the Company are owned by the Stockholders in the amounts set forth in Schedule 5.3(a). Except as set forth on Schedule 5.3(a), all of the issued and outstanding capital stock of each Subsidiary is owned by the Company. All of the issued and outstanding shares of the capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable, are owned of record by the Stockholders and further, such shares were offered, issued, sold and delivered by the Company in compliance with all applicable state and Federal laws concerning the issuance of securities. Further, none of such shares were issued in violation of any preemptive rights of any past or present stockholder. 7 16 5.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 5.4(a), the Company has not acquired or redeemed any shares of capital stock of the Company since January 1, 1996. Except as set forth on Schedule 5.4(b), (i) no option, warrant, call, conversion right or commitment of any kind exists which obligates the Company to issue any of its authorized but unissued capital stock; (ii) the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof; and (iii) neither the voting stock structure of the Company nor the relative ownership of shares among any of its Stockholders has been altered or changed in contemplation of the AmPaM Plan of Organization. There are no voting trusts, proxies or other agreements or understandings to which the Company is a party or is bound with respect to the voting of any shares of capital stock of the Company. 5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the shares of Company Stock was issued pursuant to awards, grants or bonuses in contemplation of the AmPaM Plan of Organization. 5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set forth on Schedule 5.6(a), the Company has no Subsidiaries. Except as set forth in Schedule 5.6(b), the Company does not presently own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity nor is the Company, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. 5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7(a) is a list of all predecessor companies of the Company, including the names of any entities acquired by the Company (by stock purchase, merger or otherwise) or owned by the Company or from whom the Company previously acquired material assets, in any case, from the earliest date upon which any Stockholder acquired his or her stock in any Company. Except as disclosed on Schedule 5.7(b), the Company has not been, within such period of time, a subsidiary or division of another corporation or a part of an acquisition which was later rescinded. 5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there has not been any sale, spin-off or split-up of material assets of either the Company or any other person or entity that is an Affiliate of the Company since January 1, 1996. 5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 is a copy of: (i) the balance sheets of the Company as of December 31, 1996 and 1997 and the related statements of operations, stockholders' equity and cash flows for the three-year period ended December 31, 1997, together with the related notes and schedules (such balance sheets, the related statements of operations, stockholders' equity and cash flows and the related notes and schedules are referred to herein as the "Year-end Financial Statements"); 8 17 (ii) the balance sheet of the Company as of June 30, 1998 and the related statements of operations, stockholders' equity and cash flows for the six-month periods ended June 30, 1997 and 1998, together with the related notes and schedules (such balance sheets, the related statements of operations, stockholders' equity and cash flows and the related notes and schedules are referred to herein as the "Six-Month Interim Financial Statements"); (iii) the balance sheet of the Company as of September 30, 1998 (the "Balance Sheet Date") and the related statements of operations, stockholders' equity and cash flows for the nine-month periods ended September 30, 1997 and 1998 (such balance sheets, the related statements of operations, stockholders' equity and cash flows are referred to herein as the "Nine-Month Interim Financial Statements"); and (iv) the income statement of the Company for the 12-month period ended June 30, 1998 (the "Valuation Income Statement"). The Year-end Financial Statements, the Six-Month Interim Financial Statements, the Nine-Month Interim Financial Statements and the Valuation Income Statement are collectively called the "Financial Statements". The Financial Statements, including those included in the Private Placement Memorandum, have been prepared in accordance with GAAP applied on a consistent basis and fairly present the financial position of the Company as of the dates thereof and the results of its operations and changes in financial position for the periods then ended, subject, in the case of the Six-Month Interim Financial Statements and the Nine-Month Interim Financial Statements, to normal year-end audit adjustments and any other adjustments described therein and the absence of certain footnote disclosures. 5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10(a) sets forth an accurate list as of the Balance Sheet Date of (i) all material liabilities of the Company which are not reflected on the balance sheet of the Company at the Balance Sheet Date or otherwise reflected in the Company Financial Statements at the Balance Sheet Date which by their nature would be required in accordance with GAAP to be reflected in the balance sheet, and (ii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages, pledges or other security agreements to which the Company is a party or by which its properties may be bound other than bid bonds and performance bonds made in the Ordinary Course of Business. Except as set forth on Schedule 5.10(b), since the Balance Sheet Date, the Company has not incurred any material liabilities or obligations of any kind, character or description, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than liabilities incurred in the Ordinary Course of Business. The Company has also delivered to AmPaM, on Schedule 5.10(c), a list of contingent liabilities related to pending litigation or litigation that has been threatened in writing, or other material liabilities which are not fixed or otherwise accrued or reserved. For each such contingent liability of the Company or liability of the Company for which the amount is not fixed or is contested, the Company has provided to AmPaM the following information: 9 18 (i) a summary description of the liability together with the following: (a) copies of all relevant documentation in the possession of the Company or its directors, officers or stockholders relating thereto; (b) amounts claimed and any other action or relief sought; and (c) name of claimant and all other parties to the claim, suit or proceeding; (ii) the name of each court or agency before which such claim, suit or proceeding is pending; (iii) the date such claim, suit or proceeding was instituted; and (iv) a good faith estimate of the maximum amount, if any, which the Company expects, based on information available, is likely to become payable with respect to each such liability and the amount, if any, accrued or reserved for each such potential liability on the Financial Statements. AmPaM acknowledges that all estimates referred to above and set forth on Schedule 5.10(c) are only good faith estimates, and that the Company and the Stockholders expressly do not represent or warrant that the actual amounts of such liabilities will be equal to, or more or less than, the amounts of such estimates. 5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11(a) sets forth an accurate list, in all material respects, of the accounts and notes receivable of the Company, as of the Balance Sheet Date, including any such amounts which are not reflected in the balance sheet as of the Balance Sheet Date, and including all receivables from and advances to employees and the Stockholders, which are identified as such. Schedule 5.11(a) also sets forth a materially accurate aging of all accounts and notes receivable as of the Balance Sheet Date showing amounts due in 30-day aging categories. Except to the extent reflected on Schedule 5.11(b), such accounts, notes and other receivables are collectible in the amounts shown on Schedule 5.11(a), net of reserves reflected in the balance sheet as of the Balance Sheet Date. 5.12 LICENSES; INTELLECTUAL PROPERTY. (a) The Company or its employees hold all licenses, franchises, permits and other governmental authorizations ("Licenses") necessary to conduct the business of the Company, the absence of which would cause a Material Adverse Effect on the Company, and the Company has delivered to AmPaM a list that is accurate, in all material respects, and summary description (which is set forth on Schedule 5.12(a)(1)) of all such Licenses. At or prior to the Closing, all such Licenses owned or held by any employee of the Company will be assigned or licensed to the Company for no additional consideration. The Licenses listed on Schedule 5.12(a)(1) are valid, and the Company has not received any notice that any person intends to cancel, terminate or not renew any such License. The Company has conducted and is conducting its business in compliance in all material respects with the requirements, standards, criteria and 10 19 conditions set forth in the Licenses listed on Schedule 5.12(a)(1) and is not in violation of any of the foregoing in any material respect. Except as specifically provided in Schedule 5.12(a)(2), the consummation by the Company of the transactions contemplated by this Agreement will not result in a default under or a breach or violation of, or adversely affect the rights and benefits afforded to the Company by, any such Licenses. (b) The Company owns or possesses adequate licenses or other rights to use (without making any payment or granting rights to any person in exchange) all patents, patent applications, trademarks, copyrights, service marks and trade names (collectively, the "Intellectual Property") necessary to conduct its business as currently conducted. A description of any Intellectual Property licensed by the Company, including the material terms of any such license, is described on Schedule 5.12(b)(1). Neither the validity of the Intellectual Property nor the title thereto or use thereof by the Company is being questioned in any pending litigation, and the conduct of the Company's business, as currently conducted, does not conflict with licenses, copyrights, uncopyrighted works, trade marks, service marks, trade names, trade name rights, patents, patent rights, unpatented inventions or trade secrets of others. Neither the validity of the Intellectual Property nor the title thereto or use thereof by the Company is being questioned in any pending or, to the knowledge of the Company, threatened infringement claims or litigation, and the conduct of the Company's business, as now conducted, does not conflict with licenses, copyrights, uncopyrighted works, trade marks, service marks, trade names, trade name rights, patents, patent rights, unpatented inventions or trade secrets of others. Except as specifically provided in Schedule 5.12(b)(2), the consummation by the Company of the transactions contemplated by this Agreement will not adversely affect the rights and benefits afforded to the Company by any such Intellectual Property. 5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule 5.13 attached hereto, (i) the Company has conducted its businesses in compliance in all material respects with all applicable Environmental Laws, including, without limitation, having all environmental permits, licenses and other approvals and authorizations necessary for the operation of its business as presently conducted, except where the failure to have such permit, license, approval or authorization would not have a Material Adverse Effect on the Company, (ii) none of the properties owned by the Company contain any Hazardous Substance as a result of any activity of the Company in amounts exceeding the levels permitted by applicable Environmental Laws, except where amounts in excess of such levels would not have a Material Adverse Effect on the Company, (iii) the Company has not received any notices, demand letters or requests for information from any Federal, state, local or foreign governmental entity or third party indicating that the Company may be in violation of, or liable under, any Environmental Law in connection with the ownership or operation of its business, (iv) there are no civil, criminal or administrative actions, suits, demands, claims, hearings, investigations or proceedings pending or, to the knowledge of the Company, threatened, against the Company relating to any violation, or alleged violation, of any Environmental Law, except where such violation would not have a Material Adverse Effect on the Company, (v) no reports have been filed, or are required to be filed, by the Company concerning the release of any Hazardous Substance or the threatened or actual violation of any Environmental Law, (vi) no Hazardous Substance has 11 20 been disposed of, released or transported in violation of any applicable Environmental Law from any properties owned by the Company as a result of any activity of the Company during the time such properties were owned, leased or operated by the Company, (vii) there have been no environmental investigations, studies, audits, tests, reviews or other analyses regarding compliance or non-compliance with any applicable Environmental Law conducted by or which are in the possession of the Company relating to the activities of the Company which are not listed on Schedule 5.13 attached hereto prior to the date hereof, (viii) to the knowledge of the Company, (A) there are no underground storage tanks on, in or under any properties owned by the Company and (B) no underground storage tanks have been closed or removed from any of such properties during the time such properties were owned, leased or operated by the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the Company, (A) there is no asbestos or asbestos-containing material present in any material quantity in any of the properties owned by the Company, and (B) no asbestos has been removed from any of such properties during the time such properties were owned, leased or operated by the Company, and (x) neither the Company nor any of its properties are subject to any material liabilities or expenditures (fixed or contingent) relating to any suit, settlement, court order, administrative order, regulatory requirement, judgment or claim asserted or arising under any Environmental Law. (b) As used herein, "Environmental Law" means, as of the Closing Date, any Federal, state, local or foreign law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction or agreement with any governmental entity to which the Company is a party or subject relating to (x) the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource) or to human health or safety or (y) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances, in each case as amended and as in effect on the Closing Date. The term Environmental Law includes, without limitation, (i) the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as amended and as in effect on the Closing Date, and (ii) any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of, effects of or exposure to any Hazardous Substance. (c) As used herein, "Hazardous Substance" means any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive, or dangerous, or otherwise regulated, under any Environmental Law. Hazardous Substance includes any substance to which exposure is regulated by any government authority or any Environmental Law including, without 12 21 limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste, industrial substance or petroleum or any derivative or by-product thereof, radon, radioactive material, asbestos or asbestos-containing material, urea formaldehyde foam insulation, lead or polychlorinated biphenyls. 5.14 PERSONAL PROPERTY. The Company has delivered to AmPaM an accurate list (which is set forth on Schedule 5.14(a)) of (x) all personal property material to the operations of the Company as of the Balance Sheet Date included in "plant, property and equipment" on the balance sheet of the Company as of such date, (y) all other items of personal property owned by the Company with an individual value in excess of $15,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all material leases and agreements in respect of personal property, including, in the case of each of (x), (y) and (z), (1) true, complete and correct copies of all such leases and (2) an indication as to which assets are currently owned, or were formerly owned, by Stockholders, relatives of Stockholders, or Affiliates of the Company. Except as set forth on Schedule 5.14(b), (i) all personal property material to, and used by, the Company in its business is either owned by the Company or leased by the Company pursuant to a lease included on Schedule 5.14(a), (ii) all of the personal property listed on Schedule 5.14(a) or replacement property thereof is in working order and condition, ordinary wear and tear excepted and (iii) all leases and agreements included on Schedule 5.14(a) are in full force and effect and constitute valid and binding agreements of the Company, in each case in accordance with their respective terms. 5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. (a) The Company has delivered to AmPaM a materially accurate list (which is set forth on Schedule 5.15(a)(1)) of all customers (persons or entities) representing 5% or more of the Company's annual revenues for any period covered by any of the Financial Statements. Except to the extent set forth on Schedule 5.15(a)(2), none of such customers has canceled or, to the knowledge of the Company, are currently threatening to cancel a currently effective contract with the Company. (b) The Company has listed on Schedule 5.15(b) all material contracts, commitments and similar agreements to which the Company is a party or by which it or any of its properties are bound (including, but not limited to, contracts with customers listed on Schedule 5.15(a), joint venture or partnership agreements, contracts with any labor organizations, strategic alliances and options to purchase land), other than agreements listed on Schedules 5.10(a), Schedule 5.14(a) or Schedule 5.16(a), (a) in existence as of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and in each case has delivered or made available to AmPaM true, complete and correct copies of such agreements. For purposes of the preceding sentence, a contract, commitment or similar agreement is "material" if it (i) has a term of more than one year (other than contracts, commitments or agreements that are cancelable without liability or penalty within 30 days of notice from the Company of cancellation or that can be terminated by the Company without material penalty upon notice of 30 days or less) or (ii) requires the payment by or to the Company of more than $100,000 during any 12-month period. Except for expenditures in the ordinary course of 13 22 business, the Company has also indicated on Schedule 5.15(b) a summary description of all plans or projects involving the opening of new operations, expansion of existing operations, or the acquisition of any personal property, business or assets requiring, in any event, the payment of more than $50,000 by the Company during any 12-month period. (c) Except as set forth on Schedule 5.15(c), the Company is not required to provide any bonding or other financial security arrangements in any material amount in connection with any contract listed on Schedule 5.15(b). 5.16 REAL PROPERTY. Schedule 5.16(a) includes a list of all real property owned or leased by the Company at the date hereof and all other real property, if any, used by the Company in the conduct of its business. The Company has good and insurable title to any real property owned by it that is shown on Schedule 5.16(a), other than property intended to be sold or distributed prior to the Closing Date as provided in Section 7.1(c) of this Agreement, and all real property so owned is subject to no mortgage, pledge, lien, conditional sales agreement, encumbrance, lease, possessory rights of third parties or charge, except for: (i) liens reflected on Schedule 5.10(a) or Schedule 5.16(b) as securing specified liabilities (with respect to which no material default by the Company exists); (ii) liens for current taxes not yet payable and assessments not in default; (iii) easements for utilities serving the property; and (iv) easements, covenants and restrictions and other exceptions to title which do not adversely affect the current use of the property. Copies of all leases and agreements in respect of such real property leased by the Company, which are true, complete and correct in all material respects, are attached to Schedule 5.16(a), and an indication as to which such properties, if any, are currently owned, or were formerly owned, by Stockholders or Affiliates of the Company or Stockholders is included in Schedule 5.16(a). Except as set forth on Schedule 5.16(b), all of such leases included on Schedule 5.16(a) are, as to the Company, in full force and effect and constitute valid and binding agreements of the Company in accordance with their respective terms. 5.17 INSURANCE. The Company has delivered to AmPaM (i) an accurate list as of the Balance Sheet Date of all insurance policies carried by the Company and (ii) an accurate list of all insurance loss runs or workers compensation claims received for the past three policy years (which lists are set forth on Schedule 5.17). The Company has also delivered or made available to AmPaM true, complete and correct copies of all insurance policies currently in effect that are referred in Schedule 5.17. Such insurance policies evidence all of the insurance the Company is required to carry pursuant to all of its contracts and other agreements and pursuant to all applicable laws. All of such insurance policies are currently in full force and effect except as stated in Schedule 5.17. 14 23 Since January 1, 1996, no insurance carried by the Company has been canceled by the insurer and the Company has not been denied coverage under any such policy. 5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS. (a) The Company has delivered to AmPaM an accurate list (which is set forth on Schedule 5.18(a)(1)) showing all officers, directors and key employees of the Company, listing all employment agreements with such officers, directors and key employees and the rate of compensation (and the portions thereof attributable to salary, bonus and other compensation, respectively) of each of such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The Company has provided to AmPaM true, complete and correct copies of any employment agreements for persons listed on Schedule 5.18(a)(1). Since the Balance Sheet Date, except as disclosed on Schedule 5.18(a)(2), there have been no increases in the compensation payable or any bonuses to any officer, director, key employee or other employee, except ordinary salary increases implemented on a basis consistent with past practices and except for bonuses paid on a basis consistent with past practices. (b) Except as set forth on Schedule 5.18(b), (i) the Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any arrangement with any labor union, (ii) to the knowledge of the Company, no campaign to establish such arrangement is in progress and (iii) there is no pending or, to the Company's knowledge, threatened labor dispute involving the Company and any group of its employees nor has the Company experienced any labor interruptions over the past three years. The Company believes its relationship with employees to be generally good. (c) Except as set forth in Schedule 5.18(c) attached hereto, (i) there are no claims, actions or proceedings pending or, to the knowledge of the Company, threatened between the Company and any of its employees, (ii) the Company has complied in all material respects with all laws relating to the employment of labor, including, without limitation, any provisions thereof relating to wages, hours, collective bargaining, and the payment of social security and similar taxes, and (iii) the Company has not received written notice from any person asserting that the Company is liable in any material amount for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. 5.19 EMPLOYEE PLANS. The Company has delivered to AmPaM accurate schedule (Schedule 5.19(a)) showing all employee benefit plans of the Company, including all employment agreements and other agreements or arrangements containing "golden parachute" or other similar provisions, and deferred compensation agreements, together with true, complete and correct copies of such plans, agreements and any trusts related thereto, and classifications of employees covered thereby as of the Balance Sheet Date and as of the date of this Agreement. Except for the employee benefit plans, if any, described on Schedule 5.19(a), the Company does not sponsor, maintain or contribute to any plan program, fund or arrangement that constitutes an "employee pension benefit plan", and neither the Company nor any Subsidiary has any obligation to contribute to or accrue or 15 24 pay any benefits under any deferred compensation or retirement funding arrangement on behalf of any employee or employees (such as, for example, and without limitation, any individual retirement account or annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred compensation arrangement). For the purposes of this Agreement, the term "employee pension benefit plan" shall have the same meaning as is given that term in Section 3(2) of ERISA. The Company has not sponsored, maintained or contributed to any employee pension benefit plan other than the plans set forth on Schedule 5.19(a), and, except as described on Schedule 5.19(b), the Company is not or could not be required to contribute to any retirement plan pursuant to the provisions of any collective bargaining agreement establishing the terms and conditions or employment of any of the Company's employees. Except as set forth on Schedule 5.19(c), the Company is not now, or will not as a result of its past activities become, liable to the Pension Benefit Guaranty Corporation or to any multiemployer employee pension benefit plan under the provisions of Title IV of ERISA. All employee benefit plans listed on Schedule 5.19(a) and the administration thereof are in compliance in all material respects with their terms and all applicable provisions of ERISA and the regulations issued thereunder, as well as with all other applicable federal, state and local statutes, ordinances and regulations. All accrued contribution obligations of the Company as of the Balance Sheet Date with respect to any plan listed on Schedule 5.19(a) have either been fulfilled in their entirety or are fully reflected on the balance sheet of the Company as of the Balance Sheet Date. 5.20 COMPLIANCE WITH ERISA. All plans listed on Schedule 5.19(a) that are intended to qualify under Section 401 (a) of the Code (the "Qualified Plans") are, and have been so qualified and have been determined by the Internal Revenue Service to be so qualified, and copies of such determination letters are attached to Schedule 5.19(a). Except as disclosed on Schedule 5.20, all reports and other documents required to be filed with any governmental agency or distributed to plan participants or beneficiaries (including, but not limited to, actuarial reports, audits or tax returns) since January 1, 1992 have been timely filed or distributed, and copies thereof have been made available to AmPaM. No such plan listed on Schedule 5.19(a) nor the Company has engaged in any transaction prohibited under the provisions of Section 4975 of the Code or Section 406 of ERISA. No such Plan listed on Schedule 5.19(a) has incurred an accumulated funding deficiency, as defined in Section 412(a) of the Code and Section 302(l) of ERISA; and the Company has not incurred any liability for excise tax or penalty due to the Internal Revenue Service nor any liability to the Pension Benefit Guaranty Corporation. The Company further represents that except as set forth on Schedule 5.20 hereto: (i) there have been no terminations, partial terminations or discontinuations of contributions to any Qualified Plan intended to qualify under Section 401(a) of the Code without notice to and approval by the Internal Revenue Service; 16 25 (ii) no plan listed on Schedule 5.19(a) subject to the provisions of Title IV of ERISA has been terminated; (iii) there have been no "reportable events" (as that phrase is defined in Section 4043 of ERISA) with respect to any such plan listed in Schedule 5.19(a); (iv) the Company (including any Subsidiaries) has not incurred liability under Section 4062 of ERISA; and (v) no circumstances exist pursuant to which the Company could have any direct or indirect liability whatsoever (including, but not limited to, any liability to any multiemployer plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for any excise tax or penalty, or being subject to any statutory lien to secure payment of any such liability) with respect to any plan now or heretofore maintained or contributed to by any entity other than the Company that is, or at any time was, a member of a "controlled group" (as defined in Section 412(n)(6)(B) of the Code) that includes the Company. 5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on Schedule 5.21 or Schedule 5.13, the Company has not violated within the five years prior to the date of this Agreement and is not currently in violation of any law or regulation or any order of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it other than violations that would not have a Material Adverse Effect on the Company; and except to the extent set forth on Schedule 5.10(c) or Schedule 5.13, there are no claims, actions, suits or proceedings, pending or, to the knowledge of the Company, threatened in writing against the Company, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over the Company and no written notice of any claim, action, suit or proceeding, whether pending or threatened, has been received by the Company, and to the knowledge of the Company there is no valid basis for any such claim, action, suit or proceeding that could reasonably be expected to have a Material Adverse Effect on the Company. 5.22 TAXES. (a) The Company has timely filed all requisite Federal, state and other Tax Returns or extension requests for all fiscal periods ended on or before the Balance Sheet Date; and except as set forth on Schedule 5.22(a), there are no examinations in progress or claims pending against the Company for federal, state and other Taxes (including penalties and interest) for any period or periods prior to and including the Balance Sheet Date and no notice of any claim for Taxes, whether pending or threatened, has been received. All Tax, including interest and penalties (whether or not shown on any Tax Return), due by the Company has been paid. The amounts shown as accruals for Taxes on the Financial Statements are sufficient for the payment of all Taxes of the kinds indicated (including penalties and interest) for all fiscal periods ended on or before the date of the respective Financial Statements. Copies of (i) any tax examinations, (ii) extensions of statutory limitations and (iii) the federal and local income Tax Returns and franchise Tax Returns of Company for their last three (3) fiscal years, or such shorter period of time as any of them shall 17 26 have existed, are attached hereto as Schedule 5.22(a) or have otherwise been delivered to AmPaM. The Company has a taxable year ended December 31. Except as set forth on Schedule 5.22(a), the Company uses the accrual method of accounting for income tax purposes, and the Company's methods of accounting have not changed in any material respect in the past five years (except as required to conform to changes in GAAP). The Company is not an investment company as defined in Section 351(e)(1) of the Code. The Company is not and has not during the last five years been a party to any tax sharing agreement or agreement of similar effect. Except as set forth on Schedule 5.22(a), the Company is not and has not during the last five years been a member of any consolidated group for federal tax purposes. The Company has not received, been denied, or applied for any private letter ruling from the IRS during the last ten years. (b) The Stockholders have made a valid election under the provisions of Subchapter S of the Code and, except as set forth on Schedule 5.22(b), the Company has not, within the past five years, been subject to Federal income Taxes under the provisions of Subchapter C of the Code. 5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC. (a) The Company is not in violation of any Charter Document. Except as set forth on Schedule 5.23(a), the Company is not in default under any lease, instrument, agreement, license, or permit set forth on Schedule 5.12(a), Schedule 5.14(a), Schedule 5.15(b) or Schedule 5.16(a) (collectively, the "Material Documents"). (b) Except as set forth on Schedule 5.23(b)(1), the execution and delivery of this Agreement by each of the Company and the Stockholders do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company under any of the terms, conditions or provisions of (i) the Charter Documents of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to the Company or any of its properties or assets, or (iii) any Material Document to which the Company is now a party or by which the Company or any of its properties or assets may be bound or affected. The consummation by the Company and the Stockholders of the transactions contemplated hereby will not result in any material violation, conflict, breach, right of termination or acceleration or creation of liens under any of the terms, conditions or provisions of the items described in clauses (i) through (iii) of the preceding sentence, subject, in the case of the terms, conditions or provisions of the items described in clause (iii) above, to obtaining (prior to the Effective Time) such consents as may be required from commercial lenders, lessors or other third parties as listed on Schedule 5.23(b)(2). (c) Except as set forth on Schedule 5.23(c) and except for the Hart-Scott Act, none of the Material Documents requires notice to, or the consent or approval of, any governmental agency or other third party with respect to the consummation by the Company and the Stockholders of any of 18 27 the transactions contemplated hereby in order to remain in full force and effect, and consummation by the Company and the Stockholders of the transactions contemplated hereby will not give rise to any right to termination, cancellation or acceleration or loss of any material right or benefit under any Material Document. (d) Except for (i) any filings to be made with the SEC pursuant to the 1933 Act or with any state securities authorities in connection with the offer and sale of AmPaM Stock and AmPaM Notes pursuant to this Agreement and (ii) any filing required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby. (e) Except as set forth on Schedule 5.23(e), none of the Material Documents prohibits the disclosure or publication by the Company or AmPaM of the name of any other party to such Material Document, and none of the Material Documents prohibits or restricts the Company from freely providing services or selling products to any other customer or potential customer of the Company, AmPaM or any Other Founding Company. 5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the Company is not now a party to any governmental contract subject to price redetermination or renegotiation. 5.25 ABSENCE OF CHANGES. (a) Since the Balance Sheet Date, except as set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not been: (i) any Material Adverse Change in the Company; (ii) any damage, destruction or casualty loss (whether or not covered by insurance), alone or in the aggregate, which has caused a Material Adverse Effect on the Company; (iii) any change in the authorized capital of the Company or its outstanding securities or any change in its ownership interests or any grant of any options, warrants, calls, conversion rights or commitments; (iv) any declaration or payment of any dividend or distribution in respect of the capital stock or any direct or indirect redemption, purchase or other acquisition of any of the capital stock of the Company except for distributions that would have been permitted after the date hereof under Section 7.3(iii) hereof, (v) any increase in the compensation, bonus, sales commissions or fee arrangement payable or to become payable by the Company to any of its officers, directors, 19 28 Stockholders, employees, consultants or agents, except for ordinary and customary bonuses and salary increases for employees in accordance with past practice; (vi) any work interruptions, labor grievances or claims filed, or any event or condition of any character, which has caused a Material Adverse Effect on the Company; (vii) any sale or transfer, or any agreement to sell or transfer, any material assets, property or rights of the Company to any person, including, without limitation, the Stockholders and their affiliates, except inventory sold or transferred in the Ordinary Course of Business; (viii) any cancellation, or agreement to cancel, any indebtedness or other obligation owing to the Company, including without limitation any indebtedness or obligation of any Stockholders or any Affiliate thereof; (ix) any plan, agreement or arrangement granting any preferential rights to purchase or acquire any interest in any of the material assets, property or rights of the Company or requiring consent of any party to the transfer and assignment of any such assets, property or rights; (x) any purchase or acquisition of, or agreement, plan or arrangement to purchase or acquire, any property, rights or assets outside of the Ordinary Course of Business; (xi) any waiver of any material rights or claims of the Company; (xii) any amendment or termination of any Material Document to which the Company is a party except for the termination of a Material Document in accordance with its terms without any action on the part of the Company; (xiii) any transaction by the Company outside the Ordinary Course of Business; (xiv) any cancellation or termination of a material contract with a customer or client listed on Schedule 5.15(a) prior to the scheduled termination date thereof; or (xv) any other distribution of property or assets by the Company other than in the Ordinary Course of Business, other than (a) distributions of nonoperating assets specifically identified on Schedule 5.25, (b) distributions of real estate required by Section 7.1(c) of this Agreement and (c) distributions of cash or promissory notes permitted by Annex I hereto. (b) Except as set forth on Schedule 5.25, the Company has not, between the Balance Sheet Date and the date hereof, taken any of the actions set forth in Section 7.3. 20 29 5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to AmPaM an accurate schedule (which is set forth on Schedule 5.26) as of the date of the Agreement of: (i) the name of each financial institution in which the Company has an account or safe deposit box; (ii) the names in which the accounts or boxes are held; (iii) the type of account and account number; and (iv) the name of each person authorized to draw thereon or have access thereto. Schedule 5.26 also sets forth the name of each person, corporation, firm or other entity holding a general or special power of attorney from the Company and a description of the terms of such power. 5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement by the Company and the performance of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of the Company and this Agreement has been duly and validly authorized by all necessary corporate action and is a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. 5.28 RELATIONS WITH GOVERNMENTS. The Company has not, and to the knowledge of the Company none of the Stockholders or any Affiliate of any of them has, given or offered anything of value to any governmental official, political party or candidate for government office or otherwise taken any action which would cause the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. 5.29 DISCLOSURE. This Agreement, including the Annexes and Schedules hereto, and the completed questionnaire related to the Hart-Scott Act furnished to AmPaM by the Company, do not contain an untrue statement of a material fact concerning the Company or omit to state a material fact concerning the Company necessary to make the statements herein and therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing does not apply to statements contained in or omitted from any of such documents made or omitted in reliance upon information furnished in writing by AmPaM. 5.30 NO WARRANTIES OR INSURANCE. Except for warranty liability under applicable law and except for warranty liability under the warranties issued by the Company of the types described on Schedule 5.30, the Company has no liability to any person under any warranty and the Company does not offer or sell insurance or consumer protection plans or other arrangements that could result in the Company being required to make any payment to or perform any service for any person. 21 30 5.31 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY TRANSACTIONS. Except as described on Schedule 5.31 or in Section 8.11, no Stockholder, officer, director or Affiliate of the Company (i) owns, directly or indirectly, any financial interest in, or is a director, officer, employee or affiliate of, any corporation, firm, association or business organization that is a client, supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or will be a party to an agreement or relationship with the Company other than through a customary "at will" employment relationship. 5.32 PRIVATE PLACEMENT MEMORANDUM. None of the information supplied or to be supplied by the Company in writing specifically for inclusion in the Private Placement Memorandum contained or, as of the Closing Date, will contain any untrue statement of a material fact concerning the Company or omitted or will omit to state any material fact required to be stated therein or necessary in order to make the statements contained in such information supplied or to be supplied by the Company concerning the Company, in light of the circumstances under which they are made, not misleading. (B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS. Each Stockholder severally represents and warrants that the representations and warranties set forth below are true as of the date of this Agreement and, subject to Section 7.7 hereof, shall be true at the time of Closing, and that the representations and warranties set forth in this Section 5(B) shall survive the Closing Date. 5.33 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right, power and authority to enter into this Agreement, and this Agreement is a legal, valid and binding obligation of such Stockholder, enforceable against the Stockholder in accordance with its terms. Except as set forth on Schedule 5.33(a), the execution and delivery of this Agreement by such Stockholder does not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of such Stockholder under any of the terms, conditions or provisions of (i) the Charter Documents of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to such Stockholder or any of such Stockholder's properties or assets, or (iii) any lease, instrument, agreement, license or permit to which such Stockholder is now a party or by which such Stockholder or any of such Stockholder's properties or assets may be bound or affected. Except for (i) any filings to be made with the SEC pursuant to the 1933 Act and any state securities authorities in connection with the offer and sale of AmPaM Stock and AmPaM Notes pursuant to this Agreement, (ii) any filing required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by such Stockholder or the consummation by such Stockholder of the transactions contemplated hereby. Except as set forth on 22 31 Schedule 5.33(b), such Stockholder owns beneficially and of record all of the shares of the Company Stock identified on Annex I hereto as being owned by such Stockholder, and, such Company Stock is owned free and clear of all liens, security interests, pledges, charges, voting trusts, voting agreements, restrictions, encumbrances and claims of every kind. 5.34 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby waives, any preemptive or other right to acquire shares of Company Stock or AmPaM Stock that such Stockholder has or may have had. Nothing herein, however, shall limit or restrict the rights of any Stockholder to acquire AmPaM Stock pursuant to (i) this Agreement, (ii) any option granted or to be granted by AmPaM to such Stockholder, (iii) a purchase through a broker in a regular stock market transaction or (iv) a purchase from a stockholder of a Founding Company (subject to compliance with any contractual restrictions or securities law restrictions applicable thereto specified in Section 15 hereof). 5.35 NO COMMITMENT TO DISPOSE OF AMPAM STOCK. No Stockholder is under any binding commitment or contract to sell, exchange or otherwise dispose of shares of AmPaM Stock or AmPaM Notes received pursuant to this Agreement. 5.36 DISCLOSURE. The completed Director and Officer Questionnaires with respect to such Stockholder (if any), the completed investor questionnaire furnished to AmPaM by such Stockholder in connection with the proposed acquisition by such Stockholder of AmPaM Stock and AmPaM Notes and any other information provided to AmPaM in writing by such Stockholder relating specifically to such Stockholder for inclusion in the Private Placement Memorandum do not contain an untrue statement of a material fact concerning such Stockholder or omit to state a material fact concerning such Stockholder necessary to make the statements herein and therein, in light of the circumstances under which they were made, not misleading. 6. REPRESENTATIONS OF AmPaM Except as otherwise qualified below, AmPaM represents and warrants that all of the following representations and warranties in this Section 6 are true at the date of this Agreement and, subject to Section 7.7 hereof, shall be true at the time of Closing, and that such representations and warranties shall survive the Closing Date for a period of eighteen months (the last day of such period being the "Expiration Date" for purposes of the representations and warranties set forth in this Section 6), except that the representations and warranties set forth in Section 6.3, 6.11 and 6.15 shall survive until such time as the applicable statute of limitations period has run, which shall be deemed to be the Expiration Date for the representations and warranties set forth in Sections 6.3, 6.11 and 6.15. AmPaM acknowledges that in purchasing the shares of Company Stock, it is relying upon its own independent investigation as well as the representations and warranties of the Company and the Stockholders as set forth in this Agreement. 23 32 6.1 DUE ORGANIZATION. AmPaM is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of Delaware, and has the requisite power and authority to carry on its business as it is now being conducted and as contemplated by the Private Placement Memorandum. AmPaM is duly qualified or authorized to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or authorization necessary, except where the failure to be so qualified or authorized to do business would not have a Material Adverse Effect. True, complete and correct copies of the Certificate of Incorporation and By-laws, each as proposed to be amended and as such documents shall be in effect as of the Closing Date, of AmPaM (the "AmPaM Charter Documents") are attached hereto as Annex II. 6.2 AUTHORIZATION. (i) The officers of AmPaM executing this Agreement have the authority to enter into and bind AmPaM to the terms of this Agreement and (ii) AmPaM has the full legal right, power and authority to enter into this Agreement and consummate the transactions contemplated hereby. All corporate acts and other proceedings required to have been taken by AmPaM to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and properly taken. 6.3 CAPITAL STOCK OF AmPaM. The authorized capital stock of AmPaM is as set forth in Section 1.3(ii). Immediately prior to the Closing Date, all of the issued and outstanding shares of the capital stock of AmPaM will be as set forth in the Private Placement Memorandum, free and clear of all liens, security interests, pledges, charges, voting trusts, restrictions, encumbrances and claims of every kind other than any restrictions described in the Private Placement Memorandum. All of the issued and outstanding shares of the capital stock of AmPaM have been duly authorized and validly issued, are fully paid and nonassessable and such shares were offered, issued, sold and delivered by AmPaM in compliance with all applicable state and Federal laws concerning the issuance of securities. Further, none of such shares were issued in violation of the preemptive rights of any past or present stockholder of AmPaM. Upon the Closing Date, the authorized, issued and outstanding shares of capital stock of AmPaM will be as set forth in the Private Placement Memorandum under the caption "Capitalization." Upon the Closing Date, the aggregate number of shares of AmPaM Stock issued and outstanding on the Closing Date that are owned by Sterling City Capital, LLC, any Affiliates of Sterling City Capital, LLC and the officers and directors of AmPaM will not be greater than the number of shares of AmPaM Stock reflected in the Private Placement Memorandum as the aggregate number of shares of AmPaM Stock to be issued and outstanding and owned by Sterling City Capital, LLC, any Affiliates of Sterling City Capital, LLC and the officers and directors of AmPaM. 6.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements and except as set forth in the Private Placement Memorandum, (i) no option, warrant, call, conversion right or commitment of any kind exists as of the date of this Agreement which obligates AmPaM to issue any of its authorized but unissued capital stock; and (ii) AmPaM has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof. The material terms of any 24 33 options, warrants or other rights to acquire shares of the stock of AmPaM referred to in the preceding sentence will be as described in the Private Placement Memorandum. 6.5 SUBSIDIARIES. As of the date of this Agreement, AmPaM has no subsidiaries. As of the date of this Agreement, AmPaM does not own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity, and AmPaM is not, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. 6.6 FINANCIAL STATEMENTS. The historical financial statements of AmPaM included in the Private Placement Memorandum (the "AmPaM Financial Statements") have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except as noted thereon), and the balance sheet included therein presents fairly the financial position of AmPaM as of its date. Management of AmPaM believes that the assumptions underlying the pro forma adjustments utilized in the preparation of such pro forma financial statements are reasonable, and such pro forma adjustments have been properly applied to the historical financial amounts in the compilation of the pro forma financial statements. Based on the representations in Section 5.9 of this Agreement and in Section 5.9 of each of the Other Agreements, the pro forma financial information of AmPaM fairly presents the pro forma financial position, results of operations and other information purported to be shown therein at the respective dates and for the respective periods specified. 6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Private Placement Memorandum, as of the date of this Agreement, AmPaM has no material liabilities or obligations of any kind, character or description, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than liabilities incurred in the ordinary course of business and consistent with past practices, liabilities or obligations set forth in or contemplated by this Agreement and the Other Agreements and except for fees incurred in connection with the transactions contemplated hereby and thereby. 6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the Private Placement Memorandum, AmPaM is not in violation of any law or regulation or any order of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it and its stockholders and, there are no claims, actions, suits or proceedings, pending or, to the knowledge of AmPaM, threatened against or affecting, AmPaM, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it and no notice of any claim, action, suit or proceeding, whether pending or threatened, has been received. AmPaM has conducted and is conducting its businesses in compliance in all material respects with the requirements, standards, criteria and conditions set forth in applicable Federal, state and local statutes, ordinances, permits, licenses, orders, approvals, variances, rules and regulations and is not in violation, in any material respect, of any of the foregoing. 25 34 6.9 NO VIOLATIONS. (a) AmPaM is not in violation of any AmPaM Charter Document. AmPaM is not in default under any lease, instrument, agreement, license, or permit to which AmPaM is a party or by which AmPaM or any of its properties are bound (collectively, the "AmPaM Documents"). (b) The execution and delivery of this Agreement by AmPaM do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of AmPaM under any of the terms, conditions or provisions of (i) the AmPaM Charter Documents, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to AmPaM or any of its properties or assets, or (iii) any AmPaM Document; provided that the representations and warranties specified in clause (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. The consummation by AmPaM of the transactions contemplated hereby will not result in any material violation, conflict, breach, right of termination or acceleration or creation of liens under any of the terms, conditions or provisions of the items described in clauses (i) through (iii) of the preceding sentence, subject, in the case of the terms, conditions or provisions of the items described in clause (iii) above, to obtaining (prior to the Closing Date) (x) such approvals, consents or orders from the SEC, state blue sky authorities and authorities administering the Hart-Scott Act and (y) such other consents as may be required from commercial lenders, lessors or other third parties which are listed on Schedule 6.9. (c) Except for (i) any filings to be made with the SEC pursuant to the 1933 Act and filings with various state securities authorities in connection with the transactions contemplated by this Agreement, and (ii) any filings required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, none of the AmPaM Documents requires notice to, or the consent or approval of, any governmental agency or other third party with respect to the consummation by AmPaM of any of the transactions contemplated hereby in order to remain in full force and effect, and consummation by AmPaM of the transactions contemplated hereby will not give rise to any right to termination, cancellation or acceleration or loss of any material right or benefit under the AmPaM Documents; provided that the representations and warranties specified in clauses (i) and (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the 26 35 stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. (d) Except for (i) any filings with the SEC pursuant to the 1933 Act and filings with various state securities authorities in connection with the transactions contemplated by this Agreement and (ii) any filings required under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by AmPaM or the consummation by AmPaM of the transactions contemplated hereby; provided that the representations and warranties specified in clauses (i) and (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. 6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement by AmPaM and the performance of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of AmPaM and this Agreement has been duly and validly authorized by all necessary corporate action and is a legal, valid and binding obligation of AmPaM, enforceable against AmPaM in accordance with its terms. 6.11 AmPaM STOCK. At the time of issuance thereof and delivery to the Stockholders, the AmPaM Stock to be delivered to the Stockholders pursuant to this Agreement will constitute valid, duly authorized and legally issued shares of AmPaM, fully paid and nonassessable, and with the exception of restrictions upon resale set forth in Sections 15 and 16 hereof, will be identical in all substantive respects (which do not include the form of certificate upon which it is printed or the presence or absence of a CUSIP number on any such certificate) to the AmPaM Stock issued and outstanding as of the date hereof, other than the Restricted Common Stock. The AmPaM Stock issued and delivered to the Stockholders shall at the time of such issuance and delivery be free and clear of any liens, claims or encumbrances of any kind or character. The offer and sale of the shares of AmPaM Stock to be issued to the Stockholders pursuant to this Agreement are not required to be registered under the 1933 Act; provided that the representations and warranties specified in this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are 27 36 subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. 6.12 AmPaM NOTES. The AmPaM Notes have been duly authorized and, at the Closing Date, will have been duly executed by AmPaM and, when authenticated, issued and delivered, will constitute valid and binding obligations of AmPaM, enforceable against AmPaM in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers) reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). 6.13 NO SIDE AGREEMENTS. AmPaM has not entered into any agreement with any of the Founding Companies or any of the Stockholders of the Founding Companies other than this Agreement, the Other Agreements, the agreements referred to in this Agreement and in the Other Agreements and the Private Placement Memorandum. AmPaM has not entered into any agreements providing for rights to register shares of AmPaM Stock under the 1933 Act except as provided in Section 17 of this Agreement, in Section 17 of the Other Agreements and in an agreement with Sterling City Capital, LLC, its Affiliates and officers and directors of AmPaM having terms substantially similar to those set forth in Section 17 hereof. 6.14 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. AmPaM was formed in June 1998 and has conducted no material business since the date of its inception except for activities related to the transaction contemplated by this Agreement, the Other Agreements and the Private Placement Memorandum. Except as described in the Private Placement Memorandum, as of the date of this Agreement, AmPaM does not own any real property or any material personal property and is not a party to any other material agreement other than this Agreement, the Other Agreements and the agreements contemplated hereby and thereby. 6.15 RELATIONS WITH GOVERNMENTS. Neither AmPaM nor any of its directors, officers or Affiliates has given or offered anything of value to any government official, political party or candidate for government office, nor has AmPaM, any of its directors, officers or Affiliates of any of them otherwise taken any action, which would cause AmPaM to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. 6.16 DISCLOSURE. The Private Placement Memorandum delivered to the Company and the Stockholders does not as of the date hereof contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing does not apply to statements contained in or omitted from any of such documents made or omitted in reliance upon, and in conformity with, information furnished to AmPaM by the Company or the Stockholders in writing specifically for inclusion in the Private Placement Memorandum. 28 37 6.17 OTHER AGREEMENTS. The Other Agreements have been duly authorized, executed and delivered by AmPaM and constitute the legal, valid and binding obligation of AmPaM enforceable against AmPaM in accordance with their respective terms. The terms and conditions of the Other Agreements (excluding the terms relating to the consideration payable by AmPaM thereunder) are identical in all material respects to the terms and conditions in this Agreement. 7. COVENANTS PRIOR TO CLOSING 7.1 ACCESS AND COOPERATION; DUE DILIGENCE; TRANSFER OF REAL ESTATE. (a) Between the date of this Agreement and the Closing Date, the Company will afford to the officers and authorized representatives of AmPaM reasonable access during normal business hours to all of the Company's sites, properties, books and records and will furnish AmPaM with such additional financial and operating data and other information as to the business and properties of the Company as AmPaM may from time to time reasonably request. The Company will cooperate with AmPaM, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. AmPaM, the Stockholders and the Company will treat all information obtained in connection with the negotiation and performance of this Agreement or the due diligence investigations conducted with respect to the Company as confidential in accordance with the provisions of Section 14 hereof. (b) Between the date of this Agreement and the Closing Date, AmPaM will afford to the officers and authorized representatives of the Company access to all of AmPaM's sites, properties, books and records and will furnish the Company with such additional financial and operating data and other information as to the business and properties of AmPaM and the Other Founding Companies as the Company may from time to time reasonably request. AmPaM will cooperate with the Company, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. The Company will cause all information obtained pursuant to this Section 7.1(b) or obtained in connection with the negotiation and performance of this Agreement to be treated as confidential in accordance with the provisions of Section 14 hereof. (c) Except as set forth on Schedule 7.1, any real property owned by the Company will be sold or distributed by the Company on terms mutually acceptable to AmPaM and the Company and leased back by the Company on terms no less favorable to the Company than those available from an unaffiliated party and otherwise reasonably acceptable to AmPaM at or prior to the Closing Date. 29 38 7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this Agreement and the Closing Date, the Company will, except as set forth on Schedule 7.2: (i) carry on its businesses in the Ordinary Course of Business and not introduce any material new method of management, operation or accounting; (ii) use all commercially reasonable efforts to maintain its properties and facilities, including those held under leases, in as good working order and condition as at present, ordinary wear and tear, depreciation and insured losses excepted; (iii) perform in all material respects all of its obligations under all Material Documents relating to or affecting its respective assets, properties or rights; (iv) use its commercially reasonable efforts to keep in full force and effect present insurance policies or other comparable insurance coverage; (v) use its commercially reasonable efforts to maintain and preserve its business organization intact, retain its respective present key employees and maintain its relationships with suppliers, customers and others having business relations with the Company; (vi) use its commercially reasonable efforts to maintain compliance with all material permits, laws, rules and regulations, consent orders, and all other orders of applicable courts, regulatory agencies and similar governmental authorities; (vii) maintain present debt and lease instruments in accordance with their terms and not enter into new or amended debt or lease instruments without the knowledge and consent of AmPaM (which consent shall not be unreasonably withheld), provided that debt and/or lease instruments may be replaced without the consent of AmPaM if such replacement instruments are on terms at least as favorable to the Company as the instruments being replaced; (viii) maintain or reduce present salaries and commission levels for all officers, directors, employees and agents except for ordinary and customary bonus and salary increases for employees in accordance with past practices; and (ix) use commercially reasonable efforts to cause the actual amount of its Current Assets (as defined in Annex I hereto) to be not less than 150% of the actual amount of its Current Liabilities (as defined in Annex I hereto). 30 39 7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between the date hereof and the Closing Date, the Company will not, without prior written consent of AmPaM: (i) make any change in its Charter Documents; (ii) issue any securities, options, warrants, calls, conversion rights or commitments relating to its securities of any kind other than in connection with the exercise of options or warrants listed in Schedule 5.4; (iii) except as permitted pursuant to the terms and conditions for distributions described in Annex I, declare or pay any dividend, or make any distribution in respect of its stock whether now or hereafter outstanding, or purchase, redeem or otherwise acquire or retire for value any shares of its stock; (iv) enter into any contract or commitment or incur or agree to incur any liability or make any capital expenditures, except if it is in the Ordinary Course of Business or involves an amount not in excess of three percent (3%) of the Company's gross revenues for fiscal 1997; (v) create, assume or permit to exist any mortgage, pledge or other lien or encumbrance upon any assets or properties whether now owned or hereafter acquired, except (1) with respect to purchase money liens incurred in connection with the acquisition of equipment with an aggregate cost not in excess of three percent (3%) of the Company's gross revenues for fiscal 1997 necessary or desirable for the conduct of the businesses of the Company, (2) (A) liens for taxes either not yet due or being contested in good faith and by appropriate proceedings (and for which contested taxes adequate reserves have been established and are being maintained) or (B) materialmen's, mechanics', workers', repairmen's, employees' or other like liens arising in the Ordinary Course of Business (the liens set forth in clause (2) being referred to herein as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or Schedule 5.15 hereto; (vi) sell, assign, lease or otherwise transfer or dispose of any property or equipment except in the Ordinary Course of Business and other than distributions of real estate and other assets as permitted in this Agreement (including Annex I hereto); (vii) negotiate for the acquisition of any business or the start-up of any new business; (viii) merge or consolidate or agree to merge or consolidate with or into any other corporation; 31 40 (ix) waive any material rights or claims of the Company, provided that the Company may negotiate and adjust bills and accounts in the course of good faith disputes with customers in a manner consistent with past practice; (x) amend or terminate any Material Document except for the termination of a Material Document in accordance with its terms without any action on the part of the Company; or (xi) enter into any other material transaction outside the Ordinary Course of Business or any transaction prohibited hereunder. 7.4 NO SHOP. None of the Stockholders, the Company, nor any agent, officer, director, trustee or any representative of any of the foregoing will, during the period commencing on the date of this Agreement and ending with the earlier to occur of the Closing Date or the termination of this Agreement in accordance with its terms, directly or indirectly: (i) solicit or initiate the submission of proposals or offers from any person for, (ii) participate in any discussions pertaining to, or (iii) furnish any information to any person other than AmPaM or its authorized agents relating to, any acquisition or purchase of all or a material amount of the assets of, or any equity interest in, the Company or a merger, consolidation or business combination of the Company. 7.5 AGREEMENTS. Except as disclosed on Schedule 7.5(a), the Stockholders and the Company shall terminate (i) any stockholders agreements, voting agreements, voting trusts, agreements providing for the grant by the Company of any options, warrants and employment agreements between the Company and any employee listed on Schedule 8.11 hereto and (ii) except as otherwise provided in this Agreement, any existing agreement between the Company and any Stockholder, on or prior to the Closing Date provided that nothing herein shall prohibit or prevent the Company from paying (either prior to or on the Closing Date) notes or other obligations from the Company to the Stockholders described in Schedule 7.5(b) in accordance with the terms thereof. 7.6 NOTIFICATION OF CERTAIN MATTERS. Each Stockholder and the Company shall give prompt notice to AmPaM upon obtaining knowledge of (i) the occurrence or non-occurrence of any event the occurrence or nonoccurrence of which would be likely to cause any representation or warranty of the Company or such Stockholder contained herein to be untrue or inaccurate in any material respect at or prior to the Closing and (ii) any material failure of such Stockholder or the Company to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by such person hereunder. AmPaM shall give prompt notice to the Company of (i) the occurrence or non-occurrence of any event the occurrence or non-occurrence of which would be likely to cause any representation or warranty of AmPaM contained herein to be untrue or inaccurate 32 41 in any material respect at or prior to the Closing, (ii) any material failure of AmPaM to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; (iii) any termination of any Other Agreement for any reason; and (iv) the issuance by the SEC or any state securities regulatory authority of any issuance of or threatened issuance of any order challenging the availability of an exemption from registration or suspending the qualification of any securities described in the Private Placement Memorandum for sale in any jurisdiction. However, subject to the provisions of Section 7.7, such notification shall not relieve either the Company or such Stockholder of their respective obligations under this Agreement. The delivery of any notice pursuant to this Section 7.6 shall not be deemed to (i) modify the representations or warranties hereunder of the party delivering such notice, which modification may only be made pursuant to Section 7.7, (ii) modify the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect the remedies available hereunder to the party receiving such notice. 7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to the representations and warranties of such party contained in this Agreement, such party shall have the continuing obligation until 24 hours prior to the Closing Date to notify AmPaM with respect to any matter (i) hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or described in the Schedules or (ii) which may have been omitted from the Schedules previously provided by such party. Notwithstanding the foregoing sentence, no amendment or supplement to a Schedule prepared by the Company may be made unless AmPaM consents to such amendment or supplement; and provided further, that no amendment or supplement to a Schedule prepared by AmPaM may be made unless the Stockholders consent to such amendment or supplement. For all purposes of this Agreement, including without limitation for purposes of determining whether the conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules hereto, as amended or supplemented with the consent of AmPaM or the Stockholders, as the case may be, as provided above, shall be deemed to be the Schedules to this Agreement. 7.8 FURTHER ASSURANCES. The parties hereto agree to execute and deliver, or cause to be executed and delivered, such further instruments or documents or take such other action as may be reasonably necessary or appropriate to carry out the transactions contemplated hereby and to cause the conditions to the Closing Date to be satisfied as promptly as practicable. 7.9 AUTHORIZED CAPITAL. Prior to the Closing Date, AmPaM shall maintain its authorized capital stock as set forth in the Private Placement Memorandum. 7.10 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this Agreement hereby recognize that one or more filings under the Hart-Scott Act may be required in connection with the transactions contemplated herein. If it is determined by the parties to this Agreement that filings under the Hart-Scott Act are required, then: (i) each of the parties hereto agrees to cooperate and use its best efforts to comply with the Hart-Scott Act and (ii) such compliance by the Stockholders and the parties agree to cooperate and use their best efforts to cause all filings required under the Hart- Scott Act to be made. If filings under the Hart-Scott Act are required, the costs and expenses thereof (including filing fees) shall be borne by AmPaM. 33 42 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY The obligations of the Stockholders and the Company with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the following conditions. As of the Closing Date, if any such applicable conditions have not been satisfied, any one or more of the Stockholders who would be entitled to receive a majority of the Aggregate Consideration (as defined herein) received by all Stockholders if the transactions contemplated hereby were consummated shall have the right to waive any condition not so satisfied. Any act or action of the Stockholders in consummating the Closing or delivering the certificates representing Company Stock as of the Closing Date shall constitute a waiver of any conditions not so satisfied. However, no such waiver shall be deemed to affect the survival of the representations and warranties of AmPaM contained in Section 6 hereof. 8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All representations and warranties of AmPaM contained in Section 6 shall be true and correct as of the Closing Date as though such representations and warranties had been made as of that time; all of the terms, covenants and conditions of this Agreement to be complied with and performed by AmPaM on or before the Closing Date shall have been duly complied with and performed in all material respects; and certificates to the foregoing effect dated the Closing Date and signed by the President or any Vice President of AmPaM shall have been delivered to the Stockholders. 8.2 SATISFACTION. All actions, proceedings, instruments and documents that are not within the control of the Company or the Stockholders and that are required to carry out this Agreement or incidental hereto shall be reasonably satisfactory to the Company, the Stockholders and their counsel. 8.3 NO LITIGATION. No action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock. 8.4 OPINION OF COUNSEL. The Company shall have received opinions from counsel for AmPaM, dated the Closing Date, addressed to the Company and the Stockholders in the form annexed hereto as Annex III. 8.5 CONSENTS AND APPROVALS. All necessary consents of and filings with any governmental authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made; any waiting periods under the Hart-Scott Act, if applicable, shall have expired or been terminated; all consents and approvals of third parties listed on Schedule 6.9 shall have been obtained; and no action or proceeding shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock and no governmental agency or body shall have taken any other action or made any request of Company as a result of which Company deems it inadvisable to proceed with the transactions hereunder. 34 43 8.6 GOOD STANDING CERTIFICATES. AmPaM shall have delivered to the Company a certificate, dated as of a date no later than ten days prior to the Closing Date, duly issued by the Delaware Secretary of State and in each state in which AmPaM is authorized to do business, showing that AmPaM is in good standing and authorized to do business and that all state franchise and/or income tax returns and taxes for AmPaM for all periods prior to the Closing have been filed and paid. 8.7 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have occurred which would constitute a Material Adverse Change with respect to AmPaM from the date of the Private Placement Memorandum. 8.8 SECRETARY'S CERTIFICATE. The Company shall have received a certificate or certificates, dated the Closing Date and signed by the secretary of AmPaM, certifying the truth and correctness of attached copies of AmPaM's Certificate of Incorporation (including amendments thereto), By-Laws (including amendments thereto), and resolutions of the board of directors and, if required, the stockholders of AmPaM approving AmPaM's entering into this Agreement and the Other Agreements and the consummation of the transactions contemplated hereby and thereby. 8.9 TAX MATTERS. The Stockholders shall have received an opinion of Andrews & Kurth L.L.P., in substantially the form of Annex IV hereto, that the AmPaM Plan of Organization will qualify as a tax-free transfer of property under Section 351 of the Code and that the Stockholders will not recognize gain to the extent the Stockholders exchange Company Stock for AmPaM Stock (but not cash or other property) pursuant to this Agreement in connection with the AmPaM Plan of Organization. 8.10 OTHER FOUNDING COMPANIES. The transactions contemplated by the Other Agreements are consummated simultaneously with the consummation of the transactions contemplated by this Agreement. 8.11 COMPANY RELEASE OF STOCKHOLDERS. The Company shall have delivered to the Stockholders an instrument dated the Closing Date, in form reasonably satisfactory to AmPaM and the Stockholders, which shall be effective only upon the occurrence of the Closing Date, releasing each Stockholder who owns shares of Company Stock as of the Consummation Date from (i) any and all claims of the Company against the Stockholders, known and unknown, and (ii) obligations of the Stockholders to the Company, except for (x) items specifically identified on Schedule 5.10(a) and Schedule 5.15(b) as being claims of or obligations to the Company and (y) continuing obligations to the Company relating to their employment by the Company pursuant to any employment agreement entered into pursuant to Section 8.11 hereof. 35 44 8.12 STERLING CITY CAPITAL TRANSFER RESTRICTIONS. Sterling City Capital, LLC and each of its Affiliates which owns AmPaM Stock shall have entered into an agreement with AmPaM containing substantially the same terms and conditions as are contained in Section 15 and Section 17. 8.13 ELECTION OF CHIEF EXECUTIVE OFFICER. AmPaM shall have taken all corporate action necessary to elect Robert A. Christianson as Chief Executive Officer of AmPaM effective immediately following the Closing Date. 8.14 FUNDING AVAILABILITY. AmPaM shall have entered into binding agreements with financial institutions, lenders or investors that provide AmPaM with sufficient funds to pay (i) the cash amounts specified in Annex I hereto as payable to the Stockholders upon the Closing and (ii) the aggregate cash amounts specified in Annex I to each of the Other Agreements as payable to the stockholders of the Other Founding Companies upon the Closing; and all conditions to the funding of the cash amounts necessary to make such payments specified in the agreements related to such financing arrangements, other than the closing of the transactions contemplated by this Agreement and the Other Agreements, shall have been satisfied as of the Closing Date. 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF AmPaM The obligations of AmPaM with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the following conditions. As of the Closing Date, if any such conditions have not been satisfied, AmPaM shall have the right to terminate this Agreement, or waive any such condition, but no such waiver shall be deemed to affect the survival of the representations and warranties contained in Section 5 hereof. 9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS. All the representations and warranties of the Stockholders and the Company contained in this Agreement shall be true and correct as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date; all of the terms, covenants and conditions of this Agreement to be complied with or performed by the Stockholders and the Company on or before the Closing Date shall have been duly performed or complied with in all material respects; and the Stockholders shall have delivered to AmPaM certificates dated the Closing Date and signed by them to such effect. 9.2 NO LITIGATION. No action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock. 9.3 SECRETARY'S CERTIFICATE. AmPaM shall have received a certificate, dated the Closing Date and signed by the secretary of the Company, certifying the truth and correctness of attached copies of the Company's Articles or Certificate of Incorporation (including amendments thereto), By-Laws (including amendments thereto), and resolutions of the board of directors and the 36 45 Stockholders approving the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby. 9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have occurred with respect to the Company which would constitute a Material Adverse Effect, and the Company shall not have suffered any material loss or damages to any of its properties or assets, whether or not covered by insurance, which change, loss or damage materially affects or impairs the ability of the Company to conduct its business. 9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to AmPaM an instrument dated the Closing Date which shall be effective only upon the occurrence of the Closing releasing the Company and AmPaM from (i) any and all claims of the Stockholders against the Company and AmPaM and (ii) obligations of the Company and AmPaM to the Stockholders, except for (A) items specifically identified on Schedule 5.31 as being claims of or obligations to the Stockholders, (B) continuing obligations to Stockholders relating to their employment by the Company pursuant to employment agreements entered into as specified in Section 8.11 hereof, (C) obligations arising under this Agreement or the transactions contemplated hereby and (D) claims of Stockholders against the Company for unreimbursed business expenses incurred by the Stockholders on behalf of the Company (other than expenses related to the transactions contemplated by this Agreement) prior to the Closing Date or unreimbursed medical expenses of the Stockholders incurred prior to the Closing Date which are covered by the Company's existing health insurance coverage. In the event that the Closing Date does not occur, then the release instrument referenced herein shall be void and of no further force or effect. 9.6 SATISFACTION. All actions, proceedings, instruments and documents that are not within the control of AmPaM and that are required to carry out the transactions contemplated by this Agreement or incidental hereto shall have been reasonably approved by counsel to AmPaM. 9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on Schedule 9.7, all existing agreements between the Company and the Stockholders (and between the Company and entities controlled by the Stockholders) specified on Schedule 5.31 shall have been terminated effective prior to or as of the Closing Date without any payment being made by the Company other than payments made for services rendered, materials provided or other benefits provided to the Company prior to the Closing Date pursuant to the terms of such agreements as in effect as of the date of this Agreement. 9.8 OPINION OF COUNSEL. AmPaM shall have received opinions from counsel to the Company and the Stockholders, dated the Closing Date, substantially in the form annexed hereto as Annex V. 37 46 9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any governmental authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made; any waiting periods under the Hart-Scott Act, if applicable, shall have expired or been terminated; all consents and approvals of third parties listed on Schedule 5.23(b)(2) shall have been obtained; and no action or proceeding shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock and no governmental agency or body shall have taken any other action or made any request of AmPaM as a result of which AmPaM deems it inadvisable to proceed with the transactions hereunder. 9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to AmPaM a certificate, dated as of a date no earlier than ten days prior to the Closing Date, duly issued by the appropriate governmental authority in the Company's state of incorporation and, unless waived by AmPaM, in each state in which the Company is authorized to do business, showing the Company is in good standing and authorized to do business and that all state franchise and/or income tax returns and taxes for the Company for all periods prior to the Closing have been filed and paid. 9.11 FUNDING AVAILABILITY. AmPaM shall have entered into binding agreements with financial institutions, lenders or investors that provide AmPaM with sufficient funds to pay (i) the cash amounts specified in Annex I hereto as payable to the Stockholders upon the Closing and (ii) the aggregate cash amounts specified in Annex I to each of the Other Agreements as payable to the stockholders of the Other Founding Companies upon the Closing; and all conditions to the funding of the cash amounts necessary to make such payments specified in the agreements related to such financing arrangements, other than the closing of the transactions contemplated by this Agreement and the Other Agreements, shall have been satisfied as of the Closing Date. 9.12 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to AmPaM a certificate to the effect that he is not a foreign person pursuant to Section 1.1445-2(b) of the Treasury regulations. 9.13 RESIGNATIONS OF DIRECTORS AND OFFICERS. Any directors of the Company, other than those identified on Schedule 2.1, shall have resigned as directors of the Company. Any officers of the Company, other than those identified on Schedule 2.2, shall have resigned as officers of the Company. 10. COVENANTS OF AmPaM AND THE STOCKHOLDERS AFTER CLOSING 10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. AmPaM shall use reasonable efforts to have the Stockholders released from any and all guarantees of the Company's indebtedness, including bond obligations, identified on Schedule 10.1. Prior to obtaining the release of such guarantees, AmPaM shall provide its guarantee of such indebtedness to the lenders thereof. In the event that AmPaM cannot obtain such releases from the lenders of any such guaranteed indebtedness identified on Schedule 10.1 on or prior to 90 days subsequent to the Closing Date, AmPaM shall promptly pay off or otherwise refinance or retire such indebtedness such that the 38 47 Stockholders' personal liability shall be released. AmPaM will indemnify the Stockholders against any loss or damage suffered as a result of the personal guarantees. 10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated by this Agreement, after the Closing Date, AmPaM shall not and shall not permit any of its Subsidiaries to undertake any act that would jeopardize the tax-free status of the exchange of Company Stock for AmPaM Stock (but not cash or other property), including without limitation: (a) the retirement or reacquisition, directly or indirectly, of all or part of the AmPaM Stock issued in connection with the transactions contemplated hereby; or (b) the entering into of financial arrangements for the benefit of the Stockholders other than as described in the Private Placement Memorandum or as described in this Agreement. 10.3 PREPARATION AND FILING OF TAX RETURNS; PAYMENT OF TAXES. (a) The Company, if possible, or otherwise the Stockholders shall file or cause to be filed all income Tax Returns (federal, state, local or otherwise) of any Acquired Party for all taxable periods that end on or before the Closing Date, and shall permit AmPaM to review all such Tax Returns prior to such filings. Unless the Company is a C corporation, the Stockholders shall pay or cause to be paid all income Tax liabilities (in excess of all amounts already paid with respect thereto or properly accrued or reserved with respect thereto on the Financial Statements) with respect to the Company's operations for all periods through and including the Closing Date. (b) AmPaM shall file or cause to be filed all separate Returns of, or that include, any Acquired Party for all taxable periods ending after the Closing Date. (c) Unless required by applicable law, regulations or government proceedings, AmPaM shall not take any action, including any amendment of a Tax Return of any Acquired Party, if such action would result in additional Tax liabilities payable by any of the Stockholders for periods ending on or prior to the Closing Date. (d) Each party hereto shall, and shall cause its subsidiaries and Affiliates to, provide to each of the other parties hereto such cooperation and information as any of them reasonably may request in filing any Return, amended Return or claim for refund, determining a liability for Taxes or a right to refund of Taxes or in conducting any audit or other proceeding in respect of Taxes. Such cooperation and information shall include providing copies of all relevant portions of relevant Returns, together with relevant accompanying schedules and relevant work papers, relevant documents relating to rulings or other determinations by Taxing Authorities and relevant records concerning the ownership and Tax basis of property, which such party may possess. Each party shall make its employees reasonably available on a mutually convenient basis at its cost to provide explanation of any documents or information so provided. Subject to the preceding 39 48 sentence, each party required to file Returns pursuant to this Agreement shall bear all costs of filing such Returns. (e) Each of the Company, AmPaM and each Stockholder shall comply with the tax reporting requirements of Section 1.351-3 of the Treasury Regulations promulgated under the Code, and treat the transaction as a tax-free contribution under Section 351(a) of the Code subject to gain, if any, recognized on the receipt of cash or other property under Section 351(b) of the Code. 10.4 DIRECTORS. The persons named in the Private Placement Memorandum shall be appointed as directors and elected as officers of AmPaM, as and to the extent set forth in the Private Placement Memorandum, promptly following the Closing Date; provided, however, that the parties hereto acknowledge that if the Company consummates an IPO, the persons who will serve as directors and executive officers of AmPaM will be adjusted as appropriate for a publicly traded entity, with any such changes being subject to the approval of the majority of the Board of Directors of AmPaM. 10.5 LEGAL OPINIONS. If required by the lenders pursuant to the terms of any agreements related to financing of the cash amounts referred to in Section 9.11 hereof, the Company shall cause its counsel to deliver to such lenders, at the Closing, an opinion of counsel in substantially the form attached hereto as Annex V. 11. INDEMNIFICATION The Stockholders and AmPaM each make the following covenants that are applicable to them, respectively: 11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. (a) Each Stockholder covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement until the applicable Expiration Date (as defined in the introductory paragraph to Section 5(A)), provided that for purposes of clause (iii) below, the applicable Expiration Date shall be the date on which the applicable statute of limitations expires), from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM as a result of or arising from (i) any breach of the representations and warranties of the Company set forth herein or on the schedules attached hereto or certificates delivered pursuant to this Agreement, (ii) any breach of any covenant or agreement on the part of the Company under this Agreement, or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating solely to the Company which was based upon information provided to AmPaM or its counsel in writing by the Company specifically for inclusion in the Private Placement Memorandum and is contained in the Private Placement Memorandum, or any amendment thereof 40 49 or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact relating to the Company required to be stated therein or necessary to make the statements therein not misleading; provided, however, that (i) no Stockholder shall be liable for any indemnification obligation pursuant to this Section 11.1 in excess of such Stockholder's pro rata share thereof determined by reference to the aggregate value of the Base Cash Amount (as defined in Annex I of this Agreement), the principal amount of AmPaM Notes and the shares of AmPaM Stock (valued at a price of $13.00 per share) received by such Stockholder pursuant to Section I.A. of Annex I hereto (without giving effect to the adjustments provided in Sections I.B. and I.C. thereof) (giving effect to the value of such AmPaM Stock and without giving effect to such adjustments, collectively, the "Aggregate Consideration") such Stockholder would receive pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated in relation to the Aggregate Consideration all Stockholders would receive pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated and (ii) the indemnity obligations in this Section 11.1(a) shall not be applicable to any Stockholder who has sold all of his shares of Company Stock to the other Stockholder prior to the Closing Date. (b) Each Stockholder covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement, from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM as a result of or arising from (i) any breach of the representations and warranties of such Stockholder set forth in Section 5(B) hereof, (ii) any breach of any covenant or agreement on the part of such Stockholder under this Agreement, or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating solely to such Stockholder which was based upon information provided to AmPaM or its counsel in writing by such Stockholder specifically for inclusion in the Private Placement Memorandum and is contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact relating solely to such Stockholder required to be stated therein or necessary to make the statements therein in light of the circumstances in which such statements were made not misleading; provided, however, that such indemnity shall not be applicable to any Stockholder who has sold all of his shares of Company Stock to the other Stockholder prior to the Closing Date. (c) AmPaM acknowledges and agrees that other than the representations and warranties of the Company or the Stockholders specifically contained in this Agreement, there are no representations or warranties of the Company or the Stockholders, either express or implied, with respect to the transactions contemplated by this Agreement, the Company or its assets, liabilities and business. 41 50 11.2 INDEMNIFICATION BY AmPaM. AmPaM covenants and agrees that it will indemnify, defend, protect and hold harmless the Company and the Stockholders at all times from and after the date of this Agreement until the applicable Expiration Date (as defined in the introductory paragraph of Section 6, provided that for purposes of clause (iii) below, the applicable Expiration Date shall be the date on which the applicable statute of limitations expires), from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by the Company or the Stockholders as a result of or arising from (i) any breach by AmPaM of its representations and warranties set forth herein or on the schedules attached hereto or certificates delivered pursuant to this Agreement, (ii) any breach of any agreement on the part of AmPaM under this Agreement; or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except to the extent such is based upon an untrue statement or alleged untrue statement, or omission or alleged omission, made therein in reliance upon, and in conformity with, the representations and warranties of the Company or the Stockholders specifically contained in this Agreement or other information furnished to AmPaM by the Company or the Stockholders in writing specifically for inclusion therein. 11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the "Indemnified Party") has received notice of or has knowledge of any claim by a person not a party to this Agreement ("Third Person"), or the commencement of any action or proceeding by a Third Person, the Indemnified Party shall, as a condition precedent to a claim with respect thereto being made against any party obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying Party written notice of such claim or the commencement of such action or proceeding. Such notice shall state the nature and the basis of such claim and a reasonable estimate of the amount thereof. The Indemnifying Party shall have the right to defend and settle, at its own expense and by its own counsel reasonably satisfactory to the Indemnified Party, any such matter so long as the Indemnifying Party pursues the same in good faith and diligently, provided that the Indemnifying Party shall not settle any criminal proceeding without the written consent of the Indemnified Party. If the Indemnifying Party undertakes to defend or settle, it shall promptly notify the Indemnified Party of its intention to do so, and the Indemnified Party shall cooperate with the Indemnifying Party and its counsel in the defense thereof and in any settlement thereof. Such cooperation shall include, but shall not be limited to, furnishing the Indemnifying Party with any books, records or information reasonably requested by the Indemnifying Party that are in the Indemnified Party's possession or control. All Indemnified Parties shall use the same counsel, which shall be the counsel selected by Indemnifying Party, provided that if counsel to the Indemnifying Party shall have a conflict of interest or a conflict of interest is reasonably likely to arise that prevents counsel for the Indemnifying Party from representing such Indemnified Party, Indemnified Party shall have the right to participate in such matter through counsel of its own choosing and Indemnifying Party will reimburse the Indemnified Party for the reasonable expenses 42 51 of its counsel. After the Indemnifying Party has notified the Indemnified Party of its intention to undertake to defend or settle any such asserted liability, and for so long as the Indemnifying Party diligently pursues such defense, the Indemnifying Party shall not be liable for any additional legal expenses incurred by the Indemnified Party in connection with any defense or settlement of such asserted liability, except (i) as set forth in the preceding sentence and (ii) to the extent such participation is requested by the Indemnifying Party, in which event the Indemnified Party shall be reimbursed by the Indemnifying Party for reasonable additional legal expenses and out-of-pocket expenses. If the Indemnifying Party desires to accept a final and complete settlement of any such Third Person claim and the Indemnified Party refuses to consent to such settlement, then the Indemnifying Party's liability under this Section with respect to such Third Person claim shall be limited to the amount so offered in settlement by said Third Person. Upon agreement as to such settlement between said Third Person and the Indemnifying Party, the Indemnifying Party shall, in exchange for a complete release from the Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in such settlement. If the Indemnifying Party does not undertake to defend such matter to which the Indemnified Party is entitled to indemnification hereunder, or fails diligently to pursue such defense, the Indemnified Party may undertake such defense through counsel of its choice, at the cost and expense of the Indemnifying Party, and the Indemnified Party may settle such matter, and the Indemnifying Party shall pay the Indemnified Party for the settlement amount and any other liabilities or expenses incurred by the Indemnified Party in connection therewith, provided, however, that under no circumstances shall the Indemnified Party settle any Third Person claim without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. All settlements hereunder shall effect a complete release of the Indemnified Party, unless the Indemnified Party otherwise agrees in writing. With respect to any account, note or other receivable as to which the Stockholders have paid in full any indemnification obligation pursuant to this Section 11 as a result of a breach of the representation and warranty made pursuant to Section 5.11 or as to which a claim in respect thereof has been asserted pursuant to this Section 11 that has been applied against the Indemnification Threshold with respect to the Stockholders as a result of a breach of the representation and warranty made pursuant to Section 5.11, AmPaM shall cause the Company to assign such account, note or other receivable to the Stockholders. The parties hereto will make appropriate adjustments for insurance proceeds in determining the amount of any indemnification obligation under this Section. 11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any action seeking damages or any other form of monetary relief brought by any party to this Agreement against another party to this Agreement with respect to any provision of this Agreement, provided that, nothing herein shall be construed to limit the right of a party, in a proper case, to seek injunctive relief for a breach of this Agreement. AmPaM hereby waives, to the fullest extent permitted under applicable law, any and all other rights, claims and causes of action, known or unknown, it or any indemnified person may have against the Company or any Stockholder relating to this Agreement or the transactions pursuant to this Agreement arising under or based upon any Federal, state, local or foreign statute, law, rule, regulation or otherwise. Any indemnity payment under this Section 11 shall be treated as an adjustment to the exchange consideration for Tax purposes unless a final determination (which shall 43 52 include the execution of a Form 870-AD or successor form) with respect to the Indemnified Party or any of its Affiliate causes any such payment not to be treated as an adjustment to the exchange consideration for U.S. Federal income Tax purposes. 11.5 LIMITATIONS ON INDEMNIFICATION. (a) AmPaM shall not assert any claim for indemnification under this Section 11 against the Stockholders until such time as, and solely to the extent that, the aggregate of all claims which AmPaM may have against the Stockholders shall exceed the greater of (a) 3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section 1.2 plus (ii) the value of the AmPaM Stock delivered to the Stockholders pursuant to Section 1.2 (calculated as provided in this Section 11.5) plus (iii) the principal amount of the AmPaM Notes delivered to the Stockholders pursuant to Section 1.2, or (b) $50,000 (the "Indemnification Threshold"). Stockholders shall not assert any claim for indemnification hereunder against AmPaM until such time as, and solely to the extent that, the aggregate of all claims which Stockholders may have against AmPaM shall exceed $50,000; provided, however, that this sentence shall not be applicable with respect of any failure by AmPaM to (i) deliver the consideration specified in Annex I hereto on the Closing Date upon the satisfaction, or waiver by AmPaM, of all conditions to the occurrence of the Closing Date specified in Section 9 or (ii) comply with its obligations pursuant to Section 10.1. After the $50,000 threshold for AmPaM (subject to the proviso in the preceding sentence) or the Indemnification Threshold for a Stockholder has been met, all claims must be made in $10,000 increments, which claims may be cumulated in order to meet such $10,000 thresholds. For purposes of this paragraph, the AmPaM Stock delivered to the Stockholders shall be valued at $13.00 per share. (b) No person shall be entitled to indemnification under this Section 11 if and to the extent that such person's claim for indemnification is directly or indirectly related to a breach by such person of any representation, warranty, covenant or other agreement set forth in this Agreement. No claim for indemnification against the Stockholders shall limit, diminish or change any obligation of AmPaM pursuant to Section 10.1 hereof. (c) Notwithstanding any other term of this Agreement, no Stockholder shall be liable under this Section 11 for an amount which exceeds eighty-five percent (85%) of the amount of proceeds received by such Stockholder (valued as of the Closing Date) in connection with the purchase and sale of the Company Stock. For purposes of this paragraph, the AmPaM Stock shall be valued at $13.00 per share. (d) A Stockholder may pay any indemnification obligation under Section 11 by means of the payment of cash or a combination of the payment of cash, the forgiveness of amounts owed pursuant to the AmPaM Notes and the delivery to AmPaM of shares of AmPaM Stock; provided that the percentage of the indemnification obligation satisfied by means of the delivery of shares of AmPaM Stock does not exceed the percentage of AmPaM Stock comprising the total consideration paid to such Stockholder by AmPaM to such Stockholder pursuant to Annex I. For the purpose of crediting Stockholders for payments made to AmPaM by means of delivery of shares of AmPaM Stock, the AmPaM Stock shall be valued at $13.00 per share. 44 53 (e) In determining the amount of any loss, liability or expense for which any party is entitled to indemnification under this Agreement, the gross amount thereof will be reduced by any correlative insurance proceeds or other third party indemnity or reimbursement proceeds realized or to be realized by such party (or, in the case of AmPaM, by AmPaM, the Company or any subsidiary of AmPaM or the Company) and such correlative insurance proceeds or other third party indemnity or reimbursement proceeds shall be net of any insurance premium or other incremental cost or expense owed or payable to any third party which becomes due as a result of such claim. AmPaM shall use commercially reasonable efforts to pursue any available insurance coverage or other rights of indemnity or reimbursement from third parties with respect to any such loss, liability or expense. 12. TERMINATION OF AGREEMENT 12.1 TERMINATION. This Agreement may be terminated at any time prior to the Closing Date solely: (i) by mutual consent of AmPaM and the Stockholders; (ii) by the Stockholders, if the transactions contemplated by this Agreement to take place at the Closing Date shall not have been consummated by June 30, 1999, unless the failure of such transactions to be consummated is due to a breach of this Agreement by the Company or the Stockholders prior to or on the Closing Date; (iii) by AmPaM, if the transactions contemplated by this Agreement to take place at the Closing Date shall not have been consummated by June 30, 1999, unless the failure of such transactions to be consummated is due to a breach of this Agreement by AmPaM prior to or on the Closing Date; (iv) by the Stockholders, if a material breach or default shall be made by AmPaM in the observance or in the due and timely performance of any of the covenants or agreements contained herein relating to AmPaM, and the curing of such default shall not have been made (or in the reasonable judgment of such Stockholders cannot be made) on or before the Closing Date; (v) by AmPaM, if a material breach or default shall be made by the Company or the Stockholders in the observance or in the due and timely performance of any of the covenants or agreements contained herein relating to the Company or the Stockholders, and the curing of such default shall not have been made (or in the reasonable judgment of AmPaM cannot be made) on or before the Closing Date; (vi) by the Stockholders, if the conditions set forth in Section 8 hereof have not been satisfied or waived as of the Closing Date; or 45 54 (vii) by AmPaM, if the conditions set forth in Section 9 hereof have not been satisfied or waived as of the Closing Date. 12.2 PROCEDURE AND EFFECT OF TERMINATION. A determination to terminate this Agreement by AmPaM pursuant to Section 12.1 shall be valid and effective only if a written notice of termination, accompanied by a certified copy of resolutions of the board of directors of AmPaM that evidence the authorization of the officer of AmPaM to deliver a written notice of termination of this Agreement pursuant to Section 12.1, is given to the Stockholders in the manner specified for notices in this Agreement. A determination to terminate this Agreement by the Stockholders pursuant to Section 12.1 shall be valid and effective only if a written notice of termination, signed by Stockholders who would be entitled to receive a majority of the shares of AmPaM Stock specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated, is given to AmPaM in the manner specified for notices in this Agreement. Upon the giving of notice of termination of this Agreement pursuant to Section 12.1 as specified in the preceding sentence, this Agreement shall terminate, and the transactions contemplated hereby shall be abandoned, without further action by any of the parties hereto. Immediately upon any such termination, AmPaM shall deliver written notice of such termination to the Other Founding Companies. If this Agreement is terminated as provided in this Section 12, no party hereto shall have any liability or further obligation hereunder to any other party, except as provided in Section 14 and Section 18.6, provided, that, the termination of this Agreement will in no way limit any obligation or liability of any party based on or arising from a breach or default by such party with respect to any of its representations, warranties, covenants or agreements contained in this Agreement including, but not limited to, legal and audit costs and out of pocket expenses that occurred prior to such termination. 13. NONCOMPETITION 13.1 PROHIBITED ACTIVITIES. Robert C. Richey will not, without the prior written consent of AmPaM, for a period of two (2) years following the Closing Date, for any reason whatsoever, directly or indirectly, for themselves or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature: (i) engage, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, whether paid or unpaid, in any plumbing, piping, mechanical, heating, ventilation or air conditioning contracting, installation or services business or operation, whether for residential, commercial, industrial or governmental customers, or any ancillary contracting, installation or services business directly related thereto (such business and operations referred to herein as the "Plumbing and Mechanical Business"), within 100 miles of where the Company or any of its subsidiaries conducted business within two (2) years prior to the Closing Date (the "Territory"); 46 55 (ii) call upon any person who is, at the Closing Date, within the Territory, an employee of AmPaM or any subsidiary thereof for the purpose or with the intent of enticing such employee away from or out of the employ of AmPaM or any subsidiary thereof; (iii) call upon any person or entity which is, at the Closing Date, or which has been within three (3) years prior to the Closing Date, a customer of AmPaM or any subsidiary thereof, of the Company or of any of the Other Founding Companies for the purpose of soliciting customers, orders or contracts for any Plumbing and Mechanical Business in direct competition with AmPaM within the Territory; (iv) call upon any prospective acquisition candidate, on any Stockholder's own behalf or on behalf of any competitor in the Plumbing and Mechanical Business, which candidate, to the actual knowledge of such Stockholder after due inquiry, was called upon by AmPaM or any subsidiary thereof or for which, to the actual knowledge of such Stockholder after due inquiry, AmPaM or any subsidiary thereof made an acquisition analysis, for the purpose of acquiring such entity; or (v) disclose to any person, firm, partnership, corporation or business the names or identities of any person, firm, partnership, corporation or business which has been a customer of the Company or any of its subsidiaries within the two (2) years prior to the Closing Date for any reason or purpose whatsoever except to the extent that the Company has in the past disclosed such information to the public for valid business reasons; or (vi) testify as an expert witness in matters related to the Plumbing and Mechanical Business for an adverse party to AmPaM, the Company or any Other Founding Companies in litigation. Notwithstanding the above, the foregoing covenant shall not be deemed to prohibit any Stockholder from acquiring as a passive investment (i) not more than one percent (1%) of the capital stock of a competing business whose stock is traded on a national securities exchange, the NASDAQ Stock Market or over-the-counter, or (ii) not more than five percent (5%) of the capital stock of a competing business whose stock is not publicly traded if the Board of Directors of AmPaM consents to such acquisition. 13.2 PROHIBITED ACTIVITIES (BAKER). Thomas L. Baker ("Baker") will not, without the prior written consent of AmPaM, for the period from the date of this Agreement through the second anniversary thereof (the "Baker Restricted Period"), for any reason whatsoever, directly or indirectly, for himself or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature, including any employee thereof: (i) engage, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or 47 56 adviser, or as a sales representative, whether paid or unpaid, in the Plumbing and Mechanical Business in the state of Nevada; (ii) bid on or enter into an agreement to perform any work which would constitute Plumbing and Mechanical Business for which actual work will commence before the expiration of the Baker Restricted Period for any of the following builders: (a) S&S Construction Co. (b) Kaufman & Broad/Lewis (c) Presley Homes (d) Barratt American, Inc. (e) Forecast Group (f) Centex (g) Ryland; (iii) bid or enter into an agreement to perform any work which would constitute Plumbing and Mechanical Business involving a continuing phase of any phased project for which the Company has contracted, regardless of the builder, unless Baker is advised in writing by the builder of such project that such builder does not intend to employ or contract with the Company for such continuing phase or phases; (iv) call upon any person who is, at the Closing Date, an employee of the Company, for the purpose or with the intent of enticing such employee away from or out of the employ of the Company; (v) (a) employ more than a total of thirteen (13) R.C.R. Employees (as defined below) at any time during the first twelve months of the Baker Restricted Period and (b) employ more than a total of twenty-nine (29) R.C.R. Employees at any time during the second twelve months of the Baker Restricted Period. The term "R.C.R. Employees" shall mean any person who is an active employee of the Company as of February 28, 1999, but shall not include any person who is laid off or whose employment is terminated, by the Company, or any of Baker's children. (vi) conduct a business having gross sales from the Plumbing and Mechanical Business in excess of $3,000,000 for the year ending December 31, 1999 and $5,000,000 for the year ending December 31, 2000; or (vii) except as required by process of law, disclose, reveal or furnish to any other person, entity or government agency, any "Trade Secret" acquired during Baker's employment with the Company, whether prepared by him or otherwise coming into his possession. The term "Trade Secret" shall have the meaning provided in the Uniform Trade Secrets Act, Section 3426.1(d) of the California Civil Code. 48 57 The Company will not, without the prior written consent of Baker, for the Baker Restricted Period, for any reason whatsoever, directly or indirectly, for itself or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature, bid or enter into an agreement to perform any work which would constitute Plumbing and Mechanical Business involving a continuing phase of any project for which Baker has contracted, regardless of the builder, unless the Company is advised in writing by the builder of such project that such builder does not intend to employ or contract with Baker for such continuing phase or phases. 13.3 DAMAGES. Because of the difficulty of measuring economic losses to AmPaM as a result of a breach of the foregoing covenant, and because of the immediate and irreparable damage that could be caused to AmPaM for which it would have no other adequate remedy, each Stockholder agrees that the foregoing covenant may be enforced by AmPaM in the event of breach by such Stockholder, by injunctions and restraining orders. 13.4 REASONABLE RESTRAINT. It is agreed by the parties hereto that the foregoing covenants in this Section 13 impose a reasonable restraint on the Stockholders in light of the activities and business of AmPaM and the subsidiaries thereof on the date of the execution of this Agreement and the current plans of AmPaM as described in the Private Placement Memorandum. 13.5 SEVERABILITY; REFORMATION. The covenants in this Section 13 are severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant. Moreover, in the event any court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which the court deems reasonable, and the Agreement shall thereby be reformed. 13.6 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of any Stockholder against AmPaM or any subsidiary thereof, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by AmPaM of such covenants. It is specifically agreed that the period of two (2) years stated at the beginning of this Section 13, during which the agreements and covenants of each Stockholder made in this Section 13 shall be effective, shall be computed by excluding from such computation any time during which such Stockholder is found to be in violation of any provision of this Section 13 as determined by any of (i) a written agreement to such effect executed and delivered by AmPaM and such Stockholder, (ii) a determination by an arbitration panel pursuant to an arbitration conducted pursuant to Section 18.16 hereof or (iii) a non-appealable judgment of a court of competent jurisdiction. The covenants contained in Section 13 shall not be affected by any breach of any other provision hereof by any party hereto. The covenants contained in Section 13 shall have no effect if the transactions contemplated by this Agreement are not consummated. 49 58 13.7 MATERIALITY. The Company and the Stockholders hereby agree that the covenants contained in this Section 13 are a material and substantial part of this transaction. 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION 14.1 STOCKHOLDERS. Robert C. Richey recognizes and acknowledges that he had in the past, currently has, and in the future may possibly have, access to certain confidential information of the Company, the Other Founding Companies, and/or AmPaM, such as operational policies, customer lists, and pricing and cost policies that are valuable, special and unique assets of the Company's, the Other Founding Companies' and/or AmPaM's respective businesses. Robert C. Richey agrees that he will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, except (a) to authorized representatives of AmPaM, (b) following the Closing, such information may be disclosed by Robert C. Richey as is required in the course of performing his duties for AmPaM or the Company and (c) to its counsel and other advisers, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section 14.1; provided, however that (i) the foregoing disclosure prohibition shall not apply in the event that (i) such information becomes known to the public generally through no fault of Robert C. Richey, (ii) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (ii), Robert C. Richey shall, if possible, give prior written notice thereof to AmPaM and provide AmPaM with the opportunity to contest such disclosure, or (iii) the disclosing party reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party. In the event of a breach or threatened breach by Robert C. Richey of the provisions of this Section, AmPaM shall be entitled to an injunction restraining Robert C. Richey from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting AmPaM from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. In the event the transactions contemplated by this Agreement are not consummated, Robert C. Richey shall have none of the above-mentioned restrictions on their ability to disseminate confidential information with respect to the Company. 14.2 AmPaM. AmPaM recognizes and acknowledges that it had in the past and currently has access to certain confidential information of the Company, such as operational policies, customer lists, and pricing and cost policies that are valuable, special and unique assets of the Company's business. AmPaM agrees that, prior to the Closing, or if the transactions contemplated by this Agreement are not consummated, it will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, except (a) to authorized representatives of the Company, (b) to its counsel and other advisers, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section 14.2, (c) to the Other Founding Companies and their representatives pursuant to Section 7.1(b) of the Other Agreements and (d) to potential purchasers of securities of AmPaM to the extent necessary or advisable in connection with the applicable securities laws; provided, however that the foregoing disclosure prohibition shall not apply in the event that (A) such information becomes known to the public generally through no fault of AmPaM, (B) disclosure is required by law or the order of any 50 59 governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (B), AmPaM shall, if possible, give prior written notice thereof to the Company and the Stockholders and provide the Company and the Stockholders with the opportunity to contest such disclosure, or (C) the disclosing party reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party. In the event of a breach or threatened breach by AmPaM of the provisions of this Section 14.2, the Company and the Stockholders shall be entitled to an injunction restraining AmPaM from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting the Company and the Stockholders from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. In the event the transactions contemplated by this Agreement are not consummated for any reason, AmPaM shall nevertheless remain subject to this Section 14.2, except that it shall not be permitted to make any disclosures otherwise than pursuant to clause (A), (B) or (C) above. 14.3 DAMAGES. Because of the difficulty of measuring economic losses as a result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and because of the immediate and irreparable damage that would be caused for which they would have no other adequate remedy, the parties hereto agree that, in the event of a breach by any of them of the foregoing covenants, the covenant may be enforced against the other parties by injunctions and restraining orders. 14.4 SURVIVAL. The obligations of the parties under this Article 14 shall survive the termination of this Agreement for a period of five years from the Closing Date. 14.5 RETURN OF INFORMATION. If the transactions contemplated by this Agreement are not consummated, AmPaM will return or destroy all confidential information regarding the Company. 15. TRANSFER RESTRICTIONS 15.1 TRANSFER RESTRICTIONS RELATING TO AmPaM STOCK AND AmPaM NOTES. For a period of two years from the Closing Date or, in the event that the Company completes an IPO, for a period through the second anniversary of the date of the closing of such IPO (the "Restricted Period"), no Stockholder shall (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any shares of AmPaM Stock or AmPaM Notes received by the Stockholders pursuant to this Agreement or any securities convertible into, exchangeable or exercisable for any shares of AmPaM Stock or AmPaM Notes received by such Stockholder pursuant to this Agreement, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any shares of AmPaM Stock or AmPaM Notes received by such Stockholder pursuant to this Agreement, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the AmPaM Stock or AmPaM Notes, whether any such swap or transaction is to be settled by delivery of shares of AmPaM Stock or AmPaM Notes or other securities, by the delivery or payment of cash or otherwise, except, in the case of clauses (i), (ii) or (iii) above, (A) as otherwise agreed by AmPaM, (B) for the sale of shares of AmPaM Stock, and entering into agreements relating to the sale of shares of AmPaM Stock, 51 60 pursuant to Section 17 hereof, (C) for transfers to (I) immediate family members of such Stockholder who agree with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (II) trusts, limited partnerships or other estate planning entities for the benefit of such Stockholder or family members of such Stockholder which have agreed with AmPaM in writing, through action taken by the trustees, partners or other persons having authority to bind the trust, limited partnership or other estate planning entity, to be bound by the restrictions set forth in this Section 15.1, (III) any charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code which agrees with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (D) for transfers of AmPaM Stock or AmPaM Notes to AmPaM pursuant to Section 11.5(d), (E) for transfers to another Stockholder, to another person or entity who receives shares of AmPaM Stock or AmPaM Notes or AmPaM Series A Preferred Stock pursuant to the Other Agreements or to Sterling City Capital LLC or any of its Affiliates provided that (1) such transaction is exempt from the registration requirements of the 1933 Act as evidenced by the delivery to AmPaM of an opinion of counsel in form and substance reasonably satisfactory to AmPaM and (2) any such transferee agrees in writing to be bound by the restrictions set forth in this Section 15.1, (F) transfers of shares of AmPaM Notes, shares of AmPaM Stock, or grants of options to purchase shares of AmPaM Stock, by such Stockholder to employees of the Company of up to an aggregate of 15% of the shares of AmPaM Stock received by such Stockholder pursuant to this Agreement provided that (1) any such transaction is exempt from the registration requirements of the 1933 Act as evidenced by the delivery to AmPaM of an opinion of counsel in form and substance reasonably satisfactory to AmPaM and (2) any such employee agrees with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1 or (G) the sale by such Stockholder in an IPO of shares of AmPaM Stock representing not more than 10% of the Aggregate Consideration in cash; provided, however, that in no circumstance will a Stockholder be entitled to sell shares of AmPaM Stock in an IPO to the extent that the sale of such shares by such Stockholder would result in such Stockholder receiving in excess of 45% of the Aggregate Consideration in cash; and, provided further, if AmPaM is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under Section 17.1 that the number of shares to be sold by persons other than AmPaM is greater than the number of such shares which can be offered without adversely affecting the success of the offering, AmPaM may reduce pro rata (among the Stockholders and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. During the Restricted Period, the certificates evidencing the AmPaM Stock or AmPaM Notes delivered to the Stockholders pursuant to Section 3 of this Agreement will bear a legend substantially in the form set forth below: THE [SHARES/NOTES] REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO THE TERMS OF THE ACQUISITION AGREEMENT PURSUANT TO WHICH SUCH SHARES WERE ISSUED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, PLEDGE OR OTHER DISPOSITION PRIOR TO EXPIRATION 52 61 OF THE RESTRICTED PERIOD REFERRED TO IN THE ACQUISITION AGREEMENT EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH AGREEMENT. SUCH RESTRICTIONS ON TRANSFER ARE SET FORTH IN AN ACQUISITION AGREEMENT, A COPY OF WHICH IS MAINTAINED AT THE PRINCIPAL OFFICES OF THE ISSUER. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE. 15.2 TRANSFER RESTRICTIONS RELATING TO ADDITIONAL CONSIDERATION. No Stockholder shall (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any right to receive any consideration pursuant to Section II of Annex I to this Agreement (the "Additional Consideration Right") or any securities convertible into, exchangeable or exercisable for any Additional Consideration Right, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any Additional Consideration Right, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of any Additional Consideration Right, whether any such swap or transaction is to be settled by delivery of shares of AmPaM Stock or other securities, by the delivery or payment of cash or otherwise. 16. FEDERAL SECURITIES ACT REPRESENTATIONS 16.1 COMPLIANCE WITH LAW. Each Stockholder acknowledges that the shares of AmPaM Stock, the Additional Consideration Right and any AmPaM Notes to be delivered to such Stockholder pursuant to this Agreement have not been and will not be registered under the 1933 Act (except as provided in Section 17 hereof) and therefore may not be sold, assigned, exchanged, transferred, pledged or otherwise disposed of without compliance with the 1933 Act which, among other matters, would require registration under the 1933 Act unless exemption from the registration requirements is available for such transaction. The AmPaM Stock, the Additional Consideration Right and any AmPaM Notes to be acquired by each Stockholder pursuant to this Agreement is being acquired solely for such Stockholder's own account, for investment purposes only, and with no present intention of selling, assigning, exchanging, transferring, pledging, or otherwise disposing of it. Each Stockholder covenants, warrants and represents that neither the shares of AmPaM Stock, the Additional Consideration Right nor any AmPaM Notes issued to such Stockholder will be offered, sold, assigned, exchanged, pledged, transferred or otherwise disposed of except after full compliance with all of the applicable provisions of the 1933 Act and the rules and regulations of the SEC. All certificates representing the AmPaM Stock shall bear the following legend in addition to the legend required under Section 15 of this Agreement: THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE FEDERAL AND STATE SECURITIES LAWS. 53 62 16.2 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear the economic risk of an investment in the AmPaM Stock and AmPaM Notes to be acquired pursuant to this Agreement and can afford to sustain a total loss of such investment. Each Stockholder has substantial knowledge and experience in making investment decisions of this type (or is relying on qualified purchaser representatives with such knowledge and experience in making this decision), and is capable, either individually or with such purchaser representatives, of evaluating the merits and risks of this investment. Each Stockholder has had an adequate opportunity to ask questions and receive answers from the officers of AmPaM concerning any and all matters relating to the transactions described herein including, without limitation, the background and experience of the current and proposed officers and directors of AmPaM, the plans for the operations of the business of AmPaM, the business, operations and financial condition of the Founding Companies other than the Company, and any plans for additional acquisitions. Each Stockholder has asked any and all questions of the nature described in the preceding sentence and all questions have been answered to such Stockholder's satisfaction. Except as set forth on Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule 501(a) of the 1933 Act. Neither the foregoing nor any investigation made by the Stockholders referred to above shall in any way affect the representations, warranties, covenants and agreements of AmPaM made herein except to the extent that AmPaM is relying upon the representations of the Stockholders in Section 16.1 and in this Section 16.2 for purposes of AmPaM's representations and warranties in Sections 6.9, 6.11, 6.15 and 6.17 hereof as specified therein. 16.3 RELIANCE BY AMPAM. Each Stockholder acknowledges that AmPaM in relying upon the representations and covenants of such Stockholder set forth in Section 16.1 and Section 16.2 for purposes of compliance by AmPaM with Federal and state securities laws related to the issuance of AmPaM Stock pursuant to this Agreement and the Other Agreements. 17. REGISTRATION RIGHTS 17.1 PIGGYBACK REGISTRATION RIGHTS. Whenever AmPaM proposes to register any AmPaM Stock for its own or other's account under the 1933 Act for a public offering, other than (i) any shelf or other registration of shares to be used as consideration for acquisitions of additional businesses by AmPaM and (ii) registrations relating to employee benefit plans, AmPaM shall give each of the Stockholders prompt written notice of its intent to do so. Upon the written request of any of the Stockholders given within 15 calendar days after receipt of such notice, notwithstanding the provisions of Section 15 (except as specified below with respect to an IPO), AmPaM shall cause to be included in such registration all of the AmPaM Stock issued to such Stockholders pursuant to this Agreement (including any stock issued as or issuable upon the conversion or exchange of any convertible security, warrant, right or other security which is issued by AmPaM as a stock split, dividend or other distribution with respect to, or in exchange for, or in replacement of such AmPaM Stock) which any such Stockholder requests, other than shares of AmPaM Stock which may then be immediately sold under Rule 144(k) (or any similar or successor provision) promulgated under the 1933 Act, and other than shares of AmPaM Stock that have been theretofore sold by the Stockholder in accordance with the 1933 Act, provided that AmPaM shall have the right to reduce pro rata the 54 63 number of shares of each selling Stockholder included in such registration to the extent that inclusion of such shares would, in the written opinion of tax counsel to AmPaM or its independent auditors, jeopardize the status of the transactions contemplated hereby and by the Private Placement Memorandum as a tax-free organization under Section 351 of the Code; provided, however, that with respect to a proposal by AmPaM to register AmPaM Stock under the 1933 Act in connection with an IPO, no Stockholder shall be permitted pursuant to this Section 17.1 to have included in such registration more shares of AmPaM Stock than permitted to be sold by such Stockholder pursuant to Section 15.1. In addition, if AmPaM is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under this Section 17.1 that the number of shares to be sold by persons other than AmPaM is greater than the number of such shares which can be offered without adversely affecting the success of the offering, AmPaM may reduce pro rata (among the Stockholders and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. If any Stockholder disapproves of the terms of the underwriting, that Stockholder may elect to withdraw therefrom by written notice to AmPaM and the managing underwriter. That Stockholder's shares of AmPaM Stock so withdrawn shall also be withdrawn from registration; provided, however, that, if by the withdrawal of such shares a greater number of shares of AmPaM Stock held by other Stockholders may be included in such registration, then AmPaM shall offer to all other Stockholders of AmPaM the right to include additional shares in the same proportion used in effecting the above limitations. AmPaM shall not, for a period of two years following the Closing Date, grant to any other person any rights to cause AmPaM to register any securities in priority over, or in precedent to, the rights granted to the Stockholders hereunder and to the stockholders of the Other Founding Companies pursuant to Section 17 of the Other Agreements. 17.2 REGISTRATION PROCEDURES. Whenever AmPaM is required to register shares of AmPaM Stock pursuant to Section 17.1, AmPaM will, as expeditiously as possible: (i) Prepare and file with the SEC a registration statement with respect to such shares and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements or term sheets thereto, AmPaM will furnish a representative of the Stockholders with copies of all such documents proposed to be filed) as promptly as practical; (ii) Notify the Stockholders of any stop order issued or threatened by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered; (iii) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 120 days, cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the 1933 Act; and comply with the 55 64 provisions of the 1933 Act applicable to it with respect to the disposition of all securities covered by such registration statement during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement or supplement to the prospectus; (iv) Furnish to each Stockholder who so requests such number of copies of such registration statement, each amendment and supplement thereto and the prospectus included in such registration statement (including each preliminary prospectus and any term sheet associated therewith), and such other documents as such Stockholder may reasonably request in order to facilitate the disposition of the relevant shares; (v) Make "generally available to its security holders" (within the meaning of Rule 158) an earnings statement satisfying the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no later than 90 days after the end of the 12-month period beginning with the first day of AmPaM's first fiscal quarter commencing after the effective date of the registration statement; (vi) Make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible moment; (vii) If requested by the managing underwriter or underwriters, if any, or any participating Stockholder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters or any participating Stockholder, as the case may be, reasonably requests to be included therein, including, without limitation, information with respect to the number of shares of AmPaM Stock being sold by participating Stockholders to any underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any other terms of an underwritten offering of the shares of AmPaM Stock to be sold in such offering, and promptly make all required filings of such prospectus by supplement or post-effective amendment; (viii) Make available for inspection by participating Stockholders, any underwriter participating in any disposition pursuant to such registration statement, and the counsel retained by the participating Stockholders, counsel for the underwriters and any accountant or other agent retained by participating Stockholders or any such underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of AmPaM (the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause AmPaM's officers, directors and employees to supply all information reasonably requested by any such Inspectors in connection with such registration statement; provided, that records which AmPaM determines, in good faith, to be confidential and which AmPaM notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement or 56 65 (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction after delivery of sufficient notice to AmPaM to enable AmPaM to contest such subpoena or order; (ix) Take all other steps reasonably necessary to effect the registration of the shares of AmPaM Stock contemplated hereby; (x) Use its best efforts to register or qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Stockholders, and to keep such registration or qualification effective during the period such registration statement is required to be kept effective, provided that AmPaM shall not be required to become subject to taxation, to qualify generally to do business or to file a general consent to service of process in any such states or jurisdictions; (xi) Cause all such shares of AmPaM Stock to be listed or included not later than the date of the first sale of shares of AmPaM Stock under such registration statement on any securities exchanges or trading systems on which similar securities issued by AmPaM are then listed or included; and (xii) Notify each Stockholder at any time when a prospectus relating thereto is required to be delivered under the 1933 Act within the period that AmPaM is required to keep the registration statement effective of the happening of any event as a result of which the prospectus included in such registration statement (as then in effect), together with any associated term sheet, contains an untrue statement of a material fact or omits to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading, and, at the request of such Stockholder, AmPaM promptly will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of the covered shares, such prospectus will not contain an untrue statement of material fact or omit to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading. All expenses incurred in connection with the registration under this Article 17 and compliance with securities and blue sky laws (including all registration, filing, listing, escrow agent, qualification, legal, printer and accounting fees, but excluding underwriting commissions and discounts), shall be borne by AmPaM. 57 66 17.3 INDEMNIFICATION. (a) In connection with any registration under Section 17.1, AmPaM shall indemnify, to the extent permitted by law, each selling Stockholder (an "Indemnified Party") against all losses, claims, damages, liabilities and expenses arising out of or resulting from any untrue or alleged untrue statement of material fact contained or incorporated by reference in any registration statement, prospectus or preliminary prospectus or associated term sheet or any omission or alleged omission to state or incorporated by reference therein a material fact required to be stated or incorporated by reference therein or necessary to make the statements therein not misleading except insofar as the same are caused by or contained in or omitted from any information furnished in writing to AmPaM by such Indemnified Party expressly for use therein or by any Indemnified Parties' failure to deliver a copy of the registration statement or prospectus or any amendment or supplements thereto after AmPaM has furnished such Indemnified Party with a sufficient number of copies of the same. (b) In connection with any registration under Section 17.1, each selling Stockholder shall furnish to AmPaM in writing such information concerning the Stockholder and his or her proposed offering of shares as is reasonably requested by AmPaM for use in any such registration statement or prospectus and will indemnify, to the extent permitted by law, AmPaM, its directors and officers and each person who controls AmPaM (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of a material fact or any omission or alleged omission to state therein a material fact required to be stated in the registration statement or prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, but only to the extent that such untrue or alleged untrue statement or omission or alleged omission is contained in or omitted from information so furnished in writing to AmPaM by such Stockholder expressly for use in the registration statement. Notwithstanding the foregoing, the liability of a Stockholder under this Section 17.3 shall be limited to an amount equal to the net proceeds actually received by such Stockholder from the sale of the relevant shares covered by the registration statement. (c) Any person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified parties' reasonable judgment, a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. Any failure to give prompt notice shall deprive a party of its right to indemnification hereunder only to the extent that such failure shall have adversely affected the indemnifying party. If the defense of any claim is assumed, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent shall not be unreasonably withheld). An indemnifying party that is not entitled or elects not, to assume the defense of a claim, will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, a 58 67 conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. 17.4 UNDERWRITING AGREEMENT. In connection with each registration pursuant to Sections 17.1 covering an underwritten registered offering, (i) each participating Stockholder shall execute and deliver to AmPaM a written power of attorney instrument that (A) appoints an officer of AmPaM as such Stockholder's attorney-in-fact for purposes of executing and delivering an underwriting agreement among AmPaM, the underwriters named therein and such Stockholder specifying the terms and conditions applicable to the sale of AmPaM Stock of such Stockholder in such offering and (B) otherwise is in such form and containing such provisions as are customary in the securities business for such an arrangement in connection with an underwritten registered offering in which one or more stockholders of the issuer are participants, including a provision that authorizes the attorney-in-fact appointed by such Stockholder to execute and deliver such an underwriting agreement in the event that the net price per share to be received by such Stockholder from the sale of the shares of AmPaM Stock to be sold in such offering is not less than a price specified in such instrument and (iii) AmPaM and each participating Stockholder agree to enter into a written agreement with the managing underwriters in such form and containing such provisions as are customary in the securities business for such an arrangement between such managing underwriters and companies of AmPaM's size and investment stature, including indemnification; provided, however, that (A) such Stockholder shall be exempt and excluded from any indemnification of the managing underwriters other than with respect to information provided by such Stockholder with respect to such Stockholder to AmPaM or the managing underwriters specifically for inclusion in any such registration statement and (B) such Stockholder shall not be obligated to enter into such an underwriting agreement in the event that the net price per share to be received by such Stockholder from the sale of shares of AmPaM Stock to be sold in such offering is less than the floor price specified in the power of attorney instrument executed and delivered to AmPaM pursuant to clause (i) above. 17.5 TRANSFER OF RIGHTS. The right to cause AmPaM to register shares of AmPaM Stock under this Agreement may be assigned to a transferee or assignee of any Stockholder to the extent that such transferee or assignee is a member of the immediate family of a Stockholder, a trust, limited partnership or other estate planning entity for the benefit of any such persons or a charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code. 17.6 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the SEC that may permit the sale of AmPaM stock to the public without registration, following an IPO AmPaM agrees to use its reasonable efforts, from and after the completion of an IPO, to: (i) make and keep public information regarding AmPaM available as those terms are understood and defined in Rule 144 under the 1933 Act beginning 90 days following the effective date of a registration statement relating to an IPO; 59 68 (ii) file with the SEC in a timely manner all reports and other documents required of AmPaM under the 1933 Act and the 1934 Act at any time after it has become subject to such reporting requirements; and (iii) so long as a Stockholder owns any restricted AmPaM Stock, furnish to each Stockholder forthwith upon written request a written statement by AmPaM as to its compliance with the current public information requirements of Rule 144 (at any time from and after 90 days following the effective date of a registration statement relating to an IPO), and of the 1933 Act and the 1934 Act (any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of AmPaM, and such other reports and documents so filed as a Stockholder may reasonably request in availing itself of any rule or regulation of the SEC allowing a Stockholder to sell any such shares without registration. 18. REDEMPTION OF AMPAM STOCK 18.1 REDEMPTION TRIGGER. In the event that, within three years of the Closing Date, (i) AmPaM has not consummated an IPO and (ii) any Stockholder has not received cash (including proceeds from the public or private sale of AmPaM Stock received as consideration hereunder and the receipt of principal payments, if any, made with respect to AmPaM Notes held by such Stockholder) equal to or exceeding 50% of the Aggregate Consideration on or prior to the third anniversary of the Closing Date, such Stockholder shall have the right (the "Put Right"), but not the obligation, commencing on the third anniversary date of the Closing Date to require AmPaM to purchase a number of shares of AmPaM Stock then owned by such Stockholder, subject to the limitations set forth in Section 18.2 below. The purchase price for such redemption shall be $13.00 per share, such price to be subject to appropriate adjustment to reflect any reclassification, stock dividend, subdivision, split-up or combination of shares of AmPaM Stock after the date hereof. 18.2 MINIMUM REDEMPTION; LIMITATIONS. If the events specified in Section 18.1(i) and 18.1(ii), with Section 18.1(ii) being determined on an individual Stockholder basis, have not occurred within the time specified, AmPaM shall be obligated to purchase from each eligible Stockholder no less than 10% of the AmPaM Stock held by such Stockholder annually; provided, however, that the Stockholders shall not be entitled to exercise their Put Rights if and to the extent the Company has not achieved the Target Net Income (as defined in Annex I hereto) for the year preceding the year in which a Stockholder seeks to exercise his Put Right. The redemptions will be funded by internal cash flows or alternative financing arrangements but AmPaM's obligation to make any redemption pursuant to this Section 18 will be subject to the covenants and restrictions contained in AmPaM's then existing private or public debt or equity instruments. 60 69 18.3 NOTICE; EXERCISE. The Stockholders may exercise their Put Right by giving written notice (the "Put Notice") to AmPaM within thirty (30) days of the third anniversary of the execution hereof. If any Stockholder does not provide AmPaM with a Put Notice within such thirty-day period, the Put Right applicable to such Stockholder shall expire. The date for closing the sale of any shares of AmPaM Stock pursuant to a proper exercise of a Put Right shall in no event be earlier than 90 days after the date AmPaM receives the Put Notice. Any such closing shall be at such time of day and place as shall be mutually agreed between such holder and AmPaM. At such closing AmPaM shall make payment for the AmPaM Stock to be repurchased by wire transfer of immediately available funds to a bank account designated by such Stockholder for such purpose and such Stockholder shall deliver to AmPaM certificates, duly endorsed for transfer, representing the shares of AmPaM Stock to be purchased and sold pursuant to the exercise of such Put Right. 18.4 ADDITIONAL REDEMPTIONS. In the event AmPaM has not consummated an IPO and notwithstanding the foregoing, to the extent the Stockholders who have received greater than 50% of their Aggregate Consideration in cash wish to tender AmPaM Stock to AmPaM for purchase, AmPaM will use its commercially reasonable efforts to continue to repurchase up to 10% of the AmPaM Stock held by such Stockholder annually. 18.5 TERMINATION OF REDEMPTION OBLIGATION. Put Rights with respect to any individual Stockholder will terminate upon receipt by such Stockholder of 50% of his Aggregate Consideration in cash; such termination will not, however, limit such Stockholders ability to participate in the additional redemptions provided in Section 18.4. Notwithstanding the foregoing, all of AmPaM's redemption obligations contained in this Section 18 shall terminate on the earlier to occur of (i) an IPO, (ii) any sale of all or substantially all of AmPaM's assets in one transaction or series of transactions, (iii) any merger or consolidation which involves AmPaM and in which AmPaM is not the surviving entity or (iv) any transaction after which the shares of AmPaM Common Stock, if any, which are then held by persons other than the holders of AmPaM Common Stock as of the Closing Date constitute 50% or more of AmPaM Common Stock outstanding as of the date of the consummation of such transaction. 19. GENERAL 19.1 COOPERATION. The Company, Stockholders and AmPaM shall each deliver or cause to be delivered to the other on the Closing Date, and at such other times and places as shall be reasonably agreed to, such additional instruments as the other may reasonably request for the purpose of carrying out this Agreement. The Company will cooperate and use its reasonable efforts to have the present officers, directors and employees of the Company cooperate with AmPaM on and after the Closing Date in furnishing information, evidence, testimony and other assistance in connection with any tax return filing obligations, actions, proceedings, arrangements or disputes of any nature with respect to matters pertaining to all periods prior to the Closing Date. 61 70 19.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties hereunder may not be assigned (except by operation of law and except as provided in Section 17.5) and shall be binding upon and shall inure to the benefit of the parties hereto, the successors of AmPaM and the Company, and the heirs, successors and legal representatives of the Stockholders. 19.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits and annexes attached hereto) and the documents delivered pursuant hereto constitute the entire agreement and understanding among the Stockholders, the Company and AmPaM and supersede any prior agreement and understanding relating to the subject matter of this Agreement. This Agreement, upon execution, constitutes a valid and binding agreement of the parties hereto enforceable in accordance with its terms and may be modified or amended only by a written instrument executed by the Stockholders, the Company and AmPaM, acting through their respective officers or trustees, duly authorized by their respective Boards of Directors. Any disclosure made on any Schedule delivered pursuant hereto shall be deemed to have been disclosed for purposes of any other Schedule required hereby, provided that the Company shall make a good faith effort to cross reference disclosure, as necessary or advisable, between related Schedules. 19.4 COUNTERPARTS. This Agreement may be executed simultaneously in two (2) or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument. A telecopied facsimile of an executed counterpart of this Agreement shall be sufficient to evidence the binding agreement of each party to the terms hereof. However, each party agrees to return to the other parties an original, duly executed counterpart of this Agreement promptly after delivery of a telecopied facsimile thereof. 19.5 BROKERS AND AGENT. Except as disclosed on Schedule 18.5, each party hereto represents and warrants that it employed no broker or agent in connection with this transaction and agrees to indemnify the other parties hereto against all loss, cost, damages or expense arising out of claims for fees or commission of brokers employed or alleged to have been employed by such indemnifying party. 19.6 EXPENSES. Whether or not the transactions herein contemplated shall be consummated, AmPaM will pay the reasonable fees, expenses and disbursements of AmPaM and its agents, representatives, accountants and counsel incurred in connection with the subject matter of this Agreement and any amendments thereto, including all costs and expenses incurred in the performance and compliance with all conditions to be performed by AmPaM under this Agreement, including the fees and expenses of Arthur Andersen LLP, Andrews & Kurth L.L.P., and any other person or entity retained by AmPaM, and the costs of preparing the Private Placement Memorandum incurred in connection with the subject matter of this Agreement and any amendments thereto. In addition, whether or not the transactions contemplated herein shall be consummated, AmPaM will pay the reasonable fees and expenses of Bracewell & Patterson LLP incurred on behalf of the Company and the Stockholders in connection with the subject matter of this Agreement. Whether or not the transactions herein contemplated shall be consummated, the Company will pay all of its costs and expenses incurred on behalf of the Company and the Stockholders in connection with the 62 71 subject matter of this Agreement except that (i) the Company shall not be required to pay any of the costs, fees and expenses specified above as to which AmPaM is responsible for the payment thereof and (ii) neither the Company nor the Stockholders shall be responsible for the payment of the costs, fees and expenses incurred by or on behalf of AmPaM. Whether or not the transactions herein contemplated shall be consummated, AmPaM shall reimburse Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any of the foregoing fees, expenses and disbursements paid by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) and shall repay Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any loans or advances made by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for the purpose of providing AmPaM funds to pay any such fees, expenses and disbursements, provided that such reimbursement and loan repayment obligation shall be limited to the foregoing fees, expenses, and disbursements which are out-of-pocket expenses of AmPaM, Sterling City Capital, LLC or any person or entity which is an Affiliate thereof. Sterling City Capital, LLC shall be reimbursed by AmPaM in the form of AmPaM Notes. AmPaM retains the right, within a reasonable period following the Closing Date, to conduct an audit of the expenses for which Sterling City Capital, LLC is reimbursed. Each Stockholder shall pay all sales, use, transfer, real property transfer, recording, gains, stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in connection with the purchase and sale of the Company Stock, other than Transfer Taxes, if any, imposed by the State of Delaware. Each Stockholder shall file all necessary documentation and Returns with respect to such Transfer Taxes. In addition, each Stockholder acknowledges that he, and not the Company or AmPaM, will pay all Taxes due by him upon receipt of the consideration payable pursuant to Section 1 hereof. The Stockholders acknowledge that the risks of the transactions contemplated hereby include Tax risks, with respect to which the Stockholders are relying substantially on the opinion contemplated by Section 8.12 hereof and representations by AmPaM in this Agreement. 19.7 NOTICES. All notices of communication required or permitted hereunder shall be in writing and may be given by depositing the same in United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested, or by delivering the same in person or via a nationally recognized courier service to an officer or agent of such party. (a) If to AmPaM addressed to it at: American Plumbing & Mechanical, Inc. 515 Post Oak Blvd., Suite 450 Houston, Texas 77027 Attention: Chief Executive Officer with copies to: Thomas P. Mason Andrews & Kurth L.L.P. 4200 Chase Tower Houston, Texas 77002 63 72 (b) If to the Stockholders, addressed to them at their addresses set forth on the signature pages hereto. (c) If to the Company, addressed to it at: Robert C. Richey R.C.R. Plumbing, Inc. 12620 Magnolia Ave. Riverside, California 92503 or to such other address or counsel as any party hereto shall specify pursuant to this Section 18.7 from time to time. 19.8 GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of Texas, excluding any conflicts of law, rule or principle that might refer same to the laws of another jurisdiction. 19.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations, warranties, covenants and agreements of the parties made herein and at the time of the Closing or in writing delivered pursuant to the provisions of this Agreement shall survive the consummation of the transactions contemplated hereby and any examination on behalf of the parties until the respective Expiration Dates referred to herein with respect thereto or, if no Expiration Date is applicable with respect thereto, until the expiration of all applicable statute of limitations periods. 19.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided herein, no delay of or omission in the exercise of any right, power or remedy accruing to any party as a result of any breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver. 19.11 TIME. Time is of the essence with respect to this Agreement. 19.12 REFORMATION AND SEVERABILITY. In case any provision of this Agreement shall be invalid, illegal or unenforceable, it shall, to the extent possible, be modified in such manner as to be valid, legal and enforceable but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement, and in either case the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. No provision of this Agreement shall be interpreted or construed against any party solely because that party or its legal representative drafted such provision. 64 73 19.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term of this Agreement shall be deemed exclusive but each shall be cumulative with all other rights, remedies and elections available at law or in equity. 19.14 CAPTIONS. The headings of this Agreement are inserted for convenience only, shall not constitute a part of this Agreement or be used to construe or interpret any provision hereof. 19.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived only with the written consent of AmPaM, the Company and Stockholders who would receive a majority of the Aggregate Consideration specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated. Any amendment or waiver effected in accordance with this Section 19.15 shall be binding upon each of the parties hereto, any other person receiving AmPaM Stock in connection with the purchase and sale of the Company Stock and each future holder of such AmPaM Stock. Any consent of the Stockholders who would receive a majority of the Aggregate Consideration pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated shall be deemed to be the consent of the Stockholders for purposes of provisions of this Agreement as to which a consent of the Stockholders may be requested or required. 19.16 MEDIATION AND ARBITRATION. If a dispute arises out of or relates to this Agreement, or the breach thereof, and if said dispute cannot be settled through direct discussions, the parties agree to first endeavor to settle the dispute in an amicable manner by mediation administered by the American Arbitration Association under its then prevailing Commercial Mediation Rules, before resorting to arbitration. Thereafter, any unresolved controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association in accordance with its then prevailing Commercial Arbitration Rules. The enforcement, interpretation and procedural and substantive effect of the obligation to arbitrate created by this Section 19.16 shall be governed by the Federal Arbitration Act as amended from time to time, 9 U.S.C. Section 1 et seq. The parties hereby disclaim any intention to have the substantive or procedural law of any state or other jurisdiction, other than the law of the United States as embodied in the Federal Arbitration Act, applied to such obligation. Any such mediation or arbitration proceeding will be conducted in Houston, Texas. 19.17 INFORMATION PROVIDED FOR PRIVATE PLACEMENT MEMORANDUM. For purposes of this Agreement, the information provided by the Company in writing specifically for inclusion in the Private Placement Memorandum shall include solely (i) the Financial Statements (in the form that they appear in the Private Placement Memorandum), (ii) any financial statements provided to AmPaM pursuant to Section 7.9, (iii) the description of the Company contained in the Private Placement Memorandum under the caption "The Company", (iv) the description of the Company's results of operations and its liquidity and capital resources, if any, contained in the Private Placement Memorandum under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and (v) the description, if any, of matters related to the Company contained in the Private Placement Memorandum under the caption "Certain Transactions Transactions involving Certain Officers, Directors and Stockholders". For purposes of this 65 74 Agreement, the information provided by a Stockholder in writing specifically for inclusion in the Private Placement Memorandum shall include only (i) the description, if any, of matters related to such Stockholder contained in the Private Placement Memorandum under the caption "Certain Transactions - Transactions involving Certain Officers, Directors and Stockholders" and (ii) the biographical description of such Stockholder, if any, contained in the Private Placement Memorandum under the caption "Management." 19.18 EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective upon (i) the execution and delivery of this Agreement by all of the parties hereto and (ii) the delivery to AmPaM of each Employment Agreement attached hereto. 66 75 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. AMERICAN PLUMBING & MECHANICAL, INC. By: /s/ DAVID BAGGETT ------------------------------------- Name: David Baggett ----------------------------------- Title: Chief Financial Officer ---------------------------------- R.C.R. PLUMBING, INC. By: /s/ ROBERT C. RICHEY ------------------------------------- Robert C. Richey Chief Executive Officer By: /s/ MICHAEL A. MAHONY ------------------------------------- Michael A. Mahony Chief Financial Officer [Remainder of page intentionally left blank] 67 76 STOCKHOLDERS: SPOUSES (WITHOUT PERSONAL LIABILITY AND SOLELY TO ACKNOWLEDGE THE SALE OF THE COMPANY STOCK BY THE STOCKHOLDER): ROBERT C. RICHEY FAMILY TRUST, 1/20/97 By: /s/ ROBERT C. RICHEY ------------------------------------ Robert C. Richey, Trustee 1215 Seacrest Drive Corona Del Mar, California 92625 BAKER FAMILY TRUST, 6/3/97 By: /s/ THOMAS L. BAKER ------------------------------------ Thomas L. Baker, Trustee 6863 Canyon Hill Drive Riverside, California 92506 By: /s/ LINDA S. BAKER ------------------------------------ Linda S. Baker, Trustee 6863 Canyon Hill Drive Riverside, California 92506 68 EX-10.11 16 ACQUISITION AGMT. - TEEPE'S RIVER CITY MECH. 1 EXHIBIT 10.11 Execution Copy - -------------------------------------------------------------------------------- ACQUISITION AGREEMENT dated as of the 11th day of February, 1999 by and among AMERICAN PLUMBING & MECHANICAL, INC. TEEPE'S RIVER CITY MECHANICAL, INC. and all of the STOCKHOLDERS of TEEPE'S RIVER CITY MECHANICAL, INC. - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page RECITALS .....................................................................................1 1. ACQUISITION OF STOCK.................................................................5 1.1 Acquisition.................................................................5 1.2 Consideration...............................................................5 1.3 Certain Information With Respect to the Capital Stock of the Company and AmPaM...................................................................5 2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY.......................................5 2.1 Board of Directors..........................................................5 2.2 Officers....................................................................5 3. DELIVERY OF CONSIDERATION............................................................6 3.1 Stockholders' Consideration.................................................6 3.2 Stockholders' Deliveries....................................................6 4. CLOSING..............................................................................6 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................6 5.1 Due Organization............................................................7 5.2 Authorization...............................................................7 5.3 Capital Stock of the Company................................................7 5.4 Transactions in Capital Stock...............................................8 5.5 No Bonus Shares.............................................................8 5.6 Subsidiaries; Ownership in Other Entities...................................8 5.7 Predecessor Status; etc.....................................................8 5.8 Spin-off by the Company.....................................................8 5.9 Financial Statements........................................................8 5.10 Liabilities and Obligations.................................................9 5.11 Accounts and Notes Receivable..............................................10 5.12 Licenses; Intellectual Property............................................10 5.13 Environmental Matters......................................................11 5.14 Personal Property..........................................................13 5.15 Significant Customers; Material Contracts and Commitments..................13 5.16 Real Property..............................................................14 5.17 Insurance..................................................................14 5.18 Compensation; Employment Agreements; Labor Matters.........................15 5.19 Employee Plans.............................................................15 5.20 Compliance with ERISA......................................................16 5.21 Conformity with Law; Litigation............................................17
-i- 3 5.22 Taxes......................................................................17 5.23 No Violations; No Consent Required, Etc....................................18 5.24 Government Contracts.......................................................19 5.25 Absence of Changes.........................................................19 5.26 Deposit Accounts; Powers of Attorney.......................................21 5.27 Validity of Obligations....................................................21 5.28 Relations with Governments.................................................21 5.29 Disclosure.................................................................21 5.30 No Warranties or Insurance.................................................21 5.31 Interest in Customers and Suppliers and Related Party Transactions.........22 5.32 Private Placement Memorandum...............................................22 5.33 Authority; Ownership.......................................................22 5.34 Preemptive Rights..........................................................23 5.35 No Commitment to Dispose of AmPaM Stock....................................23 5.36 Disclosure.................................................................23 6. REPRESENTATIONS OF AMPAM............................................................23 6.1 Due Organization...........................................................24 6.2 Authorization..............................................................24 6.3 Capital Stock of AmPaM.....................................................24 6.4 Transactions in Capital Stock..............................................24 6.5 Subsidiaries...............................................................25 6.6 Financial Statements.......................................................25 6.7 Liabilities and Obligations................................................25 6.8 Conformity with Law; Litigation............................................25 6.9 No Violations..............................................................26 6.10 Validity of Obligations....................................................27 6.11 AmPaM Stock................................................................27 6.12 AmPaM Notes................................................................28 6.13 No Side Agreements.........................................................28 6.14 Business; Real Property; Material Agreements...............................28 6.15 Relations with Governments.................................................28 6.16 Disclosure.................................................................29 6.17 Other Agreements...........................................................29 7. COVENANTS PRIOR TO CLOSING..........................................................29 7.1 Access and Cooperation; Due Diligence; Transfer of Real Estate.............29 7.2 Conduct of Business Pending Closing........................................30 7.3 Prohibited Activities......................................................31 7.4 No Shop....................................................................32 7.5 Agreements.................................................................32 7.6 Notification of Certain Matters............................................33 7.7 Amendment of Schedules.....................................................33 7.8 Further Assurances.........................................................33 7.9 Authorized Capital.........................................................34 7.10 Compliance with the Hart-Scott Act.........................................34
-ii- 4 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.........................................................................34 8.1 Representations and Warranties; Performance of Obligations.................34 8.2 Satisfaction...............................................................34 8.3 No Litigation..............................................................34 8.4 Opinion of Counsel.........................................................35 8.5 Consents and Approvals.....................................................35 8.6 Good Standing Certificates.................................................35 8.7 No Material Adverse Change.................................................35 8.8 Secretary's Certificate....................................................35 8.9 Tax Matters................................................................35 8.10 Other Founding Companies...................................................35 8.11 Company Release of Stockholders............................................36 8.12 Sterling City Capital Transfer Restrictions................................36 8.13 Election of Chief Executive Officer........................................36 8.14 Funding Availability.......................................................36 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF AMPAM........................................36 9.1 Representations and Warranties; Performance and Obligations................36 9.2 No Litigation..............................................................37 9.3 Secretary's Certificate....................................................37 9.4 No Material Adverse Effect.................................................37 9.5 Stockholders' Release......................................................37 9.6 Satisfaction...............................................................37 9.7 Termination of Related Party Agreements....................................37 9.8 Opinion of Counsel.........................................................38 9.9 Consents and Approvals.....................................................38 9.10 Good Standing Certificates.................................................38 9.11 Funding Availability.......................................................38 9.12 FIRPTA Certificate.........................................................38 9.13 Resignations of Directors and Officers.....................................38 10. COVENANTS OF AMPAM AND THE STOCKHOLDERS AFTER CLOSING...............................39 10.1 Release From Guarantees; Repayment of Certain Obligations..................39 10.2 Preservation of Tax and Accounting Treatment...............................39 10.3 Preparation and Filing of Tax Returns; Payment of Taxes....................39 10.4 Directors..................................................................40 10.5 Legal Opinions.............................................................40 11. INDEMNIFICATION.....................................................................40 11.1 General Indemnification by the Stockholders................................40 11.2 Indemnification by AmPaM...................................................42 11.3 Third Person Claims........................................................42 11.4 Exclusive Remedy...........................................................43 11.5 Limitations on Indemnification.............................................44
-iii- 5 12. TERMINATION OF AGREEMENT............................................................45 12.1 Termination................................................................45 12.2 Procedure and Effect of Termination........................................46 13. NONCOMPETITION......................................................................46 13.1 Prohibited Activities......................................................47 13.2 Damages....................................................................47 13.3 Reasonable Restraint.......................................................48 13.4 Severability; Reformation..................................................48 13.5 Independent Covenant.......................................................48 13.6 Materiality................................................................48 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...........................................48 14.1 Stockholders...............................................................48 14.2 AmPaM......................................................................49 14.3 Damages....................................................................50 14.4 Survival...................................................................50 14.5 Return of Information......................................................50 15. TRANSFER RESTRICTIONS...............................................................50 15.1 Transfer Restrictions Relating to AmPaM Stock and AmPaM Notes..............50 15.2 Transfer Restrictions Relating to Additional Consideration.................51 16. FEDERAL SECURITIES ACT REPRESENTATIONS..............................................52 16.1 Compliance with Law........................................................52 16.2 Economic Risk; Sophistication..............................................52 16.3 Reliance by AmPaM..........................................................53 17. REGISTRATION RIGHTS.................................................................53 17.1 Piggyback Registration Rights..............................................53 17.2 Registration Procedures....................................................54 17.3 Indemnification............................................................56 17.4 Underwriting Agreement.....................................................57 17.5 Transfer of Rights.........................................................58 17.6 Rule 144 Reporting.........................................................58 18. REDEMPTION OF AMPAM STOCK...........................................................58 18.1 Redemption Trigger.........................................................58 18.2 Minimum Redemption; Limitations............................................59 18.3 Notice; Exercise...........................................................59 18.4 Additional Redemptions.....................................................59 18.5 Termination of Redemption Obligation.......................................59
-iv- 6 19. GENERAL.............................................................................60 19.1 Cooperation................................................................60 19.2 Successors and Assigns.....................................................60 19.3 Entire Agreement...........................................................60 19.4 Counterparts...............................................................60 19.5 Brokers and Agent..........................................................61 19.6 Expenses...................................................................61 19.7 Notices....................................................................62 19.8 Governing Law..............................................................63 19.9 Survival of Representations and Warranties.................................63 19.10 Exercise of Rights and Remedies............................................63 19.11 Time.......................................................................63 19.12 Reformation and Severability...............................................63 19.13 Remedies Cumulative........................................................63 19.14 Captions...................................................................63 19.15 Amendments and Waivers.....................................................64 19.16 Mediation and Arbitration..................................................64 19.17 Information Provided for Private Placement Memorandum......................64 19.18 Effective Date of Agreement................................................64
-v- 7 ANNEXES Annex I - Consideration to Be Paid to Stockholders Annex II - Amended and Restated Certificate of Incorporation and By-Laws of AmPaM Annex III - Form of Opinion of Counsel to AmPaM Annex IV - Form of Tax Opinion Annex V - Form of Opinion of Counsel to Company and Stockholders Annex VI-1 - Form of Employment Agreement Annex VI-2 - Form of Employment Agreement -vi- 8 SCHEDULES 2.1 Board of Directors 2.2 Officers 5.1 Due Organization 5.2 Authorization 5.3 Capital Stock of the Company 5.4 Transactions in Capital Stock; Organization Accounting 5.5 No Bonus Shares 5.6 Subsidiaries; Ownership in Other Entities 5.7 Predecessor Status; etc 5.8 Spin-off by the Company 5.9 Financial Statements 5.10 Liabilities and Obligations 5.11 Accounts and Notes Receivable 5.12 Licenses; Intellectual Property (Schedules 5.12(a)(1), 5.12(a)(2), 5.12(b)(1) and 5.12(b)(2)) 5.13 Environmental Matters 5.14 Personal Property 5.15 Significant Customers; Material Contracts and Commitments (Schedules 5.15(a), 5.15(b) and 5.15 (c)) 5.16 Real Property 5.17 Insurance 5.18 Compensation; Employment Agreements; Labor Matters 5.19 Employee Plans 5.20 Compliance with ERISA 5.21 Conformity with Law; Litigation 5.22 Taxes (Schedules 5.22(a) and 5.22(b)) 5.23 No Violations, No Consents Required, Etc. (Schedules 5.23(a), 5.23(b), 5.23(c) and 5.23(e)) 5.24 Government Contracts 5.25 Absence of Changes 5.26 Deposit Accounts; Powers of Attorney 5.30 No Warranties or Insurance 5.31 Interest in Customers and Suppliers and Related Party Transactions 5.33 Authority; Ownership (Schedules 5.33(a) and 5.33(b)) 6.9 No Violations 7.1 Access and Cooperation; Due Diligence; Transfer of Real Estate 7.2 Conduct of Business Pending Closing 7.3 Prohibited Activities 7.5 Agreements 8.11 Employment Agreements 9.7 Termination of Related Party Agreements 10.1 Release From Guarantees; Repayment of Certain Obligations 16.2 Non-accredited Investors 18.5 Brokers and Agents
-vii- 9 ACQUISITION AGREEMENT THIS ACQUISITION AGREEMENT (the "Agreement") is made as of the 11th day of February, 1999 by and among AMERICAN PLUMBING & MECHANICAL, INC., a Delaware corporation ("AmPaM"), TEEPE'S RIVER CITY MECHANICAL, INC., an Ohio corporation (the "Company"), and the stockholders listed on the signature pages of this Agreement (the "Stockholders"), which are all the stockholders of the Company. RECITALS WHEREAS, the Company is engaged in the plumbing and mechanical services business; WHEREAS, as of the date hereof, the Stockholders own, and as of the Closing Date the Stockholders will own, all of the issued and outstanding capital stock of the Company (the "Company Stock"); WHEREAS, AmPaM is entering into other separate agreements simultaneously with this Agreement that are substantially the same as this Agreement (the "Other Agreements"), each of which is entitled "Acquisition Agreement," with each of the Other Founding Companies (as defined herein) and their respective stockholders in order for AmPaM to acquire additional companies engaged in the plumbing and mechanical services business; WHEREAS, this Agreement and the Other Agreements constitute the "AmPaM Plan of Organization;" WHEREAS, the Stockholders and the boards of directors and the stockholders of AmPaM, and each of the Other Founding Companies that are parties to the Other Agreements, have approved and adopted the AmPaM Plan of Organization as an integrated plan pursuant to which the Stockholders and the stockholders of each of the other Founding Companies will contribute the capital stock of each of the Founding Companies to AmPaM, and the Stockholders and the stockholders of each of the other Founding Companies will acquire the stock of AmPaM (but not cash or other property) as a tax-free transfer of property under Section 351 of the Code; WHEREAS, in consideration of the agreements of the Other Founding Companies pursuant to the Other Agreements, the Stockholders have approved this Agreement as part of the AmPaM Plan of Organization in order to transfer all of the issued and outstanding capital stock of the Company to AmPaM; and NOW, THEREFORE, in consideration of the premises and of the mutual agreements, representations, warranties, provisions and covenants herein contained, the parties hereto hereby agree as follows: 10 Unless the context otherwise requires, capitalized terms used in this Agreement or in any schedule attached hereto and not otherwise defined shall have the following meanings for all purposes of this Agreement: "1933 Act" means the Securities Act of 1933, as amended. "Acquired Party" means the Company, any subsidiary of the Company and any member of a Relevant Group. "Affiliates" means with respect to any person or entity, any other person or entity that directly or indirectly, controls, is controlled by, or is under common control with such person or entity. "AmPaM" has the meaning set forth in the first paragraph of this Agreement. "AmPaM Charter Documents" has the meaning set forth in Section 6.1. "AmPaM Plan of Organization" has the meaning set forth in the recitals of this Agreement. "AmPaM Stock" means the common stock, par value $.01 per share, of AmPaM. "AmPaM Notes" means those notes issued by AmPaM to the Stockholders as a portion of the consideration to be received hereunder and in substantially the form to Annex I as Appendix A. "Balance Sheet Date" has the meaning set forth in Section 5.9. "Charter Documents" has the meaning set forth in Section 5.1. "Closing" has the meaning set forth in Section 4. "Closing Date" has the meaning set forth in Section 4. "Code" means the Internal Revenue Code of 1986, as amended. "Company" has the meaning set forth in the first paragraph of this Agreement. "Company Stock" has the meaning set forth in the recitals of this Agreement. "Delaware GCL" means the General Corporation Law of the State of Delaware. "Environmental Laws" has the meaning set forth in Section 5.13(b). "Expiration Date" has the meaning set forth in Section 5(A) and Section 6, as applicable. 2 11 "Founding Companies" means the following companies: Christianson Enterprises, Inc., a Texas corporation; Christianson Services, Inc., a Texas corporation; GGR Leasing Corporation, a Texas corporation; J.A. Croson Company of Florida, a Florida corporation; J.A. Croson Company, an Ohio corporation; Franklin Fire Sprinkler Company, an Ohio corporation; Keith Riggs Plumbing, Inc., an Arizona corporation; Miller Mechanical Contractors, Inc., a Georgia corporation; Nelson Mechanical Contractors, Inc., a Florida corporation; Power Plumbing Inc., a Delaware corporation; R.C.R. Plumbing, Inc., a California corporation; Sherwood Mechanical, Inc., a California corporation; and Teepe's River City Mechanical, Inc., an Ohio corporation. "GAAP" means generally accepted accounting principles as consistently applied in the United States. "Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Hazardous Substance" has the meaning set forth in Section 5.13(c). "IPO" means a firm commitment underwritten initial public offering of AmPaM Stock managed by one or more nationally recognized national investment banking firms. "known" or "knowledge," when used in reference to a statement regarding the existence or absence of facts in this Agreement, is intended by the parties to mean that the only information to be attributed to such person is information actually known to (a) the person in the case of an individual, (b) in the case of a corporation or other entity other than the Company, an officer or director of such corporation or entity or (c) in the case of the Company and its Subsidiaries, an officer of the Company listed on Schedule 2.2 hereto, except for David Baggett. "Material Adverse Change" means a material adverse change in the business, operations, properties, assets or condition (financial or otherwise), of the subject entity and its subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on the business, operations, properties, assets or condition (financial or otherwise), of the subject entity and its subsidiaries taken as a whole. "Material Documents" has the meaning set forth in Section 5.23. 3 12 "Ordinary Course of Business" means the ordinary course of business consistent with past customs and practice (including with respect to quantity and frequency). "Other Agreements" has the meaning set forth in the recitals of this Agreement. "Other Founding Companies" means all of the Founding Companies other than the Company. "Plans" has the meaning set forth in Section 5.19. "Private Placement Memorandum" means the Private Placement Memorandum, dated as of February 11, 1999, provided to each Stockholder prior to the execution and delivery of this Agreement which sets forth certain information relating to the transactions contemplated by this Agreement and the Other Agreements. "Qualified Plans" has the meaning set forth in Section 5.20. "Relevant Group" means the Company and any affiliated, combined, consolidated, unitary or similar group of which the Company is or was a member. "Restricted Common Stock" has the meaning set forth in Section 1.3(ii). "Returns" means any returns, reports or statements (including any information returns) required to be filed for purposes of a particular Tax. "Schedule" means each Schedule attached hereto, which shall reference the relevant sections of this Agreement, on which parties hereto disclose information as part of their respective representations, warranties and covenants. "SEC" means the United States Securities and Exchange Commission. "State of Incorporation" means the State of Ohio. "Stockholders" has the meaning set forth in the first paragraph of this Agreement. "Subsidiaries" means with respect to a person or entity, any corporation or other entity in which such person or entity owns a 5% or greater ownership interest. "Tax" or "Taxes" means all federal, state, local or foreign net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value added, franchise, withholding, employment, excise, property, deed, stamp, alternative or add-on minimum, or other taxes, assessments, duties, fees, levies or other governmental charges, whether disputed or not, together with any interest, penalties, additions to tax or additional amounts with respect thereto. 4 13 1. ACQUISITION OF STOCK 1.1 ACQUISITION. Upon the terms and subject to the conditions contained in this Agreement and in reliance upon the representations, warranties, covenants and agreements contained in this Agreement, on the Closing Date, the Stockholders shall convey and transfer to AmPaM all of the issued and outstanding shares of Company Stock as set forth in Annex I hereto. 1.2 CONSIDERATION. The consideration for the Company Stock shall be as set forth on Annex I to this Agreement. 1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY AND AMPAM. The respective designations and numbers of outstanding shares and voting rights of each class of outstanding capital stock of the Company and AmPaM as of the date of this Agreement are as follows: (i) as of the date of this Agreement, the authorized and outstanding Company Stock is as set forth on Schedule 5.3 hereto; and (ii) immediately prior to the Closing Date, the authorized capital stock of AmPaM will consist of (A) 100,000,000 shares of AmPaM Stock, of which the number of issued and outstanding shares will be set forth in the Private Placement Memorandum, (B) 10,000,000 shares of redeemable preferred stock, of which the number of issued and outstanding shares will be set forth in the Private Placement Memorandum, and (C) 5,000,000 shares of Restricted Voting Common Stock, $.01 per value (the "Restricted Common Stock"), all of which will be issued and outstanding except as otherwise set forth in the Private Placement Memorandum. 2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY 2.1 BOARD OF DIRECTORS. The Company and the Stockholders shall take action, including solicitation of resignation of directors, necessary so that the Board of Directors of the Company as of the Closing Date shall consist only of the persons identified on Schedule 2.1 hereto. 2.2 OFFICERS. The Company and the Stockholders shall take action, including solicitation of resignation of officers, necessary so that the officers of the Company as of the Closing Date shall consist only of the persons identified on Schedule 2.2 hereto. 5 14 3. DELIVERY OF CONSIDERATION 3.1 STOCKHOLDERS' CONSIDERATION. On the Closing Date, the Stockholders shall, upon surrender of certificates evidencing the Company Stock, receive from AmPaM the respective number of shares of AmPaM Stock, the amount of cash and the principal amount of AmPaM Notes described on Annex I hereto specified with respect to each such Stockholder as payable on the Closing Date. All payments of cash shall be made by certified check or wire transfer of immediately available funds. Consideration consisting of AmPaM Notes shall be substantially in the form of Appendix A to Annex I. 3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at the Closing the certificates representing Company Stock, duly endorsed in blank by the Stockholders, or accompanied by blank stock powers, and with all necessary transfer tax and other revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The Stockholders agree promptly to cure any deficiencies with respect to the endorsement of the stock certificates or other documents of conveyance with respect to such Company Stock or with respect to the stock powers accompanying any Company Stock. 4. CLOSING The consummation of the transactions contemplated by Section 3 (the "Closing") shall take place on March 31, 1999 or such date not later than May 31, 1999 as AmPaM shall determine by giving written notice of such other date as provided in Section 18.7 (the "Closing Date") at the offices of Andrews & Kurth L.L.P., 4200 Chase Tower, 600 Travis, Houston, Texas 77002. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY (A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in the disclosure schedules attached hereto and except as otherwise qualified below, the Company represents and warrants that all of the following representations and warranties in this Section 5(A) are true at the date of this Agreement and, subject to Section 7.7 hereto, shall be true at the time of the Closing, and that such representations and warranties shall survive the Closing Date for a period of eighteen months (the last day of such period being the "Expiration Date"), except that the representations and warranties set forth in Sections 5.3, 5.22 and 5.32 hereof shall survive until such time as the applicable statute of limitations period has run, which shall be deemed to be the Expiration Date for the representations and warranties set forth in Sections 5.3, 5.22 and 5.32. For purposes of this Section 5, the term "Company" shall mean and refer to the Company and all of its Subsidiaries, if any, and any reference to a Material Adverse Effect on the Company or Material Adverse Change with respect to the Company shall mean the Company and its Subsidiaries, taken as a whole. Except as expressly set forth in this Agreement, the Company expressly disclaims any representation or warranty (express, implied or otherwise) relating to the 6 15 Company and any Subsidiary thereof including, without limitation, any warranty of merchantability or fitness for a particular purpose. 5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of Incorporation, and has the requisite power and authority to carry on its business as it is now being conducted. The Company is duly qualified or authorized to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or authorization necessary except where the failure to be so qualified or authorized to do business would not have a Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all states in which the Company is authorized or qualified to do business, which list indicates which of such entities is authorized or qualified to do business in such states. True, complete and correct copies of the Certificate or Articles of Incorporation and By-laws, each as amended, of the Company (the "Charter Documents") are all attached to Schedule 5.1. The Company has delivered to AmPaM complete and correct copies of (i) the stock records of the Company and (ii) all minutes of meetings, written consents and other evidence, if any, of deliberations of or actions taken by the Company's Board of Directors, any committees of the Board of Directors and stockholders during the last five years. 5.2 AUTHORIZATION. (i) The officers or other representatives of the Company executing this Agreement have the authority to enter into and bind the Company to the terms of this Agreement and (ii) the Company has the full legal right, power and authority to enter into this Agreement and consummate the transactions contemplated hereby. Copies of the most recent resolutions adopted by the Board of Directors of the Company and the most recent resolutions adopted by the Stockholders, which approve this Agreement and the transactions contemplated hereby in all respects, certified by the Secretary or an Assistant Secretary of the Company as being in full force and effect on the date hereof, are attached hereto as Schedule 5.2. 5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the Company and each of its Subsidiaries is as set forth on Schedule 5.3(a). All of the issued and outstanding shares of the capital stock of the Company are owned by the Stockholders in the amounts set forth in Schedule 5.3(a). Except as set forth on Schedule 5.3(a), all of the issued and outstanding capital stock of each Subsidiary is owned by the Company. All of the issued and outstanding shares of the capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable, are owned of record by the Stockholders and further, such shares were offered, issued, sold and delivered by the Company in compliance with all applicable state and Federal laws concerning the issuance of securities. Further, none of such shares were issued in violation of any preemptive rights of any past or present stockholder. 7 16 5.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 5.4(a), the Company has not acquired or redeemed any shares of capital stock of the Company since January 1, 1996. Except as set forth on Schedule 5.4(b), (i) no option, warrant, call, conversion right or commitment of any kind exists which obligates the Company to issue any of its authorized but unissued capital stock; (ii) the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof; and (iii) neither the voting stock structure of the Company nor the relative ownership of shares among any of its Stockholders has been altered or changed in contemplation of the AmPaM Plan of Organization. There are no voting trusts, proxies or other agreements or understandings to which the Company is a party or is bound with respect to the voting of any shares of capital stock of the Company. 5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the shares of Company Stock was issued pursuant to awards, grants or bonuses in contemplation of the AmPaM Plan of Organization. 5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set forth on Schedule 5.6(a), the Company has no Subsidiaries. Except as set forth in Schedule 5.6(b), the Company does not presently own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity nor is the Company, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. 5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7(a) is a list of all predecessor companies of the Company, including the names of any entities acquired by the Company (by stock purchase, merger or otherwise) or owned by the Company or from whom the Company previously acquired material assets, in any case, from the earliest date upon which any Stockholder acquired his or her stock in any Company. Except as disclosed on Schedule 5.7(b), the Company has not been, within such period of time, a subsidiary or division of another corporation or a part of an acquisition which was later rescinded. 5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there has not been any sale, spin-off or split-up of material assets of either the Company or any other person or entity that is an Affiliate of the Company since January 1, 1996. 5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 is a copy of: (i) the balance sheets of the Company as of December 31, 1996 and 1997 and the related statements of operations, stockholders' equity and cash flows for the three-year period ended December 31, 1997, together with the related notes and schedules (such balance sheets, the related statements of operations, stockholders' equity and cash flows and the related notes and schedules are referred to herein as the "Year-end Financial Statements"); 8 17 (ii) the balance sheet of the Company as of June 30, 1998 and the related statements of operations, stockholders' equity and cash flows for the six-month periods ended June 30, 1997 and 1998, together with the related notes and schedules (such balance sheets, the related statements of operations, stockholders' equity and cash flows and the related notes and schedules are referred to herein as the "Six-Month Interim Financial Statements"); (iii) the balance sheet of the Company as of September 30, 1998 (the "Balance Sheet Date") and the related statements of operations, stockholders' equity and cash flows for the nine-month periods ended September 30, 1997 and 1998 (such balance sheets, the related statements of operations, stockholders' equity and cash flows are referred to herein as the "Nine-Month Interim Financial Statements"); and (iv) the income statement of the Company for the 12-month period ended June 30, 1998 (the "Valuation Income Statement"). The Year-end Financial Statements, the Six-Month Interim Financial Statements, the Nine-Month Interim Financial Statements and the Valuation Income Statement are collectively called the "Financial Statements". The Financial Statements, including those included in the Private Placement Memorandum, have been prepared in accordance with GAAP applied on a consistent basis and fairly present the financial position of the Company as of the dates thereof and the results of its operations and changes in financial position for the periods then ended, subject, in the case of the Six-Month Interim Financial Statements and the Nine-Month Interim Financial Statements, to normal year-end audit adjustments and any other adjustments described therein and the absence of certain footnote disclosures. 5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10(a) sets forth an accurate list as of the Balance Sheet Date of (i) all material liabilities of the Company which are not reflected on the balance sheet of the Company at the Balance Sheet Date or otherwise reflected in the Company Financial Statements at the Balance Sheet Date which by their nature would be required in accordance with GAAP to be reflected in the balance sheet, and (ii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages, pledges or other security agreements to which the Company is a party or by which its properties may be bound other than bid bonds and performance bonds made in the Ordinary Course of Business. Except as set forth on Schedule 5.10(b), since the Balance Sheet Date, the Company has not incurred any material liabilities or obligations of any kind, character or description, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than liabilities incurred in the Ordinary Course of Business. The Company has also delivered to AmPaM, on Schedule 5.10(c), a list of contingent liabilities related to pending litigation or litigation that has been threatened in writing, or other material liabilities which are not fixed or otherwise accrued or reserved. For each such contingent liability of the Company or liability of the Company for which the amount is not fixed or is contested, the Company has provided to AmPaM the following information: 9 18 (i) a summary description of the liability together with the following: (a) copies of all relevant documentation in the possession of the Company or its directors, officers or stockholders relating thereto; (b) amounts claimed and any other action or relief sought; and (c) name of claimant and all other parties to the claim, suit or proceeding; (ii) the name of each court or agency before which such claim, suit or proceeding is pending; (iii) the date such claim, suit or proceeding was instituted; and (iv) a good faith estimate of the maximum amount, if any, which the Company expects, based on information available, is likely to become payable with respect to each such liability and the amount, if any, accrued or reserved for each such potential liability on the Financial Statements. AmPaM acknowledges that all estimates referred to above and set forth on Schedule 5.10(c) are only good faith estimates, and that the Company and the Stockholders expressly do not represent or warrant that the actual amounts of such liabilities will be equal to, or more or less than, the amounts of such estimates. 5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11(a) sets forth an accurate list, in all material respects, of the accounts and notes receivable of the Company, as of the Balance Sheet Date, including any such amounts which are not reflected in the balance sheet as of the Balance Sheet Date, and including all receivables from and advances to employees and the Stockholders, which are identified as such. Schedule 5.11(a) also sets forth a materially accurate aging of all accounts and notes receivable as of the Balance Sheet Date showing amounts due in 30-day aging categories. Except to the extent reflected on Schedule 5.11(b), such accounts, notes and other receivables are collectible in the amounts shown on Schedule 5.11(a), net of reserves reflected in the balance sheet as of the Balance Sheet Date. 5.12 LICENSES; INTELLECTUAL PROPERTY. (a) The Company or its employees hold all licenses, franchises, permits and other governmental authorizations ("Licenses") necessary to conduct the business of the Company, the absence of which would cause a Material Adverse Effect on the Company, and the Company has delivered to AmPaM a list that is accurate, in all material respects, and summary description (which is set forth on Schedule 5.12(a)(1)) of all such Licenses. At or prior to the Closing, all such Licenses owned or held by any employee of the Company will be assigned or licensed to the Company for no additional consideration. The Licenses listed on Schedule 5.12(a)(1) are valid, and the Company has not received any notice that any person intends to cancel, terminate or not renew any such License. The Company has conducted and is conducting its business in compliance in all material respects with the requirements, standards, criteria and 10 19 conditions set forth in the Licenses listed on Schedule 5.12(a)(1) and is not in violation of any of the foregoing in any material respect. Except as specifically provided in Schedule 5.12(a)(2), the consummation by the Company of the transactions contemplated by this Agreement will not result in a default under or a breach or violation of, or adversely affect the rights and benefits afforded to the Company by, any such Licenses. (b) The Company owns or possesses adequate licenses or other rights to use (without making any payment or granting rights to any person in exchange) all patents, patent applications, trademarks, copyrights, service marks and trade names (collectively, the "Intellectual Property") necessary to conduct its business as currently conducted. A description of any Intellectual Property licensed by the Company, including the material terms of any such license, is described on Schedule 5.12(b)(1). Neither the validity of the Intellectual Property nor the title thereto or use thereof by the Company is being questioned in any pending litigation, and the conduct of the Company's business, as currently conducted, does not conflict with licenses, copyrights, uncopyrighted works, trade marks, service marks, trade names, trade name rights, patents, patent rights, unpatented inventions or trade secrets of others. Neither the validity of the Intellectual Property nor the title thereto or use thereof by the Company is being questioned in any pending or, to the knowledge of the Company, threatened infringement claims or litigation, and the conduct of the Company's business, as now conducted, does not conflict with licenses, copyrights, uncopyrighted works, trade marks, service marks, trade names, trade name rights, patents, patent rights, unpatented inventions or trade secrets of others. Except as specifically provided in Schedule 5.12(b)(2), the consummation by the Company of the transactions contemplated by this Agreement will not adversely affect the rights and benefits afforded to the Company by any such Intellectual Property. 5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule 5.13 attached hereto, (i) the Company has conducted its businesses in compliance in all material respects with all applicable Environmental Laws, including, without limitation, having all environmental permits, licenses and other approvals and authorizations necessary for the operation of its business as presently conducted, except where the failure to have such permit, license, approval or authorization would not have a Material Adverse Effect on the Company, (ii) none of the properties owned by the Company contain any Hazardous Substance as a result of any activity of the Company in amounts exceeding the levels permitted by applicable Environmental Laws, except where amounts in excess of such levels would not have a Material Adverse Effect on the Company, (iii) the Company has not received any notices, demand letters or requests for information from any Federal, state, local or foreign governmental entity or third party indicating that the Company may be in violation of, or liable under, any Environmental Law in connection with the ownership or operation of its business, (iv) there are no civil, criminal or administrative actions, suits, demands, claims, hearings, investigations or proceedings pending or, to the knowledge of the Company, threatened, against the Company relating to any violation, or alleged violation, of any Environmental Law, except where such violation would not have a Material Adverse Effect on the Company, (v) no reports have been filed, or are required to be filed, by the Company concerning the release of any Hazardous Substance or the threatened or actual violation of any Environmental Law, (vi) no Hazardous Substance has 11 20 been disposed of, released or transported in violation of any applicable Environmental Law from any properties owned by the Company as a result of any activity of the Company during the time such properties were owned, leased or operated by the Company, (vii) there have been no environmental investigations, studies, audits, tests, reviews or other analyses regarding compliance or non-compliance with any applicable Environmental Law conducted by or which are in the possession of the Company relating to the activities of the Company which are not listed on Schedule 5.13 attached hereto prior to the date hereof, (viii) to the knowledge of the Company, (A) there are no underground storage tanks on, in or under any properties owned by the Company and (B) no underground storage tanks have been closed or removed from any of such properties during the time such properties were owned, leased or operated by the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the Company, (A) there is no asbestos or asbestos-containing material present in any material quantity in any of the properties owned by the Company, and (B) no asbestos has been removed from any of such properties during the time such properties were owned, leased or operated by the Company, and (x) neither the Company nor any of its properties are subject to any material liabilities or expenditures (fixed or contingent) relating to any suit, settlement, court order, administrative order, regulatory requirement, judgment or claim asserted or arising under any Environmental Law. (b) As used herein, "Environmental Law" means, as of the Closing Date, any Federal, state, local or foreign law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction or agreement with any governmental entity to which the Company is a party or subject relating to (x) the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource) or to human health or safety or (y) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances, in each case as amended and as in effect on the Closing Date. The term Environmental Law includes, without limitation, (i) the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as amended and as in effect on the Closing Date, and (ii) any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of, effects of or exposure to any Hazardous Substance. (c) As used herein, "Hazardous Substance" means any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive, or dangerous, or otherwise regulated, under any Environmental Law. Hazardous Substance includes any substance to which exposure is regulated by any government authority or any Environmental Law including, without 12 21 limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste, industrial substance or petroleum or any derivative or by-product thereof, radon, radioactive material, asbestos or asbestos-containing material, urea formaldehyde foam insulation, lead or polychlorinated biphenyls. 5.14 PERSONAL PROPERTY. The Company has delivered to AmPaM an accurate list (which is set forth on Schedule 5.14(a)) of (x) all personal property material to the operations of the Company as of the Balance Sheet Date included in "plant, property and equipment" on the balance sheet of the Company as of such date, (y) all other items of personal property owned by the Company with an individual value in excess of $15,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all material leases and agreements in respect of personal property, including, in the case of each of (x), (y) and (z), (1) true, complete and correct copies of all such leases and (2) an indication as to which assets are currently owned, or were formerly owned, by Stockholders, relatives of Stockholders, or Affiliates of the Company. Except as set forth on Schedule 5.14(b), (i) all personal property material to, and used by, the Company in its business is either owned by the Company or leased by the Company pursuant to a lease included on Schedule 5.14(a), (ii) all of the personal property listed on Schedule 5.14(a) or replacement property thereof is in working order and condition, ordinary wear and tear excepted and (iii) all leases and agreements included on Schedule 5.14(a) are in full force and effect and constitute valid and binding agreements of the Company, in each case in accordance with their respective terms. 5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. (a) The Company has delivered to AmPaM a materially accurate list (which is set forth on Schedule 5.15(a)(1)) of all customers (persons or entities) representing 5% or more of the Company's annual revenues for any period covered by any of the Financial Statements. Except to the extent set forth on Schedule 5.15(a)(2), none of such customers has canceled or, to the knowledge of the Company, are currently threatening to cancel a currently effective contract with the Company. (b) The Company has listed on Schedule 5.15(b) all material contracts, commitments and similar agreements to which the Company is a party or by which it or any of its properties are bound (including, but not limited to, contracts with customers listed on Schedule 5.15(a), joint venture or partnership agreements, contracts with any labor organizations, strategic alliances and options to purchase land), other than agreements listed on Schedules 5.10(a), Schedule 5.14(a) or Schedule 5.16(a), (a) in existence as of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and in each case has delivered or made available to AmPaM true, complete and correct copies of such agreements. For purposes of the preceding sentence, a contract, commitment or similar agreement is "material" if it (i) has a term of more than one year (other than contracts, commitments or agreements that are cancelable without liability or penalty within 30 days of notice from the Company of cancellation or that can be terminated by the Company without material penalty upon notice of 30 days or less) or (ii) requires the payment by or to the Company of more than $100,000 during any 12-month period. Except for expenditures in the ordinary course of 13 22 business, the Company has also indicated on Schedule 5.15(b) a summary description of all plans or projects involving the opening of new operations, expansion of existing operations, or the acquisition of any personal property, business or assets requiring, in any event, the payment of more than $50,000 by the Company during any 12-month period. (c) Except as set forth on Schedule 5.15(c), the Company is not required to provide any bonding or other financial security arrangements in any material amount in connection with any contract listed on Schedule 5.15(b). 5.16 REAL PROPERTY. Schedule 5.16(a) includes a list of all real property owned or leased by the Company at the date hereof and all other real property, if any, used by the Company in the conduct of its business. The Company has good and insurable title to any real property owned by it that is shown on Schedule 5.16(a), other than property intended to be sold or distributed prior to the Closing Date as provided in Section 7.1(c) of this Agreement, and all real property so owned is subject to no mortgage, pledge, lien, conditional sales agreement, encumbrance, lease, possessory rights of third parties or charge, except for: (i) liens reflected on Schedule 5.10(a) or Schedule 5.16(b) as securing specified liabilities (with respect to which no material default by the Company exists); (ii) liens for current taxes not yet payable and assessments not in default; (iii) easements for utilities serving the property; and (iv) easements, covenants and restrictions and other exceptions to title which do not adversely affect the current use of the property. Copies of all leases and agreements in respect of such real property leased by the Company, which are true, complete and correct in all material respects, are attached to Schedule 5.16(a), and an indication as to which such properties, if any, are currently owned, or were formerly owned, by Stockholders or Affiliates of the Company or Stockholders is included in Schedule 5.16(a). Except as set forth on Schedule 5.16(b), all of such leases included on Schedule 5.16(a) are, as to the Company, in full force and effect and constitute valid and binding agreements of the Company in accordance with their respective terms. 5.17 INSURANCE. The Company has delivered to AmPaM (i) an accurate list as of the Balance Sheet Date of all insurance policies carried by the Company and (ii) an accurate list of all insurance loss runs or workers compensation claims received for the past three policy years (which lists are set forth on Schedule 5.17). The Company has also delivered or made available to AmPaM true, complete and correct copies of all insurance policies currently in effect that are referred in Schedule 5.17. Such insurance policies evidence all of the insurance the Company is required to carry pursuant to all of its contracts and other agreements and pursuant to all applicable laws. All of such insurance policies are currently in full force and effect except as stated in Schedule 5.17. 14 23 Since January 1, 1996, no insurance carried by the Company has been canceled by the insurer and the Company has not been denied coverage under any such policy. 5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS. (a) The Company has delivered to AmPaM an accurate list (which is set forth on Schedule 5.18(a)(1)) showing all officers, directors and key employees of the Company, listing all employment agreements with such officers, directors and key employees and the rate of compensation (and the portions thereof attributable to salary, bonus and other compensation, respectively) of each of such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The Company has provided to AmPaM true, complete and correct copies of any employment agreements for persons listed on Schedule 5.18(a)(1). Since the Balance Sheet Date, except as disclosed on Schedule 5.18(a)(2), there have been no increases in the compensation payable or any bonuses to any officer, director, key employee or other employee, except ordinary salary increases implemented on a basis consistent with past practices and except for bonuses paid on a basis consistent with past practices. (b) Except as set forth on Schedule 5.18(b), (i) the Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any arrangement with any labor union, (ii) to the knowledge of the Company, no campaign to establish such arrangement is in progress and (iii) there is no pending or, to the Company's knowledge, threatened labor dispute involving the Company and any group of its employees nor has the Company experienced any labor interruptions over the past three years. The Company believes its relationship with employees to be generally good. (c) Except as set forth in Schedule 5.18(c) attached hereto, (i) there are no claims, actions or proceedings pending or, to the knowledge of the Company, threatened between the Company and any of its employees, (ii) the Company has complied in all material respects with all laws relating to the employment of labor, including, without limitation, any provisions thereof relating to wages, hours, collective bargaining, and the payment of social security and similar taxes, and (iii) the Company has not received written notice from any person asserting that the Company is liable in any material amount for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. 5.19 EMPLOYEE PLANS. The Company has delivered to AmPaM accurate schedule (Schedule 5.19(a)) showing all employee benefit plans of the Company, including all employment agreements and other agreements or arrangements containing "golden parachute" or other similar provisions, and deferred compensation agreements, together with true, complete and correct copies of such plans, agreements and any trusts related thereto, and classifications of employees covered thereby as of the Balance Sheet Date and as of the date of this Agreement. Except for the employee benefit plans, if any, described on Schedule 5.19(a), the Company does not sponsor, maintain or contribute to any plan program, fund or arrangement that constitutes an "employee pension benefit plan", and neither the Company nor any Subsidiary has any obligation to contribute to or accrue or 15 24 pay any benefits under any deferred compensation or retirement funding arrangement on behalf of any employee or employees (such as, for example, and without limitation, any individual retirement account or annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred compensation arrangement). For the purposes of this Agreement, the term "employee pension benefit plan" shall have the same meaning as is given that term in Section 3(2) of ERISA. The Company has not sponsored, maintained or contributed to any employee pension benefit plan other than the plans set forth on Schedule 5.19(a), and, except as described on Schedule 5.19(b), the Company is not or could not be required to contribute to any retirement plan pursuant to the provisions of any collective bargaining agreement establishing the terms and conditions or employment of any of the Company's employees. Except as set forth on Schedule 5.19(c), the Company is not now, or will not as a result of its past activities become, liable to the Pension Benefit Guaranty Corporation or to any multiemployer employee pension benefit plan under the provisions of Title IV of ERISA. All employee benefit plans listed on Schedule 5.19(a) and the administration thereof are in compliance in all material respects with their terms and all applicable provisions of ERISA and the regulations issued thereunder, as well as with all other applicable federal, state and local statutes, ordinances and regulations. All accrued contribution obligations of the Company as of the Balance Sheet Date with respect to any plan listed on Schedule 5.19(a) have either been fulfilled in their entirety or are fully reflected on the balance sheet of the Company as of the Balance Sheet Date. 5.20 COMPLIANCE WITH ERISA. All plans listed on Schedule 5.19(a) that are intended to qualify under Section 401 (a) of the Code (the "Qualified Plans") are, and have been so qualified and have been determined by the Internal Revenue Service to be so qualified, and copies of such determination letters are attached to Schedule 5.19(a). Except as disclosed on Schedule 5.20, all reports and other documents required to be filed with any governmental agency or distributed to plan participants or beneficiaries (including, but not limited to, actuarial reports, audits or tax returns) since January 1, 1992 have been timely filed or distributed, and copies thereof have been made available to AmPaM. No such plan listed on Schedule 5.19(a) nor the Company has engaged in any transaction prohibited under the provisions of Section 4975 of the Code or Section 406 of ERISA. No such Plan listed on Schedule 5.19(a) has incurred an accumulated funding deficiency, as defined in Section 412(a) of the Code and Section 302(l) of ERISA; and the Company has not incurred any liability for excise tax or penalty due to the Internal Revenue Service nor any liability to the Pension Benefit Guaranty Corporation. The Company further represents that except as set forth on Schedule 5.20 hereto: (i) there have been no terminations, partial terminations or discontinuations of contributions to any Qualified Plan intended to qualify under Section 401(a) of the Code without notice to and approval by the Internal Revenue Service; 16 25 (ii) no plan listed on Schedule 5.19(a) subject to the provisions of Title IV of ERISA has been terminated; (iii) there have been no "reportable events" (as that phrase is defined in Section 4043 of ERISA) with respect to any such plan listed in Schedule 5.19(a); (iv) the Company (including any Subsidiaries) has not incurred liability under Section 4062 of ERISA; and (v) no circumstances exist pursuant to which the Company could have any direct or indirect liability whatsoever (including, but not limited to, any liability to any multiemployer plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for any excise tax or penalty, or being subject to any statutory lien to secure payment of any such liability) with respect to any plan now or heretofore maintained or contributed to by any entity other than the Company that is, or at any time was, a member of a "controlled group" (as defined in Section 412(n)(6)(B) of the Code) that includes the Company. 5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on Schedule 5.21 or Schedule 5.13, the Company has not violated within the five years prior to the date of this Agreement and is not currently in violation of any law or regulation or any order of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it other than violations that would not have a Material Adverse Effect on the Company; and except to the extent set forth on Schedule 5.10(c) or Schedule 5.13, there are no claims, actions, suits or proceedings, pending or, to the knowledge of the Company, threatened in writing against the Company, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over the Company and no written notice of any claim, action, suit or proceeding, whether pending or threatened, has been received by the Company, and to the knowledge of the Company there is no valid basis for any such claim, action, suit or proceeding that could reasonably be expected to have a Material Adverse Effect on the Company. 5.22 TAXES. The Company has timely filed all requisite Federal, state and other Tax Returns or extension requests for all fiscal periods ended on or before the Balance Sheet Date; and except as set forth on Schedule 5.22(a), there are no examinations in progress or claims pending against the Company for federal, state and other Taxes (including penalties and interest) for any period or periods prior to and including the Balance Sheet Date and no notice of any claim for Taxes, whether pending or threatened, has been received. All Tax, including interest and penalties (whether or not shown on any Tax Return), due by the Company has been paid. The amounts shown as accruals for Taxes on the Financial Statements are sufficient for the payment of all Taxes of the kinds indicated (including penalties and interest) for all fiscal periods ended on or before the date of the respective Financial Statements. Copies of (i) any tax examinations, (ii) extensions of statutory limitations and (iii) the federal and local income Tax Returns and franchise Tax Returns of Company for their last three (3) fiscal years, or such shorter period of time as any of them shall 17 26 have existed, are attached hereto as Schedule 5.22(a) or have otherwise been delivered to AmPaM. The Company has a taxable year ended December 31. Except as set forth on Schedule 5.22(a), the Company uses the accrual method of accounting for income tax purposes, and the Company's methods of accounting have not changed in any material respect in the past five years (except as required to conform to changes in GAAP). The Company is not an investment company as defined in Section 351(e)(1) of the Code. The Company is not and has not during the last five years been a party to any tax sharing agreement or agreement of similar effect. Except as set forth on Schedule 5.22(a), the Company is not and has not during the last five years been a member of any consolidated group for federal tax purposes. The Company has not received, been denied, or applied for any private letter ruling from the IRS during the last ten years. 5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC. (a) The Company is not in violation of any Charter Document. Except as set forth on Schedule 5.23(a), the Company is not in default under any lease, instrument, agreement, license, or permit set forth on Schedule 5.12(a), Schedule 5.14(a), Schedule 5.15(b) or Schedule 5.16(a) (collectively, the "Material Documents"). (b) Except as set forth on Schedule 5.23(b)(1), the execution and delivery of this Agreement by each of the Company and the Stockholders do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company under any of the terms, conditions or provisions of (i) the Charter Documents of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to the Company or any of its properties or assets, or (iii) any Material Document to which the Company is now a party or by which the Company or any of its properties or assets may be bound or affected. The consummation by the Company and the Stockholders of the transactions contemplated hereby will not result in any material violation, conflict, breach, right of termination or acceleration or creation of liens under any of the terms, conditions or provisions of the items described in clauses (i) through (iii) of the preceding sentence, subject, in the case of the terms, conditions or provisions of the items described in clause (iii) above, to obtaining (prior to the Effective Time) such consents as may be required from commercial lenders, lessors or other third parties as listed on Schedule 5.23(b)(2). (c) Except as set forth on Schedule 5.23(c) and except for the Hart-Scott Act, none of the Material Documents requires notice to, or the consent or approval of, any governmental agency or other third party with respect to the consummation by the Company and the Stockholders of any of the transactions contemplated hereby in order to remain in full force and effect, and consummation by the Company and the Stockholders of the transactions contemplated hereby will not give rise to any right to termination, cancellation or acceleration or loss of any material right or benefit under any Material Document. 18 27 (d) Except for (i) any filings to be made with the SEC pursuant to the 1933 Act or with any state securities authorities in connection with the offer and sale of AmPaM Stock and AmPaM Notes pursuant to this Agreement and (ii) any filing required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby. (e) Except as set forth on Schedule 5.23(e), none of the Material Documents prohibits the disclosure or publication by the Company or AmPaM of the name of any other party to such Material Document, and none of the Material Documents prohibits or restricts the Company from freely providing services or selling products to any other customer or potential customer of the Company, AmPaM or any Other Founding Company. 5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the Company is not now a party to any governmental contract subject to price redetermination or renegotiation. 5.25 ABSENCE OF CHANGES. (a) Since the Balance Sheet Date, except as set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not been: (i) any Material Adverse Change in the Company; (ii) any damage, destruction or casualty loss (whether or not covered by insurance), alone or in the aggregate, which has caused a Material Adverse Effect on the Company; (iii) any change in the authorized capital of the Company or its outstanding securities or any change in its ownership interests or any grant of any options, warrants, calls, conversion rights or commitments; (iv) any declaration or payment of any dividend or distribution in respect of the capital stock or any direct or indirect redemption, purchase or other acquisition of any of the capital stock of the Company except for distributions that would have been permitted after the date hereof under Section 7.3(iii) hereof, (v) any increase in the compensation, bonus, sales commissions or fee arrangement payable or to become payable by the Company to any of its officers, directors, Stockholders, employees, consultants or agents, except for ordinary and customary bonuses except for salary increases for employees in accordance with past practice and except for the establishment of a deferred stock compensation plan for the benefit of certain Company employees and the arrangements to contribute shares of AmPaM Stock thereto as described in Annex I hereto; 19 28 (vi) any work interruptions, labor grievances or claims filed, or any event or condition of any character, which has caused a Material Adverse Effect on the Company; (vii) any sale or transfer, or any agreement to sell or transfer, any material assets, property or rights of the Company to any person, including, without limitation, the Stockholders and their affiliates, except inventory sold or transferred in the Ordinary Course of Business; (viii) any cancellation, or agreement to cancel, any indebtedness or other obligation owing to the Company, including without limitation any indebtedness or obligation of any Stockholders or any Affiliate thereof; (ix) any plan, agreement or arrangement granting any preferential rights to purchase or acquire any interest in any of the material assets, property or rights of the Company or requiring consent of any party to the transfer and assignment of any such assets, property or rights; (x) any purchase or acquisition of, or agreement, plan or arrangement to purchase or acquire, any property, rights or assets outside of the Ordinary Course of Business; (xi) any waiver of any material rights or claims of the Company; (xii) any amendment or termination of any Material Document to which the Company is a party except for the termination of a Material Document in accordance with its terms without any action on the part of the Company; (xiii) any transaction by the Company outside the Ordinary Course of Business; (xiv) any cancellation or termination of a material contract with a customer or client listed on Schedule 5.15(a) prior to the scheduled termination date thereof; or (xv) any other distribution of property or assets by the Company other than in the Ordinary Course of Business, other than (a) distributions of nonoperating assets specifically identified on Schedule 5.25, (b) distributions of real estate required by Section 7.1(c) of this Agreement and (c) distributions of cash or promissory notes permitted by Annex I hereto. (b) Except as set forth on Schedule 5.25, the Company has not, between the Balance Sheet Date and the date hereof, taken any of the actions set forth in Section 7.3. 20 29 5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to AmPaM an accurate schedule (which is set forth on Schedule 5.26) as of the date of the Agreement of: (i) the name of each financial institution in which the Company has an account or safe deposit box; (ii) the names in which the accounts or boxes are held; (iii) the type of account and account number; and (iv) the name of each person authorized to draw thereon or have access thereto. Schedule 5.26 also sets forth the name of each person, corporation, firm or other entity holding a general or special power of attorney from the Company and a description of the terms of such power. 5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement by the Company and the performance of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of the Company and this Agreement has been duly and validly authorized by all necessary corporate action and is a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. 5.28 RELATIONS WITH GOVERNMENTS. The Company has not, and to the knowledge of the Company none of the Stockholders or any Affiliate of any of them has, given or offered anything of value to any governmental official, political party or candidate for government office or otherwise taken any action which would cause the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. 5.29 DISCLOSURE. This Agreement, including the Annexes and Schedules hereto, and the completed questionnaire related to the Hart-Scott Act furnished to AmPaM by the Company, do not contain an untrue statement of a material fact concerning the Company or omit to state a material fact concerning the Company necessary to make the statements herein and therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing does not apply to statements contained in or omitted from any of such documents made or omitted in reliance upon information furnished in writing by AmPaM. 5.30 NO WARRANTIES OR INSURANCE. Except for warranty liability under applicable law and except for warranty liability under the warranties issued by the Company of the types described on Schedule 5.30, the Company has no liability to any person under any warranty and the Company does not offer or sell insurance or consumer protection plans or other arrangements that could result in the Company being required to make any payment to or perform any service for any person. 21 30 5.31 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY TRANSACTIONS. Except as described on Schedule 5.31 or in Section 8.11, no Stockholder, officer, director or Affiliate of the Company (i) owns, directly or indirectly, any financial interest in, or is a director, officer, employee or affiliate of, any corporation, firm, association or business organization that is a client, supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or will be a party to an agreement or relationship with the Company other than through a customary "at will" employment relationship. 5.32 PRIVATE PLACEMENT MEMORANDUM. None of the information supplied or to be supplied by the Company in writing specifically for inclusion in the Private Placement Memorandum contained or, as of the Closing Date, will contain any untrue statement of a material fact concerning the Company or omitted or will omit to state any material fact required to be stated therein or necessary in order to make the statements contained in such information supplied or to be supplied by the Company concerning the Company, in light of the circumstances under which they are made, not misleading. (B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS. Each Stockholder severally represents and warrants that the representations and warranties set forth below are true as of the date of this Agreement and, subject to Section 7.7 hereof, shall be true at the time of Closing, and that the representations and warranties set forth in this Section 5(B) shall survive the Closing Date. 5.33 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right, power and authority to enter into this Agreement, and this Agreement is a legal, valid and binding obligation of such Stockholder, enforceable against the Stockholder in accordance with its terms. Except as set forth on Schedule 5.33(a), the execution and delivery of this Agreement by such Stockholder does not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of such Stockholder under any of the terms, conditions or provisions of (i) the Charter Documents of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to such Stockholder or any of such Stockholder's properties or assets, or (iii) any lease, instrument, agreement, license or permit to which such Stockholder is now a party or by which such Stockholder or any of such Stockholder's properties or assets may be bound or affected. Except for (i) any filings to be made with the SEC pursuant to the 1933 Act and any state securities authorities in connection with the offer and sale of AmPaM Stock and AmPaM Notes pursuant to this Agreement, (ii) any filing required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by such Stockholder or the consummation by such Stockholder of the transactions contemplated hereby. Except as set forth on 22 31 Schedule 5.33(b), such Stockholder owns beneficially and of record all of the shares of the Company Stock identified on Annex I hereto as being owned by such Stockholder, and, such Company Stock is owned free and clear of all liens, security interests, pledges, charges, voting trusts, voting agreements, restrictions, encumbrances and claims of every kind. 5.34 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby waives, any preemptive or other right to acquire shares of Company Stock or AmPaM Stock that such Stockholder has or may have had. Nothing herein, however, shall limit or restrict the rights of any Stockholder to acquire AmPaM Stock pursuant to (i) this Agreement, (ii) any option granted or to be granted by AmPaM to such Stockholder, (iii) a purchase through a broker in a regular stock market transaction or (iv) a purchase from a stockholder of a Founding Company (subject to compliance with any contractual restrictions or securities law restrictions applicable thereto specified in Section 15 hereof). 5.35 NO COMMITMENT TO DISPOSE OF AMPAM STOCK. No Stockholder is under any binding commitment or contract to sell, exchange or otherwise dispose of shares of AmPaM Stock or AmPaM Notes received pursuant to this Agreement. 5.36 DISCLOSURE. The completed Director and Officer Questionnaires with respect to such Stockholder (if any), the completed investor questionnaire furnished to AmPaM by such Stockholder in connection with the proposed acquisition by such Stockholder of AmPaM Stock and AmPaM Notes and any other information provided to AmPaM in writing by such Stockholder relating specifically to such Stockholder for inclusion in the Private Placement Memorandum do not contain an untrue statement of a material fact concerning such Stockholder or omit to state a material fact concerning such Stockholder necessary to make the statements herein and therein, in light of the circumstances under which they were made, not misleading. 6. REPRESENTATIONS OF AMPAM Except as otherwise qualified below, AmPaM represents and warrants that all of the following representations and warranties in this Section 6 are true at the date of this Agreement and, subject to Section 7.7 hereof, shall be true at the time of Closing, and that such representations and warranties shall survive the Closing Date for a period of eighteen months (the last day of such period being the "Expiration Date" for purposes of the representations and warranties set forth in this Section 6), except that the representations and warranties set forth in Section 6.3, 6.11 and 6.15 shall survive until such time as the applicable statute of limitations period has run, which shall be deemed to be the Expiration Date for the representations and warranties set forth in Sections 6.3, 6.11 and 6.15. AmPaM acknowledges that in purchasing the shares of Company Stock, it is relying upon its own independent investigation as well as the representations and warranties of the Company and the Stockholders as set forth in this Agreement. 23 32 6.1 DUE ORGANIZATION. AmPaM is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of Delaware, and has the requisite power and authority to carry on its business as it is now being conducted and as contemplated by the Private Placement Memorandum. AmPaM is duly qualified or authorized to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or authorization necessary, except where the failure to be so qualified or authorized to do business would not have a Material Adverse Effect. True, complete and correct copies of the Certificate of Incorporation and By-laws, each as proposed to be amended and as such documents shall be in effect as of the Closing Date, of AmPaM (the "AmPaM Charter Documents") are attached hereto as Annex II. 6.2 AUTHORIZATION. (i) The officers of AmPaM executing this Agreement have the authority to enter into and bind AmPaM to the terms of this Agreement and (ii) AmPaM has the full legal right, power and authority to enter into this Agreement and consummate the transactions contemplated hereby. All corporate acts and other proceedings required to have been taken by AmPaM to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and properly taken. 6.3 CAPITAL STOCK OF AMPAM. The authorized capital stock of AmPaM is as set forth in Section 1.3(ii). Immediately prior to the Closing Date, all of the issued and outstanding shares of the capital stock of AmPaM will be as set forth in the Private Placement Memorandum, free and clear of all liens, security interests, pledges, charges, voting trusts, restrictions, encumbrances and claims of every kind other than any restrictions described in the Private Placement Memorandum. All of the issued and outstanding shares of the capital stock of AmPaM have been duly authorized and validly issued, are fully paid and nonassessable and such shares were offered, issued, sold and delivered by AmPaM in compliance with all applicable state and Federal laws concerning the issuance of securities. Further, none of such shares were issued in violation of the preemptive rights of any past or present stockholder of AmPaM. Upon the Closing Date, the authorized, issued and outstanding shares of capital stock of AmPaM will be as set forth in the Private Placement Memorandum under the caption "Capitalization." Upon the Closing Date, the aggregate number of shares of AmPaM Stock issued and outstanding on the Closing Date that are owned by Sterling City Capital, LLC, any Affiliates of Sterling City Capital, LLC and the officers and directors of AmPaM will not be greater than the number of shares of AmPaM Stock reflected in the Private Placement Memorandum as the aggregate number of shares of AmPaM Stock to be issued and outstanding and owned by Sterling City Capital, LLC, any Affiliates of Sterling City Capital, LLC and the officers and directors of AmPaM. 6.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements, except for the arrangements to contribute AmPaM Stock to a deferred stock compensation plan for the benefit of certain employees as described in Annex I hereto, and except as set forth in the Private Placement Memorandum, (i) no option, warrant, call, conversion right or commitment of any kind exists as of the date of this Agreement which obligates AmPaM to issue any of its authorized but unissued capital stock; and (ii) AmPaM has no obligation (contingent or otherwise) to purchase, redeem or 24 33 otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof. The material terms of any options, warrants or other rights to acquire shares of the stock of AmPaM referred to in the preceding sentence will be as described in the Private Placement Memorandum. 6.5 SUBSIDIARIES. As of the date of this Agreement, AmPaM has no subsidiaries. As of the date of this Agreement, AmPaM does not own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity, and AmPaM is not, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. 6.6 FINANCIAL STATEMENTS. The historical financial statements of AmPaM included in the Private Placement Memorandum (the "AmPaM Financial Statements") have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except as noted thereon), and the balance sheet included therein presents fairly the financial position of AmPaM as of its date. Management of AmPaM believes that the assumptions underlying the pro forma adjustments utilized in the preparation of such pro forma financial statements are reasonable, and such pro forma adjustments have been properly applied to the historical financial amounts in the compilation of the pro forma financial statements. Based on the representations in Section 5.9 of this Agreement and in Section 5.9 of each of the Other Agreements, the pro forma financial information of AmPaM fairly presents the pro forma financial position, results of operations and other information purported to be shown therein at the respective dates and for the respective periods specified. 6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Private Placement Memorandum, as of the date of this Agreement, AmPaM has no material liabilities or obligations of any kind, character or description, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than liabilities incurred in the ordinary course of business and consistent with past practices, liabilities or obligations set forth in or contemplated by this Agreement and the Other Agreements and except for fees incurred in connection with the transactions contemplated hereby and thereby. 6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the Private Placement Memorandum, AmPaM is not in violation of any law or regulation or any order of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it and its stockholders and, there are no claims, actions, suits or proceedings, pending or, to the knowledge of AmPaM, threatened against or affecting, AmPaM, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it and no notice of any claim, action, suit or proceeding, whether pending or threatened, has been received. AmPaM has conducted and is conducting its businesses in compliance in all material respects with the requirements, standards, criteria and conditions set forth in applicable Federal, state 25 34 and local statutes, ordinances, permits, licenses, orders, approvals, variances, rules and regulations and is not in violation, in any material respect, of any of the foregoing. 6.9 NO VIOLATIONS. (a) AmPaM is not in violation of any AmPaM Charter Document. AmPaM is not in default under any lease, instrument, agreement, license, or permit to which AmPaM is a party or by which AmPaM or any of its properties are bound (collectively, the "AmPaM Documents"). (b) The execution and delivery of this Agreement by AmPaM do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of AmPaM under any of the terms, conditions or provisions of (i) the AmPaM Charter Documents, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to AmPaM or any of its properties or assets, or (iii) any AmPaM Document; provided that the representations and warranties specified in clause (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. The consummation by AmPaM of the transactions contemplated hereby will not result in any material violation, conflict, breach, right of termination or acceleration or creation of liens under any of the terms, conditions or provisions of the items described in clauses (i) through (iii) of the preceding sentence, subject, in the case of the terms, conditions or provisions of the items described in clause (iii) above, to obtaining (prior to the Closing Date) (x) such approvals, consents or orders from the SEC, state blue sky authorities and authorities administering the Hart-Scott Act and (y) such other consents as may be required from commercial lenders, lessors or other third parties which are listed on Schedule 6.9. (c) Except for (i) any filings to be made with the SEC pursuant to the 1933 Act and filings with various state securities authorities in connection with the transactions contemplated by this Agreement, and (ii) any filings required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, none of the AmPaM Documents requires notice to, or the consent or approval of, any governmental agency or other third party with respect to the consummation by AmPaM of any of the transactions contemplated hereby in order to remain in full force and effect, and consummation by AmPaM of the transactions contemplated hereby will not give rise to any right to termination, cancellation or acceleration or loss of any material right or benefit under the AmPaM Documents; provided that the representations and warranties specified in clauses (i) and (ii) of this sentence (A) are based on information in the investor questionnaires and 26 35 related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. (d) Except for (i) any filings with the SEC pursuant to the 1933 Act and filings with various state securities authorities in connection with the transactions contemplated by this Agreement and (ii) any filings required under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by AmPaM or the consummation by AmPaM of the transactions contemplated hereby; provided that the representations and warranties specified in clauses (i) and (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. 6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement by AmPaM and the performance of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of AmPaM and this Agreement has been duly and validly authorized by all necessary corporate action and is a legal, valid and binding obligation of AmPaM, enforceable against AmPaM in accordance with its terms. 6.11 AMPAM STOCK. At the time of issuance thereof and delivery to the Stockholders, the AmPaM Stock to be delivered to the Stockholders pursuant to this Agreement will constitute valid, duly authorized and legally issued shares of AmPaM, fully paid and nonassessable, and with the exception of restrictions upon resale set forth in Sections 15 and 16 hereof, will be identical in all substantive respects (which do not include the form of certificate upon which it is printed or the presence or absence of a CUSIP number on any such certificate) to the AmPaM Stock issued and outstanding as of the date hereof, other than the Restricted Common Stock. The AmPaM Stock issued and delivered to the Stockholders shall at the time of such issuance and delivery be free and clear of any liens, claims or encumbrances of any kind or character. The offer and sale of the shares of AmPaM Stock to be issued to the Stockholders pursuant to this Agreement are not required to be registered under the 1933 Act; provided that the representations and warranties specified in this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the 27 36 stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. 6.12 AMPAM NOTES. The AmPaM Notes have been duly authorized and, at the Closing Date, will have been duly executed by AmPaM and, when authenticated, issued and delivered, will constitute valid and binding obligations of AmPaM, enforceable against AmPaM in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers) reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). 6.13 NO SIDE AGREEMENTS. AmPaM has not entered into any agreement with any of the Founding Companies or any of the Stockholders of the Founding Companies other than this Agreement, the Other Agreements, the agreements referred to in this Agreement and in the Other Agreements and the Private Placement Memorandum. AmPaM has not entered into any agreements providing for rights to register shares of AmPaM Stock under the 1933 Act except as provided in Section 17 of this Agreement, in Section 17 of the Other Agreements and in an agreement with Sterling City Capital, LLC, its Affiliates and officers and directors of AmPaM having terms substantially similar to those set forth in Section 17 hereof. 6.14 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. AmPaM was formed in June 1998 and has conducted no material business since the date of its inception except for activities related to the transaction contemplated by this Agreement, the Other Agreements and the Private Placement Memorandum. Except as described in the Private Placement Memorandum, as of the date of this Agreement, AmPaM does not own any real property or any material personal property and is not a party to any other material agreement other than this Agreement, the Other Agreements and the agreements contemplated hereby and thereby. 6.15 RELATIONS WITH GOVERNMENTS. Neither AmPaM nor any of its directors, officers or Affiliates has given or offered anything of value to any government official, political party or candidate for government office, nor has AmPaM, any of its directors, officers or Affiliates of any of them otherwise taken any action, which would cause AmPaM to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. 28 37 6.16 DISCLOSURE. The Private Placement Memorandum delivered to the Company and the Stockholders does not as of the date hereof contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing does not apply to statements contained in or omitted from any of such documents made or omitted in reliance upon, and in conformity with, information furnished to AmPaM by the Company or the Stockholders in writing specifically for inclusion in the Private Placement Memorandum. 6.17 OTHER AGREEMENTS. The Other Agreements have been duly authorized, executed and delivered by AmPaM and constitute the legal, valid and binding obligation of AmPaM enforceable against AmPaM in accordance with their respective terms. The terms and conditions of the Other Agreements (excluding the terms relating to the consideration payable by AmPaM thereunder) are identical in all material respects to the terms and conditions in this Agreement. 7. COVENANTS PRIOR TO CLOSING 7.1 ACCESS AND COOPERATION; DUE DILIGENCE; TRANSFER OF REAL ESTATE. (a) Between the date of this Agreement and the Closing Date, the Company will afford to the officers and authorized representatives of AmPaM reasonable access during normal business hours to all of the Company's sites, properties, books and records and will furnish AmPaM with such additional financial and operating data and other information as to the business and properties of the Company as AmPaM may from time to time reasonably request. The Company will cooperate with AmPaM, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. AmPaM, the Stockholders and the Company will treat all information obtained in connection with the negotiation and performance of this Agreement or the due diligence investigations conducted with respect to the Company as confidential in accordance with the provisions of Section 14 hereof. (b) Between the date of this Agreement and the Closing Date, AmPaM will afford to the officers and authorized representatives of the Company access to all of AmPaM's sites, properties, books and records and will furnish the Company with such additional financial and operating data and other information as to the business and properties of AmPaM and the Other Founding Companies as the Company may from time to time reasonably request. AmPaM will cooperate with the Company, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. The Company will cause all information obtained pursuant to this Section 7.1(b) or obtained in connection with the negotiation and performance of this Agreement to be treated as confidential in accordance with the provisions of Section 14 hereof. (c) Except as set forth on Schedule 7.1, any real property owned by the Company will be sold or distributed by the Company on terms mutually acceptable to AmPaM and the Company 29 38 and leased back by the Company on terms no less favorable to the Company than those available from an unaffiliated party and otherwise reasonably acceptable to AmPaM at or prior to the Closing Date. (d) Between the date of this Agreement and the Consummation Date, AmPaM will use reasonable efforts to hold meetings in Houston, Texas, or such other place or places as AmPaM shall reasonably determine, to which all of the Founding Companies will be invited to attend, not less frequently than every 45 days at which the business and affairs of AmPaM and the Founding Companies may be discussed. 7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this Agreement and the Closing Date, the Company will, except as set forth on Schedule 7.2: (i) carry on its businesses in the Ordinary Course of Business and not introduce any material new method of management, operation or accounting; (ii) use all commercially reasonable efforts to maintain its properties and facilities, including those held under leases, in as good working order and condition as at present, ordinary wear and tear, depreciation and insured losses excepted; (iii) perform in all material respects all of its obligations under all Material Documents relating to or affecting its respective assets, properties or rights; (iv) use its commercially reasonable efforts to keep in full force and effect present insurance policies or other comparable insurance coverage; (v) use its commercially reasonable efforts to maintain and preserve its business organization intact, retain its respective present key employees and maintain its relationships with suppliers, customers and others having business relations with the Company; (vi) use its commercially reasonable efforts to maintain compliance with all material permits, laws, rules and regulations, consent orders, and all other orders of applicable courts, regulatory agencies and similar governmental authorities; (vii) maintain present debt and lease instruments in accordance with their terms and not enter into new or amended debt or lease instruments without the knowledge and consent of AmPaM (which consent shall not be unreasonably withheld), provided that debt and/or lease instruments may be replaced without the consent of AmPaM if such replacement instruments are on terms at least as favorable to the Company as the instruments being replaced; 30 39 (viii) maintain or reduce present salaries and commission levels for all officers, directors, employees and agents except for ordinary and customary bonus and salary increases for employees in accordance with past practices; and (ix) use commercially reasonable efforts to cause its working Capital to be at levels consistent with historical levels. 7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between the date hereof and the Closing Date, the Company will not, without prior written consent of AmPaM: (i) make any change in its Charter Documents; (ii) issue any securities, options, warrants, calls, conversion rights or commitments relating to its securities of any kind other than in connection with the exercise of options or warrants listed in Schedule 5.4; (iii) except as permitted pursuant to the terms and conditions for distributions described in Annex I, declare or pay any dividend, or make any distribution in respect of its stock whether now or hereafter outstanding, or purchase, redeem or otherwise acquire or retire for value any shares of its stock; (iv) enter into any contract or commitment or incur or agree to incur any liability or make any capital expenditures, except if it is in the Ordinary Course of Business or involves an amount not in excess of three percent (3%) of the Company's gross revenues for fiscal 1997; (v) create, assume or permit to exist any mortgage, pledge or other lien or encumbrance upon any assets or properties whether now owned or hereafter acquired, except (1) with respect to purchase money liens incurred in connection with the acquisition of equipment with an aggregate cost not in excess of three percent (3%) of the Company's gross revenues for fiscal 1997 necessary or desirable for the conduct of the businesses of the Company, (2) (A) liens for taxes either not yet due or being contested in good faith and by appropriate proceedings (and for which contested taxes adequate reserves have been established and are being maintained) or (B) materialmen's, mechanics', workers', repairmen's, employees' or other like liens arising in the Ordinary Course of Business (the liens set forth in clause (2) being referred to herein as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or Schedule 5.15 hereto; (vi) sell, assign, lease or otherwise transfer or dispose of any property or equipment except in the Ordinary Course of Business and other than distributions of real estate and other assets as permitted in this Agreement (including Annex I hereto); 31 40 (vii) negotiate for the acquisition of any business or the start-up of any new business; (viii) merge or consolidate or agree to merge or consolidate with or into any other corporation; (ix) waive any material rights or claims of the Company, provided that the Company may negotiate and adjust bills and accounts in the course of good faith disputes with customers in a manner consistent with past practice; (x) amend or terminate any Material Document except for the termination of a Material Document in accordance with its terms without any action on the part of the Company; or (xi) enter into any other material transaction outside the Ordinary Course of Business or any transaction prohibited hereunder. 7.4 NO SHOP. None of the Stockholders, the Company, nor any agent, officer, director, trustee or any representative of any of the foregoing will, during the period commencing on the date of this Agreement and ending with the earlier to occur of the Closing Date or the termination of this Agreement in accordance with its terms, directly or indirectly: (i) solicit or initiate the submission of proposals or offers from any person for, (ii) participate in any discussions pertaining to, or (iii) furnish any information to any person other than AmPaM or its authorized agents relating to, any acquisition or purchase of all or a material amount of the assets of, or any equity interest in, the Company or a merger, consolidation or business combination of the Company. 7.5 AGREEMENTS. Except as disclosed on Schedule 7.5(a), the Stockholders and the Company shall terminate (i) any stockholders agreements, voting agreements, voting trusts, agreements providing for the grant by the Company of any options, warrants and employment agreements between the Company and any employee listed on Schedule 8.11 hereto and (ii) except as otherwise provided in this Agreement, any existing agreement between the Company and any Stockholder, on or prior to the Closing Date provided that nothing herein shall prohibit or prevent the Company from paying (either prior to or on the Closing Date) notes or other obligations from the Company to the Stockholders described in Schedule 7.5(b) in accordance with the terms thereof. 32 41 7.6 NOTIFICATION OF CERTAIN MATTERS. Each Stockholder and the Company shall give prompt notice to AmPaM upon obtaining knowledge of (i) the occurrence or non-occurrence of any event the occurrence or nonoccurrence of which would be likely to cause any representation or warranty of the Company or such Stockholder contained herein to be untrue or inaccurate in any material respect at or prior to the Closing and (ii) any material failure of such Stockholder or the Company to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by such person hereunder. AmPaM shall give prompt notice to the Company of (i) the occurrence or non-occurrence of any event the occurrence or non-occurrence of which would be likely to cause any representation or warranty of AmPaM contained herein to be untrue or inaccurate in any material respect at or prior to the Closing, (ii) any material failure of AmPaM to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; (iii) any termination of any Other Agreement for any reason; and (iv) the issuance by the SEC or any state securities regulatory authority of any issuance of or threatened issuance of any order challenging the availability of an exemption from registration or suspending the qualification of any securities described in the Private Placement Memorandum for sale in any jurisdiction. However, subject to the provisions of Section 7.7, such notification shall not relieve either the Company or such Stockholder of their respective obligations under this Agreement. The delivery of any notice pursuant to this Section 7.6 shall not be deemed to (i) modify the representations or warranties hereunder of the party delivering such notice, which modification may only be made pursuant to Section 7.7, (ii) modify the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect the remedies available hereunder to the party receiving such notice. 7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to the representations and warranties of such party contained in this Agreement, such party shall have the continuing obligation until 24 hours prior to the Closing Date to notify AmPaM with respect to any matter (i) hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or described in the Schedules or (ii) which may have been omitted from the Schedules previously provided by such party. Notwithstanding the foregoing sentence, no amendment or supplement to a Schedule prepared by the Company may be made unless AmPaM consents to such amendment or supplement; and provided further, that no amendment or supplement to a Schedule prepared by AmPaM may be made unless the Stockholders consent to such amendment or supplement. For all purposes of this Agreement, including without limitation for purposes of determining whether the conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules hereto, as amended or supplemented with the consent of AmPaM or the Stockholders, as the case may be, as provided above, shall be deemed to be the Schedules to this Agreement. 7.8 FURTHER ASSURANCES. The parties hereto agree to execute and deliver, or cause to be executed and delivered, such further instruments or documents or take such other action as may be reasonably necessary or appropriate to carry out the transactions contemplated hereby and to cause the conditions to the Closing Date to be satisfied as promptly as practicable. 33 42 7.9 AUTHORIZED CAPITAL. Prior to the Closing Date, AmPaM shall maintain its authorized capital stock as set forth in the Private Placement Memorandum. 7.10 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this Agreement hereby recognize that one or more filings under the Hart-Scott Act may be required in connection with the transactions contemplated herein. If it is determined by the parties to this Agreement that filings under the Hart-Scott Act are required, then: (i) each of the parties hereto agrees to cooperate and use its best efforts to comply with the Hart-Scott Act and (ii) such compliance by the Stockholders and the parties agree to cooperate and use their best efforts to cause all filings required under the Hart- Scott Act to be made. If filings under the Hart-Scott Act are required, the costs and expenses thereof (including filing fees) shall be borne by AmPaM. 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY The obligations of the Stockholders and the Company with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the following conditions. As of the Closing Date, if any such applicable conditions have not been satisfied, any one or more of the Stockholders who would be entitled to receive a majority of the Aggregate Consideration (as defined herein) received by all Stockholders if the transactions contemplated hereby were consummated shall have the right to waive any condition not so satisfied. Any act or action of the Stockholders in consummating the Closing or delivering the certificates representing Company Stock as of the Closing Date shall constitute a waiver of any conditions not so satisfied. However, no such waiver shall be deemed to affect the survival of the representations and warranties of AmPaM contained in Section 6 hereof. 8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All representations and warranties of AmPaM contained in Section 6 shall be true and correct as of the Closing Date as though such representations and warranties had been made as of that time; all of the terms, covenants and conditions of this Agreement to be complied with and performed by AmPaM on or before the Closing Date shall have been duly complied with and performed in all material respects; and certificates to the foregoing effect dated the Closing Date and signed by the President or any Vice President of AmPaM shall have been delivered to the Stockholders. 8.2 SATISFACTION. All actions, proceedings, instruments and documents that are not within the control of the Company or the Stockholders and that are required to carry out this Agreement or incidental hereto shall be reasonably satisfactory to the Company, the Stockholders and their counsel. 8.3 NO LITIGATION. No action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock. 34 43 8.4 OPINION OF COUNSEL. The Company shall have received opinions from counsel for AmPaM, dated the Closing Date, addressed to the Company and the Stockholders in the form annexed hereto as Annex III. 8.5 CONSENTS AND APPROVALS. All necessary consents of and filings with any governmental authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made; any waiting periods under the Hart-Scott Act, if applicable, shall have expired or been terminated; all consents and approvals of third parties listed on Schedule 6.9 shall have been obtained; and no action or proceeding shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock and no governmental agency or body shall have taken any other action or made any request of Company as a result of which Company deems it inadvisable to proceed with the transactions hereunder. 8.6 GOOD STANDING CERTIFICATES. AmPaM shall have delivered to the Company a certificate, dated as of a date no later than ten days prior to the Closing Date, duly issued by the Delaware Secretary of State and in each state in which AmPaM is authorized to do business, showing that AmPaM is in good standing and authorized to do business and that all state franchise and/or income tax returns and taxes for AmPaM for all periods prior to the Closing have been filed and paid. 8.7 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have occurred which would constitute a Material Adverse Change with respect to AmPaM from the date of the Private Placement Memorandum. 8.8 SECRETARY'S CERTIFICATE. The Company shall have received a certificate or certificates, dated the Closing Date and signed by the secretary of AmPaM, certifying the truth and correctness of attached copies of AmPaM's Certificate of Incorporation (including amendments thereto), By-Laws (including amendments thereto), and resolutions of the board of directors and, if required, the stockholders of AmPaM approving AmPaM's entering into this Agreement and the Other Agreements and the consummation of the transactions contemplated hereby and thereby. 8.9 TAX MATTERS. The Stockholders shall have received an opinion of Andrews & Kurth L.L.P., in substantially the form of Annex IV hereto, that the AmPaM Plan of Organization will qualify as a tax-free transfer of property under Section 351 of the Code and that the Stockholders will not recognize gain to the extent the Stockholders exchange Company Stock for AmPaM Stock (but not cash or other property) pursuant to this Agreement in connection with the AmPaM Plan of Organization. 8.10 OTHER FOUNDING COMPANIES. The transactions contemplated by the Other Agreements are consummated simultaneously with the consummation of the transactions contemplated by this Agreement. 35 44 8.11 COMPANY RELEASE OF STOCKHOLDERS. The Company shall have delivered to the Stockholders an instrument dated the Closing Date, in form reasonably satisfactory to AmPaM and the Stockholders, which shall be effective only upon the occurrence of the Closing Date, releasing the Stockholders from (i) any and all claims of the Company against the Stockholders, known and unknown, and (ii) obligations of the Stockholders to the Company, except for (x) items specifically identified on Schedule 5.10(a) and Schedule 5.15(b) as being claims of or obligations to the Company and (y) continuing obligations to the Company relating to their employment by the Company pursuant to any employment agreement entered into pursuant to Section 8.11 hereof. 8.12 STERLING CITY CAPITAL TRANSFER RESTRICTIONS. Sterling City Capital, LLC and each of its Affiliates which owns AmPaM Stock shall have entered into an agreement with AmPaM containing substantially the same terms and conditions as are contained in Section 15 and Section 17. 8.13 ELECTION OF CHIEF EXECUTIVE OFFICER. AmPaM shall have taken all corporate action necessary to elect Robert A. Christianson as Chief Executive Officer of AmPaM effective immediately following the Closing Date. 8.14 FUNDING AVAILABILITY. AmPaM shall have entered into binding agreements with financial institutions, lenders or investors that provide AmPaM with sufficient funds to pay (i) the cash amounts specified in Annex I hereto as payable to the Stockholders upon the Closing and (ii) the aggregate cash amounts specified in Annex I to each of the Other Agreements as payable to the stockholders of the Other Founding Companies upon the Closing; and all conditions to the funding of the cash amounts necessary to make such payments specified in the agreements related to such financing arrangements, other than the closing of the transactions contemplated by this Agreement and the Other Agreements, shall have been satisfied as of the Closing Date. 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF AMPAM The obligations of AmPaM with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the following conditions. As of the Closing Date, if any such conditions have not been satisfied, AmPaM shall have the right to terminate this Agreement, or waive any such condition, but no such waiver shall be deemed to affect the survival of the representations and warranties contained in Section 5 hereof. 9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS. All the representations and warranties of the Stockholders and the Company contained in this Agreement shall be true and correct as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date; all of the terms, covenants and conditions of this Agreement to be complied with or performed by the Stockholders and the Company on or before the Closing Date shall have been duly performed or complied with in all material respects; and the Stockholders shall have delivered to AmPaM certificates dated the Closing Date and signed by them to such effect. 36 45 9.2 NO LITIGATION. No action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock. 9.3 SECRETARY'S CERTIFICATE. AmPaM shall have received a certificate, dated the Closing Date and signed by the secretary of the Company, certifying the truth and correctness of attached copies of the Company's Articles or Certificate of Incorporation (including amendments thereto), By-Laws (including amendments thereto), and resolutions of the board of directors and the Stockholders approving the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby. 9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have occurred with respect to the Company which would constitute a Material Adverse Effect, and the Company shall not have suffered any material loss or damages to any of its properties or assets, whether or not covered by insurance, which change, loss or damage materially affects or impairs the ability of the Company to conduct its business. 9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to AmPaM an instrument dated the Closing Date which shall be effective only upon the occurrence of the Closing releasing the Company and AmPaM from (i) any and all claims of the Stockholders against the Company and AmPaM and (ii) obligations of the Company and AmPaM to the Stockholders, except for (A) items specifically identified on Schedule 5.31 as being claims of or obligations to the Stockholders, (B) continuing obligations to Stockholders relating to their employment by the Company pursuant to employment agreements entered into as specified in Section 8.11 hereof, (C) obligations arising under this Agreement or the transactions contemplated hereby and (D) claims of Stockholders against the Company for unreimbursed business expenses incurred by the Stockholders on behalf of the Company (other than expenses related to the transactions contemplated by this Agreement) prior to the Closing Date or unreimbursed medical expenses of the Stockholders incurred prior to the Closing Date which are covered by the Company's existing health insurance coverage. In the event that the Closing Date does not occur, then the release instrument referenced herein shall be void and of no further force or effect. 9.6 SATISFACTION. All actions, proceedings, instruments and documents that are not within the control of AmPaM and that are required to carry out the transactions contemplated by this Agreement or incidental hereto shall have been reasonably approved by counsel to AmPaM. 9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on Schedule 9.7, all existing agreements between the Company and the Stockholders (and between the Company and entities controlled by the Stockholders) specified on Schedule 5.31 shall have been terminated effective prior to or as of the Closing Date without any payment being made by the Company other than payments made for services rendered, materials provided or other benefits provided to the Company prior to the Closing Date pursuant to the terms of such agreements as in effect as of the date of this Agreement. 37 46 9.8 OPINION OF COUNSEL. AmPaM shall have received opinions from counsel to the Company and the Stockholders, dated the Closing Date, substantially in the form annexed hereto as Annex V. 9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any governmental authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made; any waiting periods under the Hart-Scott Act, if applicable, shall have expired or been terminated; all consents and approvals of third parties listed on Schedule 5.23(b)(2) shall have been obtained; and no action or proceeding shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock and no governmental agency or body shall have taken any other action or made any request of AmPaM as a result of which AmPaM deems it inadvisable to proceed with the transactions hereunder. 9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to AmPaM a certificate, dated as of a date no earlier than ten days prior to the Closing Date, duly issued by the appropriate governmental authority in the Company's state of incorporation and, unless waived by AmPaM, in each state in which the Company is authorized to do business, showing the Company is in good standing and authorized to do business and that all state franchise and/or income tax returns and taxes for the Company for all periods prior to the Closing have been filed and paid. 9.11 FUNDING AVAILABILITY. AmPaM shall have entered into binding agreements with financial institutions, lenders or investors that provide AmPaM with sufficient funds to pay (i) the cash amounts specified in Annex I hereto as payable to the Stockholders upon the Closing and (ii) the aggregate cash amounts specified in Annex I to each of the Other Agreements as payable to the stockholders of the Other Founding Companies upon the Closing; and all conditions to the funding of the cash amounts necessary to make such payments specified in the agreements related to such financing arrangements, other than the closing of the transactions contemplated by this Agreement and the Other Agreements, shall have been satisfied as of the Closing Date. 9.12 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to AmPaM a certificate to the effect that he is not a foreign person pursuant to Section 1.1445-2(b) of the Treasury regulations. 9.13 RESIGNATIONS OF DIRECTORS AND OFFICERS. Any directors of the Company, other than those identified on Schedule 2.1, shall have resigned as directors of the Company. Any officers of the Company, other than those identified on Schedule 2.2, shall have resigned as officers of the Company. 38 47 10. COVENANTS OF AMPAM AND THE STOCKHOLDERS AFTER CLOSING 10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. AmPaM shall use reasonable efforts to have the Stockholders released from any and all guarantees of the Company's indebtedness, including bond obligations, identified on Schedule 10.1. Prior to obtaining the release of such guarantees, AmPaM shall provide its guarantee of such indebtedness to the lenders thereof. In the event that AmPaM cannot obtain such releases from the lenders of any such guaranteed indebtedness identified on Schedule 10.1 on or prior to 90 days subsequent to the Closing Date, AmPaM shall promptly pay off or otherwise refinance or retire such indebtedness such that the Stockholders' personal liability shall be released. AmPaM will indemnify the Stockholders against any loss or damage suffered as a result of the personal guarantees. 10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated by this Agreement, after the Closing Date, AmPaM shall not and shall not permit any of its Subsidiaries to undertake any act that would jeopardize the tax-free status of the exchange of Company Stock for AmPaM Stock (but not cash or other property), including without limitation: (a) the retirement or reacquisition, directly or indirectly, of all or part of the AmPaM Stock issued in connection with the transactions contemplated hereby; or (b) the entering into of financial arrangements for the benefit of the Stockholders other than as described in the Private Placement Memorandum or as described in this Agreement. 10.3 PREPARATION AND FILING OF TAX RETURNS; PAYMENT OF TAXES. (a) The Company, if possible, or otherwise the Stockholders shall file or cause to be filed all income Tax Returns (federal, state, local or otherwise) of any Acquired Party for all taxable periods that end on or before the Closing Date, and shall permit AmPaM to review all such Tax Returns prior to such filings. Unless the Company is a C corporation, the Stockholders shall pay or cause to be paid all income Tax liabilities (in excess of all amounts already paid with respect thereto or properly accrued or reserved with respect thereto on the Financial Statements) with respect to the Company's operations for all periods through and including the Closing Date. (b) AmPaM shall file or cause to be filed all separate Returns of, or that include, any Acquired Party for all taxable periods ending after the Closing Date. (c) Unless required by applicable law, regulations or government proceedings, AmPaM shall not take any action, including any amendment of a Tax Return of any Acquired Party, if such action would result in additional Tax liabilities payable by any of the Stockholders for periods ending on or prior to the Closing Date. (d) Each party hereto shall, and shall cause its subsidiaries and Affiliates to, provide to each of the other parties hereto such cooperation and information as any of them 39 48 reasonably may request in filing any Return, amended Return or claim for refund, determining a liability for Taxes or a right to refund of Taxes or in conducting any audit or other proceeding in respect of Taxes. Such cooperation and information shall include providing copies of all relevant portions of relevant Returns, together with relevant accompanying schedules and relevant work papers, relevant documents relating to rulings or other determinations by Taxing Authorities and relevant records concerning the ownership and Tax basis of property, which such party may possess. Each party shall make its employees reasonably available on a mutually convenient basis at its cost to provide explanation of any documents or information so provided. Subject to the preceding sentence, each party required to file Returns pursuant to this Agreement shall bear all costs of filing such Returns. (e) Each of the Company, AmPaM and each Stockholder shall comply with the tax reporting requirements of Section 1.351-3 of the Treasury Regulations promulgated under the Code, and treat the transaction as a tax-free contribution under Section 351(a) of the Code subject to gain, if any, recognized on the receipt of cash or other property under Section 351(b) of the Code. 10.4 DIRECTORS. The persons named in the Private Placement Memorandum shall be appointed as directors and elected as officers of AmPaM, as and to the extent set forth in the Private Placement Memorandum, promptly following the Closing Date; provided, however, that the parties hereto acknowledge that if the Company consummates an IPO, the persons who will serve as directors and executive officers of AmPaM will be adjusted as appropriate for a publicly traded entity, with any such changes being subject to the approval of the majority of the Board of Directors of AmPaM. 10.5 LEGAL OPINIONS. If required by the lenders pursuant to the terms of any agreements related to financing of the cash amounts referred to in Section 9.11 hereof, the Company shall cause its counsel to deliver to such lenders, at the Closing, an opinion of counsel in substantially the form attached hereto as Annex V. 11. INDEMNIFICATION The Stockholders and AmPaM each make the following covenants that are applicable to them, respectively: 11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. (a) Each Stockholder covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement until the applicable Expiration Date (as defined in the introductory paragraph to Section 5(A)), provided that for purposes of clause (iii) below, the applicable Expiration Date shall be the date on which the applicable statute of limitations expires), from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM 40 49 as a result of or arising from (i) any breach of the representations and warranties of the Company set forth herein or on the schedules attached hereto or certificates delivered pursuant to this Agreement, (ii) any breach of any covenant or agreement on the part of the Company under this Agreement, or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating solely to the Company which was based upon information provided to AmPaM or its counsel in writing by the Company specifically for inclusion in the Private Placement Memorandum and is contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact relating to the Company required to be stated therein or necessary to make the statements therein not misleading; provided, however, that no Stockholder shall be liable for any indemnification obligation pursuant to this Section 11.1 in excess of such Stockholder's pro rata share thereof determined by reference to the aggregate value of the Base Cash Amount (as defined in Annex I of this Agreement), the principal amount of AmPaM Notes and the shares of AmPaM Stock (valued at a price of $13.00 per share) received by such Stockholder pursuant to Section I.A. of Annex I hereto (without giving effect to the adjustments provided in Sections I.B. and I.C. thereof) (giving effect to the value of such AmPaM Stock and without giving effect to such adjustments, collectively, the "Aggregate Consideration") such Stockholder would receive pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated in relation to the total Aggregate Consideration all Stockholders would receive pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated. (b) Each Stockholder covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement, from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM as a result of or arising from (i) any breach of the representations and warranties of such Stockholder set forth in Section 5(B) hereof, (ii) any breach of any covenant or agreement on the part of such Stockholder under this Agreement, or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating solely to such Stockholder which was based upon information provided to AmPaM or its counsel in writing by such Stockholder specifically for inclusion in the Private Placement Memorandum and is contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact relating solely to such Stockholder required to be stated therein or necessary to make the statements therein in light of the circumstances in which such statements were made not misleading. (c) AmPaM acknowledges and agrees that other than the representations and warranties of the Company or the Stockholders specifically contained in this Agreement, there are no representations or warranties of the Company or the Stockholders, either express or implied, with 41 50 respect to the transactions contemplated by this Agreement, the Company or its assets, liabilities and business. 11.2 INDEMNIFICATION BY AMPAM. AmPaM covenants and agrees that it will indemnify, defend, protect and hold harmless the Company and the Stockholders at all times from and after the date of this Agreement until the applicable Expiration Date (as defined in the introductory paragraph of Section 6, provided that for purposes of clause (iii) below, the applicable Expiration Date shall be the date on which the applicable statute of limitations expires), from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by the Company or the Stockholders as a result of or arising from (i) any breach by AmPaM of its representations and warranties set forth herein or on the schedules attached hereto or certificates delivered pursuant to this Agreement, (ii) any breach of any agreement on the part of AmPaM under this Agreement; or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except to the extent such is based upon an untrue statement or alleged untrue statement, or omission or alleged omission, made therein in reliance upon, and in conformity with, the representations and warranties of the Company or the Stockholders specifically contained in this Agreement or other information furnished to AmPaM by the Company or the Stockholders in writing specifically for inclusion therein. 11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the "Indemnified Party") has received notice of or has knowledge of any claim by a person not a party to this Agreement ("Third Person"), or the commencement of any action or proceeding by a Third Person, the Indemnified Party shall, as a condition precedent to a claim with respect thereto being made against any party obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying Party written notice of such claim or the commencement of such action or proceeding. Such notice shall state the nature and the basis of such claim and a reasonable estimate of the amount thereof. The Indemnifying Party shall have the right to defend and settle, at its own expense and by its own counsel reasonably satisfactory to the Indemnified Party, any such matter so long as the Indemnifying Party pursues the same in good faith and diligently, provided that the Indemnifying Party shall not settle any criminal proceeding without the written consent of the Indemnified Party. If the Indemnifying Party undertakes to defend or settle, it shall promptly notify the Indemnified Party of its intention to do so, and the Indemnified Party shall cooperate with the Indemnifying Party and its counsel in the defense thereof and in any settlement thereof. Such cooperation shall include, but shall not be limited to, furnishing the Indemnifying Party with any books, records or information reasonably requested by the Indemnifying Party that are in the Indemnified Party's possession or control. All Indemnified Parties shall use the same counsel, which shall be the counsel selected by Indemnifying Party, provided that if counsel to the Indemnifying Party shall have a conflict of interest or a conflict of interest is reasonably likely 42 51 to arise that prevents counsel for the Indemnifying Party from representing such Indemnified Party, Indemnified Party shall have the right to participate in such matter through counsel of its own choosing and Indemnifying Party will reimburse the Indemnified Party for the reasonable expenses of its counsel. After the Indemnifying Party has notified the Indemnified Party of its intention to undertake to defend or settle any such asserted liability, and for so long as the Indemnifying Party diligently pursues such defense, the Indemnifying Party shall not be liable for any additional legal expenses incurred by the Indemnified Party in connection with any defense or settlement of such asserted liability, except (i) as set forth in the preceding sentence and (ii) to the extent such participation is requested by the Indemnifying Party, in which event the Indemnified Party shall be reimbursed by the Indemnifying Party for reasonable additional legal expenses and out-of-pocket expenses. If the Indemnifying Party desires to accept a final and complete settlement of any such Third Person claim and the Indemnified Party refuses to consent to such settlement, then the Indemnifying Party's liability under this Section with respect to such Third Person claim shall be limited to the amount so offered in settlement by said Third Person. Upon agreement as to such settlement between said Third Person and the Indemnifying Party, the Indemnifying Party shall, in exchange for a complete release from the Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in such settlement. If the Indemnifying Party does not undertake to defend such matter to which the Indemnified Party is entitled to indemnification hereunder, or fails diligently to pursue such defense, the Indemnified Party may undertake such defense through counsel of its choice, at the cost and expense of the Indemnifying Party, and the Indemnified Party may settle such matter, and the Indemnifying Party shall pay the Indemnified Party for the settlement amount and any other liabilities or expenses incurred by the Indemnified Party in connection therewith, provided, however, that under no circumstances shall the Indemnified Party settle any Third Person claim without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. All settlements hereunder shall effect a complete release of the Indemnified Party, unless the Indemnified Party otherwise agrees in writing. With respect to any account, note or other receivable as to which the Stockholders have paid in full any indemnification obligation pursuant to this Section 11 as a result of a breach of the representation and warranty made pursuant to Section 5.11 or as to which a claim in respect thereof has been asserted pursuant to this Section 11 that has been applied against the Indemnification Threshold with respect to the Stockholders as a result of a breach of the representation and warranty made pursuant to Section 5.11, AmPaM shall cause the Company to assign such account, note or other receivable to the Stockholders. The parties hereto will make appropriate adjustments for insurance proceeds in determining the amount of any indemnification obligation under this Section. 11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any action seeking damages or any other form of monetary relief brought by any party to this Agreement against another party to this Agreement with respect to any provision of this Agreement, provided that, nothing herein shall be construed to limit the right of a party, in a proper case, to seek injunctive relief for a breach of this Agreement. AmPaM hereby waives, to the fullest extent permitted under applicable law, any and all other rights, claims and causes of action, known or unknown, it or any indemnified person may have against the Company or any Stockholder relating to this Agreement or the transactions pursuant to this 43 52 Agreement arising under or based upon any Federal, state, local or foreign statute, law, rule, regulation or otherwise. Any indemnity payment under this Section 11 shall be treated as an adjustment to the exchange consideration for Tax purposes unless a final determination (which shall include the execution of a Form 870-AD or successor form) with respect to the Indemnified Party or any of its Affiliate causes any such payment not to be treated as an adjustment to the exchange consideration for U.S. Federal income Tax purposes. 11.5 LIMITATIONS ON INDEMNIFICATION. (a) AmPaM shall not assert any claim for indemnification under this Section 11 against the Stockholders until such time as, and solely to the extent that, the aggregate of all claims which AmPaM may have against the Stockholders shall exceed the greater of (a) 3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section 1.2 plus (ii) the value of the AmPaM Stock delivered to the Stockholders pursuant to Section 1.2 (calculated as provided in this Section 11.5) plus (iii) the principal amount of the AmPaM Notes delivered to the Stockholders pursuant to Section 1.2, or (b) $50,000 (the "Indemnification Threshold"). Stockholders shall not assert any claim for indemnification hereunder against AmPaM until such time as, and solely to the extent that, the aggregate of all claims which Stockholders may have against AmPaM shall exceed $50,000; provided, however, that this sentence shall not be applicable with respect of any failure by AmPaM to (i) deliver the consideration specified in Annex I hereto on the Closing Date upon the satisfaction, or waiver by AmPaM, of all conditions to the occurrence of the Closing Date specified in Section 9 or (ii) comply with its obligations pursuant to Section 10.1. After the $50,000 threshold for AmPaM (subject to the proviso in the preceding sentence) or the Indemnification Threshold for a Stockholder has been met, all claims must be made in $10,000 increments, which claims may be cumulated in order to meet such $10,000 thresholds. For purposes of this paragraph, the AmPaM Stock delivered to the Stockholders shall be valued at $13.00 per share. (b) No person shall be entitled to indemnification under this Section 11 if and to the extent that such person's claim for indemnification is directly or indirectly related to a breach by such person of any representation, warranty, covenant or other agreement set forth in this Agreement. No claim for indemnification against the Stockholders shall limit, diminish or change any obligation of AmPaM pursuant to Section 10.1 hereof. (c) Notwithstanding any other term of this Agreement, no Stockholder shall be liable under this Section 11 for an amount which exceeds eighty-five percent (85%) of the amount of proceeds received by such Stockholder (valued as of the Closing Date) in connection with the purchase and sale of the Company Stock. For purposes of this paragraph, the AmPaM Stock shall be valued at $13.00 per share. (d) A Stockholder may pay any indemnification obligation under Section 11 by means of the payment of cash or a combination of the payment of cash, the forgiveness of amounts owed pursuant to the AmPaM Notes and the delivery to AmPaM of shares of AmPaM Stock; provided that the percentage of the indemnification obligation satisfied by means of the delivery of shares of AmPaM Stock does not exceed the percentage of AmPaM Stock comprising the total consideration 44 53 paid to such Stockholder by AmPaM to such Stockholder pursuant to Annex I. For the purpose of crediting Stockholders for payments made to AmPaM by means of delivery of shares of AmPaM Stock, the AmPaM Stock shall be valued at $13.00 per share. (e) In determining the amount of any loss, liability or expense for which any party is entitled to indemnification under this Agreement, the gross amount thereof will be reduced by any correlative insurance proceeds or other third party indemnity or reimbursement proceeds realized or to be realized by such party (or, in the case of AmPaM, by AmPaM, the Company or any subsidiary of AmPaM or the Company) and such correlative insurance proceeds or other third party indemnity or reimbursement proceeds shall be net of any insurance premium or other incremental cost or expense owed or payable to any third party which becomes due as a result of such claim. AmPaM shall use commercially reasonable efforts to pursue any available insurance coverage or other rights of indemnity or reimbursement from third parties with respect to any such loss, liability or expense. 12. TERMINATION OF AGREEMENT 12.1 TERMINATION. This Agreement may be terminated at any time prior to the Closing Date solely: (i) by mutual consent of AmPaM and the Stockholders; (ii) by the Stockholders, if the transactions contemplated by this Agreement to take place at the Closing Date shall not have been consummated by June 30, 1999, unless the failure of such transactions to be consummated is due to a breach of this Agreement by the Company or the Stockholders prior to or on the Closing Date; (iii) by AmPaM, if the transactions contemplated by this Agreement to take place at the Closing Date shall not have been consummated by June 30, 1999, unless the failure of such transactions to be consummated is due to a breach of this Agreement by AmPaM prior to or on the Closing Date; (iv) by the Stockholders, if a material breach or default shall be made by AmPaM in the observance or in the due and timely performance of any of the covenants or agreements contained herein relating to AmPaM, and the curing of such default shall not have been made (or in the reasonable judgment of such Stockholders cannot be made) on or before the Closing Date; (v) by AmPaM, if a material breach or default shall be made by the Company or the Stockholders in the observance or in the due and timely performance of any of the covenants or agreements contained herein relating to the Company or the Stockholders, and the curing of such default shall not have been made (or in the reasonable judgment of AmPaM cannot be made) on or before the Closing Date; 45 54 (vi) by the Stockholders, if the conditions set forth in Section 8 hereof have not been satisfied or waived as of the Closing Date; or (vii) by AmPaM, if the conditions set forth in Section 9 hereof have not been satisfied or waived as of the Closing Date. 12.2 PROCEDURE AND EFFECT OF TERMINATION. A determination to terminate this Agreement by AmPaM pursuant to Section 12.1 shall be valid and effective only if a written notice of termination, accompanied by a certified copy of resolutions of the board of directors of AmPaM that evidence the authorization of the officer of AmPaM to deliver a written notice of termination of this Agreement pursuant to Section 12.1, is given to the Stockholders in the manner specified for notices in this Agreement. A determination to terminate this Agreement by the Stockholders pursuant to Section 12.1 shall be valid and effective only if a written notice of termination, signed by Stockholders who would be entitled to receive a majority of the shares of AmPaM Stock specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated, is given to AmPaM in the manner specified for notices in this Agreement. Upon the giving of notice of termination of this Agreement pursuant to Section 12.1 as specified in the preceding sentence, this Agreement shall terminate, and the transactions contemplated hereby shall be abandoned, without further action by any of the parties hereto. Immediately upon any such termination, AmPaM shall deliver written notice of such termination to the Other Founding Companies. If this Agreement is terminated as provided in this Section 12, no party hereto shall have any liability or further obligation hereunder to any other party, except as provided in Section 14 and Section 18.6, provided, that, the termination of this Agreement will in no way limit any obligation or liability of any party based on or arising from a breach or default by such party with respect to any of its representations, warranties, covenants or agreements contained in this Agreement including, but not limited to, legal and audit costs and out of pocket expenses that occurred prior to such termination. 13. NONCOMPETITION 13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the prior written consent of AmPaM, for a period of two (2) years following the Closing Date, for any reason whatsoever, directly or indirectly, for themselves or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature: (i) engage, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, whether paid or unpaid, in any plumbing, piping, mechanical, heating, ventilation or air conditioning contracting, installation or services business or operation, whether for residential, commercial, industrial or governmental customers, or any ancillary contracting, installation or services business directly related thereto (such business and operations referred to herein as the "Plumbing and Mechanical 46 55 Business"), within 100 miles of where the Company or any of its subsidiaries conducted business within two (2) years prior to the Closing Date (the "Territory"); (ii) call upon any person who is, at the Closing Date, within the Territory, an employee of AmPaM or any subsidiary thereof for the purpose or with the intent of enticing such employee away from or out of the employ of AmPaM or any subsidiary thereof; (iii) call upon any person or entity which is, at the Closing Date, or which has been within three (3) years prior to the Closing Date, a customer of AmPaM or any subsidiary thereof, of the Company or of any of the Other Founding Companies for the purpose of soliciting customers, orders or contracts for any Plumbing and Mechanical Business in direct competition with AmPaM within the Territory; (iv) call upon any prospective acquisition candidate, on any Stockholder's own behalf or on behalf of any competitor in the Plumbing and Mechanical Business, which candidate, to the actual knowledge of such Stockholder after due inquiry, was called upon by AmPaM or any subsidiary thereof or for which, to the actual knowledge of such Stockholder after due inquiry, AmPaM or any subsidiary thereof made an acquisition analysis, for the purpose of acquiring such entity; or (v) disclose to any person, firm, partnership, corporation or business the names or identities of any person, firm, partnership, corporation or business which has been a customer of the Company or any of its subsidiaries within the two (2) years prior to the Closing Date for any reason or purpose whatsoever except to the extent that the Company has in the past disclosed such information to the public for valid business reasons; or (vi) testify as an expert witness in matters related to the Plumbing and Mechanical Business for an adverse party to AmPaM, the Company or any Other Founding Companies in litigation. Notwithstanding the above, the foregoing covenant shall not be deemed to prohibit any Stockholder from acquiring as a passive investment (i) not more than one percent (1%) of the capital stock of a competing business whose stock is traded on a national securities exchange, the NASDAQ Stock Market or over-the-counter, or (ii) not more than five percent (5%) of the capital stock of a competing business whose stock is not publicly traded if the Board of Directors of AmPaM consents to such acquisition. 13.2 DAMAGES. Because of the difficulty of measuring economic losses to AmPaM as a result of a breach of the foregoing covenant, and because of the immediate and irreparable damage that could be caused to AmPaM for which it would have no other adequate remedy, each Stockholder agrees that the foregoing covenant may be enforced by AmPaM in the event of breach by such Stockholder, by injunctions and restraining orders. 47 56 13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the foregoing covenants in this Section 13 impose a reasonable restraint on the Stockholders in light of the activities and business of AmPaM and the subsidiaries thereof on the date of the execution of this Agreement and the current plans of AmPaM as described in the Private Placement Memorandum. 13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant. Moreover, in the event any court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which the court deems reasonable, and the Agreement shall thereby be reformed. 13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of any Stockholder against AmPaM or any subsidiary thereof, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by AmPaM of such covenants. It is specifically agreed that the period of two (2) years stated at the beginning of this Section 13, during which the agreements and covenants of each Stockholder made in this Section 13 shall be effective, shall be computed by excluding from such computation any time during which such Stockholder is found to be in violation of any provision of this Section 13 as determined by any of (i) a written agreement to such effect executed and delivered by AmPaM and such Stockholder, (ii) a determination by an arbitration panel pursuant to an arbitration conducted pursuant to Section 18.16 hereof or (iii) a non-appealable judgment of a court of competent jurisdiction. The covenants contained in Section 13 shall not be affected by any breach of any other provision hereof by any party hereto. The covenants contained in Section 13 shall have no effect if the transactions contemplated by this Agreement are not consummated. 13.6 MATERIALITY. The Company and the Stockholders hereby agree that the covenants contained in this Section 13 are a material and substantial part of this transaction. 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION 14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they had in the past, currently have, and in the future may possibly have, access to certain confidential information of the Company, the Other Founding Companies, and/or AmPaM, such as operational policies, customer lists, and pricing and cost policies that are valuable, special and unique assets of the Company's, the Other Founding Companies' and/or AmPaM's respective businesses. The Stockholders agree that they will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, except (a) to authorized representatives of AmPaM, (b) following the Closing, such information may be disclosed by the Stockholders as is required in the course of performing their duties for AmPaM or the Company and (c) to its counsel and other advisers, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section 14.1; provided, however that (i) the foregoing 48 57 disclosure prohibition shall not apply in the event that (i) such information becomes known to the public generally through no fault of the Stockholders, (ii) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (ii), the Stockholders shall, if possible, give prior written notice thereof to AmPaM and provide AmPaM with the opportunity to contest such disclosure, or (iii) the disclosing party reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party. In the event of a breach or threatened breach by any of the Stockholders of the provisions of this Section, AmPaM shall be entitled to an injunction restraining such Stockholders from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting AmPaM from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. In the event the transactions contemplated by this Agreement are not consummated, Stockholders shall have none of the above-mentioned restrictions on their ability to disseminate confidential information with respect to the Company. 14.2 AMPAM. AmPaM recognizes and acknowledges that it had in the past and currently has access to certain confidential information of the Company, such as operational policies, customer lists, and pricing and cost policies that are valuable, special and unique assets of the Company's business. AmPaM agrees that, prior to the Closing, or if the transactions contemplated by this Agreement are not consummated, it will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, except (a) to authorized representatives of the Company, (b) to its counsel and other advisers, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section 14.2, (c) to the Other Founding Companies and their representatives pursuant to Section 7.1(b) of the Other Agreements and (d) to potential purchasers of securities of AmPaM to the extent necessary or advisable in connection with the applicable securities laws; provided, however that the foregoing disclosure prohibition shall not apply in the event that (A) such information becomes known to the public generally through no fault of AmPaM, (B) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (B), AmPaM shall, if possible, give prior written notice thereof to the Company and the Stockholders and provide the Company and the Stockholders with the opportunity to contest such disclosure, or (C) the disclosing party reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party. In the event of a breach or threatened breach by AmPaM of the provisions of this Section 14.2, the Company and the Stockholders shall be entitled to an injunction restraining AmPaM from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting the Company and the Stockholders from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. In the event the transactions contemplated by this Agreement are not consummated for any reason, AmPaM shall nevertheless remain subject to this Section 14.2, except that it shall not be permitted to make any disclosures otherwise than pursuant to clause (A), (B) or (C) above. 49 58 14.3 DAMAGES. Because of the difficulty of measuring economic losses as a result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and because of the immediate and irreparable damage that would be caused for which they would have no other adequate remedy, the parties hereto agree that, in the event of a breach by any of them of the foregoing covenants, the covenant may be enforced against the other parties by injunctions and restraining orders. 14.4 SURVIVAL. The obligations of the parties under this Article 14 shall survive the termination of this Agreement for a period of five years from the Closing Date. 14.5 RETURN OF INFORMATION. If the transactions contemplated by this Agreement are not consummated, AmPaM will return or destroy all confidential information regarding the Company. 15. TRANSFER RESTRICTIONS 15.1 TRANSFER RESTRICTIONS RELATING TO AMPAM STOCK AND AMPAM NOTES. For a period of two years from the Closing Date or, in the event that the Company completes an IPO, for a period through the second anniversary of the date of the closing of such IPO (the "Restricted Period"), no Stockholder shall (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any shares of AmPaM Stock or AmPaM Notes received by the Stockholders pursuant to this Agreement or any securities convertible into, exchangeable or exercisable for any shares of AmPaM Stock or AmPaM Notes received by such Stockholder pursuant to this Agreement, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any shares of AmPaM Stock or AmPaM Notes received by such Stockholder pursuant to this Agreement, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the AmPaM Stock or AmPaM Notes, whether any such swap or transaction is to be settled by delivery of shares of AmPaM Stock or AmPaM Notes or other securities, by the delivery or payment of cash or otherwise, except, in the case of clauses (i), (ii) or (iii) above, (A) as otherwise agreed by AmPaM, (B) for the sale of shares of AmPaM Stock, and entering into agreements relating to the sale of shares of AmPaM Stock, pursuant to Section 17 hereof, (C) for transfers to (I) immediate family members of such Stockholder who agree with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (II) trusts, limited partnerships or other estate planning entities for the benefit of such Stockholder or family members of such Stockholder which have agreed with AmPaM in writing, through action taken by the trustees, partners or other persons having authority to bind the trust, limited partnership or other estate planning entity, to be bound by the restrictions set forth in this Section 15.1, (III) any charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code which agrees with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (D) for transfers of AmPaM Stock or AmPaM Notes to AmPaM pursuant to Section 11.5(d), (E) for transfers to another Stockholder, to another person or entity who receives shares of AmPaM Stock or AmPaM Notes or AmPaM Series A Preferred Stock pursuant to the Other Agreements or to Sterling City Capital LLC or any of its Affiliates provided that (1) such transaction is exempt from the registration requirements of the 1933 Act as evidenced by the delivery to AmPaM of an opinion of counsel in form and substance reasonably satisfactory to AmPaM and 50 59 (2) any such transferee agrees in writing to be bound by the restrictions set forth in this Section 15.1, (F) transfers of shares of AmPaM Notes, shares of AmPaM Stock, or grants of options to purchase shares of AmPaM Stock, by such Stockholder to employees of the Company of up to an aggregate of 15% of the shares of AmPaM Stock received by such Stockholder pursuant to this Agreement provided that (1) any such transaction is exempt from the registration requirements of the 1933 Act as evidenced by the delivery to AmPaM of an opinion of counsel in form and substance reasonably satisfactory to AmPaM and (2) any such employee agrees with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1 or (G) the sale by such Stockholder in an IPO of shares of AmPaM Stock representing not more than 10% of the Aggregate Consideration in cash; provided, however, that in no circumstance will a Stockholder be entitled to sell shares of AmPaM Stock in an IPO to the extent that the sale of such shares by such Stockholder would result in such Stockholder receiving in excess of 45% of the Aggregate Consideration in cash; and, provided further, if AmPaM is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under Section 17.1 that the number of shares to be sold by persons other than AmPaM is greater than the number of such shares which can be offered without adversely affecting the success of the offering, AmPaM may reduce pro rata (among the Stockholders and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. During the Restricted Period, the certificates evidencing the AmPaM Stock or AmPaM Notes delivered to the Stockholders pursuant to Section 3 of this Agreement will bear a legend substantially in the form set forth below: THE [SHARES/NOTES] REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO THE TERMS OF THE ACQUISITION AGREEMENT PURSUANT TO WHICH SUCH SHARES WERE ISSUED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, PLEDGE OR OTHER DISPOSITION PRIOR TO EXPIRATION OF THE RESTRICTED PERIOD REFERRED TO IN THE ACQUISITION AGREEMENT EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH AGREEMENT. SUCH RESTRICTIONS ON TRANSFER ARE SET FORTH IN AN ACQUISITION AGREEMENT, A COPY OF WHICH IS MAINTAINED AT THE PRINCIPAL OFFICES OF THE ISSUER. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE. 15.2 TRANSFER RESTRICTIONS RELATING TO ADDITIONAL CONSIDERATION. No Stockholder shall (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any right to receive any consideration pursuant to Section II of Annex I to this Agreement (the "Additional Consideration Right") or any securities convertible into, exchangeable or exercisable for any Additional Consideration Right, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any Additional Consideration Right, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly 51 60 or indirectly, the economic consequence of ownership of any Additional Consideration Right, whether any such swap or transaction is to be settled by delivery of shares of AmPaM Stock or other securities, by the delivery or payment of cash or otherwise. 16. FEDERAL SECURITIES ACT REPRESENTATIONS 16.1 COMPLIANCE WITH LAW. Each Stockholder acknowledges that the shares of AmPaM Stock, the Additional Consideration Right and any AmPaM Notes to be delivered to such Stockholder pursuant to this Agreement have not been and will not be registered under the 1933 Act (except as provided in Section 17 hereof) and therefore may not be sold, assigned, exchanged, transferred, pledged or otherwise disposed of without compliance with the 1933 Act which, among other matters, would require registration under the 1933 Act unless exemption from the registration requirements is available for such transaction. The AmPaM Stock, the Additional Consideration Right and any AmPaM Notes to be acquired by each Stockholder pursuant to this Agreement is being acquired solely for such Stockholder's own account, for investment purposes only, and with no present intention of selling, assigning, exchanging, transferring, pledging, or otherwise disposing of it. Each Stockholder covenants, warrants and represents that neither the shares of AmPaM Stock, the Additional Consideration Right nor any AmPaM Notes issued to such Stockholder will be offered, sold, assigned, exchanged, pledged, transferred or otherwise disposed of except after full compliance with all of the applicable provisions of the 1933 Act and the rules and regulations of the SEC. All certificates representing the AmPaM Stock shall bear the following legend in addition to the legend required under Section 15 of this Agreement: THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE FEDERAL AND STATE SECURITIES LAWS. 16.2 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear the economic risk of an investment in the AmPaM Stock and AmPaM Notes to be acquired pursuant to this Agreement and can afford to sustain a total loss of such investment. Each Stockholder has substantial knowledge and experience in making investment decisions of this type (or is relying on qualified purchaser representatives with such knowledge and experience in making this decision), and is capable, either individually or with such purchaser representatives, of evaluating the merits and risks of this investment. Each Stockholder has had an adequate opportunity to ask questions and receive answers from the officers of AmPaM concerning any and all matters relating to the transactions described herein including, without limitation, the background and experience of the current and proposed officers and directors of AmPaM, the plans for the operations of the business of AmPaM, the business, operations and financial condition of the Founding Companies other than the Company, and any plans for additional acquisitions. Each Stockholder has asked any and all questions of the nature described in the preceding sentence and all questions have been answered to such Stockholder's satisfaction. Except as set forth on Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule 501(a) of the 1933 Act. Neither the foregoing nor any investigation made by the Stockholders referred to above shall in any way affect the representations, warranties, 52 61 covenants and agreements of AmPaM made herein except to the extent that AmPaM is relying upon the representations of the Stockholders in Section 16.1 and in this Section 16.2 for purposes of AmPaM's representations and warranties in Sections 6.9, 6.11, 6.15 and 6.17 hereof as specified therein. 16.3 RELIANCE BY AMPAM. Each Stockholder acknowledges that AmPaM in relying upon the representations and covenants of such Stockholder set forth in Section 16.1 and Section 16.2 for purposes of compliance by AmPaM with Federal and state securities laws related to the issuance of AmPaM Stock pursuant to this Agreement and the Other Agreements. 17. REGISTRATION RIGHTS 17.1 PIGGYBACK REGISTRATION RIGHTS. Whenever AmPaM proposes to register any AmPaM Stock for its own or other's account under the 1933 Act for a public offering, other than (i) any shelf or other registration of shares to be used as consideration for acquisitions of additional businesses by AmPaM and (ii) registrations relating to employee benefit plans, AmPaM shall give each of the Stockholders prompt written notice of its intent to do so. Upon the written request of any of the Stockholders given within 15 calendar days after receipt of such notice, notwithstanding the provisions of Section 15 (except as specified below with respect to an IPO), AmPaM shall cause to be included in such registration all of the AmPaM Stock issued to such Stockholders pursuant to this Agreement (including any stock issued as or issuable upon the conversion or exchange of any convertible security, warrant, right or other security which is issued by AmPaM as a stock split, dividend or other distribution with respect to, or in exchange for, or in replacement of such AmPaM Stock) which any such Stockholder requests, other than shares of AmPaM Stock which may then be immediately sold under Rule 144(k) (or any similar or successor provision) promulgated under the 1933 Act, and other than shares of AmPaM Stock that have been theretofore sold by the Stockholder in accordance with the 1933 Act, provided that AmPaM shall have the right to reduce pro rata the number of shares of each selling Stockholder included in such registration to the extent that inclusion of such shares would, in the written opinion of tax counsel to AmPaM or its independent auditors, jeopardize the status of the transactions contemplated hereby and by the Private Placement Memorandum as a tax-free organization under Section 351 of the Code; provided, however, that with respect to a proposal by AmPaM to register AmPaM Stock under the 1933 Act in connection with an IPO, no Stockholder shall be permitted pursuant to this Section 17.1 to have included in such registration more shares of AmPaM Stock than permitted to be sold by such Stockholder pursuant to Section 15.1. In addition, if AmPaM is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under this Section 17.1 that the number of shares to be sold by persons other than AmPaM is greater than the number of such shares which can be offered without adversely affecting the success of the offering, AmPaM may reduce pro rata (among the Stockholders and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. If any Stockholder disapproves of the terms of the underwriting, that Stockholder may elect to withdraw therefrom by written notice to AmPaM and the managing underwriter. That 53 62 Stockholder's shares of AmPaM Stock so withdrawn shall also be withdrawn from registration; provided, however, that, if by the withdrawal of such shares a greater number of shares of AmPaM Stock held by other Stockholders may be included in such registration, then AmPaM shall offer to all other Stockholders of AmPaM the right to include additional shares in the same proportion used in effecting the above limitations. AmPaM shall not, for a period of two years following the Closing Date, grant to any other person any rights to cause AmPaM to register any securities in priority over, or in precedent to, the rights granted to the Stockholders hereunder and to the stockholders of the Other Founding Companies pursuant to Section 17 of the Other Agreements. 17.2 REGISTRATION PROCEDURES. Whenever AmPaM is required to register shares of AmPaM Stock pursuant to Section 17.1, AmPaM will, as expeditiously as possible: (i) Prepare and file with the SEC a registration statement with respect to such shares and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements or term sheets thereto, AmPaM will furnish a representative of the Stockholders with copies of all such documents proposed to be filed) as promptly as practical; (ii) Notify the Stockholders of any stop order issued or threatened by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered; (iii) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 120 days, cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the 1933 Act; and comply with the provisions of the 1933 Act applicable to it with respect to the disposition of all securities covered by such registration statement during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement or supplement to the prospectus; (iv) Furnish to each Stockholder who so requests such number of copies of such registration statement, each amendment and supplement thereto and the prospectus included in such registration statement (including each preliminary prospectus and any term sheet associated therewith), and such other documents as such Stockholder may reasonably request in order to facilitate the disposition of the relevant shares; (v) Make "generally available to its security holders" (within the meaning of Rule 158) an earnings statement satisfying the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no later than 90 days after the end of the 12-month period beginning with the first day of AmPaM's first fiscal quarter commencing after the effective date of the registration statement; 54 63 (vi) Make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible moment; (vii) If requested by the managing underwriter or underwriters, if any, or any participating Stockholder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters or any participating Stockholder, as the case may be, reasonably requests to be included therein, including, without limitation, information with respect to the number of shares of AmPaM Stock being sold by participating Stockholders to any underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any other terms of an underwritten offering of the shares of AmPaM Stock to be sold in such offering, and promptly make all required filings of such prospectus by supplement or post-effective amendment; (viii) Make available for inspection by participating Stockholders, any underwriter participating in any disposition pursuant to such registration statement, and the counsel retained by the participating Stockholders, counsel for the underwriters and any accountant or other agent retained by participating Stockholders or any such underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of AmPaM (the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause AmPaM's officers, directors and employees to supply all information reasonably requested by any such Inspectors in connection with such registration statement; provided, that records which AmPaM determines, in good faith, to be confidential and which AmPaM notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction after delivery of sufficient notice to AmPaM to enable AmPaM to contest such subpoena or order; (ix) Take all other steps reasonably necessary to effect the registration of the shares of AmPaM Stock contemplated hereby; (x) Use its best efforts to register or qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Stockholders, and to keep such registration or qualification effective during the period such registration statement is required to be kept effective, provided that AmPaM shall not be required to become subject to taxation, to qualify generally to do business or to file a general consent to service of process in any such states or jurisdictions; (xi) Cause all such shares of AmPaM Stock to be listed or included not later than the date of the first sale of shares of AmPaM Stock under such registration statement on any 55 64 securities exchanges or trading systems on which similar securities issued by AmPaM are then listed or included; and (xii) Notify each Stockholder at any time when a prospectus relating thereto is required to be delivered under the 1933 Act within the period that AmPaM is required to keep the registration statement effective of the happening of any event as a result of which the prospectus included in such registration statement (as then in effect), together with any associated term sheet, contains an untrue statement of a material fact or omits to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading, and, at the request of such Stockholder, AmPaM promptly will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of the covered shares, such prospectus will not contain an untrue statement of material fact or omit to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading. All expenses incurred in connection with the registration under this Article 17 and compliance with securities and blue sky laws (including all registration, filing, listing, escrow agent, qualification, legal, printer and accounting fees, but excluding underwriting commissions and discounts), shall be borne by AmPaM. 17.3 INDEMNIFICATION. (a) In connection with any registration under Section 17.1, AmPaM shall indemnify, to the extent permitted by law, each selling Stockholder (an "Indemnified Party") against all losses, claims, damages, liabilities and expenses arising out of or resulting from any untrue or alleged untrue statement of material fact contained or incorporated by reference in any registration statement, prospectus or preliminary prospectus or associated term sheet or any omission or alleged omission to state or incorporated by reference therein a material fact required to be stated or incorporated by reference therein or necessary to make the statements therein not misleading except insofar as the same are caused by or contained in or omitted from any information furnished in writing to AmPaM by such Indemnified Party expressly for use therein or by any Indemnified Parties' failure to deliver a copy of the registration statement or prospectus or any amendment or supplements thereto after AmPaM has furnished such Indemnified Party with a sufficient number of copies of the same. (b) In connection with any registration under Section 17.1, each selling Stockholder shall furnish to AmPaM in writing such information concerning the Stockholder and his or her proposed offering of shares as is reasonably requested by AmPaM for use in any such registration statement or prospectus and will indemnify, to the extent permitted by law, AmPaM, its directors and officers and each person who controls AmPaM (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of a material fact or any omission or alleged omission to state therein a material fact required to be stated in the registration statement or prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, but only to the extent that such untrue or alleged 56 65 untrue statement or omission or alleged omission is contained in or omitted from information so furnished in writing to AmPaM by such Stockholder expressly for use in the registration statement. Notwithstanding the foregoing, the liability of a Stockholder under this Section 17.3 shall be limited to an amount equal to the net proceeds actually received by such Stockholder from the sale of the relevant shares covered by the registration statement. (c) Any person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified parties' reasonable judgment, a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. Any failure to give prompt notice shall deprive a party of its right to indemnification hereunder only to the extent that such failure shall have adversely affected the indemnifying party. If the defense of any claim is assumed, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent shall not be unreasonably withheld). An indemnifying party that is not entitled or elects not, to assume the defense of a claim, will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. 17.4 UNDERWRITING AGREEMENT. In connection with each registration pursuant to Sections 17.1 covering an underwritten registered offering, (i) each participating Stockholder shall execute and deliver to AmPaM a written power of attorney instrument that (A) appoints an officer of AmPaM as such Stockholder's attorney-in-fact for purposes of executing and delivering an underwriting agreement among AmPaM, the underwriters named therein and such Stockholder specifying the terms and conditions applicable to the sale of AmPaM Stock of such Stockholder in such offering and (B) otherwise is in such form and containing such provisions as are customary in the securities business for such an arrangement in connection with an underwritten registered offering in which one or more stockholders of the issuer are participants, including a provision that authorizes the attorney-in-fact appointed by such Stockholder to execute and deliver such an underwriting agreement in the event that the net price per share to be received by such Stockholder from the sale of the shares of AmPaM Stock to be sold in such offering is not less than a price specified in such instrument and (iii) AmPaM and each participating Stockholder agree to enter into a written agreement with the managing underwriters in such form and containing such provisions as are customary in the securities business for such an arrangement between such managing underwriters and companies of AmPaM's size and investment stature, including indemnification; provided, however, that (A) such Stockholder shall be exempt and excluded from any indemnification of the managing underwriters other than with respect to information provided by such Stockholder with respect to such Stockholder to AmPaM or the managing underwriters 57 66 specifically for inclusion in any such registration statement and (B) such Stockholder shall not be obligated to enter into such an underwriting agreement in the event that the net price per share to be received by such Stockholder from the sale of shares of AmPaM Stock to be sold in such offering is less than the floor price specified in the power of attorney instrument executed and delivered to AmPaM pursuant to clause (i) above. 17.5 TRANSFER OF RIGHTS. The right to cause AmPaM to register shares of AmPaM Stock under this Agreement may be assigned to a transferee or assignee of any Stockholder to the extent that such transferee or assignee is a member of the immediate family of a Stockholder, a trust, limited partnership or other estate planning entity for the benefit of any such persons or a charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code. 17.6 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the SEC that may permit the sale of AmPaM stock to the public without registration, following an IPO AmPaM agrees to use its reasonable efforts, from and after the completion of an IPO, to: (i) make and keep public information regarding AmPaM available as those terms are understood and defined in Rule 144 under the 1933 Act beginning 90 days following the effective date of a registration statement relating to an IPO; (ii) file with the SEC in a timely manner all reports and other documents required of AmPaM under the 1933 Act and the 1934 Act at any time after it has become subject to such reporting requirements; and (iii) so long as a Stockholder owns any restricted AmPaM Stock, furnish to each Stockholder forthwith upon written request a written statement by AmPaM as to its compliance with the current public information requirements of Rule 144 (at any time from and after 90 days following the effective date of a registration statement relating to an IPO), and of the 1933 Act and the 1934 Act (any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of AmPaM, and such other reports and documents so filed as a Stockholder may reasonably request in availing itself of any rule or regulation of the SEC allowing a Stockholder to sell any such shares without registration. 18. REDEMPTION OF AMPAM STOCK 18.1 REDEMPTION TRIGGER. In the event that, within three years of the Closing Date, (i) AmPaM has not consummated an IPO and (ii) any Stockholder has not received cash (including proceeds from the public or private sale of AmPaM Stock received as consideration hereunder and the receipt of principal payments, if any, made with respect to AmPaM Notes held by such Stockholder) equal to or exceeding 50% of the Aggregate Consideration on or prior to the third anniversary of the Closing Date, such Stockholder shall have the right (the "Put Right"), but not the 58 67 obligation, commencing on the third anniversary date of the Closing Date to require AmPaM to purchase a number of shares of AmPaM Stock then owned by such Stockholder, subject to the limitations set forth in Section 18.2 below. The purchase price for such redemption shall be $13.00 per share, such price to be subject to appropriate adjustment to reflect any reclassification, stock dividend, subdivision, split-up or combination of shares of AmPaM Stock after the date hereof. 18.2 MINIMUM REDEMPTION; LIMITATIONS. If the events specified in Section 18.1(i) and 18.1(ii), with Section 18.1(ii) being determined on an individual Stockholder basis, have not occurred within the time specified, AmPaM shall be obligated to purchase from each eligible Stockholder no less than 10% of the AmPaM Stock held by such Stockholder annually; provided, however, that the Stockholders shall not be entitled to exercise their Put Rights if and to the extent the Company has not achieved the Target Net Income (as defined in Annex I hereto) for the year preceding the year in which a Stockholder seeks to exercise his Put Right. The redemptions will be funded by internal cash flows or alternative financing arrangements but AmPaM's obligation to make any redemption pursuant to this Section 18 will be subject to the covenants and restrictions contained in AmPaM's then existing private or public debt or equity instruments. 18.3 NOTICE; EXERCISE. The Stockholders may exercise their Put Right by giving written notice (the "Put Notice") to AmPaM within thirty (30) days of the third anniversary of the execution hereof. If any Stockholder does not provide AmPaM with a Put Notice within such thirty-day period, the Put Right applicable to such Stockholder shall expire. The date for closing the sale of any shares of AmPaM Stock pursuant to a proper exercise of a Put Right shall in no event be earlier than 90 days after the date AmPaM receives the Put Notice. Any such closing shall be at such time of day and place as shall be mutually agreed between such holder and AmPaM. At such closing AmPaM shall make payment for the AmPaM Stock to be repurchased by wire transfer of immediately available funds to a bank account designated by such Stockholder for such purpose and such Stockholder shall deliver to AmPaM certificates, duly endorsed for transfer, representing the shares of AmPaM Stock to be purchased and sold pursuant to the exercise of such Put Right. 18.4 ADDITIONAL REDEMPTIONS. In the event AmPaM has not consummated an IPO and notwithstanding the foregoing, to the extent the Stockholders who have received greater than 50% of their Aggregate Consideration in cash wish to tender AmPaM Stock to AmPaM for purchase, AmPaM will use its commercially reasonable efforts to continue to repurchase up to 10% of the AmPaM Stock held by such Stockholder annually. 18.5 TERMINATION OF REDEMPTION OBLIGATION. Put Rights with respect to any individual Stockholder will terminate upon receipt by such Stockholder of 50% of his Aggregate Consideration in cash; such termination will not, however, limit such Stockholders ability to participate in the additional redemptions provided in Section 18.4. Notwithstanding the foregoing, all of AmPaM's redemption obligations contained in this Section 18 shall terminate on the earlier to occur of (i) an IPO, (ii) any sale of all or substantially all of AmPaM's assets in one transaction or series of transactions, (iii) any merger or consolidation which involves AmPaM and in which AmPaM is not the surviving entity or (iv) any transaction after which the shares of AmPaM Common Stock, if any, 59 68 which are then held by persons other than the holders of AmPaM Common Stock as of the Closing Date constitute 50% or more of AmPaM Common Stock outstanding as of the date of the consummation of such transaction. 19. GENERAL 19.1 COOPERATION. The Company, Stockholders and AmPaM shall each deliver or cause to be delivered to the other on the Closing Date, and at such other times and places as shall be reasonably agreed to, such additional instruments as the other may reasonably request for the purpose of carrying out this Agreement. The Company will cooperate and use its reasonable efforts to have the present officers, directors and employees of the Company cooperate with AmPaM on and after the Closing Date in furnishing information, evidence, testimony and other assistance in connection with any tax return filing obligations, actions, proceedings, arrangements or disputes of any nature with respect to matters pertaining to all periods prior to the Closing Date. 19.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties hereunder may not be assigned (except by operation of law and except as provided in Section 17.5) and shall be binding upon and shall inure to the benefit of the parties hereto, the successors of AmPaM and the Company, and the heirs, successors and legal representatives of the Stockholders. 19.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits and annexes attached hereto) and the documents delivered pursuant hereto constitute the entire agreement and understanding among the Stockholders, the Company and AmPaM and supersede any prior agreement and understanding relating to the subject matter of this Agreement. This Agreement, upon execution, constitutes a valid and binding agreement of the parties hereto enforceable in accordance with its terms and may be modified or amended only by a written instrument executed by the Stockholders, the Company and AmPaM, acting through their respective officers or trustees, duly authorized by their respective Boards of Directors. Any disclosure made on any Schedule delivered pursuant hereto shall be deemed to have been disclosed for purposes of any other Schedule required hereby, provided that the Company shall make a good faith effort to cross reference disclosure, as necessary or advisable, between related Schedules. 19.4 COUNTERPARTS. This Agreement may be executed simultaneously in two (2) or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument. A telecopied facsimile of an executed counterpart of this Agreement shall be sufficient to evidence the binding agreement of each party to the terms hereof. However, each party agrees to return to the other parties an original, duly executed counterpart of this Agreement promptly after delivery of a telecopied facsimile thereof. 60 69 19.5 BROKERS AND AGENT. Except as disclosed on Schedule 18.5, each party hereto represents and warrants that it employed no broker or agent in connection with this transaction and agrees to indemnify the other parties hereto against all loss, cost, damages or expense arising out of claims for fees or commission of brokers employed or alleged to have been employed by such indemnifying party. 19.6 EXPENSES. Whether or not the transactions herein contemplated shall be consummated, AmPaM will pay the reasonable fees, expenses and disbursements of AmPaM and its agents, representatives, accountants and counsel incurred in connection with the subject matter of this Agreement and any amendments thereto, including all costs and expenses incurred in the performance and compliance with all conditions to be performed by AmPaM under this Agreement, including the fees and expenses of Arthur Andersen LLP, Andrews & Kurth L.L.P., and any other person or entity retained by AmPaM, and the costs of preparing the Private Placement Memorandum incurred in connection with the subject matter of this Agreement and any amendments thereto. In addition, whether or not the transactions contemplated herein shall be consummated, AmPaM will pay the reasonable fees and expenses of Bracewell & Patterson LLP incurred on behalf of the Company and the Stockholders in connection with the subject matter of this Agreement. Whether or not the transactions herein contemplated shall be consummated, the Company will pay all of its costs and expenses incurred on behalf of the Company and the Stockholders in connection with the subject matter of this Agreement except that (i) the Company shall not be required to pay any of the costs, fees and expenses specified above as to which AmPaM is responsible for the payment thereof and (ii) neither the Company nor the Stockholders shall be responsible for the payment of the costs, fees and expenses incurred by or on behalf of AmPaM. Whether or not the transactions herein contemplated shall be consummated, AmPaM shall reimburse Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any of the foregoing fees, expenses and disbursements paid by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) and shall repay Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any loans or advances made by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for the purpose of providing AmPaM funds to pay any such fees, expenses and disbursements, provided that such reimbursement and loan repayment obligation shall be limited to the foregoing fees, expenses, and disbursements which are out-of-pocket expenses of AmPaM, Sterling City Capital, LLC or any person or entity which is an Affiliate thereof. Sterling City Capital, LLC shall be reimbursed by AmPaM in the form of AmPaM Notes. AmPaM retains the right, within a reasonable period following the Closing Date, to conduct an audit of the expenses for which Sterling City Capital, LLC is reimbursed. Each Stockholder shall pay all sales, use, transfer, real property transfer, recording, gains, stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in connection with the purchase and sale of the Company Stock, other than Transfer Taxes, if any, imposed by the State of Delaware. Each Stockholder shall file all necessary documentation and Returns with respect to such Transfer Taxes. In addition, each Stockholder acknowledges that he, and not the Company or AmPaM, will pay all Taxes due by him upon receipt of the consideration payable pursuant to Section 1 hereof. The Stockholders acknowledge that the risks of the transactions contemplated hereby include Tax risks, with respect to which the 61 70 Stockholders are relying substantially on the opinion contemplated by Section 8.12 hereof and representations by AmPaM in this Agreement. 19.7 NOTICES. All notices of communication required or permitted hereunder shall be in writing and may be given by depositing the same in United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested, or by delivering the same in person or via a nationally recognized courier service to an officer or agent of such party. (a) If to AmPaM addressed to it at: American Plumbing & Mechanical, Inc. 515 Post Oak Blvd., Suite 450 Houston, Texas 77027 Attention: Chief Executive Officer with copies to: Thomas P. Mason Andrews & Kurth L.L.P. 4200 Chase Tower Houston, Texas 77002 (b) If to the Stockholders, addressed to them at their addresses set forth on the signature pages hereto, with copies to: Terrence A. Mire Cohen, Todd, Kite & Stanford, LLC 16th Floor, 525 Vine Street Cincinnati, Ohio 45202-3124 (c) If to the Company, addressed to it at: Scott W. Teepe, Sr. Teepe's River City Mechanical, Inc. 2105 Schapelle Cincinnati, Ohio 45240 or to such other address or counsel as any party hereto shall specify pursuant to this Section 18.7 from time to time. 62 71 19.8 GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of Texas, excluding any conflicts of law, rule or principle that might refer same to the laws of another jurisdiction. 19.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations, warranties, covenants and agreements of the parties made herein and at the time of the Closing or in writing delivered pursuant to the provisions of this Agreement shall survive the consummation of the transactions contemplated hereby and any examination on behalf of the parties until the respective Expiration Dates referred to herein with respect thereto or, if no Expiration Date is applicable with respect thereto, until the expiration of all applicable statute of limitations periods. 19.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided herein, no delay of or omission in the exercise of any right, power or remedy accruing to any party as a result of any breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver. 19.11 TIME. Time is of the essence with respect to this Agreement. 19.12 REFORMATION AND SEVERABILITY. In case any provision of this Agreement shall be invalid, illegal or unenforceable, it shall, to the extent possible, be modified in such manner as to be valid, legal and enforceable but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement, and in either case the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. No provision of this Agreement shall be interpreted or construed against any party solely because that party or its legal representative drafted such provision. 19.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term of this Agreement shall be deemed exclusive but each shall be cumulative with all other rights, remedies and elections available at law or in equity. 19.14 CAPTIONS. The headings of this Agreement are inserted for convenience only, shall not constitute a part of this Agreement or be used to construe or interpret any provision hereof. 19.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived only with the written consent of AmPaM, the Company and Stockholders who would receive a majority of the Aggregate Consideration specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated. Any amendment or waiver effected in accordance with this Section 19.15 shall be binding upon each of the parties hereto, any other person receiving AmPaM Stock in connection with the purchase and sale of the Company Stock and each future holder of such AmPaM Stock. Any consent of the Stockholders who would receive a majority of the Aggregate Consideration pursuant 63 72 to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated shall be deemed to be the consent of the Stockholders for purposes of provisions of this Agreement as to which a consent of the Stockholders may be requested or required. 19.16 MEDIATION AND ARBITRATION. If a dispute arises out of or relates to this Agreement, or the breach thereof, and if said dispute cannot be settled through direct discussions, the parties agree to first endeavor to settle the dispute in an amicable manner by mediation administered by the American Arbitration Association under its then prevailing Commercial Mediation Rules, before resorting to arbitration. Thereafter, any unresolved controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association in accordance with its then prevailing Commercial Arbitration Rules. The enforcement, interpretation and procedural and substantive effect of the obligation to arbitrate created by this Section 19.16 shall be governed by the Federal Arbitration Act as amended from time to time, 9 U.S.C. Section 1 et seq. The parties hereby disclaim any intention to have the substantive or procedural law of any state or other jurisdiction, other than the law of the United States as embodied in the Federal Arbitration Act, applied to such obligation. Any such mediation or arbitration proceeding will be conducted in Houston, Texas. 19.17 INFORMATION PROVIDED FOR PRIVATE PLACEMENT MEMORANDUM. For purposes of this Agreement, the information provided by the Company in writing specifically for inclusion in the Private Placement Memorandum shall include solely (i) the Financial Statements (in the form that they appear in the Private Placement Memorandum), (ii) any financial statements provided to AmPaM pursuant to Section 7.9, (iii) the description of the Company contained in the Private Placement Memorandum under the caption "The Company", (iv) the description of the Company's results of operations and its liquidity and capital resources, if any, contained in the Private Placement Memorandum under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and (v) the description, if any, of matters related to the Company contained in the Private Placement Memorandum under the caption "Certain Transactions Transactions involving Certain Officers, Directors and Stockholders". For purposes of this Agreement, the information provided by a Stockholder in writing specifically for inclusion in the Private Placement Memorandum shall include only (i) the description, if any, of matters related to such Stockholder contained in the Private Placement Memorandum under the caption "Certain Transactions - Transactions involving Certain Officers, Directors and Stockholders" and (ii) the biographical description of such Stockholder, if any, contained in the Private Placement Memorandum under the caption "Management." 19.18 EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective upon (i) the execution and delivery of this Agreement by all of the parties hereto and (ii) the delivery to AmPaM of each Employment Agreement attached hereto as Annex VI-1 and Annex VI-2 executed by each of the Company, the employees named therein and AmPaM. 64 73 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. AMERICAN PLUMBING & MECHANICAL, INC. By: /s/ DAVID BAGGETT --------------------------------- Name: David Baggett ------------------------------- Title: Chief Financial Officer ------------------------------ TEEPE'S RIVER CITY MECHANICAL, INC. By: /s/ STEVEN M. TEEPE --------------------------------- Steven M. Teepe President 65 [Remainder of page intentionally left blank] 74 STOCKHOLDERS: SPOUSES (WITHOUT PERSONAL LIABILITY AND SOLELY TO ACKNOWLEDGE THE SALE OF THE COMPANY STOCK BY THE STOCKHOLDER): /s/ SCOTT W. TEEPE, SR. /s/ HELYN S. TEEPE - -------------------------------- -------------------------------- Scott W. Teepe, Sr. Helyn S. Teepe 2928 Timberview Dr. Cincinnati, Ohio 45211 /s/ STEVEN M. TEEPE /s/ LYNDA TEEPE - -------------------------------- -------------------------------- Steven M. Teepe Lynda Teepe 7160 Eagles Wing Dr. West Chester, Ohio 45069 66 EX-10.12 17 ACQUISITION AGMT. - KEITH RIGGS PLUMBING, INC. 1 EXHIBIT 10.12 Execution Copy - -------------------------------------------------------------------------------- ACQUISITION AGREEMENT dated as of the 11th day of February, 1999 by and among AMERICAN PLUMBING & MECHANICAL, INC. KEITH RIGGS PLUMBING, INC. and all of the STOCKHOLDERS of KEITH RIGGS PLUMBING, INC. - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page RECITALS .........................................................................................................1 1. ACQUISITION OF STOCK.....................................................................................5 1.1 Acquisition.....................................................................................5 1.2 Consideration...................................................................................5 1.3 Certain Information With Respect to the Capital Stock of the Company and AmPaM.......................................................................................5 2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY...........................................................5 2.1 Board of Directors..............................................................................5 2.2 Officers........................................................................................5 3. DELIVERY OF CONSIDERATION................................................................................6 3.1 Stockholders' Consideration.....................................................................6 3.2 Stockholders' Deliveries........................................................................6 4. CLOSING..................................................................................................6 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................6 5.1 Due Organization................................................................................7 5.2 Authorization...................................................................................7 5.3 Capital Stock of the Company....................................................................7 5.4 Transactions in Capital Stock...................................................................8 5.5 No Bonus Shares.................................................................................8 5.6 Subsidiaries; Ownership in Other Entities.......................................................8 5.7 Predecessor Status; etc.........................................................................8 5.8 Spin-off by the Company.........................................................................8 5.9 Financial Statements............................................................................8 5.10 Liabilities and Obligations.....................................................................9 5.11 Accounts and Notes Receivable..................................................................10 5.12 Licenses; Intellectual Property................................................................10 5.13 Environmental Matters..........................................................................11 5.14 Personal Property..............................................................................13 5.15 Significant Customers; Material Contracts and Commitments......................................13 5.16 Real Property..................................................................................14 5.17 Insurance......................................................................................14 5.18 Compensation; Employment Agreements; Labor Matters.............................................15 5.19 Employee Plans.................................................................................15 5.20 Compliance with ERISA..........................................................................16 5.21 Conformity with Law; Litigation................................................................17
-i- 3 5.22 Taxes..........................................................................................17 5.23 No Violations; No Consent Required, Etc........................................................18 5.24 Government Contracts...........................................................................19 5.25 Absence of Changes.............................................................................19 5.26 Deposit Accounts; Powers of Attorney...........................................................21 5.27 Validity of Obligations........................................................................21 5.28 Relations with Governments.....................................................................21 5.29 Disclosure.....................................................................................21 5.30 No Warranties or Insurance.....................................................................21 5.31 Interest in Customers and Suppliers and Related Party Transactions.............................22 5.32 Private Placement Memorandum...................................................................22 5.33 Authority; Ownership...........................................................................22 5.34 Preemptive Rights..............................................................................23 5.35 No Commitment to Dispose of AmPaM Stock........................................................23 5.36 Disclosure.....................................................................................23 6. REPRESENTATIONS OF AMPAM................................................................................23 6.1 Due Organization...............................................................................24 6.2 Authorization..................................................................................24 6.3 Capital Stock of AmPaM.........................................................................24 6.4 Transactions in Capital Stock..................................................................24 6.5 Subsidiaries...................................................................................25 6.6 Financial Statements...........................................................................25 6.7 Liabilities and Obligations....................................................................25 6.8 Conformity with Law; Litigation................................................................25 6.9 No Violations..................................................................................26 6.10 Validity of Obligations........................................................................27 6.11 AmPaM Stock....................................................................................27 6.12 AmPaM Notes....................................................................................28 6.13 No Side Agreements.............................................................................28 6.14 Business; Real Property; Material Agreements...................................................28 6.15 Relations with Governments.....................................................................28 6.16 Disclosure.....................................................................................28 6.17 Other Agreements...............................................................................29 7. COVENANTS PRIOR TO CLOSING..............................................................................29 7.1 Access and Cooperation; Due Diligence; Transfer of Real Estate.................................29 7.2 Conduct of Business Pending Closing............................................................30 7.3 Prohibited Activities..........................................................................31 7.4 No Shop........................................................................................32 7.5 Agreements.....................................................................................32 7.6 Notification of Certain Matters................................................................32 7.7 Amendment of Schedules.........................................................................33 7.8 Further Assurances.............................................................................33 7.9 Authorized Capital.............................................................................33
-ii- 4 7.10 Compliance with the Hart-Scott Act.............................................................33 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.............................................................................................34 8.1 Representations and Warranties; Performance of Obligations.....................................34 8.2 Satisfaction...................................................................................34 8.3 No Litigation..................................................................................34 8.4 Opinion of Counsel.............................................................................34 8.5 Consents and Approvals.........................................................................34 8.6 Good Standing Certificates.....................................................................35 8.7 No Material Adverse Change.....................................................................35 8.8 Secretary's Certificate........................................................................35 8.9 Tax Matters....................................................................................35 8.10 Other Founding Companies.......................................................................35 8.11 Company Release of Stockholders................................................................35 8.12 Sterling City Capital Transfer Restrictions....................................................35 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF AMPAM............................................................36 9.1 Representations and Warranties; Performance and Obligations....................................36 9.2 No Litigation..................................................................................36 9.3 Secretary's Certificate........................................................................36 9.4 No Material Adverse Effect.....................................................................37 9.5 Stockholders' Release..........................................................................37 9.6 Satisfaction...................................................................................37 9.7 Termination of Related Party Agreements........................................................37 9.8 Opinion of Counsel.............................................................................37 9.9 Consents and Approvals.........................................................................37 9.10 Good Standing Certificates.....................................................................38 9.11 Funding Availability...........................................................................38 9.12 FIRPTA Certificate.............................................................................38 9.13 Resignations of Directors and Officers.........................................................38 10. COVENANTS OF AMPAM AND THE STOCKHOLDERS AFTER CLOSING...................................................38 10.1 Release From Guarantees; Repayment of Certain Obligations......................................38 10.2 Preservation of Tax and Accounting Treatment...................................................39 10.3 Preparation and Filing of Tax Returns; Payment of Taxes........................................39 10.4 Directors......................................................................................40 10.5 Legal Opinions.................................................................................40 11. INDEMNIFICATION.........................................................................................40 11.1 General Indemnification by the Stockholders....................................................40 11.2 Indemnification by AmPaM.......................................................................41 11.3 Third Person Claims............................................................................43 11.4 Exclusive Remedy...............................................................................43 11.5 Limitations on Indemnification.................................................................43
-iii- 5 12. TERMINATION OF AGREEMENT................................................................................45 12.1 Termination....................................................................................45 12.2 Procedure and Effect of Termination............................................................45 13. NONCOMPETITION..........................................................................................46 13.1 Prohibited Activities..........................................................................46 13.2 Damages........................................................................................47 13.3 Reasonable Restraint...........................................................................47 13.4 Severability; Reformation......................................................................47 13.5 Independent Covenant...........................................................................48 13.6 Materiality....................................................................................48 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...............................................................48 14.1 Stockholders...................................................................................48 14.2 AmPaM..........................................................................................49 14.3 Damages........................................................................................49 14.4 Survival.......................................................................................49 14.5 Return of Information..........................................................................50 15. TRANSFER RESTRICTIONS...................................................................................50 15.1 Transfer Restrictions Relating to AmPaM Stock and AmPaM Notes..................................50 15.2 Transfer Restrictions Relating to Additional Consideration.....................................51 16. FEDERAL SECURITIES ACT REPRESENTATIONS..................................................................52 16.1 Compliance with Law............................................................................52 16.2 Economic Risk; Sophistication..................................................................52 16.3 Reliance by AmPaM..............................................................................53 17. REGISTRATION RIGHTS.....................................................................................53 17.1 Piggyback Registration Rights..................................................................53 17.2 Registration Procedures........................................................................54 17.3 Indemnification................................................................................56 17.4 Underwriting Agreement.........................................................................57 17.5 Transfer of Rights.............................................................................58 17.6 Rule 144 Reporting.............................................................................58 18. REDEMPTION OF AMPAM STOCK...............................................................................58 18.1 Redemption Trigger.............................................................................58 18.2 Minimum Redemption; Limitations................................................................59 18.3 Notice; Exercise...............................................................................59 18.4 Additional Redemptions.........................................................................59 18.5 Termination of Redemption Obligation...........................................................59
-iv- 6 19. GENERAL.................................................................................................60 19.1 Cooperation....................................................................................60 19.2 Successors and Assigns.........................................................................60 19.3 Entire Agreement...............................................................................60 19.4 Counterparts...................................................................................60 19.5 Brokers and Agent..............................................................................61 19.6 Expenses.......................................................................................61 19.7 Notices........................................................................................62 19.8 Governing Law..................................................................................63 19.9 Survival of Representations and Warranties.....................................................63 19.10 Exercise of Rights and Remedies................................................................63 19.11 Time...........................................................................................63 19.12 Reformation and Severability...................................................................63 19.13 Remedies Cumulative............................................................................63 19.14 Captions.......................................................................................63 19.15 Amendments and Waivers.........................................................................63 19.16 Mediation and Arbitration......................................................................64 19.17 Information Provided for Private Placement Memorandum..........................................64 19.18 Effective Date of Agreement....................................................................64
-v- 7 ANNEXES Annex I - Consideration to Be Paid to Stockholders Annex II - Amended and Restated Certificate of Incorporation and By-Laws of AmPaM Annex III - Form of Opinion of Counsel to AmPaM Annex IV - Form of Tax Opinion Annex V - Form of Opinion of Counsel to Company and Stockholders Annex VI-1 - Form of Employment Agreement Annex VI-2 - Form of Employment Agreement Annex VI-3 - Form of Employment Agreement
-vi- 8 SCHEDULES 2.1 Board of Directors 2.2 Officers 5.1 Due Organization 5.2 Authorization 5.3 Capital Stock of the Company 5.4 Transactions in Capital Stock; Organization Accounting 5.5 No Bonus Shares 5.6 Subsidiaries; Ownership in Other Entities 5.7 Predecessor Status; etc 5.8 Spin-off by the Company 5.9 Financial Statements 5.10 Liabilities and Obligations 5.11 Accounts and Notes Receivable 5.12 Licenses; Intellectual Property (Schedules 5.12(a)(1), 5.12(a)(2), 5.12(b)(1) and 5.12(b)(2)) 5.13 Environmental Matters 5.14 Personal Property 5.15 Significant Customers; Material Contracts and Commitments (Schedules 5.15(a), 5.15(b) and 5.15 (c)) 5.16 Real Property 5.17 Insurance 5.18 Compensation; Employment Agreements; Labor Matters 5.19 Employee Plans 5.20 Compliance with ERISA 5.21 Conformity with Law; Litigation 5.22 Taxes (Schedules 5.22(a) and 5.22(b)) 5.23 No Violations, No Consents Required, Etc. (Schedules 5.23(a), 5.23(b), 5.23(c) and 5.23(e)) 5.24 Government Contracts 5.25 Absence of Changes 5.26 Deposit Accounts; Powers of Attorney 5.30 No Warranties or Insurance 5.31 Interest in Customers and Suppliers and Related Party Transactions 5.33 Authority; Ownership (Schedules 5.33(a) and 5.33(b)) 6.9 No Violations 7.1 Access and Cooperation; Due Diligence; Transfer of Real Estate 7.2 Conduct of Business Pending Closing 7.3 Prohibited Activities 7.5 Agreements 8.11 Employment Agreements 9.7 Termination of Related Party Agreements 10.1 Release From Guarantees; Repayment of Certain Obligations 16.2 Non-accredited Investors 18.5 Brokers and Agents
-vii- 9 ACQUISITION AGREEMENT THIS ACQUISITION AGREEMENT (the "Agreement") is made as of the 11th day of February, 1999 by and among AMERICAN PLUMBING & MECHANICAL, INC., a Delaware corporation ("AmPaM"), KEITH RIGGS PLUMBING, INC., an Arizona corporation (the "Company"), and the stockholders listed on the signature pages of this Agreement (the "Stockholders"), which are all the stockholders of the Company. RECITALS WHEREAS, the Company is engaged in the plumbing and mechanical services business; WHEREAS, as of the date hereof, the Stockholders own, and as of the Closing Date the Stockholders will own, all of the issued and outstanding capital stock of the Company (the "Company Stock"); WHEREAS, AmPaM is entering into other separate agreements simultaneously with this Agreement that are substantially the same as this Agreement (the "Other Agreements"), each of which is entitled "Acquisition Agreement," with each of the Other Founding Companies (as defined herein) and their respective stockholders in order for AmPaM to acquire additional companies engaged in the plumbing and mechanical services business; WHEREAS, this Agreement and the Other Agreements constitute the "AmPaM Plan of Organization;" WHEREAS, the Stockholders and the boards of directors and the stockholders of AmPaM, and each of the Other Founding Companies that are parties to the Other Agreements, have approved and adopted the AmPaM Plan of Organization as an integrated plan pursuant to which the Stockholders and the stockholders of each of the other Founding Companies will contribute the capital stock of each of the Founding Companies to AmPaM, and the Stockholders and the stockholders of each of the other Founding Companies will acquire the stock of AmPaM (but not cash or other property) as a tax-free transfer of property under Section 351 of the Code; WHEREAS, in consideration of the agreements of the Other Founding Companies pursuant to the Other Agreements, the Stockholders have approved this Agreement as part of the AmPaM Plan of Organization in order to transfer all of the issued and outstanding capital stock of the Company to AmPaM; and NOW, THEREFORE, in consideration of the premises and of the mutual agreements, representations, warranties, provisions and covenants herein contained, the parties hereto hereby agree as follows: 10 Unless the context otherwise requires, capitalized terms used in this Agreement or in any schedule attached hereto and not otherwise defined shall have the following meanings for all purposes of this Agreement: "1933 Act" means the Securities Act of 1933, as amended. "Acquired Party" means the Company, any subsidiary of the Company and any member of a Relevant Group. "Affiliates" means with respect to any person or entity, any other person or entity that directly or indirectly, controls, is controlled by, or is under common control with such person or entity. "AmPaM" has the meaning set forth in the first paragraph of this Agreement. "AmPaM Charter Documents" has the meaning set forth in Section 6.1. "AmPaM Plan of Organization" has the meaning set forth in the recitals of this Agreement. "AmPaM Stock" means the common stock, par value $.01 per share, of AmPaM. "AmPaM Notes" means those notes issued by AmPaM to the Stockholders as a portion of the consideration to be received hereunder and in substantially the form to Annex I as Appendix A. "Balance Sheet Date" has the meaning set forth in Section 5.9. "Charter Documents" has the meaning set forth in Section 5.1. "Closing" has the meaning set forth in Section 4. "Closing Date" has the meaning set forth in Section 4. "Code" means the Internal Revenue Code of 1986, as amended. "Company" has the meaning set forth in the first paragraph of this Agreement. "Company Stock" has the meaning set forth in the recitals of this Agreement. "Delaware GCL" means the General Corporation Law of the State of Delaware. "Environmental Laws" has the meaning set forth in Section 5.13(b). "Expiration Date" has the meaning set forth in Section 5(A) and Section 6, as applicable. 2 11 "Founding Companies" means the following companies: Christianson Enterprises, Inc., a Texas corporation; Christianson Services, Inc., a Texas corporation; GGR Leasing Corporation, a Texas corporation; J.A. Croson Company of Florida, a Florida corporation; J.A. Croson Company, an Ohio corporation; Franklin Fire Sprinkler Company, an Ohio corporation; Keith Riggs Plumbing, Inc., an Arizona corporation; Miller Mechanical Contractors, Inc., a Georgia corporation; Nelson Mechanical Contractors, Inc., a Florida corporation; Power Plumbing Inc., a Delaware corporation; R.C.R. Plumbing, Inc., a California corporation; Sherwood Mechanical, Inc., a California corporation; and Teepe's River City Mechanical, Inc., an Ohio corporation. "GAAP" means generally accepted accounting principles as consistently applied in the United States. "Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Hazardous Substance" has the meaning set forth in Section 5.13(c). "IPO" means a firm commitment underwritten initial public offering of AmPaM Stock managed by one or more nationally recognized national investment banking firms. "known" or "knowledge," when used in reference to a statement regarding the existence or absence of facts in this Agreement, is intended by the parties to mean that the only information to be attributed to such person is information actually known to (a) the person in the case of an individual, (b) in the case of a corporation or other entity other than the Company, an officer or director of such corporation or entity or (c) in the case of the Company and its Subsidiaries, an officer of the Company listed on Schedule 2.2 hereto, except for David Baggett. "Material Adverse Change" means a material adverse change in the business, operations, properties, assets or condition (financial or otherwise), of the subject entity and its subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on the business, operations, properties, assets or condition (financial or otherwise), of the subject entity and its subsidiaries taken as a whole. "Material Documents" has the meaning set forth in Section 5.23. 3 12 "Ordinary Course of Business" means the ordinary course of business consistent with past customs and practice (including with respect to quantity and frequency). "Other Agreements" has the meaning set forth in the recitals of this Agreement. "Other Founding Companies" means all of the Founding Companies other than the Company. "Plans" has the meaning set forth in Section 5.19. "Private Placement Memorandum" means the Private Placement Memorandum, dated as of February 11, 1999, provided to each Stockholder prior to the execution and delivery of this Agreement which sets forth certain information relating to the transactions contemplated by this Agreement and the Other Agreements. "Qualified Plans" has the meaning set forth in Section 5.20. "Relevant Group" means the Company and any affiliated, combined, consolidated, unitary or similar group of which the Company is or was a member. "Restricted Common Stock" has the meaning set forth in Section 1.3(ii). "Returns" means any returns, reports or statements (including any information returns) required to be filed for purposes of a particular Tax. "Schedule" means each Schedule attached hereto, which shall reference the relevant sections of this Agreement, on which parties hereto disclose information as part of their respective representations, warranties and covenants. "SEC" means the United States Securities and Exchange Commission. "State of Incorporation" means the State of Arizona. "Stockholders" has the meaning set forth in the first paragraph of this Agreement. "Subsidiaries" means with respect to a person or entity, any corporation or other entity in which such person or entity owns a 5% or greater ownership interest. "Tax" or "Taxes" means all federal, state, local or foreign net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value added, franchise, withholding, employment, excise, property, deed, stamp, alternative or add-on minimum, or other taxes, assessments, duties, fees, levies or other governmental charges, whether disputed or not, together with any interest, penalties, additions to tax or additional amounts with respect thereto. 4 13 1. ACQUISITION OF STOCK 1.1 ACQUISITION. Upon the terms and subject to the conditions contained in this Agreement and in reliance upon the representations, warranties, covenants and agreements contained in this Agreement, on the Closing Date, the Stockholders shall convey and transfer to AmPaM all of the issued and outstanding shares of Company Stock as set forth in Annex I hereto. 1.2 CONSIDERATION. The consideration for the Company Stock shall be as set forth on Annex I to this Agreement. 1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY AND AMPAM. The respective designations and numbers of outstanding shares and voting rights of each class of outstanding capital stock of the Company and AmPaM as of the date of this Agreement are as follows: (i) as of the date of this Agreement, the authorized and outstanding Company Stock is as set forth on Schedule 5.3 hereto; and (ii) immediately prior to the Closing Date, the authorized capital stock of AmPaM will consist of (A) 100,000,000 shares of AmPaM Stock, of which the number of issued and outstanding shares will be set forth in the Private Placement Memorandum, (B) 10,000,000 shares of redeemable preferred stock, of which the number of issued and outstanding shares will be set forth in the Private Placement Memorandum, and (C) 5,000,000 shares of Restricted Voting Common Stock, $.01 per value (the "Restricted Common Stock"), all of which will be issued and outstanding except as otherwise set forth in the Private Placement Memorandum. 2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY 2.1 BOARD OF DIRECTORS. The Company and the Stockholders shall take action, including solicitation of resignation of directors, necessary so that the Board of Directors of the Company as of the Closing Date shall consist only of the persons identified on Schedule 2.1 hereto. 2.2 OFFICERS. The Company and the Stockholders shall take action, including solicitation of resignation of officers, necessary so that the officers of the Company as of the Closing Date shall consist only of the persons identified on Schedule 2.2 hereto. 5 14 3. DELIVERY OF CONSIDERATION 3.1 STOCKHOLDERS' CONSIDERATION. On the Closing Date, the Stockholders shall, upon surrender of certificates evidencing the Company Stock, receive from AmPaM the respective number of shares of AmPaM Stock, the amount of cash and the principal amount of AmPaM Notes described on Annex I hereto specified with respect to each such Stockholder as payable on the Closing Date. All payments of cash shall be made by certified check or wire transfer of immediately available funds. Consideration consisting of AmPaM Notes shall be substantially in the form of Appendix A to Annex I. 3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at the Closing the certificates representing Company Stock, duly endorsed in blank by the Stockholders, or accompanied by blank stock powers, and with all necessary transfer tax and other revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The Stockholders agree promptly to cure any deficiencies with respect to the endorsement of the stock certificates or other documents of conveyance with respect to such Company Stock or with respect to the stock powers accompanying any Company Stock. 4. CLOSING The consummation of the transactions contemplated by Section 3 (the "Closing") shall take place on March 31, 1999 or such date not later than May 31, 1999 as AmPaM shall determine by giving written notice of such other date as provided in Section 18.7 (the "Closing Date") at the offices of Andrews & Kurth L.L.P., 4200 Chase Tower, 600 Travis, Houston, Texas 77002. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY (A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in the disclosure schedules attached hereto and except as otherwise qualified below, the Company represents and warrants that all of the following representations and warranties in this Section 5(A) are true at the date of this Agreement and, subject to Section 7.7 hereto, shall be true at the time of the Closing, and that such representations and warranties shall survive the Closing Date for a period of eighteen months (the last day of such period being the "Expiration Date"), except that the representations and warranties set forth in Sections 5.3, 5.22 and 5.32 hereof shall survive until such time as the applicable statute of limitations period has run, which shall be deemed to be the Expiration Date for the representations and warranties set forth in Sections 5.3, 5.22 and 5.32. For purposes of this Section 5, the term "Company" shall mean and refer to the Company and all of its Subsidiaries, if any, and any reference to a Material Adverse Effect on the Company or Material Adverse Change with respect to the Company shall mean the Company and its Subsidiaries, taken as a whole. Except as expressly set forth in this Agreement, the Company expressly disclaims any representation or warranty (express, implied or otherwise) relating to the 6 15 Company and any Subsidiary thereof including, without limitation, any warranty of merchantability or fitness for a particular purpose. 5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of Incorporation, and has the requisite power and authority to carry on its business as it is now being conducted. The Company is duly qualified or authorized to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or authorization necessary except where the failure to be so qualified or authorized to do business would not have a Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all states in which the Company is authorized or qualified to do business, which list indicates which of such entities is authorized or qualified to do business in such states. True, complete and correct copies of the Certificate or Articles of Incorporation and By-laws, each as amended, of the Company (the "Charter Documents") are all attached to Schedule 5.1. The Company has delivered to AmPaM complete and correct copies of (i) the stock records of the Company and (ii) all minutes of meetings, written consents and other evidence, if any, of deliberations of or actions taken by the Company's Board of Directors, any committees of the Board of Directors and stockholders during the last five years. 5.2 AUTHORIZATION. (i) The officers or other representatives of the Company executing this Agreement have the authority to enter into and bind the Company to the terms of this Agreement and (ii) the Company has the full legal right, power and authority to enter into this Agreement and consummate the transactions contemplated hereby. Copies of the most recent resolutions adopted by the Board of Directors of the Company and the most recent resolutions adopted by the Stockholders, which approve this Agreement and the transactions contemplated hereby in all respects, certified by the Secretary or an Assistant Secretary of the Company as being in full force and effect on the date hereof, are attached hereto as Schedule 5.2. 5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the Company and each of its Subsidiaries is as set forth on Schedule 5.3(a). All of the issued and outstanding shares of the capital stock of the Company are owned by the Stockholders in the amounts set forth in Schedule 5.3(a). Except as set forth on Schedule 5.3(a), all of the issued and outstanding capital stock of each Subsidiary is owned by the Company. All of the issued and outstanding shares of the capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable, are owned of record by the Stockholders and further, such shares were offered, issued, sold and delivered by the Company in compliance with all applicable state and Federal laws concerning the issuance of securities. Further, none of such shares were issued in violation of any preemptive rights of any past or present stockholder. 7 16 5.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 5.4(a), the Company has not acquired or redeemed any shares of capital stock of the Company since January 1, 1996. Except as set forth on Schedule 5.4(b), (i) no option, warrant, call, conversion right or commitment of any kind exists which obligates the Company to issue any of its authorized but unissued capital stock; (ii) the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof; and (iii) neither the voting stock structure of the Company nor the relative ownership of shares among any of its Stockholders has been altered or changed in contemplation of the AmPaM Plan of Organization. There are no voting trusts, proxies or other agreements or understandings to which the Company is a party or is bound with respect to the voting of any shares of capital stock of the Company. 5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the shares of Company Stock was issued pursuant to awards, grants or bonuses in contemplation of the AmPaM Plan of Organization. 5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set forth on Schedule 5.6(a), the Company has no Subsidiaries. Except as set forth in Schedule 5.6(b), the Company does not presently own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity nor is the Company, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. 5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7(a) is a list of all predecessor companies of the Company, including the names of any entities acquired by the Company (by stock purchase, merger or otherwise) or owned by the Company or from whom the Company previously acquired material assets, in any case, from the earliest date upon which any Stockholder acquired his or her stock in any Company. Except as disclosed on Schedule 5.7(b), the Company has not been, within such period of time, a subsidiary or division of another corporation or a part of an acquisition which was later rescinded. 5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there has not been any sale, spin-off or split-up of material assets of either the Company or any other person or entity that is an Affiliate of the Company since January 1, 1996. 5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 is a copy of: (i) the balance sheet of the Company as of December 31, 1997 and the related statements of operations, stockholders' equity and cash flows for the one-year period ended December 31, 1997, together with the related notes and schedules (such balance sheets, the related statements of operations, stockholders' equity and cash flows and the related notes and schedules are referred to herein as the "Year-end Financial Statements"); 8 17 (ii) the balance sheet of the Company as of June 30, 1998 and the related statements of operations, stockholders' equity and cash flows for the six-month periods ended June 30, 1997 and 1998, together with the related notes and schedules (such balance sheets, the related statements of operations, stockholders' equity and cash flows and the related notes and schedules are referred to herein as the "Six-Month Interim Financial Statements"); (iii) the balance sheet of the Company as of September 30, 1998 (the "Balance Sheet Date") and the related statements of operations, stockholders' equity and cash flows for the nine-month periods ended September 30, 1997 and 1998 (such balance sheets, the related statements of operations, stockholders' equity and cash flows are referred to herein as the "Nine-Month Interim Financial Statements"); and (iv) the income statement of the Company for the 12-month period ended June 30, 1998 (the "Valuation Income Statement"). The Year-end Financial Statements, the Six-Month Interim Financial Statements, the Nine-Month Interim Financial Statements and the Valuation Income Statement are collectively called the "Financial Statements". The Financial Statements, including those included in the Private Placement Memorandum, have been prepared in accordance with GAAP applied on a consistent basis and fairly present the financial position of the Company as of the dates thereof and the results of its operations and changes in financial position for the periods then ended, subject, in the case of the Six-Month Interim Statements and the Nine-Month Interim Financial Statements, to normal year-end audit adjustments and any other adjustments described therein and the absence of certain footnote disclosures. 5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10(a) sets forth an accurate list as of the Balance Sheet Date of (i) all material liabilities of the Company which are not reflected on the balance sheet of the Company at the Balance Sheet Date or otherwise reflected in the Company Financial Statements at the Balance Sheet Date which by their nature would be required in accordance with GAAP to be reflected in the balance sheet, and (ii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages, pledges or other security agreements to which the Company is a party or by which its properties may be bound other than bid bonds and performance bonds made in the Ordinary Course of Business. Except as set forth on Schedule 5.10(b), since the Balance Sheet Date, the Company has not incurred any material liabilities or obligations of any kind, character or description, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than liabilities incurred in the Ordinary Course of Business. The Company has also delivered to AmPaM, on Schedule 5.10(c), a list of contingent liabilities related to pending litigation or litigation that has been threatened in writing, or other material liabilities which are not fixed or otherwise accrued or reserved. For each such contingent liability of the Company or liability of the Company for which the amount is not fixed or is contested, the Company has provided to AmPaM the following information: 9 18 (i) a summary description of the liability together with the following: (a) copies of all relevant documentation in the possession of the Company or its directors, officers or stockholders relating thereto; (b) amounts claimed and any other action or relief sought; and (c) name of claimant and all other parties to the claim, suit or proceeding; (ii) the name of each court or agency before which such claim, suit or proceeding is pending; (iii) the date such claim, suit or proceeding was instituted; and (iv) a good faith estimate of the maximum amount, if any, which the Company expects, based on information available, is likely to become payable with respect to each such liability and the amount, if any, accrued or reserved for each such potential liability on the Financial Statements. AmPaM acknowledges that all estimates referred to above and set forth on Schedule 5.10(c) are only good faith estimates, and that the Company and the Stockholders expressly do not represent or warrant that the actual amounts of such liabilities will be equal to, or more or less than, the amounts of such estimates. 5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11(a) sets forth an accurate list, in all material respects, of the accounts and notes receivable of the Company, as of the Balance Sheet Date, including any such amounts which are not reflected in the balance sheet as of the Balance Sheet Date, and including all receivables from and advances to employees and the Stockholders, which are identified as such. Schedule 5.11(a) also sets forth a materially accurate aging of all accounts and notes receivable as of the Balance Sheet Date showing amounts due in 30-day aging categories. Except to the extent reflected on Schedule 5.11(b), such accounts, notes and other receivables are collectible in the amounts shown on Schedule 5.11(a), net of reserves reflected in the balance sheet as of the Balance Sheet Date. 5.12 LICENSES; INTELLECTUAL PROPERTY. (a) The Company or its employees hold all licenses, franchises, permits and other governmental authorizations ("Licenses") necessary to conduct the business of the Company, the absence of which would cause a Material Adverse Effect on the Company, and the Company has delivered to AmPaM a list that is accurate, in all material respects, and summary description (which is set forth on Schedule 5.12(a)(1)) of all such Licenses. At or prior to the Closing, all such Licenses owned or held by any employee of the Company will be assigned or licensed to the Company for no additional consideration. The Licenses listed on Schedule 5.12(a)(1) are valid, and the Company has not received any notice that any person intends to cancel, terminate or not renew any such License. The Company has conducted and is conducting its business in compliance in all material respects with the requirements, standards, criteria and 10 19 conditions set forth in the Licenses listed on Schedule 5.12(a)(1) and is not in violation of any of the foregoing in any material respect. Except as specifically provided in Schedule 5.12(a)(2), the consummation by the Company of the transactions contemplated by this Agreement will not result in a default under or a breach or violation of, or adversely affect the rights and benefits afforded to the Company by, any such Licenses. (b) The Company owns or possesses adequate licenses or other rights to use (without making any payment or granting rights to any person in exchange) all patents, patent applications, trademarks, copyrights, service marks and trade names (collectively, the "Intellectual Property") necessary to conduct its business as currently conducted. A description of any Intellectual Property licensed by the Company, including the material terms of any such license, is described on Schedule 5.12(b)(1). Neither the validity of the Intellectual Property nor the title thereto or use thereof by the Company is being questioned in any pending litigation, and the conduct of the Company's business, as currently conducted, does not conflict with licenses, copyrights, uncopyrighted works, trade marks, service marks, trade names, trade name rights, patents, patent rights, unpatented inventions or trade secrets of others. Neither the validity of the Intellectual Property nor the title thereto or use thereof by the Company is being questioned in any pending or, to the knowledge of the Company, threatened infringement claims or litigation, and the conduct of the Company's business, as now conducted, does not conflict with licenses, copyrights, uncopyrighted works, trade marks, service marks, trade names, trade name rights, patents, patent rights, unpatented inventions or trade secrets of others. Except as specifically provided in Schedule 5.12(b)(2), the consummation by the Company of the transactions contemplated by this Agreement will not adversely affect the rights and benefits afforded to the Company by any such Intellectual Property. 5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule 5.13 attached hereto, (i) the Company has conducted its businesses in compliance in all material respects with all applicable Environmental Laws, including, without limitation, having all environmental permits, licenses and other approvals and authorizations necessary for the operation of its business as presently conducted, except where the failure to have such permit, license, approval or authorization would not have a Material Adverse Effect on the Company, (ii) none of the properties owned by the Company contain any Hazardous Substance as a result of any activity of the Company in amounts exceeding the levels permitted by applicable Environmental Laws, except where amounts in excess of such levels would not have a Material Adverse Effect on the Company, (iii) the Company has not received any notices, demand letters or requests for information from any Federal, state, local or foreign governmental entity or third party indicating that the Company may be in violation of, or liable under, any Environmental Law in connection with the ownership or operation of its business, (iv) there are no civil, criminal or administrative actions, suits, demands, claims, hearings, investigations or proceedings pending or, to the knowledge of the Company, threatened, against the Company relating to any violation, or alleged violation, of any Environmental Law, except where such violation would not have a Material Adverse Effect on the Company, (v) no reports have been filed, or are required to be filed, by the Company concerning the release of any Hazardous Substance or the threatened or actual violation of any Environmental Law, (vi) no Hazardous Substance has 11 20 been disposed of, released or transported in violation of any applicable Environmental Law from any properties owned by the Company as a result of any activity of the Company during the time such properties were owned, leased or operated by the Company, (vii) there have been no environmental investigations, studies, audits, tests, reviews or other analyses regarding compliance or non-compliance with any applicable Environmental Law conducted by or which are in the possession of the Company relating to the activities of the Company which are not listed on Schedule 5.13 attached hereto prior to the date hereof, (viii) to the knowledge of the Company, (A) there are no underground storage tanks on, in or under any properties owned by the Company and (B) no underground storage tanks have been closed or removed from any of such properties during the time such properties were owned, leased or operated by the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the Company, (A) there is no asbestos or asbestos-containing material present in any material quantity in any of the properties owned by the Company, and (B) no asbestos has been removed from any of such properties during the time such properties were owned, leased or operated by the Company, and (x) neither the Company nor any of its properties are subject to any material liabilities or expenditures (fixed or contingent) relating to any suit, settlement, court order, administrative order, regulatory requirement, judgment or claim asserted or arising under any Environmental Law. (b) As used herein, "Environmental Law" means, as of the Closing Date, any Federal, state, local or foreign law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction or agreement with any governmental entity to which the Company is a party or subject relating to (x) the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource) or to human health or safety or (y) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances, in each case as amended and as in effect on the Closing Date. The term Environmental Law includes, without limitation, (i) the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as amended and as in effect on the Closing Date, and (ii) any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of, effects of or exposure to any Hazardous Substance. (c) As used herein, "Hazardous Substance" means any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive, or dangerous, or otherwise regulated, under any Environmental Law. Hazardous Substance includes any substance to which exposure is regulated by any government authority or any Environmental Law including, without 12 21 limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste, industrial substance or petroleum or any derivative or by-product thereof, radon, radioactive material, asbestos or asbestos-containing material, urea formaldehyde foam insulation, lead or polychlorinated biphenyls. 5.14 PERSONAL PROPERTY. The Company has delivered to AmPaM an accurate list (which is set forth on Schedule 5.14(a)) of (x) all personal property material to the operations of the Company as of the Balance Sheet Date included in "plant, property and equipment" on the balance sheet of the Company as of such date, (y) all other items of personal property owned by the Company with an individual value in excess of $15,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all material leases and agreements in respect of personal property, including, in the case of each of (x), (y) and (z), (1) true, complete and correct copies of all such leases and (2) an indication as to which assets are currently owned, or were formerly owned, by Stockholders, relatives of Stockholders, or Affiliates of the Company. Except as set forth on Schedule 5.14(b), (i) all personal property material to, and used by, the Company in its business is either owned by the Company or leased by the Company pursuant to a lease included on Schedule 5.14(a), (ii) all of the personal property listed on Schedule 5.14(a) or replacement property thereof is in working order and condition, ordinary wear and tear excepted and (iii) all leases and agreements included on Schedule 5.14(a) are in full force and effect and constitute valid and binding agreements of the Company, in each case in accordance with their respective terms. 5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. (a) The Company has delivered to AmPaM a materially accurate list (which is set forth on Schedule 5.15(a)(1)) of all customers (persons or entities) representing 5% or more of the Company's annual revenues for any period covered by any of the Financial Statements. Except to the extent set forth on Schedule 5.15(a)(2), none of such customers has canceled or, to the knowledge of the Company, are currently threatening to cancel a currently effective contract with the Company. (b) The Company has listed on Schedule 5.15(b) all material contracts, commitments and similar agreements to which the Company is a party or by which it or any of its properties are bound (including, but not limited to, contracts with customers listed on Schedule 5.15(a), joint venture or partnership agreements, contracts with any labor organizations, strategic alliances and options to purchase land), other than agreements listed on Schedules 5.10(a), Schedule 5.14(a) or Schedule 5.16(a), (a) in existence as of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and in each case has delivered or made available to AmPaM true, complete and correct copies of such agreements. For purposes of the preceding sentence, a contract, commitment or similar agreement is "material" if it (i) has a term of more than one year (other than contracts, commitments or agreements that are cancelable without liability or penalty within 30 days of notice from the Company of cancellation or that can be terminated by the Company without material penalty upon notice of 30 days or less) or (ii) requires the payment by or to the Company of more than $100,000 during any 12-month period. Except for expenditures in the ordinary course of 13 22 business, the Company has also indicated on Schedule 5.15(b) a summary description of all plans or projects involving the opening of new operations, expansion of existing operations, or the acquisition of any personal property, business or assets requiring, in any event, the payment of more than $50,000 by the Company during any 12-month period. (c) Except as set forth on Schedule 5.15(c), the Company is not required to provide any bonding or other financial security arrangements in any material amount in connection with any contract listed on Schedule 5.15(b). 5.16 REAL PROPERTY. Schedule 5.16(a) includes a list of all real property owned or leased by the Company at the date hereof and all other real property, if any, used by the Company in the conduct of its business. The Company has good and insurable title to any real property owned by it that is shown on Schedule 5.16(a), other than property intended to be sold or distributed prior to the Closing Date as provided in Section 7.1(c) of this Agreement, and all real property so owned is subject to no mortgage, pledge, lien, conditional sales agreement, encumbrance, lease, possessory rights of third parties or charge, except for: (i) liens reflected on Schedule 5.10(a) or Schedule 5.16(b) as securing specified liabilities (with respect to which no material default by the Company exists); (ii) liens for current taxes not yet payable and assessments not in default; (iii) easements for utilities serving the property; and (iv) easements, covenants and restrictions and other exceptions to title which do not adversely affect the current use of the property. Copies of all leases and agreements in respect of such real property leased by the Company, which are true, complete and correct in all material respects, are attached to Schedule 5.16(a), and an indication as to which such properties, if any, are currently owned, or were formerly owned, by Stockholders or Affiliates of the Company or Stockholders is included in Schedule 5.16(a). Except as set forth on Schedule 5.16(b), all of such leases included on Schedule 5.16(a) are, as to the Company, in full force and effect and constitute valid and binding agreements of the Company in accordance with their respective terms. 5.17 INSURANCE. The Company has delivered to AmPaM (i) an accurate list as of the Balance Sheet Date of all insurance policies carried by the Company and (ii) an accurate list of all insurance loss runs or workers compensation claims received for the past three policy years (which lists are set forth on Schedule 5.17). The Company has also delivered or made available to AmPaM true, complete and correct copies of all insurance policies currently in effect that are referred in Schedule 5.17. Such insurance policies evidence all of the insurance the Company is required to carry pursuant to all of its contracts and other agreements and pursuant to all applicable laws. All of such insurance policies are currently in full force and effect except as stated in Schedule 5.17. 14 23 Since January 1, 1996, no insurance carried by the Company has been canceled by the insurer and the Company has not been denied coverage under any such policy. 5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS. (a) The Company has delivered to AmPaM an accurate list (which is set forth on Schedule 5.18(a)(1)) showing all officers, directors and key employees of the Company, listing all employment agreements with such officers, directors and key employees and the rate of compensation (and the portions thereof attributable to salary, bonus and other compensation, respectively) of each of such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The Company has provided to AmPaM true, complete and correct copies of any employment agreements for persons listed on Schedule 5.18(a)(1). Since the Balance Sheet Date, except as disclosed on Schedule 5.18(a)(2), there have been no increases in the compensation payable or any bonuses to any officer, director, key employee or other employee, except ordinary salary increases implemented on a basis consistent with past practices and except for bonuses paid on a basis consistent with past practices. (b) Except as set forth on Schedule 5.18(b), (i) the Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any arrangement with any labor union, (ii) to the knowledge of the Company, no campaign to establish such arrangement is in progress and (iii) there is no pending or, to the Company's knowledge, threatened labor dispute involving the Company and any group of its employees nor has the Company experienced any labor interruptions over the past three years. The Company believes its relationship with employees to be generally good. (c) Except as set forth in Schedule 5.18(c) attached hereto, (i) there are no claims, actions or proceedings pending or, to the knowledge of the Company, threatened between the Company and any of its employees, (ii) the Company has complied in all material respects with all laws relating to the employment of labor, including, without limitation, any provisions thereof relating to wages, hours, collective bargaining, and the payment of social security and similar taxes, and (iii) the Company has not received written notice from any person asserting that the Company is liable in any material amount for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. 5.19 EMPLOYEE PLANS. The Company has delivered to AmPaM accurate schedule (Schedule 5.19(a)) showing all employee benefit plans of the Company, including all employment agreements and other agreements or arrangements containing "golden parachute" or other similar provisions, and deferred compensation agreements, together with true, complete and correct copies of such plans, agreements and any trusts related thereto, and classifications of employees covered thereby as of the Balance Sheet Date and as of the date of this Agreement. Except for the employee benefit plans, if any, described on Schedule 5.19(a), the Company does not sponsor, maintain or contribute to any plan program, fund or arrangement that constitutes an "employee pension benefit plan", and neither the Company nor any Subsidiary has any obligation to contribute to or accrue or 15 24 pay any benefits under any deferred compensation or retirement funding arrangement on behalf of any employee or employees (such as, for example, and without limitation, any individual retirement account or annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred compensation arrangement). For the purposes of this Agreement, the term "employee pension benefit plan" shall have the same meaning as is given that term in Section 3(2) of ERISA. The Company has not sponsored, maintained or contributed to any employee pension benefit plan other than the plans set forth on Schedule 5.19(a), and, except as described on Schedule 5.19(b), the Company is not or could not be required to contribute to any retirement plan pursuant to the provisions of any collective bargaining agreement establishing the terms and conditions or employment of any of the Company's employees. Except as set forth on Schedule 5.19(c), the Company is not now, or will not as a result of its past activities become, liable to the Pension Benefit Guaranty Corporation or to any multiemployer employee pension benefit plan under the provisions of Title IV of ERISA. All employee benefit plans listed on Schedule 5.19(a) and the administration thereof are in compliance in all material respects with their terms and all applicable provisions of ERISA and the regulations issued thereunder, as well as with all other applicable federal, state and local statutes, ordinances and regulations. All accrued contribution obligations of the Company as of the Balance Sheet Date with respect to any plan listed on Schedule 5.19(a) have either been fulfilled in their entirety or are fully reflected on the balance sheet of the Company as of the Balance Sheet Date. 5.20 COMPLIANCE WITH ERISA. All plans listed on Schedule 5.19(a) that are intended to qualify under Section 401 (a) of the Code (the "Qualified Plans") are, and have been so qualified and have been determined by the Internal Revenue Service to be so qualified, and copies of such determination letters are attached to Schedule 5.19(a). Except as disclosed on Schedule 5.20, all reports and other documents required to be filed with any governmental agency or distributed to plan participants or beneficiaries (including, but not limited to, actuarial reports, audits or tax returns) since January 1, 1992 have been timely filed or distributed, and copies thereof have been made available to AmPaM. No such plan listed on Schedule 5.19(a) nor the Company has engaged in any transaction prohibited under the provisions of Section 4975 of the Code or Section 406 of ERISA. No such Plan listed on Schedule 5.19(a) has incurred an accumulated funding deficiency, as defined in Section 412(a) of the Code and Section 302(l) of ERISA; and the Company has not incurred any liability for excise tax or penalty due to the Internal Revenue Service nor any liability to the Pension Benefit Guaranty Corporation. The Company further represents that except as set forth on Schedule 5.20 hereto: (i) there have been no terminations, partial terminations or discontinuations of contributions to any Qualified Plan intended to qualify under Section 401(a) of the Code without notice to and approval by the Internal Revenue Service; 16 25 (ii) no plan listed on Schedule 5.19(a) subject to the provisions of Title IV of ERISA has been terminated; (iii) there have been no "reportable events" (as that phrase is defined in Section 4043 of ERISA) with respect to any such plan listed in Schedule 5.19(a); (iv) the Company (including any Subsidiaries) has not incurred liability under Section 4062 of ERISA; and (v) no circumstances exist pursuant to which the Company could have any direct or indirect liability whatsoever (including, but not limited to, any liability to any multiemployer plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for any excise tax or penalty, or being subject to any statutory lien to secure payment of any such liability) with respect to any plan now or heretofore maintained or contributed to by any entity other than the Company that is, or at any time was, a member of a "controlled group" (as defined in Section 412(n)(6)(B) of the Code) that includes the Company. 5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on Schedule 5.21 or Schedule 5.13, the Company has not violated within the five years prior to the date of this Agreement and is not currently in violation of any law or regulation or any order of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it other than violations that would not have a Material Adverse Effect on the Company; and except to the extent set forth on Schedule 5.10(c) or Schedule 5.13, there are no claims, actions, suits or proceedings, pending or, to the knowledge of the Company, threatened in writing against the Company, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over the Company and no written notice of any claim, action, suit or proceeding, whether pending or threatened, has been received by the Company, and to the knowledge of the Company there is no valid basis for any such claim, action, suit or proceeding that could reasonably be expected to have a Material Adverse Effect on the Company. 5.22 TAXES. (a) The Company has timely filed all requisite Federal, state and other Tax Returns or extension requests for all fiscal periods ended on or before the Balance Sheet Date; and except as set forth on Schedule 5.22(a), there are no examinations in progress or claims pending against the Company for federal, state and other Taxes (including penalties and interest) for any period or periods prior to and including the Balance Sheet Date and no notice of any claim for Taxes, whether pending or threatened, has been received. All Tax, including interest and penalties (whether or not shown on any Tax Return), due by the Company has been paid. The amounts shown as accruals for Taxes on the Financial Statements are sufficient for the payment of all Taxes of the kinds indicated (including penalties and interest) for all fiscal periods ended on or before the date of the respective Financial Statements. Copies of (i) any tax examinations, (ii) extensions of statutory limitations and 17 26 (iii) the federal and local income Tax Returns and franchise Tax Returns of Company for their last three (3) fiscal years, or such shorter period of time as any of them shall have existed, are attached hereto as Schedule 5.22(a) or have otherwise been delivered to AmPaM. The Company has a taxable year ended December 31. Except as set forth on Schedule 5.22(a), the Company uses the accrual method of accounting for income tax purposes, and the Company's methods of accounting have not changed in any material respect in the past five years (except as required to conform to changes in GAAP). The Company is not an investment company as defined in Section 351(e)(1) of the Code. The Company is not and has not during the last five years been a party to any tax sharing agreement or agreement of similar effect. Except as set forth on Schedule 5.22(a), the Company is not and has not during the last five years been a member of any consolidated group for federal tax purposes. The Company has not received, been denied, or applied for any private letter ruling from the IRS during the last ten years. (b) The Stockholders have made a valid election under the provisions of Subchapter S of the Code and, except as set forth on Schedule 5.22(b), the Company has not, within the past five years, been subject to Federal income Taxes under the provisions of Subchapter C of the Code. 5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC. (a) The Company is not in violation of any Charter Document. Except as set forth on Schedule 5.23(a), the Company is not in default under any lease, instrument, agreement, license, or permit set forth on Schedule 5.12(a), Schedule 5.14(a), Schedule 5.15(b) or Schedule 5.16(a) (collectively, the "Material Documents"). (b) Except as set forth on Schedule 5.23(b)(1), the execution and delivery of this Agreement by each of the Company and the Stockholders do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company under any of the terms, conditions or provisions of (i) the Charter Documents of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to the Company or any of its properties or assets, or (iii) any Material Document to which the Company is now a party or by which the Company or any of its properties or assets may be bound or affected. The consummation by the Company and the Stockholders of the transactions contemplated hereby will not result in any material violation, conflict, breach, right of termination or acceleration or creation of liens under any of the terms, conditions or provisions of the items described in clauses (i) through (iii) of the preceding sentence, subject, in the case of the terms, conditions or provisions of the items described in clause (iii) above, to obtaining (prior to the Effective Time) such consents as may be required from commercial lenders, lessors or other third parties as listed on Schedule 5.23(b)(2). 18 27 (c) Except as set forth on Schedule 5.23(c) and except for the Hart-Scott Act, none of the Material Documents requires notice to, or the consent or approval of, any governmental agency or other third party with respect to the consummation by the Company and the Stockholders of any of the transactions contemplated hereby in order to remain in full force and effect, and consummation by the Company and the Stockholders of the transactions contemplated hereby will not give rise to any right to termination, cancellation or acceleration or loss of any material right or benefit under any Material Document. (d) Except for (i) any filings to be made with the SEC pursuant to the 1933 Act or with any state securities authorities in connection with the offer and sale of AmPaM Stock and AmPaM Notes pursuant to this Agreement and (ii) any filing required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby. (e) Except as set forth on Schedule 5.23(e), none of the Material Documents prohibits the disclosure or publication by the Company or AmPaM of the name of any other party to such Material Document, and none of the Material Documents prohibits or restricts the Company from freely providing services or selling products to any other customer or potential customer of the Company, AmPaM or any Other Founding Company. 5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the Company is not now a party to any governmental contract subject to price redetermination or renegotiation. 5.25 ABSENCE OF CHANGES. (a) Since the Balance Sheet Date, except as set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not been: (i) any Material Adverse Change in the Company; (ii) any damage, destruction or casualty loss (whether or not covered by insurance), alone or in the aggregate, which has caused a Material Adverse Effect on the Company; (iii) any change in the authorized capital of the Company or its outstanding securities or any change in its ownership interests or any grant of any options, warrants, calls, conversion rights or commitments; (iv) any declaration or payment of any dividend or distribution in respect of the capital stock or any direct or indirect redemption, purchase or other acquisition of any of the capital stock of the Company except for distributions that would have been permitted after the date hereof under Section 7.3(iii) hereof, 19 28 (v) any increase in the compensation, bonus, sales commissions or fee arrangement payable or to become payable by the Company to any of its officers, directors, Stockholders, employees, consultants or agents, except for ordinary and customary bonuses and salary increases for employees in accordance with past practice; (vi) any work interruptions, labor grievances or claims filed, or any event or condition of any character, which has caused a Material Adverse Effect on the Company; (vii) any sale or transfer, or any agreement to sell or transfer, any material assets, property or rights of the Company to any person, including, without limitation, the Stockholders and their affiliates, except inventory sold or transferred in the Ordinary Course of Business; (viii) any cancellation, or agreement to cancel, any indebtedness or other obligation owing to the Company, including without limitation any indebtedness or obligation of any Stockholders or any Affiliate thereof; (ix) any plan, agreement or arrangement granting any preferential rights to purchase or acquire any interest in any of the material assets, property or rights of the Company or requiring consent of any party to the transfer and assignment of any such assets, property or rights; (x) any purchase or acquisition of, or agreement, plan or arrangement to purchase or acquire, any property, rights or assets outside of the Ordinary Course of Business; (xi) any waiver of any material rights or claims of the Company; (xii) any amendment or termination of any Material Document to which the Company is a party except for the termination of a Material Document in accordance with its terms without any action on the part of the Company; (xiii) any transaction by the Company outside the Ordinary Course of Business; (xiv) any cancellation or termination of a material contract with a customer or client listed on Schedule 5.15(a) prior to the scheduled termination date thereof; or (xv) any other distribution of property or assets by the Company other than in the Ordinary Course of Business, other than (a) distributions of nonoperating assets specifically identified on Schedule 5.25, (b) distributions of real estate required by Section 7.1(c) of this Agreement and (c) distributions of cash or promissory notes permitted by Annex I hereto. (b) Except as set forth on Schedule 5.25, the Company has not, between the Balance Sheet Date and the date hereof, taken any of the actions set forth in Section 7.3. 20 29 5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to AmPaM an accurate schedule (which is set forth on Schedule 5.26) as of the date of the Agreement of: (i) the name of each financial institution in which the Company has an account or safe deposit box; (ii) the names in which the accounts or boxes are held; (iii) the type of account and account number; and (iv) the name of each person authorized to draw thereon or have access thereto. Schedule 5.26 also sets forth the name of each person, corporation, firm or other entity holding a general or special power of attorney from the Company and a description of the terms of such power. 5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement by the Company and the performance of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of the Company and this Agreement has been duly and validly authorized by all necessary corporate action and is a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. 5.28 RELATIONS WITH GOVERNMENTS. The Company has not, and to the knowledge of the Company none of the Stockholders or any Affiliate of any of them has, given or offered anything of value to any governmental official, political party or candidate for government office or otherwise taken any action which would cause the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. 5.29 DISCLOSURE. This Agreement, including the Annexes and Schedules hereto, and the completed questionnaire related to the Hart-Scott Act furnished to AmPaM by the Company, do not contain an untrue statement of a material fact concerning the Company or omit to state a material fact concerning the Company necessary to make the statements herein and therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing does not apply to statements contained in or omitted from any of such documents made or omitted in reliance upon information furnished in writing by AmPaM. 5.30 NO WARRANTIES OR INSURANCE. Except for warranty liability under applicable law and except for warranty liability under the warranties issued by the Company of the types described on Schedule 5.30, the Company has no liability to any person under any warranty and the Company does not offer or sell insurance or consumer protection plans or other arrangements that could result in the Company being required to make any payment to or perform any service for any person. 21 30 5.31 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY TRANSACTIONS. Except as described on Schedule 5.31 or in Section 8.11, no Stockholder, officer, director or Affiliate of the Company (i) owns, directly or indirectly, any financial interest in, or is a director, officer, employee or affiliate of, any corporation, firm, association or business organization that is a client, supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or will be a party to an agreement or relationship with the Company other than through a customary "at will" employment relationship. 5.32 PRIVATE PLACEMENT MEMORANDUM. None of the information supplied or to be supplied by the Company in writing specifically for inclusion in the Private Placement Memorandum contained or, as of the Closing Date, will contain any untrue statement of a material fact concerning the Company or omitted or will omit to state any material fact required to be stated therein or necessary in order to make the statements contained in such information supplied or to be supplied by the Company concerning the Company, in light of the circumstances under which they are made, not misleading. (B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS. Each Stockholder severally represents and warrants that the representations and warranties set forth below are true as of the date of this Agreement and, subject to Section 7.7 hereof, shall be true at the time of Closing, and that the representations and warranties set forth in this Section 5(B) shall survive the Closing Date. 5.33 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right, power and authority to enter into this Agreement, and this Agreement is a legal, valid and binding obligation of such Stockholder, enforceable against the Stockholder in accordance with its terms. Except as set forth on Schedule 5.33(a), the execution and delivery of this Agreement by such Stockholder does not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of such Stockholder under any of the terms, conditions or provisions of (i) the Charter Documents of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to such Stockholder or any of such Stockholder's properties or assets, or (iii) any lease, instrument, agreement, license or permit to which such Stockholder is now a party or by which such Stockholder or any of such Stockholder's properties or assets may be bound or affected. Except for (i) any filings to be made with the SEC pursuant to the 1933 Act and any state securities authorities in connection with the offer and sale of AmPaM Stock and AmPaM Notes pursuant to this Agreement, (ii) any filing required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by such Stockholder or the consummation by such Stockholder of the transactions contemplated hereby. Except as set forth on 22 31 Schedule 5.33(b), such Stockholder owns beneficially and of record all of the shares of the Company Stock identified on Annex I hereto as being owned by such Stockholder, and, such Company Stock is owned free and clear of all liens, security interests, pledges, charges, voting trusts, voting agreements, restrictions, encumbrances and claims of every kind. 5.34 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby waives, any preemptive or other right to acquire shares of Company Stock or AmPaM Stock that such Stockholder has or may have had. Nothing herein, however, shall limit or restrict the rights of any Stockholder to acquire AmPaM Stock pursuant to (i) this Agreement, (ii) any option granted or to be granted by AmPaM to such Stockholder, (iii) a purchase through a broker in a regular stock market transaction or (iv) a purchase from a stockholder of a Founding Company (subject to compliance with any contractual restrictions or securities law restrictions applicable thereto specified in Section 15 hereof). 5.35 NO COMMITMENT TO DISPOSE OF AMPAM STOCK. No Stockholder is under any binding commitment or contract to sell, exchange or otherwise dispose of shares of AmPaM Stock or AmPaM Notes received pursuant to this Agreement. 5.36 DISCLOSURE. The completed Director and Officer Questionnaires with respect to such Stockholder (if any), the completed investor questionnaire furnished to AmPaM by such Stockholder in connection with the proposed acquisition by such Stockholder of AmPaM Stock and AmPaM Notes and any other information provided to AmPaM in writing by such Stockholder relating specifically to such Stockholder for inclusion in the Private Placement Memorandum do not contain an untrue statement of a material fact concerning such Stockholder or omit to state a material fact concerning such Stockholder necessary to make the statements herein and therein, in light of the circumstances under which they were made, not misleading. 6. REPRESENTATIONS OF AmPaM Except as otherwise qualified below, AmPaM represents and warrants that all of the following representations and warranties in this Section 6 are true at the date of this Agreement and, subject to Section 7.7 hereof, shall be true at the time of Closing, and that such representations and warranties shall survive the Closing Date for a period of eighteen months (the last day of such period being the "Expiration Date" for purposes of the representations and warranties set forth in this Section 6), except that the representations and warranties set forth in Section 6.3, 6.11 and 6.15 shall survive until such time as the applicable statute of limitations period has run, which shall be deemed to be the Expiration Date for the representations and warranties set forth in Sections 6.3, 6.11 and 6.15. AmPaM acknowledges that in purchasing the shares of Company Stock, it is relying upon its own independent investigation as well as the representations and warranties of the Company and the Stockholders as set forth in this Agreement. 23 32 6.1 DUE ORGANIZATION. AmPaM is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of Delaware, and has the requisite power and authority to carry on its business as it is now being conducted and as contemplated by the Private Placement Memorandum. AmPaM is duly qualified or authorized to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or authorization necessary, except where the failure to be so qualified or authorized to do business would not have a Material Adverse Effect. True, complete and correct copies of the Certificate of Incorporation and By-laws, each as proposed to be amended and as such documents shall be in effect as of the Closing Date, of AmPaM (the "AmPaM Charter Documents") are attached hereto as Annex II. 6.2 AUTHORIZATION. (i) The officers of AmPaM executing this Agreement have the authority to enter into and bind AmPaM to the terms of this Agreement and (ii) AmPaM has the full legal right, power and authority to enter into this Agreement and consummate the transactions contemplated hereby. All corporate acts and other proceedings required to have been taken by AmPaM to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and properly taken. 6.3 CAPITAL STOCK OF AmPaM. The authorized capital stock of AmPaM is as set forth in Section 1.3(ii). Immediately prior to the Closing Date, all of the issued and outstanding shares of the capital stock of AmPaM will be as set forth in the Private Placement Memorandum, free and clear of all liens, security interests, pledges, charges, voting trusts, restrictions, encumbrances and claims of every kind other than any restrictions described in the Private Placement Memorandum. All of the issued and outstanding shares of the capital stock of AmPaM have been duly authorized and validly issued, are fully paid and nonassessable and such shares were offered, issued, sold and delivered by AmPaM in compliance with all applicable state and Federal laws concerning the issuance of securities. Further, none of such shares were issued in violation of the preemptive rights of any past or present stockholder of AmPaM. Upon the Closing Date, the authorized, issued and outstanding shares of capital stock of AmPaM will be as set forth in the Private Placement Memorandum under the caption "Capitalization." Upon the Closing Date, the aggregate number of shares of AmPaM Stock issued and outstanding on the Closing Date that are owned by Sterling City Capital, LLC, any Affiliates of Sterling City Capital, LLC and the officers and directors of AmPaM will not be greater than the number of shares of AmPaM Stock reflected in the Private Placement Memorandum as the aggregate number of shares of AmPaM Stock to be issued and outstanding and owned by Sterling City Capital, LLC, any Affiliates of Sterling City Capital, LLC and the officers and directors of AmPaM. 6.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements and except as set forth in the Private Placement Memorandum, (i) no option, warrant, call, conversion right or commitment of any kind exists as of the date of this Agreement which obligates AmPaM to issue any of its authorized but unissued capital stock; and (ii) AmPaM has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof. The material terms of any 24 33 options, warrants or other rights to acquire shares of the stock of AmPaM referred to in the preceding sentence will be as described in the Private Placement Memorandum. 6.5 SUBSIDIARIES. As of the date of this Agreement, AmPaM has no subsidiaries. As of the date of this Agreement, AmPaM does not own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity, and AmPaM is not, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. 6.6 FINANCIAL STATEMENTS. The historical financial statements of AmPaM included in the Private Placement Memorandum (the "AmPaM Financial Statements") have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except as noted thereon), and the balance sheet included therein presents fairly the financial position of AmPaM as of its date. Management of AmPaM believes that the assumptions underlying the pro forma adjustments utilized in the preparation of such pro forma financial statements are reasonable, and such pro forma adjustments have been properly applied to the historical financial amounts in the compilation of the pro forma financial statements. Based on the representations in Section 5.9 of this Agreement and in Section 5.9 of each of the Other Agreements, the pro forma financial information of AmPaM fairly presents the pro forma financial position, results of operations and other information purported to be shown therein at the respective dates and for the respective periods specified. 6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Private Placement Memorandum, as of the date of this Agreement, AmPaM has no material liabilities or obligations of any kind, character or description, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than liabilities incurred in the ordinary course of business and consistent with past practices, liabilities or obligations set forth in or contemplated by this Agreement and the Other Agreements and except for fees incurred in connection with the transactions contemplated hereby and thereby. 6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the Private Placement Memorandum, AmPaM is not in violation of any law or regulation or any order of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it and its stockholders and, there are no claims, actions, suits or proceedings, pending or, to the knowledge of AmPaM, threatened against or affecting, AmPaM, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it and no notice of any claim, action, suit or proceeding, whether pending or threatened, has been received. AmPaM has conducted and is conducting its businesses in compliance in all material respects with the requirements, standards, criteria and conditions set forth in applicable Federal, state and local statutes, ordinances, permits, licenses, orders, approvals, variances, rules and regulations and is not in violation, in any material respect, of any of the foregoing. 25 34 6.9 NO VIOLATIONS. (a) AmPaM is not in violation of any AmPaM Charter Document. AmPaM is not in default under any lease, instrument, agreement, license, or permit to which AmPaM is a party or by which AmPaM or any of its properties are bound (collectively, the "AmPaM Documents"). (b) The execution and delivery of this Agreement by AmPaM do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of AmPaM under any of the terms, conditions or provisions of (i) the AmPaM Charter Documents, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to AmPaM or any of its properties or assets, or (iii) any AmPaM Document; provided that the representations and warranties specified in clause (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. The consummation by AmPaM of the transactions contemplated hereby will not result in any material violation, conflict, breach, right of termination or acceleration or creation of liens under any of the terms, conditions or provisions of the items described in clauses (i) through (iii) of the preceding sentence, subject, in the case of the terms, conditions or provisions of the items described in clause (iii) above, to obtaining (prior to the Closing Date) (x) such approvals, consents or orders from the SEC, state blue sky authorities and authorities administering the Hart-Scott Act and (y) such other consents as may be required from commercial lenders, lessors or other third parties which are listed on Schedule 6.9. (c) Except for (i) any filings to be made with the SEC pursuant to the 1933 Act and filings with various state securities authorities in connection with the transactions contemplated by this Agreement, and (ii) any filings required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, none of the AmPaM Documents requires notice to, or the consent or approval of, any governmental agency or other third party with respect to the consummation by AmPaM of any of the transactions contemplated hereby in order to remain in full force and effect, and consummation by AmPaM of the transactions contemplated hereby will not give rise to any right to termination, cancellation or acceleration or loss of any material right or benefit under the AmPaM Documents; provided that the representations and warranties specified in clauses (i) and (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the 26 35 stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. (d) Except for (i) any filings with the SEC pursuant to the 1933 Act and filings with various state securities authorities in connection with the transactions contemplated by this Agreement and (ii) any filings required under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by AmPaM or the consummation by AmPaM of the transactions contemplated hereby; provided that the representations and warranties specified in clauses (i) and (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. 6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement by AmPaM and the performance of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of AmPaM and this Agreement has been duly and validly authorized by all necessary corporate action and is a legal, valid and binding obligation of AmPaM, enforceable against AmPaM in accordance with its terms. 6.11 AmPaM STOCK. At the time of issuance thereof and delivery to the Stockholders, the AmPaM Stock to be delivered to the Stockholders pursuant to this Agreement will constitute valid, duly authorized and legally issued shares of AmPaM, fully paid and nonassessable, and with the exception of restrictions upon resale set forth in Sections 15 and 16 hereof, will be identical in all substantive respects (which do not include the form of certificate upon which it is printed or the presence or absence of a CUSIP number on any such certificate) to the AmPaM Stock issued and outstanding as of the date hereof, other than the Restricted Common Stock. The AmPaM Stock issued and delivered to the Stockholders shall at the time of such issuance and delivery be free and clear of any liens, claims or encumbrances of any kind or character. The offer and sale of the shares of AmPaM Stock to be issued to the Stockholders pursuant to this Agreement are not required to be registered under the 1933 Act; provided that the representations and warranties specified in this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are 27 36 subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. 6.12 AmPaM NOTES. The AmPaM Notes have been duly authorized and, at the Closing Date, will have been duly executed by AmPaM and, when authenticated, issued and delivered, will constitute valid and binding obligations of AmPaM, enforceable against AmPaM in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers) reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). 6.13 NO SIDE AGREEMENTS. AmPaM has not entered into any agreement with any of the Founding Companies or any of the Stockholders of the Founding Companies other than this Agreement, the Other Agreements, the agreements referred to in this Agreement and in the Other Agreements and the Private Placement Memorandum. AmPaM has not entered into any agreements providing for rights to register shares of AmPaM Stock under the 1933 Act except as provided in Section 17 of this Agreement, in Section 17 of the Other Agreements and in an agreement with Sterling City Capital, LLC, its Affiliates and officers and directors of AmPaM having terms substantially similar to those set forth in Section 17 hereof. 6.14 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. AmPaM was formed in June 1998 and has conducted no material business since the date of its inception except for activities related to the transaction contemplated by this Agreement, the Other Agreements and the Private Placement Memorandum. Except as described in the Private Placement Memorandum, as of the date of this Agreement, AmPaM does not own any real property or any material personal property and is not a party to any other material agreement other than this Agreement, the Other Agreements and the agreements contemplated hereby and thereby. 6.15 RELATIONS WITH GOVERNMENTS. Neither AmPaM nor any of its directors, officers or Affiliates has given or offered anything of value to any government official, political party or candidate for government office, nor has AmPaM, any of its directors, officers or Affiliates of any of them otherwise taken any action, which would cause AmPaM to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. 6.16 DISCLOSURE. The Private Placement Memorandum delivered to the Company and the Stockholders does not as of the date hereof contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing does not apply to statements contained in or omitted from any of such documents made or omitted in reliance upon, and in conformity with, information furnished to AmPaM by the Company or the Stockholders in writing specifically for inclusion in the Private Placement Memorandum. 28 37 6.17 OTHER AGREEMENTS. The Other Agreements have been duly authorized, executed and delivered by AmPaM and constitute the legal, valid and binding obligation of AmPaM enforceable against AmPaM in accordance with their respective terms. The terms and conditions of the Other Agreements (excluding the terms relating to the consideration payable by AmPaM thereunder) are identical in all material respects to the terms and conditions in this Agreement. 7. COVENANTS PRIOR TO CLOSING 7.1 ACCESS AND COOPERATION; DUE DILIGENCE; TRANSFER OF REAL ESTATE. (a) Between the date of this Agreement and the Closing Date, the Company will afford to the officers and authorized representatives of AmPaM reasonable access during normal business hours to all of the Company's sites, properties, books and records and will furnish AmPaM with such additional financial and operating data and other information as to the business and properties of the Company as AmPaM may from time to time reasonably request. The Company will cooperate with AmPaM, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. AmPaM, the Stockholders and the Company will treat all information obtained in connection with the negotiation and performance of this Agreement or the due diligence investigations conducted with respect to the Company as confidential in accordance with the provisions of Section 14 hereof. (b) Between the date of this Agreement and the Closing Date, AmPaM will afford to the officers and authorized representatives of the Company access to all of AmPaM's sites, properties, books and records and will furnish the Company with such additional financial and operating data and other information as to the business and properties of AmPaM and the Other Founding Companies as the Company may from time to time reasonably request. AmPaM will cooperate with the Company, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. The Company will cause all information obtained pursuant to this Section 7.1(b) or obtained in connection with the negotiation and performance of this Agreement to be treated as confidential in accordance with the provisions of Section 14 hereof. (c) Except as set forth on Schedule 7.1, any real property owned by the Company will be sold or distributed by the Company on terms mutually acceptable to AmPaM and the Company and leased back by the Company on terms no less favorable to the Company than those available from an unaffiliated party and otherwise reasonably acceptable to AmPaM at or prior to the Closing Date. 29 38 7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this Agreement and the Closing Date, the Company will, except as set forth on Schedule 7.2: (i) carry on its businesses in the Ordinary Course of Business and not introduce any material new method of management, operation or accounting; (ii) use all commercially reasonable efforts to maintain its properties and facilities, including those held under leases, in as good working order and condition as at present, ordinary wear and tear, depreciation and insured losses excepted; (iii) perform in all material respects all of its obligations under all Material Documents relating to or affecting its respective assets, properties or rights; (iv) use its commercially reasonable efforts to keep in full force and effect present insurance policies or other comparable insurance coverage; (v) use its commercially reasonable efforts to maintain and preserve its business organization intact, retain its respective present key employees and maintain its relationships with suppliers, customers and others having business relations with the Company; (vi) use its commercially reasonable efforts to maintain compliance with all material permits, laws, rules and regulations, consent orders, and all other orders of applicable courts, regulatory agencies and similar governmental authorities; (vii) maintain present debt and lease instruments in accordance with their terms and not enter into new or amended debt or lease instruments without the knowledge and consent of AmPaM (which consent shall not be unreasonably withheld), provided that debt and/or lease instruments may be replaced without the consent of AmPaM if such replacement instruments are on terms at least as favorable to the Company as the instruments being replaced; (viii) maintain or reduce present salaries and commission levels for all officers, directors, employees and agents except for ordinary and customary bonus and salary increases for employees in accordance with past practices; and (ix) use commercially reasonable efforts to cause the actual amount of its Current Assets (as defined in Annex I hereto) to be not less than 150% of the actual amount of its Current Liabilities (as defined in Annex I hereto). 30 39 7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between the date hereof and the Closing Date, the Company will not, without prior written consent of AmPaM: (i) make any change in its Charter Documents; (ii) issue any securities, options, warrants, calls, conversion rights or commitments relating to its securities of any kind other than in connection with the exercise of options or warrants listed in Schedule 5.4; (iii) except as permitted pursuant to the terms and conditions for distributions described in Annex I, declare or pay any dividend, or make any distribution in respect of its stock whether now or hereafter outstanding, or purchase, redeem or otherwise acquire or retire for value any shares of its stock; (iv) enter into any contract or commitment or incur or agree to incur any liability or make any capital expenditures, except if it is in the Ordinary Course of Business or involves an amount not in excess of three percent (3%) of the Company's gross revenues for fiscal 1997; (v) create, assume or permit to exist any mortgage, pledge or other lien or encumbrance upon any assets or properties whether now owned or hereafter acquired, except (1) with respect to purchase money liens incurred in connection with the acquisition of equipment with an aggregate cost not in excess of three percent (3%) of the Company's gross revenues for fiscal 1997 necessary or desirable for the conduct of the businesses of the Company, (2) (A) liens for taxes either not yet due or being contested in good faith and by appropriate proceedings (and for which contested taxes adequate reserves have been established and are being maintained) or (B) materialmen's, mechanics', workers', repairmen's, employees' or other like liens arising in the Ordinary Course of Business (the liens set forth in clause (2) being referred to herein as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or Schedule 5.15 hereto; (vi) sell, assign, lease or otherwise transfer or dispose of any property or equipment except in the Ordinary Course of Business and other than distributions of real estate and other assets as permitted in this Agreement (including Annex I hereto); (vii) negotiate for the acquisition of any business or the start-up of any new business; (viii) merge or consolidate or agree to merge or consolidate with or into any other corporation; 31 40 (ix) waive any material rights or claims of the Company, provided that the Company may negotiate and adjust bills and accounts in the course of good faith disputes with customers in a manner consistent with past practice; (x) amend or terminate any Material Document except for the termination of a Material Document in accordance with its terms without any action on the part of the Company; or (xi) enter into any other material transaction outside the Ordinary Course of Business or any transaction prohibited hereunder. 7.4 NO SHOP. None of the Stockholders, the Company, nor any agent, officer, director, trustee or any representative of any of the foregoing will, during the period commencing on the date of this Agreement and ending with the earlier to occur of the Closing Date or the termination of this Agreement in accordance with its terms, directly or indirectly: (i) solicit or initiate the submission of proposals or offers from any person for, (ii) participate in any discussions pertaining to, or (iii) furnish any information to any person other than AmPaM or its authorized agents relating to, any acquisition or purchase of all or a material amount of the assets of, or any equity interest in, the Company or a merger, consolidation or business combination of the Company. 7.5 AGREEMENTS. Except as disclosed on Schedule 7.5(a), the Stockholders and the Company shall terminate (i) any stockholders agreements, voting agreements, voting trusts, agreements providing for the grant by the Company of any options, warrants and employment agreements between the Company and any employee listed on Schedule 8.11 hereto and (ii) except as otherwise provided in this Agreement, any existing agreement between the Company and any Stockholder, on or prior to the Closing Date provided that nothing herein shall prohibit or prevent the Company from paying (either prior to or on the Closing Date) notes or other obligations from the Company to the Stockholders described in Schedule 7.5(b) in accordance with the terms thereof. 7.6 NOTIFICATION OF CERTAIN MATTERS. Each Stockholder and the Company shall give prompt notice to AmPaM upon obtaining knowledge of (i) the occurrence or non-occurrence of any event the occurrence or nonoccurrence of which would be likely to cause any representation or warranty of the Company or such Stockholder contained herein to be untrue or inaccurate in any material respect at or prior to the Closing and (ii) any material failure of such Stockholder or the Company to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by such person hereunder. AmPaM shall give prompt notice to the Company of (i) the occurrence or non-occurrence of any event the occurrence or non-occurrence of which would be likely to cause any representation or warranty of AmPaM contained herein to be untrue or inaccurate 32 41 in any material respect at or prior to the Closing, (ii) any material failure of AmPaM to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; (iii) any termination of any Other Agreement for any reason; and (iv) the issuance by the SEC or any state securities regulatory authority of any issuance of or threatened issuance of any order challenging the availability of an exemption from registration or suspending the qualification of any securities described in the Private Placement Memorandum for sale in any jurisdiction. However, subject to the provisions of Section 7.7, such notification shall not relieve either the Company or such Stockholder of their respective obligations under this Agreement. The delivery of any notice pursuant to this Section 7.6 shall not be deemed to (i) modify the representations or warranties hereunder of the party delivering such notice, which modification may only be made pursuant to Section 7.7, (ii) modify the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect the remedies available hereunder to the party receiving such notice. 7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to the representations and warranties of such party contained in this Agreement, such party shall have the continuing obligation until 24 hours prior to the Closing Date to notify AmPaM with respect to any matter (i) hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or described in the Schedules or (ii) which may have been omitted from the Schedules previously provided by such party. Notwithstanding the foregoing sentence, no amendment or supplement to a Schedule prepared by the Company may be made unless AmPaM consents to such amendment or supplement; and provided further, that no amendment or supplement to a Schedule prepared by AmPaM may be made unless the Stockholders consent to such amendment or supplement. For all purposes of this Agreement, including without limitation for purposes of determining whether the conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules hereto, as amended or supplemented with the consent of AmPaM or the Stockholders, as the case may be, as provided above, shall be deemed to be the Schedules to this Agreement. 7.8 FURTHER ASSURANCES. The parties hereto agree to execute and deliver, or cause to be executed and delivered, such further instruments or documents or take such other action as may be reasonably necessary or appropriate to carry out the transactions contemplated hereby and to cause the conditions to the Closing Date to be satisfied as promptly as practicable. 7.9 AUTHORIZED CAPITAL. Prior to the Closing Date, AmPaM shall maintain its authorized capital stock as set forth in the Private Placement Memorandum. 7.10 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this Agreement hereby recognize that one or more filings under the Hart-Scott Act may be required in connection with the transactions contemplated herein. If it is determined by the parties to this Agreement that filings under the Hart-Scott Act are required, then: (i) each of the parties hereto agrees to cooperate and use its best efforts to comply with the Hart-Scott Act and (ii) such compliance by the Stockholders and the parties agree to cooperate and use their best efforts to cause all filings required under the Hart- Scott Act to be made. If filings under the Hart-Scott Act are required, the costs and expenses thereof (including filing fees) shall be borne by AmPaM. 33 42 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY The obligations of the Stockholders and the Company with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the following conditions. As of the Closing Date, if any such applicable conditions have not been satisfied, any one or more of the Stockholders who would be entitled to receive a majority of the Aggregate Consideration (as defined herein) received by all Stockholders if the transactions contemplated hereby were consummated shall have the right to waive any condition not so satisfied. Any act or action of the Stockholders in consummating the Closing or delivering the certificates representing Company Stock as of the Closing Date shall constitute a waiver of any conditions not so satisfied. However, no such waiver shall be deemed to affect the survival of the representations and warranties of AmPaM contained in Section 6 hereof. 8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All representations and warranties of AmPaM contained in Section 6 shall be true and correct as of the Closing Date as though such representations and warranties had been made as of that time; all of the terms, covenants and conditions of this Agreement to be complied with and performed by AmPaM on or before the Closing Date shall have been duly complied with and performed in all material respects; and certificates to the foregoing effect dated the Closing Date and signed by the President or any Vice President of AmPaM shall have been delivered to the Stockholders. 8.2 SATISFACTION. All actions, proceedings, instruments and documents that are not within the control of the Company or the Stockholders and that are required to carry out this Agreement or incidental hereto shall be reasonably satisfactory to the Company, the Stockholders and their counsel. 8.3 NO LITIGATION. No action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock. 8.4 OPINION OF COUNSEL. The Company shall have received opinions from counsel for AmPaM, dated the Closing Date, addressed to the Company and the Stockholders in the form annexed hereto as Annex III. 8.5 CONSENTS AND APPROVALS. All necessary consents of and filings with any governmental authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made; any waiting periods under the Hart-Scott Act, if applicable, shall have expired or been terminated; all consents and approvals of third parties listed on Schedule 6.9 shall have been obtained; and no action or proceeding shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock and no governmental agency or body shall have taken any other action or made any request of Company as a result of which Company deems it inadvisable to proceed with the transactions hereunder. 34 43 8.6 GOOD STANDING CERTIFICATES. AmPaM shall have delivered to the Company a certificate, dated as of a date no later than ten days prior to the Closing Date, duly issued by the Delaware Secretary of State and in each state in which AmPaM is authorized to do business, showing that AmPaM is in good standing and authorized to do business and that all state franchise and/or income tax returns and taxes for AmPaM for all periods prior to the Closing have been filed and paid. 8.7 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have occurred which would constitute a Material Adverse Change with respect to AmPaM from the date of the Private Placement Memorandum. 8.8 SECRETARY'S CERTIFICATE. The Company shall have received a certificate or certificates, dated the Closing Date and signed by the secretary of AmPaM, certifying the truth and correctness of attached copies of AmPaM's Certificate of Incorporation (including amendments thereto), By-Laws (including amendments thereto), and resolutions of the board of directors and, if required, the stockholders of AmPaM approving AmPaM's entering into this Agreement and the Other Agreements and the consummation of the transactions contemplated hereby and thereby. 8.9 TAX MATTERS. The Stockholders shall have received an opinion of Andrews & Kurth L.L.P., in substantially the form of Annex IV hereto, that the AmPaM Plan of Organization will qualify as a tax-free transfer of property under Section 351 of the Code and that the Stockholders will not recognize gain to the extent the Stockholders exchange Company Stock for AmPaM Stock (but not cash or other property) pursuant to this Agreement in connection with the AmPaM Plan of Organization. 8.10 OTHER FOUNDING COMPANIES. The transactions contemplated by the Other Agreements are consummated simultaneously with the consummation of the transactions contemplated by this Agreement. 8.11 COMPANY RELEASE OF STOCKHOLDERS. The Company shall have delivered to the Stockholders an instrument dated the Closing Date, in form reasonably satisfactory to AmPaM and the Stockholders, which shall be effective only upon the occurrence of the Closing Date, releasing the Stockholders from (i) any and all claims of the Company against the Stockholders, known and unknown, and (ii) obligations of the Stockholders to the Company, except for (x) items specifically identified on Schedule 5.10(a) and Schedule 5.15(b) as being claims of or obligations to the Company and (y) continuing obligations to the Company relating to their employment by the Company pursuant to any employment agreement entered into pursuant to Section 8.11 hereof. 8.12 STERLING CITY CAPITAL TRANSFER RESTRICTIONS. Sterling City Capital, LLC and each of its Affiliates which owns AmPaM Stock shall have entered into an agreement with AmPaM containing substantially the same terms and conditions as are contained in Section 15 and Section 17. 35 44 8.13 ELECTION OF CHIEF EXECUTIVE OFFICER. AmPaM shall have taken all corporate action necessary to elect Robert A. Christianson as Chief Executive Officer of AmPaM effective immediately following the Closing Date. 8.14 FUNDING AVAILABILITY. AmPaM shall have entered into binding agreements with financial institutions, lenders or investors that provide AmPaM with sufficient funds to pay (i) the cash amounts specified in Annex I hereto as payable to the Stockholders upon the Closing and (ii) the aggregate cash amounts specified in Annex I to each of the Other Agreements as payable to the stockholders of the Other Founding Companies upon the Closing; and all conditions to the funding of the cash amounts necessary to make such payments specified in the agreements related to such financing arrangements, other than the closing of the transactions contemplated by this Agreement and the Other Agreements, shall have been satisfied as of the Closing Date. 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF AMPAM The obligations of AmPaM with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the following conditions. As of the Closing Date, if any such conditions have not been satisfied, AmPaM shall have the right to terminate this Agreement, or waive any such condition, but no such waiver shall be deemed to affect the survival of the representations and warranties contained in Section 5 hereof. 9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS. All the representations and warranties of the Stockholders and the Company contained in this Agreement shall be true and correct as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date; all of the terms, covenants and conditions of this Agreement to be complied with or performed by the Stockholders and the Company on or before the Closing Date shall have been duly performed or complied with in all material respects; and the Stockholders shall have delivered to AmPaM certificates dated the Closing Date and signed by them to such effect. 9.2 NO LITIGATION. No action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock. 9.3 SECRETARY'S CERTIFICATE. AmPaM shall have received a certificate, dated the Closing Date and signed by the secretary of the Company, certifying the truth and correctness of attached copies of the Company's Articles or Certificate of Incorporation (including amendments thereto), By-Laws (including amendments thereto), and resolutions of the board of directors and the Stockholders approving the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby. 36 45 9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have occurred with respect to the Company which would constitute a Material Adverse Effect, and the Company shall not have suffered any material loss or damages to any of its properties or assets, whether or not covered by insurance, which change, loss or damage materially affects or impairs the ability of the Company to conduct its business. 9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to AmPaM an instrument dated the Closing Date which shall be effective only upon the occurrence of the Closing releasing the Company and AmPaM from (i) any and all claims of the Stockholders against the Company and AmPaM and (ii) obligations of the Company and AmPaM to the Stockholders, except for (A) items specifically identified on Schedule 5.31 as being claims of or obligations to the Stockholders, (B) continuing obligations to Stockholders relating to their employment by the Company pursuant to employment agreements entered into as specified in Section 8.11 hereof, (C) obligations arising under this Agreement or the transactions contemplated hereby and (D) claims of Stockholders against the Company for unreimbursed business expenses incurred by the Stockholders on behalf of the Company (other than expenses related to the transactions contemplated by this Agreement) prior to the Closing Date or unreimbursed medical expenses of the Stockholders incurred prior to the Closing Date which are covered by the Company's existing health insurance coverage. In the event that the Closing Date does not occur, then the release instrument referenced herein shall be void and of no further force or effect. 9.6 SATISFACTION. All actions, proceedings, instruments and documents that are not within the control of AmPaM and that are required to carry out the transactions contemplated by this Agreement or incidental hereto shall have been reasonably approved by counsel to AmPaM. 9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on Schedule 9.7, all existing agreements between the Company and the Stockholders (and between the Company and entities controlled by the Stockholders) specified on Schedule 5.31 shall have been terminated effective prior to or as of the Closing Date without any payment being made by the Company other than payments made for services rendered, materials provided or other benefits provided to the Company prior to the Closing Date pursuant to the terms of such agreements as in effect as of the date of this Agreement. 9.8 OPINION OF COUNSEL. AmPaM shall have received opinions from counsel to the Company and the Stockholders, dated the Closing Date, substantially in the form annexed hereto as Annex V. 9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any governmental authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made; any waiting periods under the Hart-Scott Act, if applicable, shall have expired or been terminated; all consents and approvals of third parties listed on Schedule 5.23(b)(2) shall have been obtained; and no action or proceeding shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock and no 37 46 governmental agency or body shall have taken any other action or made any request of AmPaM as a result of which AmPaM deems it inadvisable to proceed with the transactions hereunder. 9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to AmPaM a certificate, dated as of a date no earlier than ten days prior to the Closing Date, duly issued by the appropriate governmental authority in the Company's state of incorporation and, unless waived by AmPaM, in each state in which the Company is authorized to do business, showing the Company is in good standing and authorized to do business and that all state franchise and/or income tax returns and taxes for the Company for all periods prior to the Closing have been filed and paid. 9.11 FUNDING AVAILABILITY. AmPaM shall have entered into binding agreements with financial institutions, lenders or investors that provide AmPaM with sufficient funds to pay (i) the cash amounts specified in Annex I hereto as payable to the Stockholders upon the Closing and (ii) the aggregate cash amounts specified in Annex I to each of the Other Agreements as payable to the stockholders of the Other Founding Companies upon the Closing; and all conditions to the funding of the cash amounts necessary to make such payments specified in the agreements related to such financing arrangements, other than the closing of the transactions contemplated by this Agreement and the Other Agreements, shall have been satisfied as of the Closing Date. 9.12 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to AmPaM a certificate to the effect that he is not a foreign person pursuant to Section 1.1445-2(b) of the Treasury regulations. 9.13 RESIGNATIONS OF DIRECTORS AND OFFICERS. Any directors of the Company, other than those identified on Schedule 2.1, shall have resigned as directors of the Company. Any officers of the Company, other than those identified on Schedule 2.2, shall have resigned as officers of the Company. 10. COVENANTS OF AmPaM AND THE STOCKHOLDERS AFTER CLOSING 10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. AmPaM shall use reasonable efforts to have the Stockholders released from any and all guarantees of the Company's indebtedness, including bond obligations, identified on Schedule 10.1. Prior to obtaining the release of such guarantees, AmPaM shall provide its guarantee of such indebtedness to the lenders thereof. In the event that AmPaM cannot obtain such releases from the lenders of any such guaranteed indebtedness identified on Schedule 10.1 on or prior to 90 days subsequent to the Closing Date, AmPaM shall promptly pay off or otherwise refinance or retire such indebtedness such that the Stockholders' personal liability shall be released. AmPaM will indemnify the Stockholders against any loss or damage suffered as a result of the personal guarantees. 38 47 10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated by this Agreement, after the Closing Date, AmPaM shall not and shall not permit any of its Subsidiaries to undertake any act that would jeopardize the tax-free status of the exchange of Company Stock for AmPaM Stock (but not cash or other property), including without limitation: (a) the retirement or reacquisition, directly or indirectly, of all or part of the AmPaM Stock issued in connection with the transactions contemplated hereby; or (b) the entering into of financial arrangements for the benefit of the Stockholders other than as described in the Private Placement Memorandum or as described in this Agreement. 10.3 PREPARATION AND FILING OF TAX RETURNS; PAYMENT OF TAXES. (a) The Company, if possible, or otherwise the Stockholders shall file or cause to be filed all income Tax Returns (federal, state, local or otherwise) of any Acquired Party for all taxable periods that end on or before the Closing Date, and shall permit AmPaM to review all such Tax Returns prior to such filings. Unless the Company is a C corporation, the Stockholders shall pay or cause to be paid all income Tax liabilities (in excess of all amounts already paid with respect thereto or properly accrued or reserved with respect thereto on the Financial Statements) with respect to the Company's operations for all periods through and including the Closing Date. (b) AmPaM shall file or cause to be filed all separate Returns of, or that include, any Acquired Party for all taxable periods ending after the Closing Date. (c) Unless required by applicable law, regulations or government proceedings, AmPaM shall not take any action, including any amendment of a Tax Return of any Acquired Party, if such action would result in additional Tax liabilities payable by any of the Stockholders for periods ending on or prior to the Closing Date. (d) Each party hereto shall, and shall cause its subsidiaries and Affiliates to, provide to each of the other parties hereto such cooperation and information as any of them reasonably may request in filing any Return, amended Return or claim for refund, determining a liability for Taxes or a right to refund of Taxes or in conducting any audit or other proceeding in respect of Taxes. Such cooperation and information shall include providing copies of all relevant portions of relevant Returns, together with relevant accompanying schedules and relevant work papers, relevant documents relating to rulings or other determinations by Taxing Authorities and relevant records concerning the ownership and Tax basis of property, which such party may possess. Each party shall make its employees reasonably available on a mutually convenient basis at its cost to provide explanation of any documents or information so provided. Subject to the preceding sentence, each party required to file Returns pursuant to this Agreement shall bear all costs of filing such Returns. 39 48 (e) Each of the Company, AmPaM and each Stockholder shall comply with the tax reporting requirements of Section 1.351-3 of the Treasury Regulations promulgated under the Code, and treat the transaction as a tax-free contribution under Section 351(a) of the Code subject to gain, if any, recognized on the receipt of cash or other property under Section 351(b) of the Code. 10.4 DIRECTORS. The persons named in the Private Placement Memorandum shall be appointed as directors and elected as officers of AmPaM, as and to the extent set forth in the Private Placement Memorandum, promptly following the Closing Date; provided, however, that the parties hereto acknowledge that if the Company consummates an IPO, the persons who will serve as directors and executive officers of AmPaM will be adjusted as appropriate for a publicly traded entity, with any such changes being subject to the approval of the majority of the Board of Directors of AmPaM. 10.5 LEGAL OPINIONS. If required by the lenders pursuant to the terms of any agreements related to financing of the cash amounts referred to in Section 9.11 hereof, the Company shall cause its counsel to deliver to such lenders, at the Closing, an opinion of counsel in substantially the form attached hereto as Annex V. 11. INDEMNIFICATION The Stockholders and AmPaM each make the following covenants that are applicable to them, respectively: 11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. (a) Each Stockholder covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement until the applicable Expiration Date (as defined in the introductory paragraph to Section 5(A)), provided that for purposes of clause (iii) below, the applicable Expiration Date shall be the date on which the applicable statute of limitations expires), from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM as a result of or arising from (i) any breach of the representations and warranties of the Company set forth herein or on the schedules attached hereto or certificates delivered pursuant to this Agreement, (ii) any breach of any covenant or agreement on the part of the Company under this Agreement, or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating solely to the Company which was based upon information provided to AmPaM or its counsel in writing by the Company specifically for inclusion in the Private Placement Memorandum and is contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact relating to the Company required to be stated therein or necessary to make the statements therein not misleading; provided, however, that no Stockholder shall be liable for any 40 49 indemnification obligation pursuant to this Section 11.1 in excess of such Stockholder's pro rata share thereof determined by reference to the aggregate value of the Base Cash Amount (as defined in Annex I of this Agreement), the principal amount of AmPaM Notes and the shares of AmPaM Stock (valued at a price of $13.00 per share) received by such Stockholder pursuant to Section I.A. of Annex I hereto (without giving effect to the adjustments provided in Sections I.B. and I.C. thereof) (giving effect to the value of such AmPaM Stock and without giving effect to such adjustments, collectively, the "Aggregate Consideration") such Stockholder would receive pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated in relation to the total Aggregate Consideration all Stockholders would receive pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated. (b) Each Stockholder covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement, from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM as a result of or arising from (i) any breach of the representations and warranties of such Stockholder set forth in Section 5(B) hereof, (ii) any breach of any covenant or agreement on the part of such Stockholder under this Agreement, or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating solely to such Stockholder which was based upon information provided to AmPaM or its counsel in writing by such Stockholder specifically for inclusion in the Private Placement Memorandum and is contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact relating solely to such Stockholder required to be stated therein or necessary to make the statements therein in light of the circumstances in which such statements were made not misleading. (c) AmPaM acknowledges and agrees that other than the representations and warranties of the Company or the Stockholders specifically contained in this Agreement, there are no representations or warranties of the Company or the Stockholders, either express or implied, with respect to the transactions contemplated by this Agreement, the Company or its assets, liabilities and business. 11.2 INDEMNIFICATION BY AmPaM. AmPaM covenants and agrees that it will indemnify, defend, protect and hold harmless the Company and the Stockholders at all times from and after the date of this Agreement until the applicable Expiration Date (as defined in the introductory paragraph of Section 6, provided that for purposes of clause (iii) below, the applicable Expiration Date shall be the date on which the applicable statute of limitations expires), from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by the Company or the Stockholders as a result of or arising from (i) any breach by AmPaM of its representations and warranties set forth herein or on the schedules attached 41 50 hereto or certificates delivered pursuant to this Agreement, (ii) any breach of any agreement on the part of AmPaM under this Agreement; or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except to the extent such is based upon an untrue statement or alleged untrue statement, or omission or alleged omission, made therein in reliance upon, and in conformity with, the representations and warranties of the Company or the Stockholders specifically contained in this Agreement or other information furnished to AmPaM by the Company or the Stockholders in writing specifically for inclusion therein. 11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the "Indemnified Party") has received notice of or has knowledge of any claim by a person not a party to this Agreement ("Third Person"), or the commencement of any action or proceeding by a Third Person, the Indemnified Party shall, as a condition precedent to a claim with respect thereto being made against any party obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying Party written notice of such claim or the commencement of such action or proceeding. Such notice shall state the nature and the basis of such claim and a reasonable estimate of the amount thereof. The Indemnifying Party shall have the right to defend and settle, at its own expense and by its own counsel reasonably satisfactory to the Indemnified Party, any such matter so long as the Indemnifying Party pursues the same in good faith and diligently, provided that the Indemnifying Party shall not settle any criminal proceeding without the written consent of the Indemnified Party. If the Indemnifying Party undertakes to defend or settle, it shall promptly notify the Indemnified Party of its intention to do so, and the Indemnified Party shall cooperate with the Indemnifying Party and its counsel in the defense thereof and in any settlement thereof. Such cooperation shall include, but shall not be limited to, furnishing the Indemnifying Party with any books, records or information reasonably requested by the Indemnifying Party that are in the Indemnified Party's possession or control. All Indemnified Parties shall use the same counsel, which shall be the counsel selected by Indemnifying Party, provided that if counsel to the Indemnifying Party shall have a conflict of interest or a conflict of interest is reasonably likely to arise that prevents counsel for the Indemnifying Party from representing such Indemnified Party, Indemnified Party shall have the right to participate in such matter through counsel of its own choosing and Indemnifying Party will reimburse the Indemnified Party for the reasonable expenses of its counsel. After the Indemnifying Party has notified the Indemnified Party of its intention to undertake to defend or settle any such asserted liability, and for so long as the Indemnifying Party diligently pursues such defense, the Indemnifying Party shall not be liable for any additional legal expenses incurred by the Indemnified Party in connection with any defense or settlement of such asserted liability, except (i) as set forth in the preceding sentence and (ii) to the extent such participation is requested by the Indemnifying Party, in which event the Indemnified Party shall be reimbursed by the Indemnifying Party for reasonable additional legal expenses and out-of-pocket expenses. If the Indemnifying Party desires to accept a final and complete settlement of any such Third Person claim and the Indemnified Party refuses to consent to such settlement, then the 42 51 Indemnifying Party's liability under this Section with respect to such Third Person claim shall be limited to the amount so offered in settlement by said Third Person. Upon agreement as to such settlement between said Third Person and the Indemnifying Party, the Indemnifying Party shall, in exchange for a complete release from the Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in such settlement. If the Indemnifying Party does not undertake to defend such matter to which the Indemnified Party is entitled to indemnification hereunder, or fails diligently to pursue such defense, the Indemnified Party may undertake such defense through counsel of its choice, at the cost and expense of the Indemnifying Party, and the Indemnified Party may settle such matter, and the Indemnifying Party shall pay the Indemnified Party for the settlement amount and any other liabilities or expenses incurred by the Indemnified Party in connection therewith, provided, however, that under no circumstances shall the Indemnified Party settle any Third Person claim without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. All settlements hereunder shall effect a complete release of the Indemnified Party, unless the Indemnified Party otherwise agrees in writing. With respect to any account, note or other receivable as to which the Stockholders have paid in full any indemnification obligation pursuant to this Section 11 as a result of a breach of the representation and warranty made pursuant to Section 5.11 or as to which a claim in respect thereof has been asserted pursuant to this Section 11 that has been applied against the Indemnification Threshold with respect to the Stockholders as a result of a breach of the representation and warranty made pursuant to Section 5.11, AmPaM shall cause the Company to assign such account, note or other receivable to the Stockholders. The parties hereto will make appropriate adjustments for insurance proceeds in determining the amount of any indemnification obligation under this Section. 11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any action seeking damages or any other form of monetary relief brought by any party to this Agreement against another party to this Agreement with respect to any provision of this Agreement, provided that, nothing herein shall be construed to limit the right of a party, in a proper case, to seek injunctive relief for a breach of this Agreement. AmPaM hereby waives, to the fullest extent permitted under applicable law, any and all other rights, claims and causes of action, known or unknown, it or any indemnified person may have against the Company or any Stockholder relating to this Agreement or the transactions pursuant to this Agreement arising under or based upon any Federal, state, local or foreign statute, law, rule, regulation or otherwise. Any indemnity payment under this Section 11 shall be treated as an adjustment to the exchange consideration for Tax purposes unless a final determination (which shall include the execution of a Form 870-AD or successor form) with respect to the Indemnified Party or any of its Affiliate causes any such payment not to be treated as an adjustment to the exchange consideration for U.S. Federal income Tax purposes. 11.5 LIMITATIONS ON INDEMNIFICATION. (a) AmPaM shall not assert any claim for indemnification under this Section 11 against the Stockholders until such time as, and solely to the extent that, the aggregate of all claims which AmPaM may have against the Stockholders shall exceed the greater of (a) 3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section 1.2 plus (ii) the value of the AmPaM Stock delivered to the Stockholders pursuant to Section 1.2 43 52 (calculated as provided in this Section 11.5) plus (iii) the principal amount of the AmPaM Notes delivered to the Stockholders pursuant to Section 1.2, or (b) $50,000 (the "Indemnification Threshold"). Stockholders shall not assert any claim for indemnification hereunder against AmPaM until such time as, and solely to the extent that, the aggregate of all claims which Stockholders may have against AmPaM shall exceed $50,000; provided, however, that this sentence shall not be applicable with respect of any failure by AmPaM to (i) deliver the consideration specified in Annex I hereto on the Closing Date upon the satisfaction, or waiver by AmPaM, of all conditions to the occurrence of the Closing Date specified in Section 9 or (ii) comply with its obligations pursuant to Section 10.1. After the $50,000 threshold for AmPaM (subject to the proviso in the preceding sentence) or the Indemnification Threshold for a Stockholder has been met, all claims must be made in $10,000 increments, which claims may be cumulated in order to meet such $10,000 thresholds. For purposes of this paragraph, the AmPaM Stock delivered to the Stockholders shall be valued at $13.00 per share. (b) No person shall be entitled to indemnification under this Section 11 if and to the extent that such person's claim for indemnification is directly or indirectly related to a breach by such person of any representation, warranty, covenant or other agreement set forth in this Agreement. No claim for indemnification against the Stockholders shall limit, diminish or change any obligation of AmPaM pursuant to Section 10.1 hereof. (c) Notwithstanding any other term of this Agreement, no Stockholder shall be liable under this Section 11 for an amount which exceeds eighty-five percent (85%) of the amount of proceeds received by such Stockholder (valued as of the Closing Date) in connection with the purchase and sale of the Company Stock. For purposes of this paragraph, the AmPaM Stock shall be valued at $13.00 per share. (d) A Stockholder may pay any indemnification obligation under Section 11 by means of the payment of cash or a combination of the payment of cash, the forgiveness of amounts owed pursuant to the AmPaM Notes and the delivery to AmPaM of shares of AmPaM Stock; provided that the percentage of the indemnification obligation satisfied by means of the delivery of shares of AmPaM Stock does not exceed the percentage of AmPaM Stock comprising the total consideration paid to such Stockholder by AmPaM to such Stockholder pursuant to Annex I. For the purpose of crediting Stockholders for payments made to AmPaM by means of delivery of shares of AmPaM Stock, the AmPaM Stock shall be valued at $13.00 per share. (e) In determining the amount of any loss, liability or expense for which any party is entitled to indemnification under this Agreement, the gross amount thereof will be reduced by any correlative insurance proceeds or other third party indemnity or reimbursement proceeds realized or to be realized by such party (or, in the case of AmPaM, by AmPaM, the Company or any subsidiary of AmPaM or the Company) and such correlative insurance proceeds or other third party indemnity or reimbursement proceeds shall be net of any insurance premium or other incremental cost or expense owed or payable to any third party which becomes due as a result of such claim. AmPaM 44 53 shall use commercially reasonable efforts to pursue any available insurance coverage or other rights of indemnity or reimbursement from third parties with respect to any such loss, liability or expense. 12. TERMINATION OF AGREEMENT 12.1 TERMINATION. This Agreement may be terminated at any time prior to the Closing Date solely: (i) by mutual consent of AmPaM and the Stockholders; (ii) by the Stockholders, if the transactions contemplated by this Agreement to take place at the Closing Date shall not have been consummated by June 30, 1999, unless the failure of such transactions to be consummated is due to a breach of this Agreement by the Company or the Stockholders prior to or on the Closing Date; (iii) by AmPaM, if the transactions contemplated by this Agreement to take place at the Closing Date shall not have been consummated by June 30, 1999, unless the failure of such transactions to be consummated is due to a breach of this Agreement by AmPaM prior to or on the Closing Date; (iv) by the Stockholders, if a material breach or default shall be made by AmPaM in the observance or in the due and timely performance of any of the covenants or agreements contained herein relating to AmPaM, and the curing of such default shall not have been made (or in the reasonable judgment of such Stockholders cannot be made) on or before the Closing Date; (v) by AmPaM, if a material breach or default shall be made by the Company or the Stockholders in the observance or in the due and timely performance of any of the covenants or agreements contained herein relating to the Company or the Stockholders, and the curing of such default shall not have been made (or in the reasonable judgment of AmPaM cannot be made) on or before the Closing Date; (vi) by the Stockholders, if the conditions set forth in Section 8 hereof have not been satisfied or waived as of the Closing Date; or (vii) by AmPaM, if the conditions set forth in Section 9 hereof have not been satisfied or waived as of the Closing Date. 12.2 PROCEDURE AND EFFECT OF TERMINATION. A determination to terminate this Agreement by AmPaM pursuant to Section 12.1 shall be valid and effective only if a written notice of termination, accompanied by a certified copy of resolutions of the board of directors of AmPaM that evidence the authorization of the officer of AmPaM to deliver a written notice of termination of this Agreement pursuant to Section 12.1, is given to the Stockholders in the manner specified for notices 45 54 in this Agreement. A determination to terminate this Agreement by the Stockholders pursuant to Section 12.1 shall be valid and effective only if a written notice of termination, signed by Stockholders who would be entitled to receive a majority of the shares of AmPaM Stock specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated, is given to AmPaM in the manner specified for notices in this Agreement. Upon the giving of notice of termination of this Agreement pursuant to Section 12.1 as specified in the preceding sentence, this Agreement shall terminate, and the transactions contemplated hereby shall be abandoned, without further action by any of the parties hereto. Immediately upon any such termination, AmPaM shall deliver written notice of such termination to the Other Founding Companies. If this Agreement is terminated as provided in this Section 12, no party hereto shall have any liability or further obligation hereunder to any other party, except as provided in Section 14 and Section 18.6, provided, that, the termination of this Agreement will in no way limit any obligation or liability of any party based on or arising from a breach or default by such party with respect to any of its representations, warranties, covenants or agreements contained in this Agreement including, but not limited to, legal and audit costs and out of pocket expenses that occurred prior to such termination. 13. NONCOMPETITION 13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the prior written consent of AmPaM, for a period of two (2) years following the Closing Date, for any reason whatsoever, directly or indirectly, for themselves or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature: (i) engage, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, whether paid or unpaid, in any plumbing, piping, mechanical, heating, ventilation or air conditioning contracting, installation or services business or operation, whether for residential, commercial, industrial or governmental customers, or any ancillary contracting, installation or services business directly related thereto (such business and operations referred to herein as the "Plumbing and Mechanical Business"), within 100 miles of where the Company or any of its subsidiaries conducted business within two (2) years prior to the Closing Date (the "Territory"); (ii) call upon any person who is, at the Closing Date, within the Territory, an employee of AmPaM or any subsidiary thereof for the purpose or with the intent of enticing such employee away from or out of the employ of AmPaM or any subsidiary thereof; (iii) call upon any person or entity which is, at the Closing Date, or which has been within three (3) years prior to the Closing Date, a customer of AmPaM or any subsidiary thereof, of the Company or of any of the Other Founding Companies for the purpose of soliciting customers, orders or contracts for any Plumbing and Mechanical Business in direct competition with AmPaM within the Territory; 46 55 (iv) call upon any prospective acquisition candidate, on any Stockholder's own behalf or on behalf of any competitor in the Plumbing and Mechanical Business, which candidate, to the actual knowledge of such Stockholder after due inquiry, was called upon by AmPaM or any subsidiary thereof or for which, to the actual knowledge of such Stockholder after due inquiry, AmPaM or any subsidiary thereof made an acquisition analysis, for the purpose of acquiring such entity; or (v) disclose to any person, firm, partnership, corporation or business the names or identities of any person, firm, partnership, corporation or business which has been a customer of the Company or any of its subsidiaries within the two (2) years prior to the Closing Date for any reason or purpose whatsoever except to the extent that the Company has in the past disclosed such information to the public for valid business reasons; or (vi) testify as an expert witness in matters related to the Plumbing and Mechanical Business for an adverse party to AmPaM, the Company or any Other Founding Companies in litigation. Notwithstanding the above, the foregoing covenant shall not be deemed to prohibit any Stockholder from acquiring as a passive investment (i) not more than one percent (1%) of the capital stock of a competing business whose stock is traded on a national securities exchange, the NASDAQ Stock Market or over-the-counter, or (ii) not more than five percent (5%) of the capital stock of a competing business whose stock is not publicly traded if the Board of Directors of AmPaM consents to such acquisition. 13.2 DAMAGES. Because of the difficulty of measuring economic losses to AmPaM as a result of a breach of the foregoing covenant, and because of the immediate and irreparable damage that could be caused to AmPaM for which it would have no other adequate remedy, each Stockholder agrees that the foregoing covenant may be enforced by AmPaM in the event of breach by such Stockholder, by injunctions and restraining orders. 13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the foregoing covenants in this Section 13 impose a reasonable restraint on the Stockholders in light of the activities and business of AmPaM and the subsidiaries thereof on the date of the execution of this Agreement and the current plans of AmPaM as described in the Private Placement Memorandum. 13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant. Moreover, in the event any court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which the court deems reasonable, and the Agreement shall thereby be reformed. 47 56 13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of any Stockholder against AmPaM or any subsidiary thereof, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by AmPaM of such covenants. It is specifically agreed that the period of two (2) years stated at the beginning of this Section 13, during which the agreements and covenants of each Stockholder made in this Section 13 shall be effective, shall be computed by excluding from such computation any time during which such Stockholder is found to be in violation of any provision of this Section 13 as determined by any of (i) a written agreement to such effect executed and delivered by AmPaM and such Stockholder, (ii) a determination by an arbitration panel pursuant to an arbitration conducted pursuant to Section 18.16 hereof or (iii) a non-appealable judgment of a court of competent jurisdiction. The covenants contained in Section 13 shall not be affected by any breach of any other provision hereof by any party hereto. The covenants contained in Section 13 shall have no effect if the transactions contemplated by this Agreement are not consummated. 13.6 MATERIALITY. The Company and the Stockholders hereby agree that the covenants contained in this Section 13 are a material and substantial part of this transaction. 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION 14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they had in the past, currently have, and in the future may possibly have, access to certain confidential information of the Company, the Other Founding Companies, and/or AmPaM, such as operational policies, customer lists, and pricing and cost policies that are valuable, special and unique assets of the Company's, the Other Founding Companies' and/or AmPaM's respective businesses. The Stockholders agree that they will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, except (a) to authorized representatives of AmPaM, (b) following the Closing, such information may be disclosed by the Stockholders as is required in the course of performing their duties for AmPaM or the Company and (c) to its counsel and other advisers, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section 14.1; provided, however that (i) the foregoing disclosure prohibition shall not apply in the event that (i) such information becomes known to the public generally through no fault of the Stockholders, (ii) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (ii), the Stockholders shall, if possible, give prior written notice thereof to AmPaM and provide AmPaM with the opportunity to contest such disclosure, or (iii) the disclosing party reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party. In the event of a breach or threatened breach by any of the Stockholders of the provisions of this Section, AmPaM shall be entitled to an injunction restraining such Stockholders from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting AmPaM from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. In the event the transactions contemplated 48 57 by this Agreement are not consummated, Stockholders shall have none of the above-mentioned restrictions on their ability to disseminate confidential information with respect to the Company. 14.2 AmPaM. AmPaM recognizes and acknowledges that it had in the past and currently has access to certain confidential information of the Company, such as operational policies, customer lists, and pricing and cost policies that are valuable, special and unique assets of the Company's business. AmPaM agrees that, prior to the Closing, or if the transactions contemplated by this Agreement are not consummated, it will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, except (a) to authorized representatives of the Company, (b) to its counsel and other advisers, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section 14.2, (c) to the Other Founding Companies and their representatives pursuant to Section 7.1(b) of the Other Agreements and (d) to potential purchasers of securities of AmPaM to the extent necessary or advisable in connection with the applicable securities laws; provided, however that the foregoing disclosure prohibition shall not apply in the event that (A) such information becomes known to the public generally through no fault of AmPaM, (B) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (B), AmPaM shall, if possible, give prior written notice thereof to the Company and the Stockholders and provide the Company and the Stockholders with the opportunity to contest such disclosure, or (C) the disclosing party reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party. In the event of a breach or threatened breach by AmPaM of the provisions of this Section 14.2, the Company and the Stockholders shall be entitled to an injunction restraining AmPaM from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting the Company and the Stockholders from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. In the event the transactions contemplated by this Agreement are not consummated for any reason, AmPaM shall nevertheless remain subject to this Section 14.2, except that it shall not be permitted to make any disclosures otherwise than pursuant to clause (A), (B) or (C) above. 14.3 DAMAGES. Because of the difficulty of measuring economic losses as a result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and because of the immediate and irreparable damage that would be caused for which they would have no other adequate remedy, the parties hereto agree that, in the event of a breach by any of them of the foregoing covenants, the covenant may be enforced against the other parties by injunctions and restraining orders. 14.4 SURVIVAL. The obligations of the parties under this Article 14 shall survive the termination of this Agreement for a period of five years from the Closing Date. 49 58 14.5 RETURN OF INFORMATION. If the transactions contemplated by this Agreement are not consummated, AmPaM will return or destroy all confidential information regarding the Company. 15. TRANSFER RESTRICTIONS 15.1 TRANSFER RESTRICTIONS RELATING TO AMPAM STOCK AND AMPAM NOTES. For a period of two years from the Closing Date or, in the event that the Company completes an IPO, for a period through the second anniversary of the date of the closing of such IPO (the "Restricted Period"), no Stockholder shall (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any shares of AmPaM Stock or AmPaM Notes received by the Stockholders pursuant to this Agreement or any securities convertible into, exchangeable or exercisable for any shares of AmPaM Stock or AmPaM Notes received by such Stockholder pursuant to this Agreement, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any shares of AmPaM Stock or AmPaM Notes received by such Stockholder pursuant to this Agreement, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the AmPaM Stock or AmPaM Notes, whether any such swap or transaction is to be settled by delivery of shares of AmPaM Stock or AmPaM Notes or other securities, by the delivery or payment of cash or otherwise, except, in the case of clauses (i), (ii) or (iii) above, (A) as otherwise agreed by AmPaM, (B) for the sale of shares of AmPaM Stock, and entering into agreements relating to the sale of shares of AmPaM Stock, pursuant to Section 17 hereof, (C) for transfers to (I) immediate family members of such Stockholder who agree with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (II) trusts, limited partnerships or other estate planning entities for the benefit of such Stockholder or family members of such Stockholder which have agreed with AmPaM in writing, through action taken by the trustees, partners or other persons having authority to bind the trust, limited partnership or other estate planning entity, to be bound by the restrictions set forth in this Section 15.1, (III) any charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code which agrees with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (D) for transfers of AmPaM Stock or AmPaM Notes to AmPaM pursuant to Section 11.5(d), (E) for transfers to another Stockholder, to another person or entity who receives shares of AmPaM Stock or AmPaM Notes or AmPaM Series A Preferred Stock pursuant to the Other Agreements or to Sterling City Capital LLC or any of its Affiliates provided that (1) such transaction is exempt from the registration requirements of the 1933 Act as evidenced by the delivery to AmPaM of an opinion of counsel in form and substance reasonably satisfactory to AmPaM and (2) any such transferee agrees in writing to be bound by the restrictions set forth in this Section 15.1, (F) transfers of shares of AmPaM Notes, shares of AmPaM Stock, or grants of options to purchase shares of AmPaM Stock, by such Stockholder to employees of the Company of up to an aggregate of 15% of the shares of AmPaM Stock received by such Stockholder pursuant to this Agreement provided that (1) any such transaction is exempt from the registration requirements of the 1933 Act as evidenced by the delivery to AmPaM of an opinion of counsel in form and substance reasonably satisfactory to AmPaM and (2) any such employee agrees with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1 or (G) the sale by such Stockholder in an IPO of shares of AmPaM Stock representing not more than 10% of the Aggregate Consideration in cash; provided, 50 59 however, that in no circumstance will a Stockholder be entitled to sell shares of AmPaM Stock in an IPO to the extent that the sale of such shares by such Stockholder would result in such Stockholder receiving in excess of 45% of the Aggregate Consideration in cash; and, provided further, if AmPaM is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under Section 17.1 that the number of shares to be sold by persons other than AmPaM is greater than the number of such shares which can be offered without adversely affecting the success of the offering, AmPaM may reduce pro rata (among the Stockholders and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. During the Restricted Period, the certificates evidencing the AmPaM Stock or AmPaM Notes delivered to the Stockholders pursuant to Section 3 of this Agreement will bear a legend substantially in the form set forth below: THE [SHARES/NOTES] REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO THE TERMS OF THE ACQUISITION AGREEMENT PURSUANT TO WHICH SUCH SHARES WERE ISSUED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, PLEDGE OR OTHER DISPOSITION PRIOR TO EXPIRATION OF THE RESTRICTED PERIOD REFERRED TO IN THE ACQUISITION AGREEMENT EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH AGREEMENT. SUCH RESTRICTIONS ON TRANSFER ARE SET FORTH IN AN ACQUISITION AGREEMENT, A COPY OF WHICH IS MAINTAINED AT THE PRINCIPAL OFFICES OF THE ISSUER. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE. 15.2 TRANSFER RESTRICTIONS RELATING TO ADDITIONAL CONSIDERATION. No Stockholder shall (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any right to receive any consideration pursuant to Section II of Annex I to this Agreement (the "Additional Consideration Right") or any securities convertible into, exchangeable or exercisable for any Additional Consideration Right, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any Additional Consideration Right, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of any Additional Consideration Right, whether any such swap or transaction is to be settled by delivery of shares of AmPaM Stock or other securities, by the delivery or payment of cash or otherwise. 51 60 16. FEDERAL SECURITIES ACT REPRESENTATIONS 16.1 COMPLIANCE WITH LAW. Each Stockholder acknowledges that the shares of AmPaM Stock, the Additional Consideration Right and any AmPaM Notes to be delivered to such Stockholder pursuant to this Agreement have not been and will not be registered under the 1933 Act (except as provided in Section 17 hereof) and therefore may not be sold, assigned, exchanged, transferred, pledged or otherwise disposed of without compliance with the 1933 Act which, among other matters, would require registration under the 1933 Act unless exemption from the registration requirements is available for such transaction. The AmPaM Stock, the Additional Consideration Right and any AmPaM Notes to be acquired by each Stockholder pursuant to this Agreement is being acquired solely for such Stockholder's own account, for investment purposes only, and with no present intention of selling, assigning, exchanging, transferring, pledging, or otherwise disposing of it. Each Stockholder covenants, warrants and represents that neither the shares of AmPaM Stock, the Additional Consideration Right nor any AmPaM Notes issued to such Stockholder will be offered, sold, assigned, exchanged, pledged, transferred or otherwise disposed of except after full compliance with all of the applicable provisions of the 1933 Act and the rules and regulations of the SEC. All certificates representing the AmPaM Stock shall bear the following legend in addition to the legend required under Section 15 of this Agreement: THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE FEDERAL AND STATE SECURITIES LAWS. 16.2 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear the economic risk of an investment in the AmPaM Stock and AmPaM Notes to be acquired pursuant to this Agreement and can afford to sustain a total loss of such investment. Each Stockholder has substantial knowledge and experience in making investment decisions of this type (or is relying on qualified purchaser representatives with such knowledge and experience in making this decision), and is capable, either individually or with such purchaser representatives, of evaluating the merits and risks of this investment. Each Stockholder has had an adequate opportunity to ask questions and receive answers from the officers of AmPaM concerning any and all matters relating to the transactions described herein including, without limitation, the background and experience of the current and proposed officers and directors of AmPaM, the plans for the operations of the business of AmPaM, the business, operations and financial condition of the Founding Companies other than the Company, and any plans for additional acquisitions. Each Stockholder has asked any and all questions of the nature described in the preceding sentence and all questions have been answered to such Stockholder's satisfaction. Except as set forth on Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule 501(a) of the 1933 Act. Neither the foregoing nor any investigation made by the Stockholders referred to above shall in any way affect the representations, warranties, covenants and agreements of AmPaM made herein except to the extent that AmPaM is relying upon the representations of the Stockholders in Section 16.1 and in this Section 16.2 for purposes of 52 61 AmPaM's representations and warranties in Sections 6.9, 6.11, 6.15 and 6.17 hereof as specified therein. 16.3 RELIANCE BY AmPaM. Each Stockholder acknowledges that AmPaM in relying upon the representations and covenants of such Stockholder set forth in Section 16.1 and Section 16.2 for purposes of compliance by AmPaM with Federal and state securities laws related to the issuance of AmPaM Stock pursuant to this Agreement and the Other Agreements. 17. REGISTRATION RIGHTS 17.1 PIGGYBACK REGISTRATION RIGHTS. Whenever AmPaM proposes to register any AmPaM Stock for its own or other's account under the 1933 Act for a public offering, other than (i) any shelf or other registration of shares to be used as consideration for acquisitions of additional businesses by AmPaM and (ii) registrations relating to employee benefit plans, AmPaM shall give each of the Stockholders prompt written notice of its intent to do so. Upon the written request of any of the Stockholders given within 15 calendar days after receipt of such notice, notwithstanding the provisions of Section 15 (except as specified below with respect to an IPO), AmPaM shall cause to be included in such registration all of the AmPaM Stock issued to such Stockholders pursuant to this Agreement (including any stock issued as or issuable upon the conversion or exchange of any convertible security, warrant, right or other security which is issued by AmPaM as a stock split, dividend or other distribution with respect to, or in exchange for, or in replacement of such AmPaM Stock) which any such Stockholder requests, other than shares of AmPaM Stock which may then be immediately sold under Rule 144(k) (or any similar or successor provision) promulgated under the 1933 Act, and other than shares of AmPaM Stock that have been theretofore sold by the Stockholder in accordance with the 1933 Act, provided that AmPaM shall have the right to reduce pro rata the number of shares of each selling Stockholder included in such registration to the extent that inclusion of such shares would, in the written opinion of tax counsel to AmPaM or its independent auditors, jeopardize the status of the transactions contemplated hereby and by the Private Placement Memorandum as a tax-free organization under Section 351 of the Code; provided, however, that with respect to a proposal by AmPaM to register AmPaM Stock under the 1933 Act in connection with an IPO, no Stockholder shall be permitted pursuant to this Section 17.1 to have included in such registration more shares of AmPaM Stock than permitted to be sold by such Stockholder pursuant to Section 15.1. In addition, if AmPaM is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under this Section 17.1 that the number of shares to be sold by persons other than AmPaM is greater than the number of such shares which can be offered without adversely affecting the success of the offering, AmPaM may reduce pro rata (among the Stockholders and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. If any Stockholder disapproves of the terms of the underwriting, that Stockholder may elect to withdraw therefrom by written notice to AmPaM and the managing underwriter. That Stockholder's shares of AmPaM Stock so withdrawn shall also be withdrawn from registration; provided, however, that, if by the withdrawal of such shares a greater number of shares of AmPaM 53 62 Stock held by other Stockholders may be included in such registration, then AmPaM shall offer to all other Stockholders of AmPaM the right to include additional shares in the same proportion used in effecting the above limitations. AmPaM shall not, for a period of two years following the Closing Date, grant to any other person any rights to cause AmPaM to register any securities in priority over, or in precedent to, the rights granted to the Stockholders hereunder and to the stockholders of the Other Founding Companies pursuant to Section 17 of the Other Agreements. 17.2 REGISTRATION PROCEDURES. Whenever AmPaM is required to register shares of AmPaM Stock pursuant to Section 17.1, AmPaM will, as expeditiously as possible: (i) Prepare and file with the SEC a registration statement with respect to such shares and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements or term sheets thereto, AmPaM will furnish a representative of the Stockholders with copies of all such documents proposed to be filed) as promptly as practical; (ii) Notify the Stockholders of any stop order issued or threatened by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered; (iii) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 120 days, cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the 1933 Act; and comply with the provisions of the 1933 Act applicable to it with respect to the disposition of all securities covered by such registration statement during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement or supplement to the prospectus; (iv) Furnish to each Stockholder who so requests such number of copies of such registration statement, each amendment and supplement thereto and the prospectus included in such registration statement (including each preliminary prospectus and any term sheet associated therewith), and such other documents as such Stockholder may reasonably request in order to facilitate the disposition of the relevant shares; (v) Make "generally available to its security holders" (within the meaning of Rule 158) an earnings statement satisfying the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no later than 90 days after the end of the 12-month period beginning with the first day of AmPaM's first fiscal quarter commencing after the effective date of the registration statement; 54 63 (vi) Make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible moment; (vii) If requested by the managing underwriter or underwriters, if any, or any participating Stockholder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters or any participating Stockholder, as the case may be, reasonably requests to be included therein, including, without limitation, information with respect to the number of shares of AmPaM Stock being sold by participating Stockholders to any underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any other terms of an underwritten offering of the shares of AmPaM Stock to be sold in such offering, and promptly make all required filings of such prospectus by supplement or post-effective amendment; (viii) Make available for inspection by participating Stockholders, any underwriter participating in any disposition pursuant to such registration statement, and the counsel retained by the participating Stockholders, counsel for the underwriters and any accountant or other agent retained by participating Stockholders or any such underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of AmPaM (the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause AmPaM's officers, directors and employees to supply all information reasonably requested by any such Inspectors in connection with such registration statement; provided, that records which AmPaM determines, in good faith, to be confidential and which AmPaM notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction after delivery of sufficient notice to AmPaM to enable AmPaM to contest such subpoena or order; (ix) Take all other steps reasonably necessary to effect the registration of the shares of AmPaM Stock contemplated hereby; (x) Use its best efforts to register or qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Stockholders, and to keep such registration or qualification effective during the period such registration statement is required to be kept effective, provided that AmPaM shall not be required to become subject to taxation, to qualify generally to do business or to file a general consent to service of process in any such states or jurisdictions; (xi) Cause all such shares of AmPaM Stock to be listed or included not later than the date of the first sale of shares of AmPaM Stock under such registration statement on any 55 64 securities exchanges or trading systems on which similar securities issued by AmPaM are then listed or included; and (xii) Notify each Stockholder at any time when a prospectus relating thereto is required to be delivered under the 1933 Act within the period that AmPaM is required to keep the registration statement effective of the happening of any event as a result of which the prospectus included in such registration statement (as then in effect), together with any associated term sheet, contains an untrue statement of a material fact or omits to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading, and, at the request of such Stockholder, AmPaM promptly will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of the covered shares, such prospectus will not contain an untrue statement of material fact or omit to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading. All expenses incurred in connection with the registration under this Article 17 and compliance with securities and blue sky laws (including all registration, filing, listing, escrow agent, qualification, legal, printer and accounting fees, but excluding underwriting commissions and discounts), shall be borne by AmPaM. 17.3 INDEMNIFICATION. (a) In connection with any registration under Section 17.1, AmPaM shall indemnify, to the extent permitted by law, each selling Stockholder (an "Indemnified Party") against all losses, claims, damages, liabilities and expenses arising out of or resulting from any untrue or alleged untrue statement of material fact contained or incorporated by reference in any registration statement, prospectus or preliminary prospectus or associated term sheet or any omission or alleged omission to state or incorporated by reference therein a material fact required to be stated or incorporated by reference therein or necessary to make the statements therein not misleading except insofar as the same are caused by or contained in or omitted from any information furnished in writing to AmPaM by such Indemnified Party expressly for use therein or by any Indemnified Parties' failure to deliver a copy of the registration statement or prospectus or any amendment or supplements thereto after AmPaM has furnished such Indemnified Party with a sufficient number of copies of the same. (b) In connection with any registration under Section 17.1, each selling Stockholder shall furnish to AmPaM in writing such information concerning the Stockholder and his or her proposed offering of shares as is reasonably requested by AmPaM for use in any such registration statement or prospectus and will indemnify, to the extent permitted by law, AmPaM, its directors and officers and each person who controls AmPaM (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged 56 65 untrue statement of a material fact or any omission or alleged omission to state therein a material fact required to be stated in the registration statement or prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, but only to the extent that such untrue or alleged untrue statement or omission or alleged omission is contained in or omitted from information so furnished in writing to AmPaM by such Stockholder expressly for use in the registration statement. Notwithstanding the foregoing, the liability of a Stockholder under this Section 17.3 shall be limited to an amount equal to the net proceeds actually received by such Stockholder from the sale of the relevant shares covered by the registration statement. (c) Any person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified parties' reasonable judgment, a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. Any failure to give prompt notice shall deprive a party of its right to indemnification hereunder only to the extent that such failure shall have adversely affected the indemnifying party. If the defense of any claim is assumed, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent shall not be unreasonably withheld). An indemnifying party that is not entitled or elects not, to assume the defense of a claim, will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. 17.4 UNDERWRITING AGREEMENT. In connection with each registration pursuant to Sections 17.1 covering an underwritten registered offering, (i) each participating Stockholder shall execute and deliver to AmPaM a written power of attorney instrument that (A) appoints an officer of AmPaM as such Stockholder's attorney-in-fact for purposes of executing and delivering an underwriting agreement among AmPaM, the underwriters named therein and such Stockholder specifying the terms and conditions applicable to the sale of AmPaM Stock of such Stockholder in such offering and (B) otherwise is in such form and containing such provisions as are customary in the securities business for such an arrangement in connection with an underwritten registered offering in which one or more stockholders of the issuer are participants, including a provision that authorizes the attorney-in-fact appointed by such Stockholder to execute and deliver such an underwriting agreement in the event that the net price per share to be received by such Stockholder from the sale of the shares of AmPaM Stock to be sold in such offering is not less than a price specified in such instrument and (iii) AmPaM and each participating Stockholder agree to enter into a written agreement with the managing underwriters in such form and containing such provisions as are customary in the securities business for such an arrangement between such managing underwriters and companies of AmPaM's size and investment stature, including indemnification; provided, however, that (A) such Stockholder shall be exempt and excluded from any indemnification of the managing underwriters other than with respect to information provided by such Stockholder with respect to such Stockholder to AmPaM or the managing underwriters 57 66 specifically for inclusion in any such registration statement and (B) such Stockholder shall not be obligated to enter into such an underwriting agreement in the event that the net price per share to be received by such Stockholder from the sale of shares of AmPaM Stock to be sold in such offering is less than the floor price specified in the power of attorney instrument executed and delivered to AmPaM pursuant to clause (i) above. 17.5 TRANSFER OF RIGHTS. The right to cause AmPaM to register shares of AmPaM Stock under this Agreement may be assigned to a transferee or assignee of any Stockholder to the extent that such transferee or assignee is a member of the immediate family of a Stockholder, a trust, limited partnership or other estate planning entity for the benefit of any such persons or a charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code. 17.6 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the SEC that may permit the sale of AmPaM stock to the public without registration, following an IPO AmPaM agrees to use its reasonable efforts, from and after the completion of an IPO, to: (i) make and keep public information regarding AmPaM available as those terms are understood and defined in Rule 144 under the 1933 Act beginning 90 days following the effective date of a registration statement relating to an IPO; (ii) file with the SEC in a timely manner all reports and other documents required of AmPaM under the 1933 Act and the 1934 Act at any time after it has become subject to such reporting requirements; and (iii) so long as a Stockholder owns any restricted AmPaM Stock, furnish to each Stockholder forthwith upon written request a written statement by AmPaM as to its compliance with the current public information requirements of Rule 144 (at any time from and after 90 days following the effective date of a registration statement relating to an IPO), and of the 1933 Act and the 1934 Act (any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of AmPaM, and such other reports and documents so filed as a Stockholder may reasonably request in availing itself of any rule or regulation of the SEC allowing a Stockholder to sell any such shares without registration. 18. REDEMPTION OF AmPaM STOCK 18.1 REDEMPTION TRIGGER. In the event that, within three years of the Closing Date, (i) AmPaM has not consummated an IPO and (ii) any Stockholder has not received cash (including proceeds from the public or private sale of AmPaM Stock received as consideration hereunder and the receipt of principal payments, if any, made with respect to AmPaM Notes held by such Stockholder) equal to or exceeding 50% of the Aggregate Consideration on or prior to the third anniversary of the Closing Date, such Stockholder shall have the right (the "Put Right"), but not the 58 67 obligation, commencing on the third anniversary of the Closing Date to require AmPaM to purchase a number of shares of AmPaM Stock then owned by such Stockholder, subject to the limitations set forth in Section 18.2 below. The purchase price for such redemption shall be $13.00 per share, such price to be subject to appropriate adjustment to reflect any reclassification, stock dividend, subdivision, split-up or combination of shares of AmPaM Stock after the date hereof. 18.2 MINIMUM REDEMPTION; LIMITATIONS. If the events specified in Section 18.1(i) and 18.1(ii), with Section 18.1(ii) being determined on an individual Stockholder basis, have not occurred within the time specified, AmPaM shall be obligated to purchase from each eligible Stockholder no less than 10% of the AmPaM Stock held by such Stockholder annually; provided, however, that the Stockholders shall not be entitled to exercise their Put Rights if and to the extent the Company has not achieved the Target Net Income (as defined in Annex I hereto) for the year preceding the year in which a Stockholder seeks to exercise his Put Right. The redemptions will be funded by internal cash flows or alternative financing arrangements but AmPaM's obligation to make any redemption pursuant to this Section 18 will be subject to the covenants and restrictions contained in AmPaM's then existing private or public debt or equity instruments. 18.3 NOTICE; EXERCISE. The Stockholders may exercise their Put Right by giving written notice (the "Put Notice") to AmPaM within thirty (30) days of the third anniversary of the execution hereof. If any Stockholder does not provide AmPaM with a Put Notice within such thirty-day period, the Put Right applicable to such Stockholder shall expire. The date for closing the sale of any shares of AmPaM Stock pursuant to a proper exercise of a Put Right shall in no event be earlier than 90 days after the date AmPaM receives the Put Notice. Any such closing shall be at such time of day and place as shall be mutually agreed between such holder and AmPaM. At such closing AmPaM shall make payment for the AmPaM Stock to be repurchased by wire transfer of immediately available funds to a bank account designated by such Stockholder for such purpose and such Stockholder shall deliver to AmPaM certificates, duly endorsed for transfer, representing the shares of AmPaM Stock to be purchased and sold pursuant to the exercise of such Put Right. 18.4 ADDITIONAL REDEMPTIONS. In the event AmPaM has not consummated an IPO and notwithstanding the foregoing, to the extent the Stockholders who have received greater than 50% of their Aggregate Consideration in cash wish to tender AmPaM Stock to AmPaM for purchase, AmPaM will use its commercially reasonable efforts to continue to repurchase up to 10% of the AmPaM Stock held by such Stockholder annually. 18.5 TERMINATION OF REDEMPTION OBLIGATION. Put Rights with respect to any individual Stockholder will terminate upon receipt by such Stockholder of 50% of his Aggregate Consideration in cash; such termination will not, however, limit such Stockholders ability to participate in the additional redemptions provided in Section 18.4. Notwithstanding the foregoing, all of AmPaM's redemption obligations contained in this Section 18 shall terminate on the earlier to occur of (i) an IPO, (ii) any sale of all or substantially all of AmPaM's assets in one transaction or series of transactions, (iii) any merger or consolidation which involves AmPaM and in which AmPaM is not the surviving entity or (iv) any transaction after which the shares of AmPaM Common Stock, if any, 59 68 which are then held by persons other than the holders of AmPaM Common Stock as of the Closing Date constitute 50% or more of AmPaM Common Stock outstanding as of the date of the consummation of such transaction. 19. GENERAL 19.1 COOPERATION. The Company, Stockholders and AmPaM shall each deliver or cause to be delivered to the other on the Closing Date, and at such other times and places as shall be reasonably agreed to, such additional instruments as the other may reasonably request for the purpose of carrying out this Agreement. The Company will cooperate and use its reasonable efforts to have the present officers, directors and employees of the Company cooperate with AmPaM on and after the Closing Date in furnishing information, evidence, testimony and other assistance in connection with any tax return filing obligations, actions, proceedings, arrangements or disputes of any nature with respect to matters pertaining to all periods prior to the Closing Date. 19.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties hereunder may not be assigned (except by operation of law and except as provided in Section 17.5) and shall be binding upon and shall inure to the benefit of the parties hereto, the successors of AmPaM and the Company, and the heirs, successors and legal representatives of the Stockholders. 19.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits and annexes attached hereto) and the documents delivered pursuant hereto constitute the entire agreement and understanding among the Stockholders, the Company and AmPaM and supersede any prior agreement and understanding relating to the subject matter of this Agreement. This Agreement, upon execution, constitutes a valid and binding agreement of the parties hereto enforceable in accordance with its terms and may be modified or amended only by a written instrument executed by the Stockholders, the Company and AmPaM, acting through their respective officers or trustees, duly authorized by their respective Boards of Directors. Any disclosure made on any Schedule delivered pursuant hereto shall be deemed to have been disclosed for purposes of any other Schedule required hereby, provided that the Company shall make a good faith effort to cross reference disclosure, as necessary or advisable, between related Schedules. 19.4 COUNTERPARTS. This Agreement may be executed simultaneously in two (2) or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument. A telecopied facsimile of an executed counterpart of this Agreement shall be sufficient to evidence the binding agreement of each party to the terms hereof. However, each party agrees to return to the other parties an original, duly executed counterpart of this Agreement promptly after delivery of a telecopied facsimile thereof. 60 69 19.5 BROKERS AND AGENT. Except as disclosed on Schedule 18.5, each party hereto represents and warrants that it employed no broker or agent in connection with this transaction and agrees to indemnify the other parties hereto against all loss, cost, damages or expense arising out of claims for fees or commission of brokers employed or alleged to have been employed by such indemnifying party. 19.6 EXPENSES. Whether or not the transactions herein contemplated shall be consummated, AmPaM will pay the reasonable fees, expenses and disbursements of AmPaM and its agents, representatives, accountants and counsel incurred in connection with the subject matter of this Agreement and any amendments thereto, including all costs and expenses incurred in the performance and compliance with all conditions to be performed by AmPaM under this Agreement, including the fees and expenses of Arthur Andersen LLP, Andrews & Kurth L.L.P., and any other person or entity retained by AmPaM, and the costs of preparing the Private Placement Memorandum incurred in connection with the subject matter of this Agreement and any amendments thereto. In addition, whether or not the transactions contemplated herein shall be consummated, AmPaM will pay the reasonable fees and expenses of Bracewell & Patterson LLP incurred on behalf of the Company and the Stockholders in connection with the subject matter of this Agreement. Whether or not the transactions herein contemplated shall be consummated, the Company will pay all of its costs and expenses incurred on behalf of the Company and the Stockholders in connection with the subject matter of this Agreement except that (i) the Company shall not be required to pay any of the costs, fees and expenses specified above as to which AmPaM is responsible for the payment thereof and (ii) neither the Company nor the Stockholders shall be responsible for the payment of the costs, fees and expenses incurred by or on behalf of AmPaM. Whether or not the transactions herein contemplated shall be consummated, AmPaM shall reimburse Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any of the foregoing fees, expenses and disbursements paid by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) and shall repay Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any loans or advances made by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for the purpose of providing AmPaM funds to pay any such fees, expenses and disbursements, provided that such reimbursement and loan repayment obligation shall be limited to the foregoing fees, expenses, and disbursements which are out-of-pocket expenses of AmPaM, Sterling City Capital, LLC or any person or entity which is an Affiliate thereof. Sterling City Capital, LLC shall be reimbursed by AmPaM in the form of AmPaM Notes. AmPaM retains the right, within a reasonable period following the Closing Date, to conduct an audit of the expenses for which Sterling City Capital, LLC is reimbursed. Each Stockholder shall pay all sales, use, transfer, real property transfer, recording, gains, stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in connection with the purchase and sale of the Company Stock, other than Transfer Taxes, if any, imposed by the State of Delaware. Each Stockholder shall file all necessary documentation and Returns with respect to such Transfer Taxes. In addition, each Stockholder acknowledges that he, and not the Company or AmPaM, will pay all Taxes due by him upon receipt of the consideration payable pursuant to Section 1 hereof. The Stockholders acknowledge that the risks of the transactions contemplated hereby include Tax risks, with respect to which the Stockholders are relying substantially on the opinion contemplated by Section 8.12 hereof and representations by AmPaM in this Agreement. 61 70 19.7 NOTICES. All notices of communication required or permitted hereunder shall be in writing and may be given by depositing the same in United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested, or by delivering the same in person or via a nationally recognized courier service to an officer or agent of such party. (a) If to AmPaM addressed to it at: American Plumbing & Mechanical, Inc. 515 Post Oak Blvd., Suite 450 Houston, Texas 77027 Attention: Chief Executive Officer with copies to: Thomas P. Mason Andrews & Kurth L.L.P. 4200 Chase Tower Houston, Texas 77002 (b) If to the Stockholders, addressed to them at their addresses set forth on the signature pages hereto, with copies to: Craig Campbell Dana & Associates 1234 S. Power Road Mesa, Arizona 85206-3700 (c) If to the Company, addressed to it at: Russell Riggs Keith Riggs Plumbing, Inc. 422 South Drew Mesa, Arizona 85210 or to such other address or counsel as any party hereto shall specify pursuant to this Section 18.7 from time to time. 62 71 19.8 GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of Texas, excluding any conflicts of law, rule or principle that might refer same to the laws of another jurisdiction. 19.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations, warranties, covenants and agreements of the parties made herein and at the time of the Closing or in writing delivered pursuant to the provisions of this Agreement shall survive the consummation of the transactions contemplated hereby and any examination on behalf of the parties until the respective Expiration Dates referred to herein with respect thereto or, if no Expiration Date is applicable with respect thereto, until the expiration of all applicable statute of limitations periods. 19.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided herein, no delay of or omission in the exercise of any right, power or remedy accruing to any party as a result of any breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver. 19.11 TIME. Time is of the essence with respect to this Agreement. 19.12 REFORMATION AND SEVERABILITY. In case any provision of this Agreement shall be invalid, illegal or unenforceable, it shall, to the extent possible, be modified in such manner as to be valid, legal and enforceable but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement, and in either case the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. No provision of this Agreement shall be interpreted or construed against any party solely because that party or its legal representative drafted such provision. 19.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term of this Agreement shall be deemed exclusive but each shall be cumulative with all other rights, remedies and elections available at law or in equity. 19.14 CAPTIONS. The headings of this Agreement are inserted for convenience only, shall not constitute a part of this Agreement or be used to construe or interpret any provision hereof. 19.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived only with the written consent of AmPaM, the Company and Stockholders who would receive a majority of the Aggregate Consideration specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated. Any amendment or waiver effected in accordance with this Section 19.15 shall be binding upon each of the parties hereto, any other person receiving AmPaM Stock in connection with the purchase and sale of the Company Stock and each future holder of such AmPaM Stock. Any 63 72 consent of the Stockholders who would receive a majority of the Aggregate Consideration pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated shall be deemed to be the consent of the Stockholders for purposes of provisions of this Agreement as to which a consent of the Stockholders may be requested or required. 19.16 MEDIATION AND ARBITRATION. If a dispute arises out of or relates to this Agreement, or the breach thereof, and if said dispute cannot be settled through direct discussions, the parties agree to first endeavor to settle the dispute in an amicable manner by mediation administered by the American Arbitration Association under its then prevailing Commercial Mediation Rules, before resorting to arbitration. Thereafter, any unresolved controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association in accordance with its then prevailing Commercial Arbitration Rules. The enforcement, interpretation and procedural and substantive effect of the obligation to arbitrate created by this Section 19.16 shall be governed by the Federal Arbitration Act as amended from time to time, 9 U.S.C. Section 1 et seq. The parties hereby disclaim any intention to have the substantive or procedural law of any state or other jurisdiction, other than the law of the United States as embodied in the Federal Arbitration Act, applied to such obligation. Any such mediation or arbitration proceeding will be conducted in Houston, Texas. 19.17 INFORMATION PROVIDED FOR PRIVATE PLACEMENT MEMORANDUM. For purposes of this Agreement, the information provided by the Company in writing specifically for inclusion in the Private Placement Memorandum shall include solely (i) the Financial Statements (in the form that they appear in the Private Placement Memorandum), (ii) any financial statements provided to AmPaM pursuant to Section 7.9, (iii) the description of the Company contained in the Private Placement Memorandum under the caption "The Company", (iv) the description of the Company's results of operations and its liquidity and capital resources, if any, contained in the Private Placement Memorandum under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and (v) the description, if any, of matters related to the Company contained in the Private Placement Memorandum under the caption "Certain Transactions Transactions involving Certain Officers, Directors and Stockholders". For purposes of this Agreement, the information provided by a Stockholder in writing specifically for inclusion in the Private Placement Memorandum shall include only (i) the description, if any, of matters related to such Stockholder contained in the Private Placement Memorandum under the caption "Certain Transactions - Transactions involving Certain Officers, Directors and Stockholders" and (ii) the biographical description of such Stockholder, if any, contained in the Private Placement Memorandum under the caption "Management." 19.18 EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective upon (i) the execution and delivery of this Agreement by all of the parties hereto and (ii) the delivery to AmPaM of each Employment Agreement attached hereto as Annex VI-1, Annex VI-2 and Annex VI-3 executed by each of the Company, the employees named therein and AmPaM. 64 73 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. AMERICAN PLUMBING & MECHANICAL, INC. By: /s/ DAVID BAGGETT ----------------------------------- Name: David Baggett --------------------------------- Title: Chief Financial Officer -------------------------------- KEITH RIGGS PLUMBING, INC. By: /s/ RUSSELL K. RIGGS ----------------------------------- Russell K. Riggs Chief Executive Officer [Remainder of page intentionally left blank] 65 74 STOCKHOLDERS: SPOUSES (WITHOUT PERSONAL LIABILITY AND SOLELY TO ACKNOWLEDGE THE SALE OF THE COMPANY STOCK BY THE STOCKHOLDER): Russell K. Riggs or Sundy, Trustees of The Russell K. Riggs and Sundy S. Riggs Trust u/a/d 12/31/95 1751 E. Grove Mesa, Arizona 85204 By: /s/ RUSSELL K. RIGGS ------------------------------------- Russell K. Riggs Trustee /s/ GERALD M. RIGGS /s/ CYNTHIA J. RIGGS - ---------------------------------------- --------------------------------------- Gerald M. Riggs Cynthia J. Riggs 1376 N. Rockwell Street Gilbert, Arizona 85234 Sam B. Sherwood and Vicki S. Sherwood, Trustees of The Sam B. Sherwood and Vicki S. Sherwood Trust u/a/d 6/20/95 3507 E. Harmony Avenue Mesa, Arizona 85204 By: /s/ SAM B. SHERWOOD ------------------------------------- Sam B. Sherwood Trustee /s/ ALMA GOODMAN /s/ GARY N. GOODMAN - ---------------------------------------- --------------------------------------- Alma Goodman Gary N. Goodman 1156 N. Rico Circle Mesa, Arizona 85213
66 75 V. Keith Riggs II and Anne M. Riggs 3829 East Grove Mesa, Arizona 85206 By: /s/ V. KEITH RIGGS II ------------------------------------- V. Keith Riggs II By: /s/ ANNE M. RIGGS ------------------------------------- Anne M. Riggs 67 EX-10.13 18 ACQUISITION AGMT. - POWER PLUMBING, INC. 1 EXHIBIT 10.13 Execution Copy - -------------------------------------------------------------------------------- ACQUISITION AGREEMENT dated as of the 11th day of February, 1999 by and among AMERICAN PLUMBING & MECHANICAL, INC. POWER PLUMBING INC. and all of the STOCKHOLDERS of POWER PLUMBING INC. - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page RECITALS .....................................................................1 1. ACQUISITION OF STOCK.................................................5 1.1 Acquisition...................................................5 1.2 Consideration.................................................5 1.3 Certain Information With Respect to the Capital Stock of the Company and AmPaM.....................5 2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY.......................5 2.1 Board of Directors............................................5 2.2 Officers......................................................5 3. DELIVERY OF CONSIDERATION............................................6 3.1 Stockholders' Consideration...................................6 3.2 Stockholders' Deliveries......................................6 4. CLOSING..............................................................6 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................6 5.1 Due Organization..............................................7 5.2 Authorization.................................................7 5.3 Capital Stock of the Company..................................7 5.4 Transactions in Capital Stock.................................8 5.5 No Bonus Shares...............................................8 5.6 Subsidiaries; Ownership in Other Entities.....................8 5.7 Predecessor Status; etc.......................................8 5.8 Spin-off by the Company.......................................8 5.9 Financial Statements..........................................8 5.10 Liabilities and Obligations...................................9 5.11 Accounts and Notes Receivable................................10 5.12 Licenses; Intellectual Property..............................10 5.13 Environmental Matters........................................11 5.14 Personal Property............................................13 5.15 Significant Customers; Material Contracts and Commitments....13 5.16 Real Property................................................14 5.17 Insurance....................................................14 5.18 Compensation; Employment Agreements; Labor Matters...........15 5.19 Employee Plans...............................................15 5.20 Compliance with ERISA........................................16 5.21 Conformity with Law; Litigation..............................17
-i- 3 5.22 Taxes........................................................17 5.23 No Violations; No Consent Required, Etc......................18 5.24 Government Contracts.........................................19 5.25 Absence of Changes...........................................19 5.26 Deposit Accounts; Powers of Attorney.........................20 5.27 Validity of Obligations......................................21 5.28 Relations with Governments...................................21 5.29 Disclosure...................................................21 5.30 No Warranties or Insurance...................................21 5.31 Interest in Customers and Suppliers and Related Party Transactions.................................21 5.32 Private Placement Memorandum.................................22 5.33 Authority; Ownership.........................................22 5.34 Preemptive Rights............................................23 5.35 No Commitment to Dispose of AmPaM Stock......................23 5.36 Disclosure...................................................23 6. REPRESENTATIONS OF AMPAM............................................23 6.1 Due Organization.............................................23 6.2 Authorization................................................24 6.3 Capital Stock of AmPaM.......................................24 6.4 Transactions in Capital Stock................................24 6.5 Subsidiaries.................................................25 6.6 Financial Statements.........................................25 6.7 Liabilities and Obligations..................................25 6.8 Conformity with Law; Litigation..............................25 6.9 No Violations................................................26 6.10 Validity of Obligations......................................27 6.11 AmPaM Stock..................................................27 6.12 AmPaM Notes..................................................28 6.13 No Side Agreements...........................................28 6.14 Business; Real Property; Material Agreement..................28 6.15 Relations with Governments...................................28 6.16 Disclosure...................................................28 6.17 Other Agreements.............................................29 7. COVENANTS PRIOR TO CLOSING..........................................29 7.1 Access and Cooperation; Due Diligence; Transfer of Real Estate...................................29 7.2 Conduct of Business Pending Closing..........................30 7.3 Prohibited Activities........................................31 7.4 No Shop......................................................32 7.5 Agreements...................................................32 7.6 Notification of Certain Matters..............................32 7.7 Amendment of Schedules.......................................33 7.8 Further Assurances...........................................33 7.9 Authorized Capital...........................................33
-ii- 4 7.10 Compliance with the Hart-Scott Act...........................33 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.........................................................34 8.1 Representations and Warranties; Performance of Obligations...34 8.2 Satisfaction.................................................34 8.3 No Litigation................................................34 8.4 Opinion of Counsel...........................................34 8.5 Consents and Approvals.......................................34 8.6 Good Standing Certificates...................................35 8.7 No Material Adverse Change...................................35 8.8 Secretary's Certificate......................................35 8.9 Tax Matters..................................................35 8.10 Other Founding Companies.....................................35 8.11 Company Release of Stockholders..............................35 8.12 Sterling City Capital Transfer Restrictions..................35 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF AMPAM........................36 9.1 Representations and Warranties; Performance and Obligations..36 9.2 No Litigation................................................36 9.3 Secretary's Certificate......................................36 9.4 No Material Adverse Effect...................................37 9.5 Stockholders' Release........................................37 9.6 Satisfaction.................................................37 9.7 Termination of Related Party Agreements......................37 9.8 Opinion of Counsel...........................................37 9.9 Consents and Approvals.......................................37 9.10 Good Standing Certificates...................................38 9.11 Funding Availability.........................................38 9.12 FIRPTA Certificate...........................................38 9.13 Resignations of Directors and Officers.......................38 10. COVENANTS OF AMPAM AND THE STOCKHOLDERS AFTER CLOSING...............38 10.1 Release From Guarantees; Repayment of Certain Obligations....38 10.2 Preservation of Tax and Accounting Treatment.................39 10.3 Preparation and Filing of Tax Returns; Payment of Taxes......39 10.4 Directors....................................................40 10.5 Legal Opinions...............................................40 11. INDEMNIFICATION.....................................................40 11.1 General Indemnification by the Stockholders..................40 11.2 Indemnification by AmPaM.....................................41 11.3 Third Person Claims..........................................42 11.4 Exclusive Remedy.............................................43 11.5 Limitations on Indemnification...............................43
-iii- 5 12. TERMINATION OF AGREEMENT............................................45 12.1 Termination..................................................45 12.2 Procedure and Effect of Termination..........................45 13. NONCOMPETITION......................................................46 13.1 Prohibited Activities........................................46 13.2 Damages......................................................47 13.3 Reasonable Restraint.........................................47 13.4 Severability; Reformation....................................47 13.5 Independent Covenant.........................................48 13.6 Materiality..................................................48 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...........................48 14.1 Stockholders.................................................48 14.2 AmPaM........................................................49 14.3 Damages......................................................49 14.4 Survival.....................................................49 14.5 Return of Information........................................50 15. TRANSFER RESTRICTIONS...............................................50 15.1 Transfer Restrictions Relating to AmPaM Stock and AmPaM Notes...........................................50 15.2 Transfer Restrictions Relating to Additional Consideration...51 16. FEDERAL SECURITIES ACT REPRESENTATIONS..............................52 16.1 Compliance with Law..........................................52 16.2 Economic Risk; Sophistication................................52 16.3 Reliance by AmPaM............................................53 17. REGISTRATION RIGHTS.................................................53 17.1 Piggyback Registration Rights................................53 17.2 Registration Procedures......................................54 17.3 Indemnification..............................................56 17.4 Underwriting Agreement.......................................57 17.5 Transfer of Rights...........................................58 17.6 Rule 144 Reporting...........................................58 18. REDEMPTION OF AMPAM STOCK...........................................58 18.1 Redemption Trigger...........................................58 18.2 Minimum Redemption; Limitations..............................59 18.3 Notice; Exercise.............................................59 18.4 Additional Redemptions.......................................59 18.5 Termination of Redemption Obligation.........................59
-iv- 6 19. GENERAL.............................................................60 19.1 Cooperation..................................................60 19.2 Successors and Assigns.......................................60 19.3 Entire Agreement.............................................60 19.4 Counterparts.................................................60 19.5 Brokers and Agent............................................61 19.6 Expenses.....................................................61 19.7 Notices......................................................62 19.8 Governing Law................................................62 19.9 Survival of Representations and Warranties...................63 19.10 Exercise of Rights and Remedies..............................63 19.11 Time.........................................................63 19.12 Reformation and Severability.................................63 19.13 Remedies Cumulative..........................................63 19.14 Captions.....................................................63 19.15 Amendments and Waivers.......................................63 19.16 Mediation and Arbitration....................................64 19.17 Information Provided for Private Placement Memorandum........64 19.18 Effective Date of Agreement..................................64 -v- 7 ANNEXES Annex I - Consideration to Be Paid to Stockholders Annex II - Amended and Restated Certificate of Incorporation and By-Laws of AmPaM Annex III - Form of Opinion of Counsel to AmPaM Annex IV - Form of Tax Opinion Annex V - Form of Opinion of Counsel to Company and Stockholders Annex VI-1 - Form of Employment Agreement Annex VI-2 - Form of Employment Agreement -vi- 8 SCHEDULES 2.1 Board of Directors 2.2 Officers 5.1 Due Organization 5.2 Authorization 5.3 Capital Stock of the Company 5.4 Transactions in Capital Stock; Organization Accounting 5.5 No Bonus Shares 5.6 Subsidiaries; Ownership in Other Entities 5.7 Predecessor Status; etc 5.8 Spin-off by the Company 5.9 Financial Statements 5.10 Liabilities and Obligations 5.11 Accounts and Notes Receivable 5.12 Licenses; Intellectual Property (Schedules 5.12(a)(1), 5.12(a)(2),5.12(b)(1) and 5.12(b)(2)) 5.13 Environmental Matters 5.14 Personal Property 5.15 Significant Customers; Material Contracts and Commitments (Schedules 5.15(a), 5.15(b) and 5.15 (c)) 5.16 Real Property 5.17 Insurance 5.18 Compensation; Employment Agreements; Labor Matters 5.19 Employee Plans 5.20 Compliance with ERISA 5.21 Conformity with Law; Litigation 5.22 Taxes (Schedules 5.22(a) and 5.22(b)) 5.23 No Violations, No Consents Required, Etc. (Schedules 5.23(a), 5.23(b), 5.23(c) and 5.23(e)) 5.24 Government Contracts 5.25 Absence of Changes 5.26 Deposit Accounts; Powers of Attorney 5.30 No Warranties or Insurance 5.31 Interest in Customers and Suppliers and Related Party Transactions 5.33 Authority; Ownership (Schedules 5.33(a) and 5.33(b)) 6.9 No Violations 7.1 Access and Cooperation; Due Diligence; Transfer of Real Estate 7.2 Conduct of Business Pending Closing 7.3 Prohibited Activities 7.5 Agreements 8.11 Employment Agreements 9.7 Termination of Related Party Agreements 10.1 Release From Guarantees; Repayment of Certain Obligations 16.2 Non-accredited Investors 18.5 Brokers and Agents -vii- 9 ACQUISITION AGREEMENT THIS ACQUISITION AGREEMENT (the "Agreement") is made as of the 11th day of February, 1999 by and among AMERICAN PLUMBING & MECHANICAL, INC., a Delaware corporation ("AmPaM"), POWER PLUMBING INC., a Delaware corporation (the "Company"), and the stockholders listed on the signature pages of this Agreement (the "Stockholders"), which are all the stockholders of the Company. RECITALS WHEREAS, the Company is engaged in the plumbing and mechanical services business; WHEREAS, as of the date hereof, the Stockholders own, and as of the Closing Date the Stockholders will own, all of the issued and outstanding capital stock of the Company (the "Company Stock"); WHEREAS, AmPaM is entering into other separate agreements simultaneously with this Agreement that are substantially the same as this Agreement (the "Other Agreements"), each of which is entitled "Acquisition Agreement," with each of the Other Founding Companies (as defined herein) and their respective stockholders in order for AmPaM to acquire additional companies engaged in the plumbing and mechanical services business; WHEREAS, this Agreement and the Other Agreements constitute the "AmPaM Plan of Organization;" WHEREAS, the Stockholders and the boards of directors and the stockholders of AmPaM, and each of the Other Founding Companies that are parties to the Other Agreements, have approved and adopted the AmPaM Plan of Organization as an integrated plan pursuant to which the Stockholders and the stockholders of each of the other Founding Companies will contribute the capital stock of each of the Founding Companies to AmPaM, and the Stockholders and the stockholders of each of the other Founding Companies will acquire the stock of AmPaM (but not cash or other property) as a tax-free transfer of property under Section 351 of the Code; WHEREAS, in consideration of the agreements of the Other Founding Companies pursuant to the Other Agreements, the Stockholders have approved this Agreement as part of the AmPaM Plan of Organization in order to transfer all of the issued and outstanding capital stock of the Company to AmPaM; and NOW, THEREFORE, in consideration of the premises and of the mutual agreements, representations, warranties, provisions and covenants herein contained, the parties hereto hereby agree as follows: 10 Unless the context otherwise requires, capitalized terms used in this Agreement or in any schedule attached hereto and not otherwise defined shall have the following meanings for all purposes of this Agreement: "1933 Act" means the Securities Act of 1933, as amended. "Acquired Party" means the Company, any subsidiary of the Company and any member of a Relevant Group. "Affiliates" means with respect to any person or entity, any other person or entity that directly or indirectly, controls, is controlled by, or is under common control with such person or entity. "AmPaM" has the meaning set forth in the first paragraph of this Agreement. "AmPaM Charter Documents" has the meaning set forth in Section 6.1. "AmPaM Plan of Organization" has the meaning set forth in the recitals of this Agreement. "AmPaM Stock" means the common stock, par value $.01 per share, of AmPaM. "AmPaM Notes" means those notes issued by AmPaM to the Stockholders as a portion of the consideration to be received hereunder and in substantially the form to Annex I as Appendix A. "Balance Sheet Date" has the meaning set forth in Section 5.9. "Charter Documents" has the meaning set forth in Section 5.1. "Closing" has the meaning set forth in Section 4. "Closing Date" has the meaning set forth in Section 4. "Code" means the Internal Revenue Code of 1986, as amended. "Company" has the meaning set forth in the first paragraph of this Agreement. "Company Stock" has the meaning set forth in the recitals of this Agreement. "Delaware GCL" means the General Corporation Law of the State of Delaware. "Environmental Laws" has the meaning set forth in Section 5.13(b). "Expiration Date" has the meaning set forth in Section 5(A) and Section 6, as applicable. 2 11 "Founding Companies" means the following companies: Christianson Enterprises, Inc., a Texas corporation; Christianson Services, Inc., a Texas corporation; GGR Leasing Corporation, a Texas corporation; J.A. Croson Company of Florida, a Florida corporation; J.A. Croson Company, an Ohio corporation; Franklin Fire Sprinkler Company, an Ohio corporation; Keith Riggs Plumbing, Inc., an Arizona corporation; Miller Mechanical Contractors, Inc., a Georgia corporation; Nelson Mechanical Contractors, Inc., a Florida corporation; Power Plumbing Inc., a Delaware corporation; R.C.R. Plumbing, Inc., a California corporation; Sherwood Mechanical, Inc., a California corporation; and Teepe's River City Mechanical, Inc., an Ohio corporation. "GAAP" means generally accepted accounting principles as consistently applied in the United States. "Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Hazardous Substance" has the meaning set forth in Section 5.13(c). "IPO" means a firm commitment underwritten initial public offering of AmPaM Stock managed by one or more nationally recognized national investment banking firms. "known" or "knowledge," when used in reference to a statement regarding the existence or absence of facts in this Agreement, is intended by the parties to mean that the only information to be attributed to such person is information actually known to (a) the person in the case of an individual, (b) in the case of a corporation or other entity other than the Company, an officer or director of such corporation or entity or (c) in the case of the Company and its Subsidiaries, an officer of the Company listed on Schedule 2.2 hereto, except for David Baggett. "Material Adverse Change" means a material adverse change in the business, operations, properties, assets or condition (financial or otherwise), of the subject entity and its subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on the business, operations, properties, assets or condition (financial or otherwise), of the subject entity and its subsidiaries taken as a whole. "Material Documents" has the meaning set forth in Section 5.23. 3 12 "Ordinary Course of Business" means the ordinary course of business consistent with past customs and practice (including with respect to quantity and frequency). "Other Agreements" has the meaning set forth in the recitals of this Agreement. "Other Founding Companies" means all of the Founding Companies other than the Company. "Plans" has the meaning set forth in Section 5.19. "Private Placement Memorandum" means the Private Placement Memorandum, dated as of February 11,1999, provided to each Stockholder prior to the execution and delivery of this Agreement which sets forth certain information relating to the transactions contemplated by this Agreement and the Other Agreements. "Qualified Plans" has the meaning set forth in Section 5.20. "Relevant Group" means the Company and any affiliated, combined, consolidated, unitary or similar group of which the Company is or was a member. "Restricted Common Stock" has the meaning set forth in Section 1.3(ii). "Returns" means any returns, reports or statements (including any information returns) required to be filed for purposes of a particular Tax. "Schedule" means each Schedule attached hereto, which shall reference the relevant sections of this Agreement, on which parties hereto disclose information as part of their respective representations, warranties and covenants. "SEC" means the United States Securities and Exchange Commission. "State of Incorporation" means the State of Delaware. "Stockholders" has the meaning set forth in the first paragraph of this Agreement. "Subsidiaries" means with respect to a person or entity, any corporation or other entity in which such person or entity owns a 5% or greater ownership interest. "Tax" or "Taxes" means all federal, state, local or foreign net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value added, franchise, withholding, employment, excise, property, deed, stamp, alternative or add-on minimum, or other taxes, assessments, duties, fees, levies or other governmental charges, whether disputed or not, together with any interest, penalties, additions to tax or additional amounts with respect thereto. 4 13 1. ACQUISITION OF STOCK 1.1 ACQUISITION. Upon the terms and subject to the conditions contained in this Agreement and in reliance upon the representations, warranties, covenants and agreements contained in this Agreement, on the Closing Date, the Stockholders shall convey and transfer to AmPaM all of the issued and outstanding shares of Company Stock as set forth in Annex I hereto. 1.2 CONSIDERATION. The consideration for the Company Stock shall be as set forth on Annex I to this Agreement. 1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY AND AMPAM. The respective designations and numbers of outstanding shares and voting rights of each class of outstanding capital stock of the Company and AmPaM as of the date of this Agreement are as follows: (i) as of the date of this Agreement, the authorized and outstanding Company Stock is as set forth on Schedule 5.3 hereto; and (ii) immediately prior to the Closing Date, the authorized capital stock of AmPaM will consist of (A) 100,000,000 shares of AmPaM Stock, of which the number of issued and outstanding shares will be set forth in the Private Placement Memorandum, (B) 10,000,000 shares of redeemable preferred stock, of which the number of issued and outstanding shares will be set forth in the Private Placement Memorandum, and (C) 5,000,000 shares of Restricted Voting Common Stock, $.01 per value (the "Restricted Common Stock"), all of which will be issued and outstanding except as otherwise set forth in the Private Placement Memorandum. 2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY 2.1 BOARD OF DIRECTORS. The Company and the Stockholders shall take action, including solicitation of resignation of directors, necessary so that the Board of Directors of the Company as of the Closing Date shall consist only of the persons identified on Schedule 2.1 hereto. 2.2 OFFICERS. The Company and the Stockholders shall take action, including solicitation of resignation of officers, necessary so that the officers of the Company as of the Closing Date shall consist only of the persons identified on Schedule 2.2 hereto. 5 14 3. DELIVERY OF CONSIDERATION 3.1 STOCKHOLDERS' CONSIDERATION. On the Closing Date, the Stockholders shall, upon surrender of certificates evidencing the Company Stock, receive from AmPaM the respective number of shares of AmPaM Stock, the amount of cash and the principal amount of AmPaM Notes described on Annex I hereto specified with respect to each such Stockholder as payable on the Closing Date. All payments of cash shall be made by certified check or wire transfer of immediately available funds. Consideration consisting of AmPaM Notes shall be substantially in the form of Appendix A to Annex I. 3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at the Closing the certificates representing Company Stock, duly endorsed in blank by the Stockholders, or accompanied by blank stock powers, and with all necessary transfer tax and other revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The Stockholders agree promptly to cure any deficiencies with respect to the endorsement of the stock certificates or other documents of conveyance with respect to such Company Stock or with respect to the stock powers accompanying any Company Stock. 4. CLOSING The consummation of the transactions contemplated by Section 3 (the "Closing") shall take place on March 31, 1999 or such date not later than May 31, 1999 as AmPaM shall determine by giving written notice of such other date as provided in Section 18.7 (the "Closing Date") at the offices of Andrews & Kurth L.L.P., 4200 Chase Tower, 600 Travis, Houston, Texas 77002. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY (A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in the disclosure schedules attached hereto and except as otherwise qualified below, the Company represents and warrants that all of the following representations and warranties in this Section 5(A) are true at the date of this Agreement and, subject to Section 7.7 hereto, shall be true at the time of the Closing, and that such representations and warranties shall survive the Closing Date for a period of eighteen months (the last day of such period being the "Expiration Date"), except that the representations and warranties set forth in Sections 5.3, 5.22 and 5.32 hereof shall survive until such time as the applicable statute of limitations period has run, which shall be deemed to be the Expiration Date for the representations and warranties set forth in Sections 5.3, 5.22 and 5.32. For purposes of this Section 5, the term "Company" shall mean and refer to the Company and all of its Subsidiaries, if any, and any reference to a Material Adverse Effect on the Company or Material Adverse Change with respect to the Company shall mean the Company and its Subsidiaries, taken as a whole. Except as expressly set forth in this Agreement, the Company expressly disclaims any representation or warranty (express, implied or otherwise) relating to the 6 15 Company and any Subsidiary thereof including, without limitation, any warranty of merchantability or fitness for a particular purpose. 5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of Incorporation, and has the requisite power and authority to carry on its business as it is now being conducted. The Company is duly qualified or authorized to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or authorization necessary except where the failure to be so qualified or authorized to do business would not have a Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all states in which the Company is authorized or qualified to do business, which list indicates which of such entities is authorized or qualified to do business in such states. True, complete and correct copies of the Certificate or Articles of Incorporation and By-laws, each as amended, of the Company (the "Charter Documents") are all attached to Schedule 5.1. The Company has delivered to AmPaM complete and correct copies of (i) the stock records of the Company and (ii) all minutes of meetings, written consents and other evidence, if any, of deliberations of or actions taken by the Company's Board of Directors, any committees of the Board of Directors and stockholders during the last five years. 5.2 AUTHORIZATION. (i) The officers or other representatives of the Company executing this Agreement have the authority to enter into and bind the Company to the terms of this Agreement and (ii) the Company has the full legal right, power and authority to enter into this Agreement and consummate the transactions contemplated hereby. Copies of the most recent resolutions adopted by the Board of Directors of the Company and the most recent resolutions adopted by the Stockholders, which approve this Agreement and the transactions contemplated hereby in all respects, certified by the Secretary or an Assistant Secretary of the Company as being in full force and effect on the date hereof, are attached hereto as Schedule 5.2. 5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the Company and each of its Subsidiaries is as set forth on Schedule 5.3(a). All of the issued and outstanding shares of the capital stock of the Company are owned by the Stockholders in the amounts set forth in Schedule 5.3(a). Except as set forth on Schedule 5.3(a), all of the issued and outstanding capital stock of each Subsidiary is owned by the Company. All of the issued and outstanding shares of the capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable, are owned of record by the Stockholders and further, such shares were offered, issued, sold and delivered by the Company in compliance with all applicable state and Federal laws concerning the issuance of securities. Further, none of such shares were issued in violation of any preemptive rights of any past or present stockholder. 7 16 5.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 5.4(a), the Company has not acquired or redeemed any shares of capital stock of the Company since January 1, 1996. Except as set forth on Schedule 5.4(b), (i) no option, warrant, call, conversion right or commitment of any kind exists which obligates the Company to issue any of its authorized but unissued capital stock; (ii) the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof; and (iii) neither the voting stock structure of the Company nor the relative ownership of shares among any of its Stockholders has been altered or changed in contemplation of the AmPaM Plan of Organization. There are no voting trusts, proxies or other agreements or understandings to which the Company is a party or is bound with respect to the voting of any shares of capital stock of the Company. 5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the shares of Company Stock was issued pursuant to awards, grants or bonuses in contemplation of the AmPaM Plan of Organization. 5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set forth on Schedule 5.6(a), the Company has no Subsidiaries. Except as set forth in Schedule 5.6(b), the Company does not presently own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity nor is the Company, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. 5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7(a) is a list of all predecessor companies of the Company, including the names of any entities acquired by the Company (by stock purchase, merger or otherwise) or owned by the Company or from whom the Company previously acquired material assets, in any case, from the earliest date upon which any Stockholder acquired his or her stock in any Company. Except as disclosed on Schedule 5.7(b), the Company has not been, within such period of time, a subsidiary or division of another corporation or a part of an acquisition which was later rescinded. 5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there has not been any sale, spin-off or split-up of material assets of either the Company or any other person or entity that is an Affiliate of the Company since January 1, 1996. 5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 is a copy of: (i) the balance sheet of the Company as of December 31, 1997 and the related statement of operations, stockholders' equity and cash flows for the one-year period ended December 31, 1997, together with the related notes and schedules (such balance sheets, the related statements of operations, stockholders' equity and cash flows and the related notes and schedules are referred to herein as the "Year-end Financial Statements"); 8 17 (ii) the balance sheet of the Company as of June 30, 1998 and the related statements of operations, stockholders' equity and cash flows for the six-month periods ended June 30, 1997 and 1998, together with the related notes and schedules (such balance sheets, the related statements of operations, stockholders' equity and cash flows and the related notes and schedules are referred to herein as the "Six-Month Interim Financial Statements"); (iii) the balance sheet of the Company as of September 30, 1998 (the "Balance Sheet Date") and the related statements of operations, stockholders' equity and cash flows for the nine-month periods ended September 30, 1997 and 1998 (such balance sheets, the related statements of operations, stockholders' equity and cash flows are referred to herein as the "Nine-Month Interim Financial Statements"); and (iv) the income statement of the Company for the 12-month period ended June 30, 1998 (the "Valuation Income Statement"). The Year-end Financial Statements, the Six-Month Interim Financial Statements, the Nine-Month Interim Financial Statements and the Valuation Income Statement are collectively called the "Financial Statements". The Financial Statements, including those included in the Private Placement Memorandum, have been prepared in accordance with GAAP applied on a consistent basis and fairly present the financial position of the Company as of the dates thereof and the results of its operations and changes in financial position for the periods then ended, subject, in the case of the Six-Month Interim Financial Statements and the Nine-Month Interim Financial Statements, to normal year-end audit adjustments and any other adjustments described therein and the absence of certain footnote disclosures. 5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10(a) sets forth an accurate list as of the Balance Sheet Date of (i) all material liabilities of the Company which are not reflected on the balance sheet of the Company at the Balance Sheet Date or otherwise reflected in the Company Financial Statements at the Balance Sheet Date which by their nature would be required in accordance with GAAP to be reflected in the balance sheet, and (ii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages, pledges or other security agreements to which the Company is a party or by which its properties may be bound other than bid bonds and performance bonds made in the Ordinary Course of Business. Except as set forth on Schedule 5.10(b), since the Balance Sheet Date, the Company has not incurred any material liabilities or obligations of any kind, character or description, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than liabilities incurred in the Ordinary Course of Business. The Company has also delivered to AmPaM, on Schedule 5.10(c), a list of contingent liabilities related to pending litigation or litigation that has been threatened in writing, or other material liabilities which are not fixed or otherwise accrued or reserved. For each such contingent liability of the Company or liability of the Company for which the amount is not fixed or is contested, the Company has provided to AmPaM the following information: 9 18 (i) a summary description of the liability together with the following: (a) copies of all relevant documentation in the possession of the Company or its directors, officers or stockholders relating thereto; (b) amounts claimed and any other action or relief sought; and (c) name of claimant and all other parties to the claim, suit or proceeding; (ii) the name of each court or agency before which such claim, suit or proceeding is pending; (iii) the date such claim, suit or proceeding was instituted; and (iv) a good faith estimate of the maximum amount, if any, which the Company expects, based on information available, is likely to become payable with respect to each such liability and the amount, if any, accrued or reserved for each such potential liability on the Financial Statements. AmPaM acknowledges that all estimates referred to above and set forth on Schedule 5.10(c) are only good faith estimates, and that the Company and the Stockholders expressly do not represent or warrant that the actual amounts of such liabilities will be equal to, or more or less than, the amounts of such estimates. 5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11(a) sets forth an accurate list, in all material respects, of the accounts and notes receivable of the Company, as of the Balance Sheet Date, including any such amounts which are not reflected in the balance sheet as of the Balance Sheet Date, and including all receivables from and advances to employees and the Stockholders, which are identified as such. Schedule 5.11(a) also sets forth a materially accurate aging of all accounts and notes receivable as of the Balance Sheet Date showing amounts due in 30-day aging categories. Except to the extent reflected on Schedule 5.11(b), such accounts, notes and other receivables are collectible in the amounts shown on Schedule 5.11(a), net of reserves reflected in the balance sheet as of the Balance Sheet Date. 5.12 LICENSES; INTELLECTUAL PROPERTY. (a) The Company or its employees hold all licenses, franchises, permits and other governmental authorizations ("Licenses") necessary to conduct the business of the Company, the absence of which would cause a Material Adverse Effect on the Company, and the Company has delivered to AmPaM a list that is accurate, in all material respects, and summary description (which is set forth on Schedule 5.12(a)(1)) of all such Licenses. At or prior to the Closing, all such Licenses owned or held by any employee of the Company will be assigned or licensed to the Company for no additional consideration. The Licenses listed on Schedule 5.12(a)(1) are valid, and the Company has not received any notice that any person intends to cancel, terminate or not renew any such License. The Company has conducted and is conducting its business in compliance in all material respects with the requirements, standards, criteria and 10 19 conditions set forth in the Licenses listed on Schedule 5.12(a)(1) and is not in violation of any of the foregoing in any material respect. Except as specifically provided in Schedule 5.12(a)(2), the consummation by the Company of the transactions contemplated by this Agreement will not result in a default under or a breach or violation of, or adversely affect the rights and benefits afforded to the Company by, any such Licenses. (b) The Company owns or possesses adequate licenses or other rights to use (without making any payment or granting rights to any person in exchange) all patents, patent applications, trademarks, copyrights, service marks and trade names (collectively, the "Intellectual Property") necessary to conduct its business as currently conducted. A description of any Intellectual Property licensed by the Company, including the material terms of any such license, is described on Schedule 5.12(b)(1). Neither the validity of the Intellectual Property nor the title thereto or use thereof by the Company is being questioned in any pending litigation, and the conduct of the Company's business, as currently conducted, does not conflict with licenses, copyrights, uncopyrighted works, trade marks, service marks, trade names, trade name rights, patents, patent rights, unpatented inventions or trade secrets of others. Neither the validity of the Intellectual Property nor the title thereto or use thereof by the Company is being questioned in any pending or, to the knowledge of the Company, threatened infringement claims or litigation, and the conduct of the Company's business, as now conducted, does not conflict with licenses, copyrights, uncopyrighted works, trade marks, service marks, trade names, trade name rights, patents, patent rights, unpatented inventions or trade secrets of others. Except as specifically provided in Schedule 5.12(b)(2), the consummation by the Company of the transactions contemplated by this Agreement will not adversely affect the rights and benefits afforded to the Company by any such Intellectual Property. 5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule 5.13 attached hereto, (i) the Company has conducted its businesses in compliance in all material respects with all applicable Environmental Laws, including, without limitation, having all environmental permits, licenses and other approvals and authorizations necessary for the operation of its business as presently conducted, except where the failure to have such permit, license, approval or authorization would not have a Material Adverse Effect on the Company, (ii) none of the properties owned by the Company contain any Hazardous Substance as a result of any activity of the Company in amounts exceeding the levels permitted by applicable Environmental Laws, except where amounts in excess of such levels would not have a Material Adverse Effect on the Company, (iii) the Company has not received any notices, demand letters or requests for information from any Federal, state, local or foreign governmental entity or third party indicating that the Company may be in violation of, or liable under, any Environmental Law in connection with the ownership or operation of its business, (iv) there are no civil, criminal or administrative actions, suits, demands, claims, hearings, investigations or proceedings pending or, to the knowledge of the Company, threatened, against the Company relating to any violation, or alleged violation, of any Environmental Law, except where such violation would not have a Material Adverse Effect on the Company, (v) no reports have been filed, or are required to be filed, by the Company concerning the release of any Hazardous Substance or the threatened or actual violation of any Environmental Law, (vi) no Hazardous Substance has 11 20 been disposed of, released or transported in violation of any applicable Environmental Law from any properties owned by the Company as a result of any activity of the Company during the time such properties were owned, leased or operated by the Company, (vii) there have been no environmental investigations, studies, audits, tests, reviews or other analyses regarding compliance or non-compliance with any applicable Environmental Law conducted by or which are in the possession of the Company relating to the activities of the Company which are not listed on Schedule 5.13 attached hereto prior to the date hereof, (viii) to the knowledge of the Company, (A) there are no underground storage tanks on, in or under any properties owned by the Company and (B) no underground storage tanks have been closed or removed from any of such properties during the time such properties were owned, leased or operated by the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the Company, (A) there is no asbestos or asbestos-containing material present in any material quantity in any of the properties owned by the Company, and (B) no asbestos has been removed from any of such properties during the time such properties were owned, leased or operated by the Company, and (x) neither the Company nor any of its properties are subject to any material liabilities or expenditures (fixed or contingent) relating to any suit, settlement, court order, administrative order, regulatory requirement, judgment or claim asserted or arising under any Environmental Law. (b) As used herein, "Environmental Law" means, as of the Closing Date, any Federal, state, local or foreign law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction or agreement with any governmental entity to which the Company is a party or subject relating to (x) the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource) or to human health or safety or (y) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances, in each case as amended and as in effect on the Closing Date. The term Environmental Law includes, without limitation, (i) the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as amended and as in effect on the Closing Date, and (ii) any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of, effects of or exposure to any Hazardous Substance. (c) As used herein, "Hazardous Substance" means any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive, or dangerous, or otherwise regulated, under any Environmental Law. Hazardous Substance includes any substance to which exposure is regulated by any government authority or any Environmental Law including, without 12 21 limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste, industrial substance or petroleum or any derivative or by-product thereof, radon, radioactive material, asbestos or asbestos-containing material, urea formaldehyde foam insulation, lead or polychlorinated biphenyls. 5.14 PERSONAL PROPERTY. The Company has delivered to AmPaM an accurate list (which is set forth on Schedule 5.14(a)) of (x) all personal property material to the operations of the Company as of the Balance Sheet Date included in "plant, property and equipment" on the balance sheet of the Company as of such date, (y) all other items of personal property owned by the Company with an individual value in excess of $15,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all material leases and agreements in respect of personal property, including, in the case of each of (x), (y) and (z), (1) true, complete and correct copies of all such leases and (2) an indication as to which assets are currently owned, or were formerly owned, by Stockholders, relatives of Stockholders, or Affiliates of the Company. Except as set forth on Schedule 5.14(b), (i) all personal property material to, and used by, the Company in its business is either owned by the Company or leased by the Company pursuant to a lease included on Schedule 5.14(a), (ii) all of the personal property listed on Schedule 5.14(a) or replacement property thereof is in working order and condition, ordinary wear and tear excepted and (iii) all leases and agreements included on Schedule 5.14(a) are in full force and effect and constitute valid and binding agreements of the Company, in each case in accordance with their respective terms. 5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. (a) The Company has delivered to AmPaM a materially accurate list (which is set forth on Schedule 5.15(a)(1)) of all customers (persons or entities) representing 5% or more of the Company's annual revenues for any period covered by any of the Financial Statements. Except to the extent set forth on Schedule 5.15(a)(2), none of such customers has canceled or, to the knowledge of the Company, are currently threatening to cancel a currently effective contract with the Company. (b) The Company has listed on Schedule 5.15(b) all material contracts, commitments and similar agreements to which the Company is a party or by which it or any of its properties are bound (including, but not limited to, contracts with customers listed on Schedule 5.15(a), joint venture or partnership agreements, contracts with any labor organizations, strategic alliances and options to purchase land), other than agreements listed on Schedules 5.10(a), Schedule 5.14(a) or Schedule 5.16(a), (a) in existence as of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and in each case has delivered or made available to AmPaM true, complete and correct copies of such agreements. For purposes of the preceding sentence, a contract, commitment or similar agreement is "material" if it (i) has a term of more than one year (other than contracts, commitments or agreements that are cancelable without liability or penalty within 30 days of notice from the Company of cancellation or that can be terminated by the Company without material penalty upon notice of 30 days or less) or (ii) requires the payment by or to the Company of more than $100,000 during any 12-month period. Except for expenditures in the ordinary course of 13 22 business, the Company has also indicated on Schedule 5.15(b) a summary description of all plans or projects involving the opening of new operations, expansion of existing operations, or the acquisition of any personal property, business or assets requiring, in any event, the payment of more than $50,000 by the Company during any 12-month period. (c) Except as set forth on Schedule 5.15(c), the Company is not required to provide any bonding or other financial security arrangements in any material amount in connection with any contract listed on Schedule 5.15(b). 5.16 REAL PROPERTY. Schedule 5.16(a) includes a list of all real property owned or leased by the Company at the date hereof and all other real property, if any, used by the Company in the conduct of its business. The Company has good and insurable title to any real property owned by it that is shown on Schedule 5.16(a), other than property intended to be sold or distributed prior to the Closing Date as provided in Section 7.1(c) of this Agreement, and all real property so owned is subject to no mortgage, pledge, lien, conditional sales agreement, encumbrance, lease, possessory rights of third parties or charge, except for: (i) liens reflected on Schedule 5.10(a) or Schedule 5.16(b) as securing specified liabilities (with respect to which no material default by the Company exists); (ii) liens for current taxes not yet payable and assessments not in default; (iii) easements for utilities serving the property; and (iv) easements, covenants and restrictions and other exceptions to title which do not adversely affect the current use of the property. Copies of all leases and agreements in respect of such real property leased by the Company, which are true, complete and correct in all material respects, are attached to Schedule 5.16(a), and an indication as to which such properties, if any, are currently owned, or were formerly owned, by Stockholders or Affiliates of the Company or Stockholders is included in Schedule 5.16(a). Except as set forth on Schedule 5.16(b), all of such leases included on Schedule 5.16(a) are, as to the Company, in full force and effect and constitute valid and binding agreements of the Company in accordance with their respective terms. 5.17 INSURANCE. The Company has delivered to AmPaM (i) an accurate list as of the Balance Sheet Date of all insurance policies carried by the Company and (ii) an accurate list of all insurance loss runs or workers compensation claims received for the past three policy years (which lists are set forth on Schedule 5.17). The Company has also delivered or made available to AmPaM true, complete and correct copies of all insurance policies currently in effect that are referred in Schedule 5.17. Such insurance policies evidence all of the insurance the Company is required to carry pursuant to all of its contracts and other agreements and pursuant to all applicable laws. All of such insurance policies are currently in full force and effect except as stated in Schedule 5.17. 14 23 Since January 1, 1996, no insurance carried by the Company has been canceled by the insurer and the Company has not been denied coverage under any such policy. 5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS. (a) The Company has delivered to AmPaM an accurate list (which is set forth on Schedule 5.18(a)(1)) showing all officers, directors and key employees of the Company, listing all employment agreements with such officers, directors and key employees and the rate of compensation (and the portions thereof attributable to salary, bonus and other compensation, respectively) of each of such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The Company has provided to AmPaM true, complete and correct copies of any employment agreements for persons listed on Schedule 5.18(a)(1). Since the Balance Sheet Date, except as disclosed on Schedule 5.18(a)(2), there have been no increases in the compensation payable or any bonuses to any officer, director, key employee or other employee, except ordinary salary increases implemented on a basis consistent with past practices and except for bonuses paid on a basis consistent with past practices. (b) Except as set forth on Schedule 5.18(b), (i) the Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any arrangement with any labor union, (ii) to the knowledge of the Company, no campaign to establish such arrangement is in progress and (iii) there is no pending or, to the Company's knowledge, threatened labor dispute involving the Company and any group of its employees nor has the Company experienced any labor interruptions over the past three years. The Company believes its relationship with employees to be generally good. (c) Except as set forth in Schedule 5.18(c) attached hereto, (i) there are no claims, actions or proceedings pending or, to the knowledge of the Company, threatened between the Company and any of its employees, (ii) the Company has complied in all material respects with all laws relating to the employment of labor, including, without limitation, any provisions thereof relating to wages, hours, collective bargaining, and the payment of social security and similar taxes, and (iii) the Company has not received written notice from any person asserting that the Company is liable in any material amount for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. 5.19 EMPLOYEE PLANS. The Company has delivered to AmPaM accurate schedule (Schedule 5.19(a)) showing all employee benefit plans of the Company, including all employment agreements and other agreements or arrangements containing "golden parachute" or other similar provisions, and deferred compensation agreements, together with true, complete and correct copies of such plans, agreements and any trusts related thereto, and classifications of employees covered thereby as of the Balance Sheet Date and as of the date of this Agreement. Except for the employee benefit plans, if any, described on Schedule 5.19(a), the Company does not sponsor, maintain or contribute to any plan program, fund or arrangement that constitutes an "employee pension benefit plan", and neither the Company nor any Subsidiary has any obligation to contribute to or accrue or 15 24 pay any benefits under any deferred compensation or retirement funding arrangement on behalf of any employee or employees (such as, for example, and without limitation, any individual retirement account or annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred compensation arrangement). For the purposes of this Agreement, the term "employee pension benefit plan" shall have the same meaning as is given that term in Section 3(2) of ERISA. The Company has not sponsored, maintained or contributed to any employee pension benefit plan other than the plans set forth on Schedule 5.19(a), and, except as described on Schedule 5.19(b), the Company is not or could not be required to contribute to any retirement plan pursuant to the provisions of any collective bargaining agreement establishing the terms and conditions or employment of any of the Company's employees. Except as set forth on Schedule 5.19(c), the Company is not now, or will not as a result of its past activities become, liable to the Pension Benefit Guaranty Corporation or to any multiemployer employee pension benefit plan under the provisions of Title IV of ERISA. All employee benefit plans listed on Schedule 5.19(a) and the administration thereof are in compliance in all material respects with their terms and all applicable provisions of ERISA and the regulations issued thereunder, as well as with all other applicable federal, state and local statutes, ordinances and regulations. All accrued contribution obligations of the Company as of the Balance Sheet Date with respect to any plan listed on Schedule 5.19(a) have either been fulfilled in their entirety or are fully reflected on the balance sheet of the Company as of the Balance Sheet Date. 5.20 COMPLIANCE WITH ERISA. All plans listed on Schedule 5.19(a) that are intended to qualify under Section 401 (a) of the Code (the "Qualified Plans") are, and have been so qualified and have been determined by the Internal Revenue Service to be so qualified, and copies of such determination letters are attached to Schedule 5.19(a). Except as disclosed on Schedule 5.20, all reports and other documents required to be filed with any governmental agency or distributed to plan participants or beneficiaries (including, but not limited to, actuarial reports, audits or tax returns) since January 1, 1992 have been timely filed or distributed, and copies thereof have been made available to AmPaM. No such plan listed on Schedule 5.19(a) nor the Company has engaged in any transaction prohibited under the provisions of Section 4975 of the Code or Section 406 of ERISA. No such Plan listed on Schedule 5.19(a) has incurred an accumulated funding deficiency, as defined in Section 412(a) of the Code and Section 302(l) of ERISA; and the Company has not incurred any liability for excise tax or penalty due to the Internal Revenue Service nor any liability to the Pension Benefit Guaranty Corporation. The Company further represents that except as set forth on Schedule 5.20 hereto: (i) there have been no terminations, partial terminations or discontinuations of contributions to any Qualified Plan intended to qualify under Section 401(a) of the Code without notice to and approval by the Internal Revenue Service; 16 25 (ii) no plan listed on Schedule 5.19(a) subject to the provisions of Title IV of ERISA has been terminated; (iii) there have been no "reportable events" (as that phrase is defined in Section 4043 of ERISA) with respect to any such plan listed in Schedule 5.19(a); (iv) the Company (including any Subsidiaries) has not incurred liability under Section 4062 of ERISA; and (v) no circumstances exist pursuant to which the Company could have any direct or indirect liability whatsoever (including, but not limited to, any liability to any multiemployer plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for any excise tax or penalty, or being subject to any statutory lien to secure payment of any such liability) with respect to any plan now or heretofore maintained or contributed to by any entity other than the Company that is, or at any time was, a member of a "controlled group" (as defined in Section 412(n)(6)(B) of the Code) that includes the Company. 5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on Schedule 5.21 or Schedule 5.13, the Company has not violated within the five years prior to the date of this Agreement and is not currently in violation of any law or regulation or any order of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it other than violations that would not have a Material Adverse Effect on the Company; and except to the extent set forth on Schedule 5.10(c) or Schedule 5.13, there are no claims, actions, suits or proceedings, pending or, to the knowledge of the Company, threatened in writing against the Company, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over the Company and no written notice of any claim, action, suit or proceeding, whether pending or threatened, has been received by the Company, and to the knowledge of the Company there is no valid basis for any such claim, action, suit or proceeding that could reasonably be expected to have a Material Adverse Effect on the Company. 5.22 TAXES. The Company has timely filed all requisite Federal, state and other Tax Returns or extension requests for all fiscal periods ended on or before the Balance Sheet Date; and except as set forth on Schedule 5.22(a), there are no examinations in progress or claims pending against the Company for federal, state and other Taxes (including penalties and interest) for any period or periods prior to and including the Balance Sheet Date and no notice of any claim for Taxes, whether pending or threatened, has been received. All Tax, including interest and penalties (whether or not shown on any Tax Return), due by the Company has been paid. The amounts shown as accruals for Taxes on the Financial Statements are sufficient for the payment of all Taxes of the kinds indicated (including penalties and interest) for all fiscal periods ended on or before the date of the respective Financial Statements. Copies of (i) any tax examinations, (ii) extensions of statutory limitations and (iii) the federal and local income Tax Returns and franchise Tax Returns of Company for their last three (3) fiscal years, or such shorter period of time as any of them shall 17 26 have existed, are attached hereto as Schedule 5.22(a) or have otherwise been delivered to AmPaM. The Company has a taxable year ended December 31. Except as set forth on Schedule 5.22(a), the Company uses the accrual method of accounting for income tax purposes, and the Company's methods of accounting have not changed in any material respect in the past five years (except as required to conform to changes in GAAP). The Company is not an investment company as defined in Section 351(e)(1) of the Code. The Company is not and has not during the last five years been a party to any tax sharing agreement or agreement of similar effect. Except as set forth on Schedule 5.22(a), the Company is not and has not during the last five years been a member of any consolidated group for federal tax purposes. The Company has not received, been denied, or applied for any private letter ruling from the IRS during the last ten years. 5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC. (a) The Company is not in violation of any Charter Document. Except as set forth on Schedule 5.23(a), the Company is not in default under any lease, instrument, agreement, license, or permit set forth on Schedule 5.12(a), Schedule 5.14(a), Schedule 5.15(b) or Schedule 5.16(a) (collectively, the "Material Documents"). (b) Except as set forth on Schedule 5.23(b)(1), the execution and delivery of this Agreement by each of the Company and the Stockholders do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company under any of the terms, conditions or provisions of (i) the Charter Documents of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to the Company or any of its properties or assets, or (iii) any Material Document to which the Company is now a party or by which the Company or any of its properties or assets may be bound or affected. The consummation by the Company and the Stockholders of the transactions contemplated hereby will not result in any material violation, conflict, breach, right of termination or acceleration or creation of liens under any of the terms, conditions or provisions of the items described in clauses (i) through (iii) of the preceding sentence, subject, in the case of the terms, conditions or provisions of the items described in clause (iii) above, to obtaining (prior to the Effective Time) such consents as may be required from commercial lenders, lessors or other third parties as listed on Schedule 5.23(b)(2). (c) Except as set forth on Schedule 5.23(c) and except for the Hart-Scott Act, none of the Material Documents requires notice to, or the consent or approval of, any governmental agency or other third party with respect to the consummation by the Company and the Stockholders of any of the transactions contemplated hereby in order to remain in full force and effect, and consummation by the Company and the Stockholders of the transactions contemplated hereby will not give rise to any right to termination, cancellation or acceleration or loss of any material right or benefit under any Material Document. 18 27 (d) Except for (i) any filings to be made with the SEC pursuant to the 1933 Act or with any state securities authorities in connection with the offer and sale of AmPaM Stock and AmPaM Notes pursuant to this Agreement and (ii) any filing required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby. (e) Except as set forth on Schedule 5.23(e), none of the Material Documents prohibits the disclosure or publication by the Company or AmPaM of the name of any other party to such Material Document, and none of the Material Documents prohibits or restricts the Company from freely providing services or selling products to any other customer or potential customer of the Company, AmPaM or any Other Founding Company. 5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the Company is not now a party to any governmental contract subject to price redetermination or renegotiation. 5.25 ABSENCE OF CHANGES. (a) Since the Balance Sheet Date, except as set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not been: (i) any Material Adverse Change in the Company; (ii) any damage, destruction or casualty loss (whether or not covered by insurance), alone or in the aggregate, which has caused a Material Adverse Effect on the Company; (iii) any change in the authorized capital of the Company or its outstanding securities or any change in its ownership interests or any grant of any options, warrants, calls, conversion rights or commitments; (iv) any declaration or payment of any dividend or distribution in respect of the capital stock or any direct or indirect redemption, purchase or other acquisition of any of the capital stock of the Company except for distributions that would have been permitted after the date hereof under Section 7.3(iii) hereof, (v) any increase in the compensation, bonus, sales commissions or fee arrangement payable or to become payable by the Company to any of its officers, directors, Stockholders, employees, consultants or agents, except for ordinary and customary bonuses and salary increases for employees in accordance with past practice; (vi) any work interruptions, labor grievances or claims filed, or any event or condition of any character, which has caused a Material Adverse Effect on the Company; 19 28 (vii) any sale or transfer, or any agreement to sell or transfer, any material assets, property or rights of the Company to any person, including, without limitation, the Stockholders and their affiliates, except inventory sold or transferred in the Ordinary Course of Business; (viii) any cancellation, or agreement to cancel, any indebtedness or other obligation owing to the Company, including without limitation any indebtedness or obligation of any Stockholders or any Affiliate thereof; (ix) any plan, agreement or arrangement granting any preferential rights to purchase or acquire any interest in any of the material assets, property or rights of the Company or requiring consent of any party to the transfer and assignment of any such assets, property or rights; (x) any purchase or acquisition of, or agreement, plan or arrangement to purchase or acquire, any property, rights or assets outside of the Ordinary Course of Business; (xi) any waiver of any material rights or claims of the Company; (xii) any amendment or termination of any Material Document to which the Company is a party except for the termination of a Material Document in accordance with its terms without any action on the part of the Company; (xiii) any transaction by the Company outside the Ordinary Course of Business; (xiv) any cancellation or termination of a material contract with a customer or client listed on Schedule 5.15(a) prior to the scheduled termination date thereof; or (xv) any other distribution of property or assets by the Company other than in the Ordinary Course of Business, other than (a) distributions of nonoperating assets specifically identified on Schedule 5.25, (b) distributions of real estate required by Section 7.1(c) of this Agreement and (c) distributions of cash or promissory notes permitted by Annex I hereto. (b) Except as set forth on Schedule 5.25, the Company has not, between the Balance Sheet Date and the date hereof, taken any of the actions set forth in Section 7.3. 5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to AmPaM an accurate schedule (which is set forth on Schedule 5.26) as of the date of the Agreement of: (i) the name of each financial institution in which the Company has an account or safe deposit box; (ii) the names in which the accounts or boxes are held; 20 29 (iii) the type of account and account number; and (iv) the name of each person authorized to draw thereon or have access thereto. Schedule 5.26 also sets forth the name of each person, corporation, firm or other entity holding a general or special power of attorney from the Company and a description of the terms of such power. 5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement by the Company and the performance of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of the Company and this Agreement has been duly and validly authorized by all necessary corporate action and is a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. 5.28 RELATIONS WITH GOVERNMENTS. The Company has not, and to the knowledge of the Company none of the Stockholders or any Affiliate of any of them has, given or offered anything of value to any governmental official, political party or candidate for government office or otherwise taken any action which would cause the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. 5.29 DISCLOSURE. This Agreement, including the Annexes and Schedules hereto, and the completed questionnaire related to the Hart-Scott Act furnished to AmPaM by the Company, do not contain an untrue statement of a material fact concerning the Company or omit to state a material fact concerning the Company necessary to make the statements herein and therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing does not apply to statements contained in or omitted from any of such documents made or omitted in reliance upon information furnished in writing by AmPaM. 5.30 NO WARRANTIES OR INSURANCE. Except for warranty liability under applicable law and except for warranty liability under the warranties issued by the Company of the types described on Schedule 5.30, the Company has no liability to any person under any warranty and the Company does not offer or sell insurance or consumer protection plans or other arrangements that could result in the Company being required to make any payment to or perform any service for any person. 5.31 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY TRANSACTIONS. Except as described on Schedule 5.31 or in Section 8.11, no Stockholder, officer, director or Affiliate of the Company (i) owns, directly or indirectly, any financial interest in, or is a director, officer, employee or affiliate of, any corporation, firm, association or business organization that is a client, supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or will be a party to an agreement or relationship with the Company other than through a customary "at will" employment relationship. 21 30 5.32 PRIVATE PLACEMENT MEMORANDUM. None of the information supplied or to be supplied by the Company in writing specifically for inclusion in the Private Placement Memorandum contained or, as of the Closing Date, will contain any untrue statement of a material fact concerning the Company or omitted or will omit to state any material fact required to be stated therein or necessary in order to make the statements contained in such information supplied or to be supplied by the Company concerning the Company, in light of the circumstances under which they are made, not misleading. (B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS. Each Stockholder severally represents and warrants that the representations and warranties set forth below are true as of the date of this Agreement and, subject to Section 7.7 hereof, shall be true at the time of Closing, and that the representations and warranties set forth in this Section 5(B) shall survive the Closing Date. 5.33 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right, power and authority to enter into this Agreement, and this Agreement is a legal, valid and binding obligation of such Stockholder, enforceable against the Stockholder in accordance with its terms. Except as set forth on Schedule 5.33(a), the execution and delivery of this Agreement by such Stockholder does not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of such Stockholder under any of the terms, conditions or provisions of (i) the Charter Documents of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to such Stockholder or any of such Stockholder's properties or assets, or (iii) any lease, instrument, agreement, license or permit to which such Stockholder is now a party or by which such Stockholder or any of such Stockholder's properties or assets may be bound or affected. Except for (i) any filings to be made with the SEC pursuant to the 1933 Act and any state securities authorities in connection with the offer and sale of AmPaM Stock and AmPaM Notes pursuant to this Agreement, (ii) any filing required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by such Stockholder or the consummation by such Stockholder of the transactions contemplated hereby. Except as set forth on Schedule 5.33(b), such Stockholder owns beneficially and of record all of the shares of the Company Stock identified on Annex I hereto as being owned by such Stockholder, and, such Company Stock is owned free and clear of all liens, security interests, pledges, charges, voting trusts, voting agreements, restrictions, encumbrances and claims of every kind. 22 31 5.34 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby waives, any preemptive or other right to acquire shares of Company Stock or AmPaM Stock that such Stockholder has or may have had. Nothing herein, however, shall limit or restrict the rights of any Stockholder to acquire AmPaM Stock pursuant to (i) this Agreement, (ii) any option granted or to be granted by AmPaM to such Stockholder, (iii) a purchase through a broker in a regular stock market transaction or (iv) a purchase from a stockholder of a Founding Company (subject to compliance with any contractual restrictions or securities law restrictions applicable thereto specified in Section 15 hereof). 5.35 NO COMMITMENT TO DISPOSE OF AMPAM STOCK. No Stockholder is under any binding commitment or contract to sell, exchange or otherwise dispose of shares of AmPaM Stock or AmPaM Notes received pursuant to this Agreement. 5.36 DISCLOSURE. The completed Director and Officer Questionnaires with respect to such Stockholder (if any), the completed investor questionnaire furnished to AmPaM by such Stockholder in connection with the proposed acquisition by such Stockholder of AmPaM Stock and AmPaM Notes and any other information provided to AmPaM in writing by such Stockholder relating specifically to such Stockholder for inclusion in the Private Placement Memorandum do not contain an untrue statement of a material fact concerning such Stockholder or omit to state a material fact concerning such Stockholder necessary to make the statements herein and therein, in light of the circumstances under which they were made, not misleading. 6. REPRESENTATIONS OF AMPAM Except as otherwise qualified below, AmPaM represents and warrants that all of the following representations and warranties in this Section 6 are true at the date of this Agreement and, subject to Section 7.7 hereof, shall be true at the time of Closing, and that such representations and warranties shall survive the Closing Date for a period of eighteen months (the last day of such period being the "Expiration Date" for purposes of the representations and warranties set forth in this Section 6), except that the representations and warranties set forth in Section 6.3, 6.11 and 6.15 shall survive until such time as the applicable statute of limitations period has run, which shall be deemed to be the Expiration Date for the representations and warranties set forth in Sections 6.3, 6.11 and 6.15. AmPaM acknowledges that in purchasing the shares of Company Stock, it is relying upon its own independent investigation as well as the representations and warranties of the Company and the Stockholders as set forth in this Agreement. 6.1 DUE ORGANIZATION. AmPaM is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of Delaware, and has the requisite power and authority to carry on its business as it is now being conducted and as contemplated by the Private Placement Memorandum. AmPaM is duly qualified or authorized to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of 23 32 its properties makes such qualification or authorization necessary, except where the failure to be so qualified or authorized to do business would not have a Material Adverse Effect. True, complete and correct copies of the Certificate of Incorporation and By-laws, each as proposed to be amended and as such documents shall be in effect as of the Closing Date, of AmPaM (the "AmPaM Charter Documents") are attached hereto as Annex II. 6.2 AUTHORIZATION. (i) The officers of AmPaM executing this Agreement have the authority to enter into and bind AmPaM to the terms of this Agreement and (ii) AmPaM has the full legal right, power and authority to enter into this Agreement and consummate the transactions contemplated hereby. All corporate acts and other proceedings required to have been taken by AmPaM to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and properly taken. 6.3 CAPITAL STOCK OF AMPAM. The authorized capital stock of AmPaM is as set forth in Section 1.3(ii). Immediately prior to the Closing Date, all of the issued and outstanding shares of the capital stock of AmPaM will be as set forth in the Private Placement Memorandum, free and clear of all liens, security interests, pledges, charges, voting trusts, restrictions, encumbrances and claims of every kind other than any restrictions described in the Private Placement Memorandum. All of the issued and outstanding shares of the capital stock of AmPaM have been duly authorized and validly issued, are fully paid and nonassessable and such shares were offered, issued, sold and delivered by AmPaM in compliance with all applicable state and Federal laws concerning the issuance of securities. Further, none of such shares were issued in violation of the preemptive rights of any past or present stockholder of AmPaM. Upon the Closing Date, the authorized, issued and outstanding shares of capital stock of AmPaM will be as set forth in the Private Placement Memorandum under the caption "Capitalization." Upon the Closing Date, the aggregate number of shares of AmPaM Stock issued and outstanding on the Closing Date that are owned by Sterling City Capital, LLC, any Affiliates of Sterling City Capital, LLC and the officers and directors of AmPaM will not be greater than the number of shares of AmPaM Stock reflected in the Private Placement Memorandum as the aggregate number of shares of AmPaM Stock to be issued and outstanding and owned by Sterling City Capital, LLC, any Affiliates of Sterling City Capital, LLC and the officers and directors of AmPaM. 6.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements and except as set forth in the Private Placement Memorandum, (i) no option, warrant, call, conversion right or commitment of any kind exists as of the date of this Agreement which obligates AmPaM to issue any of its authorized but unissued capital stock; and (ii) AmPaM has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof. The material terms of any options, warrants or other rights to acquire shares of the stock of AmPaM referred to in the preceding sentence will be as described in the Private Placement Memorandum. 24 33 6.5 SUBSIDIARIES. As of the date of this Agreement, AmPaM has no subsidiaries. As of the date of this Agreement, AmPaM does not own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity, and AmPaM is not, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. 6.6 FINANCIAL STATEMENTS. The historical financial statements of AmPaM included in the Private Placement Memorandum (the "AmPaM Financial Statements") have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except as noted thereon), and the balance sheet included therein presents fairly the financial position of AmPaM as of its date. Management of AmPaM believes that the assumptions underlying the pro forma adjustments utilized in the preparation of such pro forma financial statements are reasonable, and such pro forma adjustments have been properly applied to the historical financial amounts in the compilation of the pro forma financial statements. Based on the representations in Section 5.9 of this Agreement and in Section 5.9 of each of the Other Agreements, the pro forma financial information of AmPaM fairly presents the pro forma financial position, results of operations and other information purported to be shown therein at the respective dates and for the respective periods specified. 6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Private Placement Memorandum, as of the date of this Agreement, AmPaM has no material liabilities or obligations of any kind, character or description, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than liabilities incurred in the ordinary course of business and consistent with past practices, liabilities or obligations set forth in or contemplated by this Agreement and the Other Agreements and except for fees incurred in connection with the transactions contemplated hereby and thereby. 6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the Private Placement Memorandum, AmPaM is not in violation of any law or regulation or any order of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it and its stockholders and, there are no claims, actions, suits or proceedings, pending or, to the knowledge of AmPaM, threatened against or affecting, AmPaM, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it and no notice of any claim, action, suit or proceeding, whether pending or threatened, has been received. AmPaM has conducted and is conducting its businesses in compliance in all material respects with the requirements, standards, criteria and conditions set forth in applicable Federal, state and local statutes, ordinances, permits, licenses, orders, approvals, variances, rules and regulations and is not in violation, in any material respect, of any of the foregoing. 25 34 6.9 NO VIOLATIONS. (a) AmPaM is not in violation of any AmPaM Charter Document. AmPaM is not in default under any lease, instrument, agreement, license, or permit to which AmPaM is a party or by which AmPaM or any of its properties are bound (collectively, the "AmPaM Documents"). (b) The execution and delivery of this Agreement by AmPaM do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of AmPaM under any of the terms, conditions or provisions of (i) the AmPaM Charter Documents, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to AmPaM or any of its properties or assets, or (iii) any AmPaM Document; provided that the representations and warranties specified in clause (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. The consummation by AmPaM of the transactions contemplated hereby will not result in any material violation, conflict, breach, right of termination or acceleration or creation of liens under any of the terms, conditions or provisions of the items described in clauses (i) through (iii) of the preceding sentence, subject, in the case of the terms, conditions or provisions of the items described in clause (iii) above, to obtaining (prior to the Closing Date) (x) such approvals, consents or orders from the SEC, state blue sky authorities and authorities administering the Hart-Scott Act and (y) such other consents as may be required from commercial lenders, lessors or other third parties which are listed on Schedule 6.9. (c) Except for (i) any filings to be made with the SEC pursuant to the 1933 Act and filings with various state securities authorities in connection with the transactions contemplated by this Agreement, and (ii) any filings required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, none of the AmPaM Documents requires notice to, or the consent or approval of, any governmental agency or other third party with respect to the consummation by AmPaM of any of the transactions contemplated hereby in order to remain in full force and effect, and consummation by AmPaM of the transactions contemplated hereby will not give rise to any right to termination, cancellation or acceleration or loss of any material right or benefit under the AmPaM Documents; provided that the representations and warranties specified in clauses (i) and (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the 26 35 Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. (d) Except for (i) any filings with the SEC pursuant to the 1933 Act and filings with various state securities authorities in connection with the transactions contemplated by this Agreement and (ii) any filings required under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by AmPaM or the consummation by AmPaM of the transactions contemplated hereby; provided that the representations and warranties specified in clauses (i) and (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. 6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement by AmPaM and the performance of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of AmPaM and this Agreement has been duly and validly authorized by all necessary corporate action and is a legal, valid and binding obligation of AmPaM, enforceable against AmPaM in accordance with its terms. 6.11 AMPAM STOCK. At the time of issuance thereof and delivery to the Stockholders, the AmPaM Stock to be delivered to the Stockholders pursuant to this Agreement will constitute valid, duly authorized and legally issued shares of AmPaM, fully paid and nonassessable, and with the exception of restrictions upon resale set forth in Sections 15 and 16 hereof, will be identical in all substantive respects (which do not include the form of certificate upon which it is printed or the presence or absence of a CUSIP number on any such certificate) to the AmPaM Stock issued and outstanding as of the date hereof, other than the Restricted Common Stock. The AmPaM Stock issued and delivered to the Stockholders shall at the time of such issuance and delivery be free and clear of any liens, claims or encumbrances of any kind or character. The offer and sale of the shares of AmPaM Stock to be issued to the Stockholders pursuant to this Agreement are not required to be registered under the 1933 Act; provided that the representations and warranties specified in this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are 27 36 subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. 6.12 AMPAM NOTES. The AmPaM Notes have been duly authorized and, at the Closing Date, will have been duly executed by AmPaM and, when authenticated, issued and delivered, will constitute valid and binding obligations of AmPaM, enforceable against AmPaM in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers) reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). 6.13 NO SIDE AGREEMENTS. AmPaM has not entered into any agreement with any of the Founding Companies or any of the Stockholders of the Founding Companies other than this Agreement, the Other Agreements, the agreements referred to in this Agreement and in the Other Agreements and the Private Placement Memorandum. AmPaM has not entered into any agreements providing for rights to register shares of AmPaM Stock under the 1933 Act except as provided in Section 17 of this Agreement, in Section 17 of the Other Agreements and in an agreement with Sterling City Capital, LLC, its Affiliates and officers and directors of AmPaM having terms substantially similar to those set forth in Section 17 hereof. 6.14 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. AmPaM was formed in June 1998 and has conducted no material business since the date of its inception except for activities related to the transaction contemplated by this Agreement, the Other Agreements and the Private Placement Memorandum. Except as described in the Private Placement Memorandum, as of the date of this Agreement, AmPaM does not own any real property or any material personal property and is not a party to any other material agreement other than this Agreement, the Other Agreements and the agreements contemplated hereby and thereby. 6.15 RELATIONS WITH GOVERNMENTS. Neither AmPaM nor any of its directors, officers or Affiliates has given or offered anything of value to any government official, political party or candidate for government office, nor has AmPaM, any of its directors, officers or Affiliates of any of them otherwise taken any action, which would cause AmPaM to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. 6.16 DISCLOSURE. The Private Placement Memorandum delivered to the Company and the Stockholders does not as of the date hereof contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing does not apply to statements contained in or omitted from any of such documents made or omitted in reliance upon, and in conformity with, information furnished to AmPaM by the Company or the Stockholders in writing specifically for inclusion in the Private Placement Memorandum. 28 37 6.17 OTHER AGREEMENTS. The Other Agreements have been duly authorized, executed and delivered by AmPaM and constitute the legal, valid and binding obligation of AmPaM enforceable against AmPaM in accordance with their respective terms. The terms and conditions of the Other Agreements (excluding the terms relating to the consideration payable by AmPaM thereunder) are identical in all material respects to the terms and conditions in this Agreement. 7. COVENANTS PRIOR TO CLOSING 7.1 ACCESS AND COOPERATION; DUE DILIGENCE; TRANSFER OF REAL ESTATE. (a) Between the date of this Agreement and the Closing Date, the Company will afford to the officers and authorized representatives of AmPaM reasonable access during normal business hours to all of the Company's sites, properties, books and records and will furnish AmPaM with such additional financial and operating data and other information as to the business and properties of the Company as AmPaM may from time to time reasonably request. The Company will cooperate with AmPaM, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. AmPaM, the Stockholders and the Company will treat all information obtained in connection with the negotiation and performance of this Agreement or the due diligence investigations conducted with respect to the Company as confidential in accordance with the provisions of Section 14 hereof. (b) Between the date of this Agreement and the Closing Date, AmPaM will afford to the officers and authorized representatives of the Company access to all of AmPaM's sites, properties, books and records and will furnish the Company with such additional financial and operating data and other information as to the business and properties of AmPaM and the Other Founding Companies as the Company may from time to time reasonably request. AmPaM will cooperate with the Company, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. The Company will cause all information obtained pursuant to this Section 7.1(b) or obtained in connection with the negotiation and performance of this Agreement to be treated as confidential in accordance with the provisions of Section 14 hereof. (c) Except as set forth on Schedule 7.1, any real property owned by the Company will be sold or distributed by the Company on terms mutually acceptable to AmPaM and the Company and leased back by the Company on terms no less favorable to the Company than those available from an unaffiliated party and otherwise reasonably acceptable to AmPaM at or prior to the Closing Date. 29 38 7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this Agreement and the Closing Date, the Company will, except as set forth on Schedule 7.2: (i) carry on its businesses in the Ordinary Course of Business and not introduce any material new method of management, operation or accounting; (ii) use all commercially reasonable efforts to maintain its properties and facilities, including those held under leases, in as good working order and condition as at present, ordinary wear and tear, depreciation and insured losses excepted; (iii) perform in all material respects all of its obligations under all Material Documents relating to or affecting its respective assets, properties or rights; (iv) use its commercially reasonable efforts to keep in full force and effect present insurance policies or other comparable insurance coverage; (v) use its commercially reasonable efforts to maintain and preserve its business organization intact, retain its respective present key employees and maintain its relationships with suppliers, customers and others having business relations with the Company; (vi) use its commercially reasonable efforts to maintain compliance with all material permits, laws, rules and regulations, consent orders, and all other orders of applicable courts, regulatory agencies and similar governmental authorities; (vii) maintain present debt and lease instruments in accordance with their terms and not enter into new or amended debt or lease instruments without the knowledge and consent of AmPaM (which consent shall not be unreasonably withheld), provided that debt and/or lease instruments may be replaced without the consent of AmPaM if such replacement instruments are on terms at least as favorable to the Company as the instruments being replaced; (viii) maintain or reduce present salaries and commission levels for all officers, directors, employees and agents except for ordinary and customary bonus and salary increases for employees in accordance with past practices; and (ix) use commercially reasonable efforts to cause the actual amount of its Current Assets (as defined in Annex I hereto) to be not less than 150% of the actual amount of its Current Liabilities (as defined in Annex I hereto). 30 39 7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between the date hereof and the Closing Date, the Company will not, without prior written consent of AmPaM: (i) make any change in its Charter Documents; (ii) issue any securities, options, warrants, calls, conversion rights or commitments relating to its securities of any kind other than in connection with the exercise of options or warrants listed in Schedule 5.4; (iii) except as permitted pursuant to the terms and conditions for distributions described in Annex I, declare or pay any dividend, or make any distribution in respect of its stock whether now or hereafter outstanding, or purchase, redeem or otherwise acquire or retire for value any shares of its stock; (iv) enter into any contract or commitment or incur or agree to incur any liability or make any capital expenditures, except if it is in the Ordinary Course of Business or involves an amount not in excess of three percent (3%) of the Company's gross revenues for fiscal 1997; (v) create, assume or permit to exist any mortgage, pledge or other lien or encumbrance upon any assets or properties whether now owned or hereafter acquired, except (1) with respect to purchase money liens incurred in connection with the acquisition of equipment with an aggregate cost not in excess of three percent (3%) of the Company's gross revenues for fiscal 1997 necessary or desirable for the conduct of the businesses of the Company, (2) (A) liens for taxes either not yet due or being contested in good faith and by appropriate proceedings (and for which contested taxes adequate reserves have been established and are being maintained) or (B) materialmen's, mechanics', workers', repairmen's, employees' or other like liens arising in the Ordinary Course of Business (the liens set forth in clause (2) being referred to herein as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or Schedule 5.15 hereto; (vi) sell, assign, lease or otherwise transfer or dispose of any property or equipment except in the Ordinary Course of Business and other than distributions of real estate and other assets as permitted in this Agreement (including Annex I hereto); (vii) negotiate for the acquisition of any business or the start-up of any new business; (viii) merge or consolidate or agree to merge or consolidate with or into any other corporation; 31 40 (ix) waive any material rights or claims of the Company, provided that the Company may negotiate and adjust bills and accounts in the course of good faith disputes with customers in a manner consistent with past practice; (x) amend or terminate any Material Document except for the termination of a Material Document in accordance with its terms without any action on the part of the Company; or (xi) enter into any other material transaction outside the Ordinary Course of Business or any transaction prohibited hereunder. 7.4 NO SHOP. None of the Stockholders, the Company, nor any agent, officer, director, trustee or any representative of any of the foregoing will, during the period commencing on the date of this Agreement and ending with the earlier to occur of the Closing Date or the termination of this Agreement in accordance with its terms, directly or indirectly: (i) solicit or initiate the submission of proposals or offers from any person for, (ii) participate in any discussions pertaining to, or (iii) furnish any information to any person other than AmPaM or its authorized agents relating to, any acquisition or purchase of all or a material amount of the assets of, or any equity interest in, the Company or a merger, consolidation or business combination of the Company. 7.5 AGREEMENTS. Except as disclosed on Schedule 7.5(a), the Stockholders and the Company shall terminate (i) any stockholders agreements, voting agreements, voting trusts, agreements providing for the grant by the Company of any options, warrants and employment agreements between the Company and any employee listed on Schedule 8.11 hereto and (ii) except as otherwise provided in this Agreement, any existing agreement between the Company and any Stockholder, on or prior to the Closing Date provided that nothing herein shall prohibit or prevent the Company from paying (either prior to or on the Closing Date) notes or other obligations from the Company to the Stockholders described in Schedule 7.5(b) in accordance with the terms thereof. 7.6 NOTIFICATION OF CERTAIN MATTERS. Each Stockholder and the Company shall give prompt notice to AmPaM upon obtaining knowledge of (i) the occurrence or non-occurrence of any event the occurrence or nonoccurrence of which would be likely to cause any representation or warranty of the Company or such Stockholder contained herein to be untrue or inaccurate in any material respect at or prior to the Closing and (ii) any material failure of such Stockholder or the Company to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by such person hereunder. AmPaM shall give prompt notice to the Company of (i) the occurrence or non-occurrence of any event the occurrence or non-occurrence of which would be likely to cause any representation or warranty of AmPaM contained herein to be untrue or inaccurate 32 41 in any material respect at or prior to the Closing, (ii) any material failure of AmPaM to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; (iii) any termination of any Other Agreement for any reason; and (iv) the issuance by the SEC or any state securities regulatory authority of any issuance of or threatened issuance of any order challenging the availability of an exemption from registration or suspending the qualification of any securities described in the Private Placement Memorandum for sale in any jurisdiction. However, subject to the provisions of Section 7.7, such notification shall not relieve either the Company or such Stockholder of their respective obligations under this Agreement. The delivery of any notice pursuant to this Section 7.6 shall not be deemed to (i) modify the representations or warranties hereunder of the party delivering such notice, which modification may only be made pursuant to Section 7.7, (ii) modify the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect the remedies available hereunder to the party receiving such notice. 7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to the representations and warranties of such party contained in this Agreement, such party shall have the continuing obligation until 24 hours prior to the Closing Date to notify AmPaM with respect to any matter (i) hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or described in the Schedules or (ii) which may have been omitted from the Schedules previously provided by such party. Notwithstanding the foregoing sentence, no amendment or supplement to a Schedule prepared by the Company may be made unless AmPaM consents to such amendment or supplement; and provided further, that no amendment or supplement to a Schedule prepared by AmPaM may be made unless the Stockholders consent to such amendment or supplement. For all purposes of this Agreement, including without limitation for purposes of determining whether the conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules hereto, as amended or supplemented with the consent of AmPaM or the Stockholders, as the case may be, as provided above, shall be deemed to be the Schedules to this Agreement. 7.8 FURTHER ASSURANCES. The parties hereto agree to execute and deliver, or cause to be executed and delivered, such further instruments or documents or take such other action as may be reasonably necessary or appropriate to carry out the transactions contemplated hereby and to cause the conditions to the Closing Date to be satisfied as promptly as practicable. 7.9 AUTHORIZED CAPITAL. Prior to the Closing Date, AmPaM shall maintain its authorized capital stock as set forth in the Private Placement Memorandum. 7.10 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this Agreement hereby recognize that one or more filings under the Hart-Scott Act may be required in connection with the transactions contemplated herein. If it is determined by the parties to this Agreement that filings under the Hart-Scott Act are required, then: (i) each of the parties hereto agrees to cooperate and use its best efforts to comply with the Hart-Scott Act and (ii) such compliance by the Stockholders and the parties agree to cooperate and use their best efforts to cause all filings required under the Hart-Scott Act to be made. If filings under the Hart-Scott Act are required, the costs and expenses thereof (including filing fees) shall be borne by AmPaM. 33 42 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY The obligations of the Stockholders and the Company with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the following conditions. As of the Closing Date, if any such applicable conditions have not been satisfied, any one or more of the Stockholders who would be entitled to receive a majority of the Aggregate Consideration (as defined herein) received by all Stockholders if the transactions contemplated hereby were consummated shall have the right to waive any condition not so satisfied. Any act or action of the Stockholders in consummating the Closing or delivering the certificates representing Company Stock as of the Closing Date shall constitute a waiver of any conditions not so satisfied. However, no such waiver shall be deemed to affect the survival of the representations and warranties of AmPaM contained in Section 6 hereof. 8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All representations and warranties of AmPaM contained in Section 6 shall be true and correct as of the Closing Date as though such representations and warranties had been made as of that time; all of the terms, covenants and conditions of this Agreement to be complied with and performed by AmPaM on or before the Closing Date shall have been duly complied with and performed in all material respects; and certificates to the foregoing effect dated the Closing Date and signed by the President or any Vice President of AmPaM shall have been delivered to the Stockholders. 8.2 SATISFACTION. All actions, proceedings, instruments and documents that are not within the control of the Company or the Stockholders and that are required to carry out this Agreement or incidental hereto shall be reasonably satisfactory to the Company, the Stockholders and their counsel. 8.3 NO LITIGATION. No action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock. 8.4 OPINION OF COUNSEL. The Company shall have received opinions from counsel for AmPaM, dated the Closing Date, addressed to the Company and the Stockholders in the form annexed hereto as Annex III. 8.5 CONSENTS AND APPROVALS. All necessary consents of and filings with any governmental authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made; any waiting periods under the Hart-Scott Act, if applicable, shall have expired or been terminated; all consents and approvals of third parties listed on Schedule 6.9 shall have been obtained; and no action or proceeding shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock and no governmental agency or body shall have taken any other action or made any request of Company as a result of which Company deems it inadvisable to proceed with the transactions hereunder. 34 43 8.6 GOOD STANDING CERTIFICATES. AmPaM shall have delivered to the Company a certificate, dated as of a date no later than ten days prior to the Closing Date, duly issued by the Delaware Secretary of State and in each state in which AmPaM is authorized to do business, showing that AmPaM is in good standing and authorized to do business and that all state franchise and/or income tax returns and taxes for AmPaM for all periods prior to the Closing have been filed and paid. 8.7 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have occurred which would constitute a Material Adverse Change with respect to AmPaM from the date of the Private Placement Memorandum. 8.8 SECRETARY'S CERTIFICATE. The Company shall have received a certificate or certificates, dated the Closing Date and signed by the secretary of AmPaM, certifying the truth and correctness of attached copies of AmPaM's Certificate of Incorporation (including amendments thereto), By-Laws (including amendments thereto), and resolutions of the board of directors and, if required, the stockholders of AmPaM approving AmPaM's entering into this Agreement and the Other Agreements and the consummation of the transactions contemplated hereby and thereby. 8.9 TAX MATTERS. The Stockholders shall have received an opinion of Andrews & Kurth L.L.P., in substantially the form of Annex IV hereto, that the AmPaM Plan of Organization will qualify as a tax-free transfer of property under Section 351 of the Code and that the Stockholders will not recognize gain to the extent the Stockholders exchange Company Stock for AmPaM Stock (but not cash or other property) pursuant to this Agreement in connection with the AmPaM Plan of Organization. 8.10 OTHER FOUNDING COMPANIES. The transactions contemplated by the Other Agreements are consummated simultaneously with the consummation of the transactions contemplated by this Agreement. 8.11 COMPANY RELEASE OF STOCKHOLDERS. The Company shall have delivered to the Stockholders an instrument dated the Closing Date, in form reasonably satisfactory to AmPaM and the Stockholders, which shall be effective only upon the occurrence of the Closing Date, releasing the Stockholders from (i) any and all claims of the Company against the Stockholders, known and unknown, and (ii) obligations of the Stockholders to the Company, except for (x) items specifically identified on Schedule 5.10(a) and Schedule 5.15(b) as being claims of or obligations to the Company and (y) continuing obligations to the Company relating to their employment by the Company pursuant to any employment agreement entered into pursuant to Section 8.11 hereof. 8.12 STERLING CITY CAPITAL TRANSFER RESTRICTIONS. Sterling City Capital, LLC and each of its Affiliates which owns AmPaM Stock shall have entered into an agreement with AmPaM containing substantially the same terms and conditions as are contained in Section 15 and Section 17. 35 44 8.13 ELECTION OF CHIEF EXECUTIVE OFFICER. AmPaM shall have taken all corporate action necessary to elect Robert A. Christianson as Chief Executive Officer of AmPaM effective immediately following the Closing Date. 8.14 FUNDING AVAILABILITY. AmPaM shall have entered into binding agreements with financial institutions, lenders or investors that provide AmPaM with sufficient funds to pay (i) the cash amounts specified in Annex I hereto as payable to the Stockholders upon the Closing and (ii) the aggregate cash amounts specified in Annex I to each of the Other Agreements as payable to the stockholders of the Other Founding Companies upon the Closing; and all conditions to the funding of the cash amounts necessary to make such payments specified in the agreements related to such financing arrangements, other than the closing of the transactions contemplated by this Agreement and the Other Agreements, shall have been satisfied as of the Closing Date. 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF AMPAM The obligations of AmPaM with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the following conditions. As of the Closing Date, if any such conditions have not been satisfied, AmPaM shall have the right to terminate this Agreement, or waive any such condition, but no such waiver shall be deemed to affect the survival of the representations and warranties contained in Section 5 hereof. 9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS. All the representations and warranties of the Stockholders and the Company contained in this Agreement shall be true and correct as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date; all of the terms, covenants and conditions of this Agreement to be complied with or performed by the Stockholders and the Company on or before the Closing Date shall have been duly performed or complied with in all material respects; and the Stockholders shall have delivered to AmPaM certificates dated the Closing Date and signed by them to such effect. 9.2 NO LITIGATION. No action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock. 9.3 SECRETARY'S CERTIFICATE. AmPaM shall have received a certificate, dated the Closing Date and signed by the secretary of the Company, certifying the truth and correctness of attached copies of the Company's Articles or Certificate of Incorporation (including amendments thereto), By-Laws (including amendments thereto), and resolutions of the board of directors and the Stockholders approving the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby. 36 45 9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have occurred with respect to the Company which would constitute a Material Adverse Effect, and the Company shall not have suffered any material loss or damages to any of its properties or assets, whether or not covered by insurance, which change, loss or damage materially affects or impairs the ability of the Company to conduct its business. 9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to AmPaM an instrument dated the Closing Date which shall be effective only upon the occurrence of the Closing releasing the Company and AmPaM from (i) any and all claims of the Stockholders against the Company and AmPaM and (ii) obligations of the Company and AmPaM to the Stockholders, except for (A) items specifically identified on Schedule 5.31 as being claims of or obligations to the Stockholders, (B) continuing obligations to Stockholders relating to their employment by the Company pursuant to employment agreements entered into as specified in Section 8.11 hereof, (C) obligations arising under this Agreement or the transactions contemplated hereby and (D) claims of Stockholders against the Company for unreimbursed business expenses incurred by the Stockholders on behalf of the Company (other than expenses related to the transactions contemplated by this Agreement) prior to the Closing Date or unreimbursed medical expenses of the Stockholders incurred prior to the Closing Date which are covered by the Company's existing health insurance coverage. In the event that the Closing Date does not occur, then the release instrument referenced herein shall be void and of no further force or effect. 9.6 SATISFACTION. All actions, proceedings, instruments and documents that are not within the control of AmPaM and that are required to carry out the transactions contemplated by this Agreement or incidental hereto shall have been reasonably approved by counsel to AmPaM. 9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on Schedule 9.7, all existing agreements between the Company and the Stockholders (and between the Company and entities controlled by the Stockholders) specified on Schedule 5.31 shall have been terminated effective prior to or as of the Closing Date without any payment being made by the Company other than payments made for services rendered, materials provided or other benefits provided to the Company prior to the Closing Date pursuant to the terms of such agreements as in effect as of the date of this Agreement. 9.8 OPINION OF COUNSEL. AmPaM shall have received opinions from counsel to the Company and the Stockholders, dated the Closing Date, substantially in the form annexed hereto as Annex V. 9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any governmental authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made; any waiting periods under the Hart-Scott Act, if applicable, shall have expired or been terminated; all consents and approvals of third parties listed on Schedule 5.23(b)(2) shall have been obtained; and no action or proceeding shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock and no 37 46 governmental agency or body shall have taken any other action or made any request of AmPaM as a result of which AmPaM deems it inadvisable to proceed with the transactions hereunder. 9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to AmPaM a certificate, dated as of a date no earlier than ten days prior to the Closing Date, duly issued by the appropriate governmental authority in the Company's state of incorporation and, unless waived by AmPaM, in each state in which the Company is authorized to do business, showing the Company is in good standing and authorized to do business and that all state franchise and/or income tax returns and taxes for the Company for all periods prior to the Closing have been filed and paid. 9.11 FUNDING AVAILABILITY. AmPaM shall have entered into binding agreements with financial institutions, lenders or investors that provide AmPaM with sufficient funds to pay (i) the cash amounts specified in Annex I hereto as payable to the Stockholders upon the Closing and (ii) the aggregate cash amounts specified in Annex I to each of the Other Agreements as payable to the stockholders of the Other Founding Companies upon the Closing; and all conditions to the funding of the cash amounts necessary to make such payments specified in the agreements related to such financing arrangements, other than the closing of the transactions contemplated by this Agreement and the Other Agreements, shall have been satisfied as of the Closing Date. 9.12 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to AmPaM a certificate to the effect that he is not a foreign person pursuant to Section 1.1445-2(b) of the Treasury regulations. 9.13 RESIGNATIONS OF DIRECTORS AND OFFICERS. Any directors of the Company, other than those identified on Schedule 2.1, shall have resigned as directors of the Company. Any officers of the Company, other than those identified on Schedule 2.2, shall have resigned as officers of the Company. 10. COVENANTS OF AMPAM AND THE STOCKHOLDERS AFTER CLOSING 10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. AmPaM shall use reasonable efforts to have the Stockholders released from any and all guarantees of the Company's indebtedness, including bond obligations, identified on Schedule 10.1. Prior to obtaining the release of such guarantees, AmPaM shall provide its guarantee of such indebtedness to the lenders thereof. In the event that AmPaM cannot obtain such releases from the lenders of any such guaranteed indebtedness identified on Schedule 10.1 on or prior to 90 days subsequent to the Closing Date, AmPaM shall promptly pay off or otherwise refinance or retire such indebtedness such that the Stockholders' personal liability shall be released. AmPaM will indemnify the Stockholders against any loss or damage suffered as a result of the personal guarantees. 38 47 10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated by this Agreement, after the Closing Date, AmPaM shall not and shall not permit any of its Subsidiaries to undertake any act that would jeopardize the tax-free status of the exchange of Company Stock for AmPaM Stock (but not cash or other property), including without limitation: (a) the retirement or reacquisition, directly or indirectly, of all or part of the AmPaM Stock issued in connection with the transactions contemplated hereby; or (b) the entering into of financial arrangements for the benefit of the Stockholders other than as described in the Private Placement Memorandum or as described in this Agreement. 10.3 PREPARATION AND FILING OF TAX RETURNS; PAYMENT OF TAXES. (a) The Company, if possible, or otherwise the Stockholders shall file or cause to be filed all income Tax Returns (federal, state, local or otherwise) of any Acquired Party for all taxable periods that end on or before the Closing Date, and shall permit AmPaM to review all such Tax Returns prior to such filings. Unless the Company is a C corporation, the Stockholders shall pay or cause to be paid all income Tax liabilities (in excess of all amounts already paid with respect thereto or properly accrued or reserved with respect thereto on the Financial Statements) with respect to the Company's operations for all periods through and including the Closing Date. (b) AmPaM shall file or cause to be filed all separate Returns of, or that include, any Acquired Party for all taxable periods ending after the Closing Date. (c) Unless required by applicable law, regulations or government proceedings, AmPaM shall not take any action, including any amendment of a Tax Return of any Acquired Party, if such action would result in additional Tax liabilities payable by any of the Stockholders for periods ending on or prior to the Closing Date. (d) Each party hereto shall, and shall cause its subsidiaries and Affiliates to, provide to each of the other parties hereto such cooperation and information as any of them reasonably may request in filing any Return, amended Return or claim for refund, determining a liability for Taxes or a right to refund of Taxes or in conducting any audit or other proceeding in respect of Taxes. Such cooperation and information shall include providing copies of all relevant portions of relevant Returns, together with relevant accompanying schedules and relevant work papers, relevant documents relating to rulings or other determinations by Taxing Authorities and relevant records concerning the ownership and Tax basis of property, which such party may possess. Each party shall make its employees reasonably available on a mutually convenient basis at its cost to provide explanation of any documents or information so provided. Subject to the preceding sentence, each party required to file Returns pursuant to this Agreement shall bear all costs of filing such Returns. 39 48 (e) Each of the Company, AmPaM and each Stockholder shall comply with the tax reporting requirements of Section 1.351-3 of the Treasury Regulations promulgated under the Code, and treat the transaction as a tax-free contribution under Section 351(a) of the Code subject to gain, if any, recognized on the receipt of cash or other property under Section 351(b) of the Code. 10.4 DIRECTORS. The persons named in the Private Placement Memorandum shall be appointed as directors and elected as officers of AmPaM, as and to the extent set forth in the Private Placement Memorandum, promptly following the Closing Date; provided, however, that the parties hereto acknowledge that if the Company consummates an IPO, the persons who will serve as directors and executive officers of AmPaM will be adjusted as appropriate for a publicly traded entity, with any such changes being subject to the approval of the majority of the Board of Directors of AmPaM. 10.5 LEGAL OPINIONS. If required by the lenders pursuant to the terms of any agreements related to financing of the cash amounts referred to in Section 9.11 hereof, the Company shall cause its counsel to deliver to such lenders, at the Closing, an opinion of counsel in substantially the form attached hereto as Annex V. 11. INDEMNIFICATION The Stockholders and AmPaM each make the following covenants that are applicable to them, respectively: 11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. (a) Each Stockholder covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement until the applicable Expiration Date (as defined in the introductory paragraph to Section 5(A)), provided that for purposes of clause (iii) below, the applicable Expiration Date shall be the date on which the applicable statute of limitations expires), from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM as a result of or arising from (i) any breach of the representations and warranties of the Company set forth herein or on the schedules attached hereto or certificates delivered pursuant to this Agreement, (ii) any breach of any covenant or agreement on the part of the Company under this Agreement, or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating solely to the Company which was based upon information provided to AmPaM or its counsel in writing by the Company specifically for inclusion in the Private Placement Memorandum and is contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact relating to the Company required to be stated therein or necessary to make the statements therein not misleading; provided, however, that no Stockholder shall be liable for any 40 49 indemnification obligation pursuant to this Section 11.1 in excess of such Stockholder's pro rata share thereof determined by reference to the aggregate value of the Base Cash Amount (as defined in Annex I of this Agreement), the principal amount of AmPaM Notes and the shares of AmPaM Stock (valued at a price of $13.00 per share) received by such Stockholder pursuant to Section I.A. of Annex I hereto (without giving effect to the adjustments provided in Sections I.B. and I.C. thereof) (giving effect to the value of such AmPaM Stock and without giving effect to such adjustments, collectively, the "Aggregate Consideration") such Stockholder would receive pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated in relation to the total Aggregate Consideration all Stockholders would receive pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated. (b) Each Stockholder covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement, from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM as a result of or arising from (i) any breach of the representations and warranties of such Stockholder set forth in Section 5(B) hereof, (ii) any breach of any covenant or agreement on the part of such Stockholder under this Agreement, or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating solely to such Stockholder which was based upon information provided to AmPaM or its counsel in writing by such Stockholder specifically for inclusion in the Private Placement Memorandum and is contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact relating solely to such Stockholder required to be stated therein or necessary to make the statements therein in light of the circumstances in which such statements were made not misleading. (c) AmPaM acknowledges and agrees that other than the representations and warranties of the Company or the Stockholders specifically contained in this Agreement, there are no representations or warranties of the Company or the Stockholders, either express or implied, with respect to the transactions contemplated by this Agreement, the Company or its assets, liabilities and business. 11.2 INDEMNIFICATION BY AMPAM. AmPaM covenants and agrees that it will indemnify, defend, protect and hold harmless the Company and the Stockholders at all times from and after the date of this Agreement until the applicable Expiration Date (as defined in the introductory paragraph of Section 6, provided that for purposes of clause (iii) below, the applicable Expiration Date shall be the date on which the applicable statute of limitations expires), from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by the Company or the Stockholders as a result of or arising from (i) any breach by AmPaM of its representations and warranties set forth herein or on the schedules attached 41 50 hereto or certificates delivered pursuant to this Agreement, (ii) any breach of any agreement on the part of AmPaM under this Agreement; or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except to the extent such is based upon an untrue statement or alleged untrue statement, or omission or alleged omission, made therein in reliance upon, and in conformity with, the representations and warranties of the Company or the Stockholders specifically contained in this Agreement or other information furnished to AmPaM by the Company or the Stockholders in writing specifically for inclusion therein. 11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the "Indemnified Party") has received notice of or has knowledge of any claim by a person not a party to this Agreement ("Third Person"), or the commencement of any action or proceeding by a Third Person, the Indemnified Party shall, as a condition precedent to a claim with respect thereto being made against any party obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying Party written notice of such claim or the commencement of such action or proceeding. Such notice shall state the nature and the basis of such claim and a reasonable estimate of the amount thereof. The Indemnifying Party shall have the right to defend and settle, at its own expense and by its own counsel reasonably satisfactory to the Indemnified Party, any such matter so long as the Indemnifying Party pursues the same in good faith and diligently, provided that the Indemnifying Party shall not settle any criminal proceeding without the written consent of the Indemnified Party. If the Indemnifying Party undertakes to defend or settle, it shall promptly notify the Indemnified Party of its intention to do so, and the Indemnified Party shall cooperate with the Indemnifying Party and its counsel in the defense thereof and in any settlement thereof. Such cooperation shall include, but shall not be limited to, furnishing the Indemnifying Party with any books, records or information reasonably requested by the Indemnifying Party that are in the Indemnified Party's possession or control. All Indemnified Parties shall use the same counsel, which shall be the counsel selected by Indemnifying Party, provided that if counsel to the Indemnifying Party shall have a conflict of interest or a conflict of interest is reasonably likely to arise that prevents counsel for the Indemnifying Party from representing such Indemnified Party, Indemnified Party shall have the right to participate in such matter through counsel of its own choosing and Indemnifying Party will reimburse the Indemnified Party for the reasonable expenses of its counsel. After the Indemnifying Party has notified the Indemnified Party of its intention to undertake to defend or settle any such asserted liability, and for so long as the Indemnifying Party diligently pursues such defense, the Indemnifying Party shall not be liable for any additional legal expenses incurred by the Indemnified Party in connection with any defense or settlement of such asserted liability, except (i) as set forth in the preceding sentence and (ii) to the extent such participation is requested by the Indemnifying Party, in which event the Indemnified Party shall be reimbursed by the Indemnifying Party for reasonable additional legal expenses and out-of-pocket expenses. If the Indemnifying Party desires to accept a final and complete settlement of any such Third Person claim and the Indemnified Party refuses to consent to such settlement, then the 42 51 Indemnifying Party's liability under this Section with respect to such Third Person claim shall be limited to the amount so offered in settlement by said Third Person. Upon agreement as to such settlement between said Third Person and the Indemnifying Party, the Indemnifying Party shall, in exchange for a complete release from the Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in such settlement. If the Indemnifying Party does not undertake to defend such matter to which the Indemnified Party is entitled to indemnification hereunder, or fails diligently to pursue such defense, the Indemnified Party may undertake such defense through counsel of its choice, at the cost and expense of the Indemnifying Party, and the Indemnified Party may settle such matter, and the Indemnifying Party shall pay the Indemnified Party for the settlement amount and any other liabilities or expenses incurred by the Indemnified Party in connection therewith, provided, however, that under no circumstances shall the Indemnified Party settle any Third Person claim without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. All settlements hereunder shall effect a complete release of the Indemnified Party, unless the Indemnified Party otherwise agrees in writing. With respect to any account, note or other receivable as to which the Stockholders have paid in full any indemnification obligation pursuant to this Section 11 as a result of a breach of the representation and warranty made pursuant to Section 5.11 or as to which a claim in respect thereof has been asserted pursuant to this Section 11 that has been applied against the Indemnification Threshold with respect to the Stockholders as a result of a breach of the representation and warranty made pursuant to Section 5.11, AmPaM shall cause the Company to assign such account, note or other receivable to the Stockholders. The parties hereto will make appropriate adjustments for insurance proceeds in determining the amount of any indemnification obligation under this Section. 11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any action seeking damages or any other form of monetary relief brought by any party to this Agreement against another party to this Agreement with respect to any provision of this Agreement, provided that, nothing herein shall be construed to limit the right of a party, in a proper case, to seek injunctive relief for a breach of this Agreement. AmPaM hereby waives, to the fullest extent permitted under applicable law, any and all other rights, claims and causes of action, known or unknown, it or any indemnified person may have against the Company or any Stockholder relating to this Agreement or the transactions pursuant to this Agreement arising under or based upon any Federal, state, local or foreign statute, law, rule, regulation or otherwise. Any indemnity payment under this Section 11 shall be treated as an adjustment to the exchange consideration for Tax purposes unless a final determination (which shall include the execution of a Form 870-AD or successor form) with respect to the Indemnified Party or any of its Affiliate causes any such payment not to be treated as an adjustment to the exchange consideration for U.S. Federal income Tax purposes. 11.5 LIMITATIONS ON INDEMNIFICATION. (a) AmPaM shall not assert any claim for indemnification under this Section 11 against the Stockholders until such time as, and solely to the extent that, the aggregate of all claims which AmPaM may have against the Stockholders shall exceed the greater of (a) 3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section 1.2 43 52 plus (ii) the value of the AmPaM Stock delivered to the Stockholders pursuant to Section 1.2 (calculated as provided in this Section 11.5) plus (iii) the principal amount of the AmPaM Notes delivered to the Stockholders pursuant to Section 1.2, or (b) $50,000 (the "Indemnification Threshold"). Stockholders shall not assert any claim for indemnification hereunder against AmPaM until such time as, and solely to the extent that, the aggregate of all claims which Stockholders may have against AmPaM shall exceed $50,000; provided, however, that this sentence shall not be applicable with respect of any failure by AmPaM to (i) deliver the consideration specified in Annex I hereto on the Closing Date upon the satisfaction, or waiver by AmPaM, of all conditions to the occurrence of the Closing Date specified in Section 9 or (ii) comply with its obligations pursuant to Section 10.1. After the $50,000 threshold for AmPaM (subject to the proviso in the preceding sentence) or the Indemnification Threshold for a Stockholder has been met, all claims must be made in $10,000 increments, which claims may be cumulated in order to meet such $10,000 thresholds. For purposes of this paragraph, the AmPaM Stock delivered to the Stockholders shall be valued at $13.00 per share. (b) No person shall be entitled to indemnification under this Section 11 if and to the extent that such person's claim for indemnification is directly or indirectly related to a breach by such person of any representation, warranty, covenant or other agreement set forth in this Agreement. No claim for indemnification against the Stockholders shall limit, diminish or change any obligation of AmPaM pursuant to Section 10.1 hereof. (c) Notwithstanding any other term of this Agreement, no Stockholder shall be liable under this Section 11 for an amount which exceeds eighty-five percent (85%) of the amount of proceeds received by such Stockholder (valued as of the Closing Date) in connection with the purchase and sale of the Company Stock. For purposes of this paragraph, the AmPaM Stock shall be valued at $13.00 per share. (d) A Stockholder may pay any indemnification obligation under Section 11 by means of the payment of cash or a combination of the payment of cash, the forgiveness of amounts owed pursuant to the AmPaM Notes and the delivery to AmPaM of shares of AmPaM Stock; provided that the percentage of the indemnification obligation satisfied by means of the delivery of shares of AmPaM Stock does not exceed the percentage of AmPaM Stock comprising the total consideration paid to such Stockholder by AmPaM to such Stockholder pursuant to Annex I. For the purpose of crediting Stockholders for payments made to AmPaM by means of delivery of shares of AmPaM Stock, the AmPaM Stock shall be valued at $13.00 per share. (e) In determining the amount of any loss, liability or expense for which any party is entitled to indemnification under this Agreement, the gross amount thereof will be reduced by any correlative insurance proceeds or other third party indemnity or reimbursement proceeds realized or to be realized by such party (or, in the case of AmPaM, by AmPaM, the Company or any subsidiary of AmPaM or the Company) and such correlative insurance proceeds or other third party indemnity or reimbursement proceeds shall be net of any insurance premium or other incremental cost or expense owed or payable to any third party which becomes due as a result of such claim. AmPaM 44 53 shall use commercially reasonable efforts to pursue any available insurance coverage or other rights of indemnity or reimbursement from third parties with respect to any such loss, liability or expense. 12. TERMINATION OF AGREEMENT 12.1 TERMINATION. This Agreement may be terminated at any time prior to the Closing Date solely: (i) by mutual consent of AmPaM and the Stockholders; (ii) by the Stockholders, if the transactions contemplated by this Agreement to take place at the Closing Date shall not have been consummated by June 30, 1999, unless the failure of such transactions to be consummated is due to a breach of this Agreement by the Company or the Stockholders prior to or on the Closing Date; (iii) by AmPaM, if the transactions contemplated by this Agreement to take place at the Closing Date shall not have been consummated by June 30, 1999, unless the failure of such transactions to be consummated is due to a breach of this Agreement by AmPaM prior to or on the Closing Date; (iv) by the Stockholders, if a material breach or default shall be made by AmPaM in the observance or in the due and timely performance of any of the covenants or agreements contained herein relating to AmPaM, and the curing of such default shall not have been made (or in the reasonable judgment of such Stockholders cannot be made) on or before the Closing Date; (v) by AmPaM, if a material breach or default shall be made by the Company or the Stockholders in the observance or in the due and timely performance of any of the covenants or agreements contained herein relating to the Company or the Stockholders, and the curing of such default shall not have been made (or in the reasonable judgment of AmPaM cannot be made) on or before the Closing Date; (vi) by the Stockholders, if the conditions set forth in Section 8 hereof have not been satisfied or waived as of the Closing Date; or (vii) by AmPaM, if the conditions set forth in Section 9 hereof have not been satisfied or waived as of the Closing Date. 12.2 PROCEDURE AND EFFECT OF TERMINATION. A determination to terminate this Agreement by AmPaM pursuant to Section 12.1 shall be valid and effective only if a written notice of termination, accompanied by a certified copy of resolutions of the board of directors of AmPaM that evidence the authorization of the officer of AmPaM to deliver a written notice of termination of this Agreement pursuant to Section 12.1, is given to the Stockholders in the manner specified for notices 45 54 in this Agreement. A determination to terminate this Agreement by the Stockholders pursuant to Section 12.1 shall be valid and effective only if a written notice of termination, signed by Stockholders who would be entitled to receive a majority of the shares of AmPaM Stock specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated, is given to AmPaM in the manner specified for notices in this Agreement. Upon the giving of notice of termination of this Agreement pursuant to Section 12.1 as specified in the preceding sentence, this Agreement shall terminate, and the transactions contemplated hereby shall be abandoned, without further action by any of the parties hereto. Immediately upon any such termination, AmPaM shall deliver written notice of such termination to the Other Founding Companies. If this Agreement is terminated as provided in this Section 12, no party hereto shall have any liability or further obligation hereunder to any other party, except as provided in Section 14 and Section 18.6, provided, that, the termination of this Agreement will in no way limit any obligation or liability of any party based on or arising from a breach or default by such party with respect to any of its representations, warranties, covenants or agreements contained in this Agreement including, but not limited to, legal and audit costs and out of pocket expenses that occurred prior to such termination. 13. NONCOMPETITION 13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the prior written consent of AmPaM, for a period of two (2) years following the Closing Date, for any reason whatsoever, directly or indirectly, for themselves or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature: (i) engage, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, whether paid or unpaid, in any plumbing, piping, mechanical, heating, ventilation or air conditioning contracting, installation or services business or operation, whether for residential, commercial, industrial or governmental customers, or any ancillary contracting, installation or services business directly related thereto (such business and operations referred to herein as the "Plumbing and Mechanical Business"), within 100 miles of where the Company or any of its subsidiaries conducted business within two (2) years prior to the Closing Date (the "Territory"); (ii) call upon any person who is, at the Closing Date, within the Territory, an employee of AmPaM or any subsidiary thereof for the purpose or with the intent of enticing such employee away from or out of the employ of AmPaM or any subsidiary thereof; (iii) call upon any person or entity which is, at the Closing Date, or which has been within three (3) years prior to the Closing Date, a customer of AmPaM or any subsidiary thereof, of the Company or of any of the Other Founding Companies for the purpose of soliciting customers, orders or contracts for any Plumbing and Mechanical Business in direct competition with AmPaM within the Territory; 46 55 (iv) call upon any prospective acquisition candidate, on any Stockholder's own behalf or on behalf of any competitor in the Plumbing and Mechanical Business, which candidate, to the actual knowledge of such Stockholder after due inquiry, was called upon by AmPaM or any subsidiary thereof or for which, to the actual knowledge of such Stockholder after due inquiry, AmPaM or any subsidiary thereof made an acquisition analysis, for the purpose of acquiring such entity; or (v) disclose to any person, firm, partnership, corporation or business the names or identities of any person, firm, partnership, corporation or business which has been a customer of the Company or any of its subsidiaries within the two (2) years prior to the Closing Date for any reason or purpose whatsoever except to the extent that the Company has in the past disclosed such information to the public for valid business reasons; or (vi) testify as an expert witness in matters related to the Plumbing and Mechanical Business for an adverse party to AmPaM, the Company or any Other Founding Companies in litigation. Notwithstanding the above, the foregoing covenant shall not be deemed to prohibit any Stockholder from acquiring as a passive investment (i) not more than one percent (1%) of the capital stock of a competing business whose stock is traded on a national securities exchange, the NASDAQ Stock Market or over-the-counter, or (ii) not more than five percent (5%) of the capital stock of a competing business whose stock is not publicly traded if the Board of Directors of AmPaM consents to such acquisition. 13.2 DAMAGES. Because of the difficulty of measuring economic losses to AmPaM as a result of a breach of the foregoing covenant, and because of the immediate and irreparable damage that could be caused to AmPaM for which it would have no other adequate remedy, each Stockholder agrees that the foregoing covenant may be enforced by AmPaM in the event of breach by such Stockholder, by injunctions and restraining orders. 13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the foregoing covenants in this Section 13 impose a reasonable restraint on the Stockholders in light of the activities and business of AmPaM and the subsidiaries thereof on the date of the execution of this Agreement and the current plans of AmPaM as described in the Private Placement Memorandum. 13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant. Moreover, in the event any court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which the court deems reasonable, and the Agreement shall thereby be reformed. 47 56 13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of any Stockholder against AmPaM or any subsidiary thereof, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by AmPaM of such covenants. It is specifically agreed that the period of two (2) years stated at the beginning of this Section 13, during which the agreements and covenants of each Stockholder made in this Section 13 shall be effective, shall be computed by excluding from such computation any time during which such Stockholder is found to be in violation of any provision of this Section 13 as determined by any of (i) a written agreement to such effect executed and delivered by AmPaM and such Stockholder, (ii) a determination by an arbitration panel pursuant to an arbitration conducted pursuant to Section 18.16 hereof or (iii) a non-appealable judgment of a court of competent jurisdiction. The covenants contained in Section 13 shall not be affected by any breach of any other provision hereof by any party hereto. The covenants contained in Section 13 shall have no effect if the transactions contemplated by this Agreement are not consummated. 13.6 MATERIALITY. The Company and the Stockholders hereby agree that the covenants contained in this Section 13 are a material and substantial part of this transaction. 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION 14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they had in the past, currently have, and in the future may possibly have, access to certain confidential information of the Company, the Other Founding Companies, and/or AmPaM, such as operational policies, customer lists, and pricing and cost policies that are valuable, special and unique assets of the Company's, the Other Founding Companies' and/or AmPaM's respective businesses. The Stockholders agree that they will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, except (a) to authorized representatives of AmPaM, (b) following the Closing, such information may be disclosed by the Stockholders as is required in the course of performing their duties for AmPaM or the Company and (c) to its counsel and other advisers, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section 14.1; provided, however that (i) the foregoing disclosure prohibition shall not apply in the event that (i) such information becomes known to the public generally through no fault of the Stockholders, (ii) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (ii), the Stockholders shall, if possible, give prior written notice thereof to AmPaM and provide AmPaM with the opportunity to contest such disclosure, or (iii) the disclosing party reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party. In the event of a breach or threatened breach by any of the Stockholders of the provisions of this Section, AmPaM shall be entitled to an injunction restraining such Stockholders from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting AmPaM from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. In the event the transactions contemplated 48 57 by this Agreement are not consummated, Stockholders shall have none of the above-mentioned restrictions on their ability to disseminate confidential information with respect to the Company. 14.2 AmPaM. AmPaM recognizes and acknowledges that it had in the past and currently has access to certain confidential information of the Company, such as operational policies, customer lists, and pricing and cost policies that are valuable, special and unique assets of the Company's business. AmPaM agrees that, prior to the Closing, or if the transactions contemplated by this Agreement are not consummated, it will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, except (a) to authorized representatives of the Company, (b) to its counsel and other advisers, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section 14.2, (c) to the Other Founding Companies and their representatives pursuant to Section 7.1(b) of the Other Agreements and (d) to potential purchasers of securities of AmPaM to the extent necessary or advisable in connection with the applicable securities laws; provided, however that the foregoing disclosure prohibition shall not apply in the event that (A) such information becomes known to the public generally through no fault of AmPaM, (B) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (B), AmPaM shall, if possible, give prior written notice thereof to the Company and the Stockholders and provide the Company and the Stockholders with the opportunity to contest such disclosure, or (C) the disclosing party reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party. In the event of a breach or threatened breach by AmPaM of the provisions of this Section 14.2, the Company and the Stockholders shall be entitled to an injunction restraining AmPaM from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting the Company and the Stockholders from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. In the event the transactions contemplated by this Agreement are not consummated for any reason, AmPaM shall nevertheless remain subject to this Section 14.2, except that it shall not be permitted to make any disclosures otherwise than pursuant to clause (A), (B) or (C) above. 14.3 DAMAGES. Because of the difficulty of measuring economic losses as a result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and because of the immediate and irreparable damage that would be caused for which they would have no other adequate remedy, the parties hereto agree that, in the event of a breach by any of them of the foregoing covenants, the covenant may be enforced against the other parties by injunctions and restraining orders. 14.4 SURVIVAL. The obligations of the parties under this Article 14 shall survive the termination of this Agreement for a period of five years from the Closing Date. 49 58 14.5 RETURN OF INFORMATION. If the transactions contemplated by this Agreement are not consummated, AmPaM will return or destroy all confidential information regarding the Company. 15. TRANSFER RESTRICTIONS 15.1 TRANSFER RESTRICTIONS RELATING TO AmPaM STOCK AND AmPaM NOTES. For a period of two years from the Closing Date or, in the event that the Company completes an IPO, for a period through the second anniversary of the date of the closing of such IPO (the "Restricted Period"), no Stockholder shall (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any shares of AmPaM Stock or AmPaM Notes received by the Stockholders pursuant to this Agreement or any securities convertible into, exchangeable or exercisable for any shares of AmPaM Stock or AmPaM Notes received by such Stockholder pursuant to this Agreement, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any shares of AmPaM Stock or AmPaM Notes received by such Stockholder pursuant to this Agreement, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the AmPaM Stock or AmPaM Notes, whether any such swap or transaction is to be settled by delivery of shares of AmPaM Stock or AmPaM Notes or other securities, by the delivery or payment of cash or otherwise, except, in the case of clauses (i), (ii) or (iii) above, (A) as otherwise agreed by AmPaM, (B) for the sale of shares of AmPaM Stock, and entering into agreements relating to the sale of shares of AmPaM Stock, pursuant to Section 17 hereof, (C) for transfers to (I) immediate family members of such Stockholder who agree with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (II) trusts, limited partnerships or other estate planning entities for the benefit of such Stockholder or family members of such Stockholder which have agreed with AmPaM in writing, through action taken by the trustees, partners or other persons having authority to bind the trust, limited partnership or other estate planning entity, to be bound by the restrictions set forth in this Section 15.1, (III) any charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code which agrees with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (D) for transfers of AmPaM Stock or AmPaM Notes to AmPaM pursuant to Section 11.5(d), (E) for transfers to another Stockholder, to another person or entity who receives shares of AmPaM Stock or AmPaM Notes or AmPaM Series A Preferred Stock pursuant to the Other Agreements or to Sterling City Capital LLC or any of its Affiliates provided that (1) such transaction is exempt from the registration requirements of the 1933 Act as evidenced by the delivery to AmPaM of an opinion of counsel in form and substance reasonably satisfactory to AmPaM and (2) any such transferee agrees in writing to be bound by the restrictions set forth in this Section 15.1, (F) transfers of shares of AmPaM Notes, shares of AmPaM Stock, or grants of options to purchase shares of AmPaM Stock, by such Stockholder to employees of the Company of up to an aggregate of 15% of the shares of AmPaM Stock received by such Stockholder pursuant to this Agreement provided that (1) any such transaction is exempt from the registration requirements of the 1933 Act as evidenced by the delivery to AmPaM of an opinion of counsel in form and substance reasonably satisfactory to AmPaM and (2) any such employee agrees with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1 or (G) the sale by such Stockholder in an IPO of shares of AmPaM Stock representing not more than 10% of the Aggregate Consideration in cash; provided, 50 59 however, that in no circumstance will a Stockholder be entitled to sell shares of AmPaM Stock in an IPO to the extent that the sale of such shares by such Stockholder would result in such Stockholder receiving in excess of 45% of the Aggregate Consideration in cash; and, provided further, if AmPaM is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under Section 17.1 that the number of shares to be sold by persons other than AmPaM is greater than the number of such shares which can be offered without adversely affecting the success of the offering, AmPaM may reduce pro rata (among the Stockholders and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. During the Restricted Period, the certificates evidencing the AmPaM Stock or AmPaM Notes delivered to the Stockholders pursuant to Section 3 of this Agreement will bear a legend substantially in the form set forth below: THE [SHARES/NOTES] OR AMPAM NOTES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO THE TERMS OF THE ACQUISITION AGREEMENT PURSUANT TO WHICH SUCH SHARES WERE ISSUED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, PLEDGE OR OTHER DISPOSITION PRIOR TO EXPIRATION OF THE RESTRICTED PERIOD REFERRED TO IN THE ACQUISITION AGREEMENT EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH AGREEMENT. SUCH RESTRICTIONS ON TRANSFER ARE SET FORTH IN AN ACQUISITION AGREEMENT, A COPY OF WHICH IS MAINTAINED AT THE PRINCIPAL OFFICES OF THE ISSUER. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE. 15.2 TRANSFER RESTRICTIONS RELATING TO ADDITIONAL CONSIDERATION. No Stockholder shall (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any right to receive any consideration pursuant to Section II of Annex I to this Agreement (the "Additional Consideration Right") or any securities convertible into, exchangeable or exercisable for any Additional Consideration Right, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any Additional Consideration Right, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of any Additional Consideration Right, whether any such swap or transaction is to be settled by delivery of shares of AmPaM Stock or other securities, by the delivery or payment of cash or otherwise. 51 60 16. FEDERAL SECURITIES ACT REPRESENTATIONS 16.1 COMPLIANCE WITH LAW. Each Stockholder acknowledges that the shares of AmPaM Stock, the Additional Consideration Right and any AmPaM Notes to be delivered to such Stockholder pursuant to this Agreement have not been and will not be registered under the 1933 Act (except as provided in Section 17 hereof) and therefore may not be sold, assigned, exchanged, transferred, pledged or otherwise disposed of without compliance with the 1933 Act which, among other matters, would require registration under the 1933 Act unless exemption from the registration requirements is available for such transaction. The AmPaM Stock, the Additional Consideration Right and any AmPaM Notes to be acquired by each Stockholder pursuant to this Agreement is being acquired solely for such Stockholder's own account, for investment purposes only, and with no present intention of selling, assigning, exchanging, transferring, pledging, or otherwise disposing of it. Each Stockholder covenants, warrants and represents that neither the shares of AmPaM Stock, the Additional Consideration Right nor any AmPaM Notes issued to such Stockholder will be offered, sold, assigned, exchanged, pledged, transferred or otherwise disposed of except after full compliance with all of the applicable provisions of the 1933 Act and the rules and regulations of the SEC. All certificates representing the AmPaM Stock shall bear the following legend in addition to the legend required under Section 15 of this Agreement: THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE FEDERAL AND STATE SECURITIES LAWS. 16.2 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear the economic risk of an investment in the AmPaM Stock and AmPaM Notes to be acquired pursuant to this Agreement and can afford to sustain a total loss of such investment. Each Stockholder has substantial knowledge and experience in making investment decisions of this type (or is relying on qualified purchaser representatives with such knowledge and experience in making this decision), and is capable, either individually or with such purchaser representatives, of evaluating the merits and risks of this investment. Each Stockholder has had an adequate opportunity to ask questions and receive answers from the officers of AmPaM concerning any and all matters relating to the transactions described herein including, without limitation, the background and experience of the current and proposed officers and directors of AmPaM, the plans for the operations of the business of AmPaM, the business, operations and financial condition of the Founding Companies other than the Company, and any plans for additional acquisitions. Each Stockholder has asked any and all questions of the nature described in the preceding sentence and all questions have been answered to such Stockholder's satisfaction. Except as set forth on Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule 501(a) of the 1933 Act. Neither the foregoing nor any investigation made by the Stockholders referred to above shall in any way affect the representations, warranties, covenants and agreements of AmPaM made herein except to the extent that AmPaM is relying upon the representations of the Stockholders in Section 16.1 and in this Section 16.2 for purposes of 52 61 AmPaM's representations and warranties in Sections 6.9, 6.11, 6.15 and 6.17 hereof as specified therein. 16.3 RELIANCE BY AmPaM. Each Stockholder acknowledges that AmPaM in relying upon the representations and covenants of such Stockholder set forth in Section 16.1 and Section 16.2 for purposes of compliance by AmPaM with Federal and state securities laws related to the issuance of AmPaM Stock pursuant to this Agreement and the Other Agreements. 17. REGISTRATION RIGHTS 17.1 PIGGYBACK REGISTRATION RIGHTS. Whenever AmPaM proposes to register any AmPaM Stock for its own or other's account under the 1933 Act for a public offering, other than (i) any shelf or other registration of shares to be used as consideration for acquisitions of additional businesses by AmPaM and (ii) registrations relating to employee benefit plans, AmPaM shall give each of the Stockholders prompt written notice of its intent to do so. Upon the written request of any of the Stockholders given within 15 calendar days after receipt of such notice, notwithstanding the provisions of Section 15 (except as specified below with respect to an IPO), AmPaM shall cause to be included in such registration all of the AmPaM Stock issued to such Stockholders pursuant to this Agreement (including any stock issued as or issuable upon the conversion or exchange of any convertible security, warrant, right or other security which is issued by AmPaM as a stock split, dividend or other distribution with respect to, or in exchange for, or in replacement of such AmPaM Stock) which any such Stockholder requests, other than shares of AmPaM Stock which may then be immediately sold under Rule 144(k) (or any similar or successor provision) promulgated under the 1933 Act, and other than shares of AmPaM Stock that have been theretofore sold by the Stockholder in accordance with the 1933 Act, provided that AmPaM shall have the right to reduce pro rata the number of shares of each selling Stockholder included in such registration to the extent that inclusion of such shares would, in the written opinion of tax counsel to AmPaM or its independent auditors, jeopardize the status of the transactions contemplated hereby and by the Private Placement Memorandum as a tax-free organization under Section 351 of the Code; provided, however, that with respect to a proposal by AmPaM to register AmPaM Stock under the 1933 Act in connection with an IPO, no Stockholder shall be permitted pursuant to this Section 17.1 to have included in such registration more shares of AmPaM Stock than permitted to be sold by such Stockholder pursuant to Section 15.1. In addition, if AmPaM is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under this Section 17.1 that the number of shares to be sold by persons other than AmPaM is greater than the number of such shares which can be offered without adversely affecting the success of the offering, AmPaM may reduce pro rata (among the Stockholders and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. If any Stockholder disapproves of the terms of the underwriting, that Stockholder may elect to withdraw therefrom by written notice to AmPaM and the managing underwriter. That Stockholder's shares of AmPaM Stock so withdrawn shall also be withdrawn from registration; provided, however, that, if by the withdrawal of such shares a greater number of shares of AmPaM 53 62 Stock held by other Stockholders may be included in such registration, then AmPaM shall offer to all other Stockholders of AmPaM the right to include additional shares in the same proportion used in effecting the above limitations. AmPaM shall not, for a period of two years following the Closing Date, grant to any other person any rights to cause AmPaM to register any securities in priority over, or in precedent to, the rights granted to the Stockholders hereunder and to the stockholders of the Other Founding Companies pursuant to Section 17 of the Other Agreements. 17.2 REGISTRATION PROCEDURES. Whenever AmPaM is required to register shares of AmPaM Stock pursuant to Section 17.1, AmPaM will, as expeditiously as possible: (i) Prepare and file with the SEC a registration statement with respect to such shares and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements or term sheets thereto, AmPaM will furnish a representative of the Stockholders with copies of all such documents proposed to be filed) as promptly as practical; (ii) Notify the Stockholders of any stop order issued or threatened by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered; (iii) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 120 days, cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the 1933 Act; and comply with the provisions of the 1933 Act applicable to it with respect to the disposition of all securities covered by such registration statement during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement or supplement to the prospectus; (iv) Furnish to each Stockholder who so requests such number of copies of such registration statement, each amendment and supplement thereto and the prospectus included in such registration statement (including each preliminary prospectus and any term sheet associated therewith), and such other documents as such Stockholder may reasonably request in order to facilitate the disposition of the relevant shares; (v) Make "generally available to its security holders" (within the meaning of Rule 158) an earnings statement satisfying the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no later than 90 days after the end of the 12-month period beginning with the first day of AmPaM's first fiscal quarter commencing after the effective date of the registration statement; 54 63 (vi) Make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible moment; (vii) If requested by the managing underwriter or underwriters, if any, or any participating Stockholder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters or any participating Stockholder, as the case may be, reasonably requests to be included therein, including, without limitation, information with respect to the number of shares of AmPaM Stock being sold by participating Stockholders to any underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any other terms of an underwritten offering of the shares of AmPaM Stock to be sold in such offering, and promptly make all required filings of such prospectus by supplement or post-effective amendment; (viii) Make available for inspection by participating Stockholders, any underwriter participating in any disposition pursuant to such registration statement, and the counsel retained by the participating Stockholders, counsel for the underwriters and any accountant or other agent retained by participating Stockholders or any such underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of AmPaM (the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause AmPaM's officers, directors and employees to supply all information reasonably requested by any such Inspectors in connection with such registration statement; provided, that records which AmPaM determines, in good faith, to be confidential and which AmPaM notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction after delivery of sufficient notice to AmPaM to enable AmPaM to contest such subpoena or order; (ix) Take all other steps reasonably necessary to effect the registration of the shares of AmPaM Stock contemplated hereby; (x) Use its best efforts to register or qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Stockholders, and to keep such registration or qualification effective during the period such registration statement is required to be kept effective, provided that AmPaM shall not be required to become subject to taxation, to qualify generally to do business or to file a general consent to service of process in any such states or jurisdictions; (xi) Cause all such shares of AmPaM Stock to be listed or included not later than the date of the first sale of shares of AmPaM Stock under such registration statement on any 55 64 securities exchanges or trading systems on which similar securities issued by AmPaM are then listed or included; and (xii) Notify each Stockholder at any time when a prospectus relating thereto is required to be delivered under the 1933 Act within the period that AmPaM is required to keep the registration statement effective of the happening of any event as a result of which the prospectus included in such registration statement (as then in effect), together with any associated term sheet, contains an untrue statement of a material fact or omits to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading, and, at the request of such Stockholder, AmPaM promptly will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of the covered shares, such prospectus will not contain an untrue statement of material fact or omit to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading. All expenses incurred in connection with the registration under this Article 17 and compliance with securities and blue sky laws (including all registration, filing, listing, escrow agent, qualification, legal, printer and accounting fees, but excluding underwriting commissions and discounts), shall be borne by AmPaM. 17.3 INDEMNIFICATION. (a) In connection with any registration under Section 17.1, AmPaM shall indemnify, to the extent permitted by law, each selling Stockholder (an "Indemnified Party") against all losses, claims, damages, liabilities and expenses arising out of or resulting from any untrue or alleged untrue statement of material fact contained or incorporated by reference in any registration statement, prospectus or preliminary prospectus or associated term sheet or any omission or alleged omission to state or incorporated by reference therein a material fact required to be stated or incorporated by reference therein or necessary to make the statements therein not misleading except insofar as the same are caused by or contained in or omitted from any information furnished in writing to AmPaM by such Indemnified Party expressly for use therein or by any Indemnified Parties' failure to deliver a copy of the registration statement or prospectus or any amendment or supplements thereto after AmPaM has furnished such Indemnified Party with a sufficient number of copies of the same. (b) In connection with any registration under Section 17.1, each selling Stockholder shall furnish to AmPaM in writing such information concerning the Stockholder and his or her proposed offering of shares as is reasonably requested by AmPaM for use in any such registration statement or prospectus and will indemnify, to the extent permitted by law, AmPaM, its directors and officers and each person who controls AmPaM (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged 56 65 untrue statement of a material fact or any omission or alleged omission to state therein a material fact required to be stated in the registration statement or prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, but only to the extent that such untrue or alleged untrue statement or omission or alleged omission is contained in or omitted from information so furnished in writing to AmPaM by such Stockholder expressly for use in the registration statement. Notwithstanding the foregoing, the liability of a Stockholder under this Section 17.3 shall be limited to an amount equal to the net proceeds actually received by such Stockholder from the sale of the relevant shares covered by the registration statement. (c) Any person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified parties' reasonable judgment, a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. Any failure to give prompt notice shall deprive a party of its right to indemnification hereunder only to the extent that such failure shall have adversely affected the indemnifying party. If the defense of any claim is assumed, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent shall not be unreasonably withheld). An indemnifying party that is not entitled or elects not, to assume the defense of a claim, will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. 17.4 UNDERWRITING AGREEMENT. In connection with each registration pursuant to Sections 17.1 covering an underwritten registered offering, (i) each participating Stockholder shall execute and deliver to AmPaM a written power of attorney instrument that (A) appoints an officer of AmPaM as such Stockholder's attorney-in-fact for purposes of executing and delivering an underwriting agreement among AmPaM, the underwriters named therein and such Stockholder specifying the terms and conditions applicable to the sale of AmPaM Stock of such Stockholder in such offering and (B) otherwise is in such form and containing such provisions as are customary in the securities business for such an arrangement in connection with an underwritten registered offering in which one or more stockholders of the issuer are participants, including a provision that authorizes the attorney-in-fact appointed by such Stockholder to execute and deliver such an underwriting agreement in the event that the net price per share to be received by such Stockholder from the sale of the shares of AmPaM Stock to be sold in such offering is not less than a price specified in such instrument and (iii) AmPaM and each participating Stockholder agree to enter into a written agreement with the managing underwriters in such form and containing such provisions as are customary in the securities business for such an arrangement between such managing underwriters and companies of AmPaM's size and investment stature, including indemnification; provided, however, that (A) such Stockholder shall be exempt and excluded from any indemnification of the managing underwriters other than with respect to information provided by such Stockholder with respect to such Stockholder to AmPaM or the managing underwriters 57 66 specifically for inclusion in any such registration statement and (B) such Stockholder shall not be obligated to enter into such an underwriting agreement in the event that the net price per share to be received by such Stockholder from the sale of shares of AmPaM Stock to be sold in such offering is less than the floor price specified in the power of attorney instrument executed and delivered to AmPaM pursuant to clause (i) above. 17.5 TRANSFER OF RIGHTS. The right to cause AmPaM to register shares of AmPaM Stock under this Agreement may be assigned to a transferee or assignee of any Stockholder to the extent that such transferee or assignee is a member of the immediate family of a Stockholder, a trust, limited partnership or other estate planning entity for the benefit of any such persons or a charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code. 17.6 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the SEC that may permit the sale of AmPaM stock to the public without registration, following an IPO AmPaM agrees to use its reasonable efforts, from and after the completion of an IPO, to: (i) make and keep public information regarding AmPaM available as those terms are understood and defined in Rule 144 under the 1933 Act beginning 90 days following the effective date of a registration statement relating to an IPO; (ii) file with the SEC in a timely manner all reports and other documents required of AmPaM under the 1933 Act and the 1934 Act at any time after it has become subject to such reporting requirements; and (iii) so long as a Stockholder owns any restricted AmPaM Stock, furnish to each Stockholder forthwith upon written request a written statement by AmPaM as to its compliance with the current public information requirements of Rule 144 (at any time from and after 90 days following the effective date of a registration statement relating to an IPO), and of the 1933 Act and the 1934 Act (any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of AmPaM, and such other reports and documents so filed as a Stockholder may reasonably request in availing itself of any rule or regulation of the SEC allowing a Stockholder to sell any such shares without registration. 18. REDEMPTION OF AMPAM STOCK 18.1 REDEMPTION TRIGGER. In the event that, within three years of the Closing Date, (i) AmPaM has not consummated an IPO and (ii) any Stockholder has not received cash (including proceeds from the public or private sale of AmPaM Stock received as consideration hereunder and the receipt of principal payments, if any, made with respect to AmPaM Notes held by such Stockholder) equal to or exceeding 50% of the Aggregate Consideration on or prior to the third anniversary of the Closing Date, such Stockholder shall have the right (the "Put Right"), but not the 58 67 obligation, commencing on the third anniversary date of the Closing Date to require AmPaM to purchase a number of shares of AmPaM Stock then owned by such Stockholder, subject to the limitations set forth in Section 18.2 below. The purchase price for such redemption shall be $13.00 per share, such price to be subject to appropriate adjustment to reflect any reclassification, stock dividend, subdivision, split-up or combination of shares of AmPaM Stock after the date hereof. 18.2 MINIMUM REDEMPTION; LIMITATIONS. If the events specified in Section 18.1(i) and 18.1(ii), with Section 18.1(ii) being determined on an individual Stockholder basis, have not occurred within the time specified, AmPaM shall be obligated to purchase from each eligible Stockholder no less than 10% of the AmPaM Stock held by such Stockholder annually; provided, however, that the Stockholders shall not be entitled to exercise their Put Rights if and to the extent the Company has not achieved the Target Net Income (as defined in Annex I hereto) for the year preceding the year in which a Stockholder seeks to exercise his Put Right. The redemptions will be funded by internal cash flows or alternative financing arrangements but AmPaM's obligation to make any redemption pursuant to this Section 18 will be subject to the covenants and restrictions contained in AmPaM's then existing private or public debt or equity instruments. 18.3 NOTICE; EXERCISE. The Stockholders may exercise their Put Right by giving written notice (the "Put Notice") to AmPaM within thirty (30) days of the third anniversary of the execution hereof. If any Stockholder does not provide AmPaM with a Put Notice within such thirty-day period, the Put Right applicable to such Stockholder shall expire. The date for closing the sale of any shares of AmPaM Stock pursuant to a proper exercise of a Put Right shall in no event be earlier than 90 days after the date AmPaM receives the Put Notice. Any such closing shall be at such time of day and place as shall be mutually agreed between such holder and AmPaM. At such closing AmPaM shall make payment for the AmPaM Stock to be repurchased by wire transfer of immediately available funds to a bank account designated by such Stockholder for such purpose and such Stockholder shall deliver to AmPaM certificates, duly endorsed for transfer, representing the shares of AmPaM Stock to be purchased and sold pursuant to the exercise of such Put Right. 18.4 ADDITIONAL REDEMPTIONS. In the event AmPaM has not consummated an IPO and notwithstanding the foregoing, to the extent the Stockholders who have received greater than 50% of their Aggregate Consideration in cash wish to tender AmPaM Stock to AmPaM for purchase, AmPaM will use its commercially reasonable efforts to continue to repurchase up to 10% of the AmPaM Stock held by such Stockholder annually. 18.5 TERMINATION OF REDEMPTION OBLIGATION. Put Rights with respect to any individual Stockholder will terminate upon receipt by such Stockholder of 50% of his Aggregate Consideration in cash; such termination will not, however, limit such Stockholders ability to participate in the additional redemptions provided in Section 18.4. Notwithstanding the foregoing, all of AmPaM's redemption obligations contained in this Section 18 shall terminate on the earlier to occur of (i) an IPO, (ii) any sale of all or substantially all of AmPaM's assets in one transaction or series of transactions, (iii) any merger or consolidation which involves AmPaM and in which AmPaM is not the surviving entity or (iv) any transaction after which the shares of AmPaM Common Stock, if any, 59 68 which are then held by persons other than the holders of AmPaM Common Stock as of the Closing Date constitute 50% or more of AmPaM Common Stock outstanding as of the date of the consummation of such transaction. 19. GENERAL 19.1 COOPERATION. The Company, Stockholders and AmPaM shall each deliver or cause to be delivered to the other on the Closing Date, and at such other times and places as shall be reasonably agreed to, such additional instruments as the other may reasonably request for the purpose of carrying out this Agreement. The Company will cooperate and use its reasonable efforts to have the present officers, directors and employees of the Company cooperate with AmPaM on and after the Closing Date in furnishing information, evidence, testimony and other assistance in connection with any tax return filing obligations, actions, proceedings, arrangements or disputes of any nature with respect to matters pertaining to all periods prior to the Closing Date. 19.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties hereunder may not be assigned (except by operation of law and except as provided in Section 17.5) and shall be binding upon and shall inure to the benefit of the parties hereto, the successors of AmPaM and the Company, and the heirs, successors and legal representatives of the Stockholders. 19.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits and annexes attached hereto) and the documents delivered pursuant hereto constitute the entire agreement and understanding among the Stockholders, the Company and AmPaM and supersede any prior agreement and understanding relating to the subject matter of this Agreement. This Agreement, upon execution, constitutes a valid and binding agreement of the parties hereto enforceable in accordance with its terms and may be modified or amended only by a written instrument executed by the Stockholders, the Company and AmPaM, acting through their respective officers or trustees, duly authorized by their respective Boards of Directors. Any disclosure made on any Schedule delivered pursuant hereto shall be deemed to have been disclosed for purposes of any other Schedule required hereby, provided that the Company shall make a good faith effort to cross reference disclosure, as necessary or advisable, between related Schedules. 19.4 COUNTERPARTS. This Agreement may be executed simultaneously in two (2) or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument. A telecopied facsimile of an executed counterpart of this Agreement shall be sufficient to evidence the binding agreement of each party to the terms hereof. However, each party agrees to return to the other parties an original, duly executed counterpart of this Agreement promptly after delivery of a telecopied facsimile thereof. 60 69 19.5 BROKERS AND AGENT. Except as disclosed on Schedule 18.5, each party hereto represents and warrants that it employed no broker or agent in connection with this transaction and agrees to indemnify the other parties hereto against all loss, cost, damages or expense arising out of claims for fees or commission of brokers employed or alleged to have been employed by such indemnifying party. 19.6 EXPENSES. Whether or not the transactions herein contemplated shall be consummated, AmPaM will pay the reasonable fees, expenses and disbursements of AmPaM and its agents, representatives, accountants and counsel incurred in connection with the subject matter of this Agreement and any amendments thereto, including all costs and expenses incurred in the performance and compliance with all conditions to be performed by AmPaM under this Agreement, including the fees and expenses of Arthur Andersen LLP, Andrews & Kurth L.L.P., and any other person or entity retained by AmPaM, and the costs of preparing the Private Placement Memorandum incurred in connection with the subject matter of this Agreement and any amendments thereto. In addition, whether or not the transactions contemplated herein shall be consummated, AmPaM will pay the reasonable fees and expenses of Bracewell & Patterson LLP incurred on behalf of the Company and the Stockholders in connection with the subject matter of this Agreement. Whether or not the transactions herein contemplated shall be consummated, the Company will pay all of its costs and expenses incurred on behalf of the Company and the Stockholders in connection with the subject matter of this Agreement except that (i) the Company shall not be required to pay any of the costs, fees and expenses specified above as to which AmPaM is responsible for the payment thereof and (ii) neither the Company nor the Stockholders shall be responsible for the payment of the costs, fees and expenses incurred by or on behalf of AmPaM. Whether or not the transactions herein contemplated shall be consummated, AmPaM shall reimburse Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any of the foregoing fees, expenses and disbursements paid by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) and shall repay Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any loans or advances made by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for the purpose of providing AmPaM funds to pay any such fees, expenses and disbursements, provided that such reimbursement and loan repayment obligation shall be limited to the foregoing fees, expenses, and disbursements which are out-of-pocket expenses of AmPaM, Sterling City Capital, LLC or any person or entity which is an Affiliate thereof. Sterling City Capital, LLC shall be reimbursed by AmPaM in the form of AmPaM Notes. AmPaM retains the right, within a reasonable period following the Closing Date, to conduct an audit of the expenses for which Sterling City Capital, LLC is reimbursed. Each Stockholder shall pay all sales, use, transfer, real property transfer, recording, gains, stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in connection with the purchase and sale of the Company Stock, other than Transfer Taxes, if any, imposed by the State of Delaware. Each Stockholder shall file all necessary documentation and Returns with respect to such Transfer Taxes. In addition, each Stockholder acknowledges that he, and not the Company or AmPaM, will pay all Taxes due by him upon receipt of the consideration payable pursuant to Section 1 hereof. The Stockholders acknowledge that the risks of the transactions contemplated hereby include Tax risks, with respect to which the Stockholders are relying substantially on the opinion contemplated by Section 8.12 hereof and representations by AmPaM in this Agreement. 61 70 19.7 NOTICES. All notices of communication required or permitted hereunder shall be in writing and may be given by depositing the same in United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested, or by delivering the same in person or via a nationally recognized courier service to an officer or agent of such party. (a) If to AmPaM addressed to it at: American Plumbing & Mechanical, Inc. 515 Post Oak Blvd., Suite 450 Houston, Texas 77027 Attention: Chief Executive Officer with copies to: Thomas P. Mason Andrews & Kurth L.L.P. 4200 Chase Tower Houston, Texas 77002 (b) If to the Stockholders, addressed to them at their addresses set forth on the signature pages hereto. (c) If to the Company, addressed to it at: Mason Pearsall, Jr. Power Plumbing Inc. 6401 Bingle, Suite 222 Houston, Texas 77092 or to such other address or counsel as any party hereto shall specify pursuant to this Section 18.7 from time to time. 19.8 GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of Texas, excluding any conflicts of law, rule or principle that might refer same to the laws of another jurisdiction. 62 71 19.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations, warranties, covenants and agreements of the parties made herein and at the time of the Closing or in writing delivered pursuant to the provisions of this Agreement shall survive the consummation of the transactions contemplated hereby and any examination on behalf of the parties until the respective Expiration Dates referred to herein with respect thereto or, if no Expiration Date is applicable with respect thereto, until the expiration of all applicable statute of limitations periods. 19.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided herein, no delay of or omission in the exercise of any right, power or remedy accruing to any party as a result of any breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver. 19.11 TIME. Time is of the essence with respect to this Agreement. 19.12 REFORMATION AND SEVERABILITY. In case any provision of this Agreement shall be invalid, illegal or unenforceable, it shall, to the extent possible, be modified in such manner as to be valid, legal and enforceable but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement, and in either case the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. No provision of this Agreement shall be interpreted or construed against any party solely because that party or its legal representative drafted such provision. 19.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term of this Agreement shall be deemed exclusive but each shall be cumulative with all other rights, remedies and elections available at law or in equity. 19.14 CAPTIONS. The headings of this Agreement are inserted for convenience only, shall not constitute a part of this Agreement or be used to construe or interpret any provision hereof. 19.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived only with the written consent of AmPaM, the Company and Stockholders who would receive a majority of the Aggregate Consideration specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated. Any amendment or waiver effected in accordance with this Section 19.15 shall be binding upon each of the parties hereto, any other person receiving AmPaM Stock in connection with the purchase and sale of the Company Stock and each future holder of such AmPaM Stock. Any consent of the Stockholders who would receive a majority of the Aggregate Consideration pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated shall be deemed to be the consent of the Stockholders for purposes of provisions of this Agreement as to which a consent of the Stockholders may be requested or required. 63 72 19.16 MEDIATION AND ARBITRATION. If a dispute arises out of or relates to this Agreement, or the breach thereof, and if said dispute cannot be settled through direct discussions, the parties agree to first endeavor to settle the dispute in an amicable manner by mediation administered by the American Arbitration Association under its then prevailing Commercial Mediation Rules, before resorting to arbitration. Thereafter, any unresolved controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association in accordance with its then prevailing Commercial Arbitration Rules. The enforcement, interpretation and procedural and substantive effect of the obligation to arbitrate created by this Section 19.16 shall be governed by the Federal Arbitration Act as amended from time to time, 9 U.S.C. Section 1 et seq. The parties hereby disclaim any intention to have the substantive or procedural law of any state or other jurisdiction, other than the law of the United States as embodied in the Federal Arbitration Act, applied to such obligation. Any such mediation or arbitration proceeding will be conducted in Houston, Texas. 19.17 INFORMATION PROVIDED FOR PRIVATE PLACEMENT MEMORANDUM. For purposes of this Agreement, the information provided by the Company in writing specifically for inclusion in the Private Placement Memorandum shall include solely (i) the Financial Statements (in the form that they appear in the Private Placement Memorandum), (ii) any financial statements provided to AmPaM pursuant to Section 7.9, (iii) the description of the Company contained in the Private Placement Memorandum under the caption "The Company", (iv) the description of the Company's results of operations and its liquidity and capital resources, if any, contained in the Private Placement Memorandum under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and (v) the description, if any, of matters related to the Company contained in the Private Placement Memorandum under the caption "Certain Transactions Transactions involving Certain Officers, Directors and Stockholders". For purposes of this Agreement, the information provided by a Stockholder in writing specifically for inclusion in the Private Placement Memorandum shall include only (i) the description, if any, of matters related to such Stockholder contained in the Private Placement Memorandum under the caption "Certain Transactions - Transactions involving Certain Officers, Directors and Stockholders" and (ii) the biographical description of such Stockholder, if any, contained in the Private Placement Memorandum under the caption "Management." 19.18 EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective upon (i) the execution and delivery of this Agreement by all of the parties hereto and (ii) the delivery to AmPaM of each Employment Agreement attached hereto as Annex VI-1 and Annex VI-2 executed by each of the Company, the employees named therein and AmPaM. 64 73 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. AMERICAN PLUMBING & MECHANICAL, INC. By: /s/ DAVID BAGGETT -------------------------------- Name: David Baggett ------------------------------ Title: Chief Financial Officer ----------------------------- POWER PLUMBING INC. By: /s/ JAMES N. POWER -------------------------------- James N. Power President [Remainder of page intentionally left blank] 65 74 STOCKHOLDERS: SPOUSES (WITHOUT PERSONAL LIABILITY AND SOLELY TO ACKNOWLEDGE THE SALE OF THE COMPANY STOCK BY THE STOCKHOLDER): /s/ MASON PEARSALL, JR. /s/ PATRICIA PEARSALL - ------------------------------ ------------------------------ Mason Pearsall, Jr. Patricia Pearsall 15401 Clevedon Houston, Texas /s/ GUY N. MATHIEU - ------------------------------ Guy N. Mathieu 10990 West Road #207 Houston, Texas 77064 /s/ JAMES N. POWER /s/ JENNY POWER RYAN - ------------------------------ ------------------------------ James N. Power Jenny Power Ryan 14415 Wickhurst Place Cypress, Texas 77429 /s/ MARTIN J. POWER /s/ SHELLY B. POWER - ------------------------------ ------------------------------ Martin J. Power Shelly B. Power 1712 Morse Houston, Texas 77019 66 EX-10.14 19 ACQUISITION AGMT. - SHERWOOD MECHANICAL, INC. 1 EXHIBIT 10.14 Execution Copy - -------------------------------------------------------------------------------- ACQUISITION AGREEMENT dated as of 11th day of February, 1999 by and among AMERICAN PLUMBING & MECHANICAL, INC. SHERWOOD MECHANICAL, INC. and all of the STOCKHOLDERS of SHERWOOD MECHANICAL, INC. - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page RECITALS .........................................................................................................1 1. ACQUISITION OF STOCK.....................................................................................5 1.1 Acquisition.....................................................................................5 1.2 Consideration...................................................................................5 1.3 Certain Information With Respect to the Capital Stock of the Company and AmPaM..................5 2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY...........................................................5 2.1 Board of Directors..............................................................................5 2.2 Officers........................................................................................5 3. DELIVERY OF CONSIDERATION................................................................................6 3.1 Stockholders' Consideration.....................................................................6 3.2 Stockholders' Deliveries........................................................................6 4. CLOSING..................................................................................................6 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................6 5.1 Due Organization................................................................................7 5.2 Authorization...................................................................................7 5.3 Capital Stock of the Company....................................................................7 5.4 Transactions in Capital Stock...................................................................8 5.5 No Bonus Shares.................................................................................8 5.6 Subsidiaries; Ownership in Other Entities.......................................................8 5.7 Predecessor Status; etc.........................................................................8 5.8 Spin-off by the Company.........................................................................8 5.9 Financial Statements............................................................................8 5.10 Liabilities and Obligations.....................................................................9 5.11 Accounts and Notes Receivable..................................................................10 5.12 Licenses; Intellectual Property................................................................10 5.13 Environmental Matters..........................................................................11 5.14 Personal Property..............................................................................13 5.15 Significant Customers; Material Contracts and Commitments......................................13 5.16 Real Property..................................................................................14 5.17 Insurance......................................................................................14 5.18 Compensation; Employment Agreements; Labor Matters.............................................15 5.19 Employee Plans.................................................................................15 5.20 Compliance with ERISA..........................................................................16 5.21 Conformity with Law; Litigation................................................................17
-i- 3 5.22 Taxes..........................................................................................17 5.23 No Violations; No Consent Required, Etc........................................................18 5.24 Government Contracts...........................................................................19 5.25 Absence of Changes.............................................................................19 5.26 Deposit Accounts; Powers of Attorney...........................................................20 5.27 Validity of Obligations........................................................................21 5.28 Relations with Governments.....................................................................21 5.29 Disclosure.....................................................................................21 5.30 No Warranties or Insurance.....................................................................21 5.31 Interest in Customers and Suppliers and Related Party Transactions.............................21 5.32 Private Placement Memorandum...................................................................22 5.33 Authority; Ownership...........................................................................22 5.34 Preemptive Rights..............................................................................23 5.35 No Commitment to Dispose of AmPaM Stock........................................................23 5.36 Disclosure.....................................................................................23 6. REPRESENTATIONS OF AMPAM................................................................................23 6.1 Due Organization...............................................................................23 6.2 Authorization..................................................................................24 6.3 Capital Stock of AmPaM.........................................................................24 6.4 Transactions in Capital Stock..................................................................24 6.5 Subsidiaries...................................................................................25 6.6 Financial Statements...........................................................................25 6.7 Liabilities and Obligations....................................................................25 6.8 Conformity with Law; Litigation................................................................25 6.9 No Violations..................................................................................26 6.10 Validity of Obligations........................................................................27 6.11 AmPaM Stock....................................................................................27 6.12 AmPaM Notes....................................................................................28 6.13 No Side Agreements.............................................................................28 6.14 Business; Real Property; Material Agreements...................................................28 6.15 Relations with Governments.....................................................................28 6.16 Disclosure.....................................................................................28 6.17 Other Agreements...............................................................................29 7. COVENANTS PRIOR TO CLOSING..............................................................................29 7.1 Access and Cooperation; Due Diligence; Transfer of Real Estate.................................29 7.2 Conduct of Business Pending Closing............................................................30 7.3 Prohibited Activities..........................................................................31 7.4 No Shop........................................................................................32 7.5 Agreements.....................................................................................32 7.6 Notification of Certain Matters................................................................32 7.7 Amendment of Schedules.........................................................................33 7.8 Further Assurances.............................................................................33 7.9 Authorized Capital.............................................................................33
-ii- 4 7.10 Compliance with the Hart-Scott Act.............................................................33 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.................................................................................................34 8.1 Representations and Warranties; Performance of Obligations.....................................34 8.2 Satisfaction...................................................................................34 8.3 No Litigation..................................................................................34 8.4 Opinion of Counsel.............................................................................34 8.5 Consents and Approvals.........................................................................34 8.6 Good Standing Certificates.....................................................................35 8.7 No Material Adverse Change.....................................................................35 8.8 Secretary's Certificate........................................................................35 8.9 Tax Matters....................................................................................35 8.10 Other Founding Companies.......................................................................35 8.11 Company Release of Stockholders................................................................35 8.12 Sterling City Capital Transfer Restrictions....................................................35 8.13 Election of Chief Executive Officer............................................................36 8.14 Funding Availability...........................................................................36 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF AMPAM............................................................36 9.1 Representations and Warranties; Performance and Obligations....................................36 9.2 No Litigation..................................................................................36 9.3 Secretary's Certificate........................................................................36 9.4 No Material Adverse Effect.....................................................................37 9.5 Stockholders' Release..........................................................................37 9.6 Satisfaction...................................................................................37 9.7 Termination of Related Party Agreements........................................................37 9.8 Opinion of Counsel.............................................................................37 9.9 Consents and Approvals.........................................................................37 9.10 Good Standing Certificates.....................................................................38 9.11 Funding Availability...........................................................................38 9.12 FIRPTA Certificate.............................................................................38 9.13 Resignations of Directors and Officers.........................................................38 10. COVENANTS OF AMPAM AND THE STOCKHOLDERS AFTER CLOSING...................................................38 10.1 Release From Guarantees; Repayment of Certain Obligations......................................38 10.2 Preservation of Tax and Accounting Treatment...................................................39 10.3 Preparation and Filing of Tax Returns; Payment of Taxes........................................39 10.4 Directors......................................................................................40 10.5 Legal Opinions.................................................................................40 11. INDEMNIFICATION.........................................................................................40 11.1 General Indemnification by the Stockholders....................................................40 11.2 Indemnification by AmPaM.......................................................................41 11.3 Third Person Claims............................................................................42
-iii- 5 11.4 Exclusive Remedy...............................................................................43 11.5 Limitations on Indemnification.................................................................43 12. TERMINATION OF AGREEMENT................................................................................45 12.1 Termination....................................................................................45 12.2 Procedure and Effect of Termination............................................................45 13. NONCOMPETITION..........................................................................................46 13.1 Prohibited Activities..........................................................................47 13.2 Damages........................................................................................47 13.3 Reasonable Restraint...........................................................................47 13.4 Severability; Reformation......................................................................47 13.5 Independent Covenant...........................................................................48 13.6 Materiality....................................................................................48 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...............................................................48 14.1 Stockholders...................................................................................48 14.2 AmPaM..........................................................................................49 14.3 Damages........................................................................................49 14.4 Survival.......................................................................................49 14.5 Return of Information..........................................................................50 15. TRANSFER RESTRICTIONS...................................................................................50 15.1 Transfer Restrictions Relating to AmPaM Stock and AmPaM Notes..................................50 15.2 Transfer Restrictions Relating to Additional Consideration.....................................51 16. FEDERAL SECURITIES ACT REPRESENTATIONS..................................................................52 16.1 Compliance with Law............................................................................52 16.2 Economic Risk; Sophistication..................................................................52 16.3 Reliance by AmPaM..............................................................................53 17. REGISTRATION RIGHTS.....................................................................................53 17.1 Piggyback Registration Rights..................................................................53 17.2 Registration Procedures........................................................................54 17.3 Indemnification................................................................................56 17.4 Underwriting Agreement.........................................................................57 17.5 Transfer of Rights.............................................................................58 17.6 Rule 144 Reporting.............................................................................58 18. REDEMPTION OF AMPAM STOCK...............................................................................58 18.1 Redemption Trigger.............................................................................58 18.2 Minimum Redemption; Limitations................................................................59 18.3 Notice; Exercise...............................................................................59 18.4 Additional Redemptions.........................................................................59 18.5 Termination of Redemption Obligation...........................................................59
-iv- 6 19. GENERAL.................................................................................................60 19.1 Cooperation....................................................................................60 19.2 Successors and Assigns.........................................................................60 19.3 Entire Agreement...............................................................................60 19.4 Counterparts...................................................................................60 19.5 Brokers and Agent..............................................................................60 19.6 Expenses.......................................................................................61 19.7 Notices........................................................................................62 19.8 Governing Law..................................................................................62 19.9 Survival of Representations and Warranties.....................................................63 19.10 Exercise of Rights and Remedies................................................................63 19.11 Time...........................................................................................63 19.12 Reformation and Severability...................................................................63 19.13 Remedies Cumulative............................................................................63 19.14 Captions.......................................................................................63 19.15 Amendments and Waivers.........................................................................63 19.16 Mediation and Arbitration......................................................................64 19.17 Information Provided for Private Placement Memorandum..........................................64 19.18 Effective Date of Agreement....................................................................64
-v- 7 ANNEXES Annex I - Consideration to Be Paid to Stockholders Annex II - Amended and Restated Certificate of Incorporation and By-Laws of AmPaM Annex III - Form of Opinion of Counsel to AmPaM Annex IV - Form of Tax Opinion Annex V - Form of Opinion of Counsel to Company and Stockholders Annex VI-1 - Form of Employment Agreement -vi- 8 SCHEDULES 2.1 Board of Directors 2.2 Officers 5.1 Due Organization 5.2 Authorization 5.3 Capital Stock of the Company 5.4 Transactions in Capital Stock; Organization Accounting 5.5 No Bonus Shares 5.6 Subsidiaries; Ownership in Other Entities 5.7 Predecessor Status; etc 5.8 Spin-off by the Company 5.9 Financial Statements 5.10 Liabilities and Obligations 5.11 Accounts and Notes Receivable 5.12 Licenses; Intellectual Property (Schedules 5.12(a)(1), 5.12(a)(2), 5.12(b)(1) and 5.12(b)(2)) 5.13 Environmental Matters 5.14 Personal Property 5.15 Significant Customers; Material Contracts and Commitments (Schedules 5.15(a), 5.15(b) and 5.15 (c)) 5.16 Real Property 5.17 Insurance 5.18 Compensation; Employment Agreements; Labor Matters 5.19 Employee Plans 5.20 Compliance with ERISA 5.21 Conformity with Law; Litigation 5.22 Taxes (Schedules 5.22(a) and 5.22(b)) 5.23 No Violations, No Consents Required, Etc. (Schedules 5.23(a), 5.23(b), 5.23(c) and 5.23(e)) 5.24 Government Contracts 5.25 Absence of Changes 5.26 Deposit Accounts; Powers of Attorney 5.30 No Warranties or Insurance 5.31 Interest in Customers and Suppliers and Related Party Transactions 5.33 Authority; Ownership (Schedules 5.33(a) and 5.33(b)) 6.9 No Violations 7.1 Access and Cooperation; Due Diligence; Transfer of Real Estate 7.2 Conduct of Business Pending Closing 7.3 Prohibited Activities 7.5 Agreements 8.11 Employment Agreements 9.7 Termination of Related Party Agreements 10.1 Release From Guarantees; Repayment of Certain Obligations 16.2 Non-accredited Investors 18.5 Brokers and Agents -vii- 9 ACQUISITION AGREEMENT THIS ACQUISITION AGREEMENT (the "Agreement") is made as of the 11th day of February, 1999 by and among AMERICAN PLUMBING & MECHANICAL, INC., a Delaware corporation ("AmPaM"), SHERWOOD MECHANICAL, INC., a California corporation (the "Company"), and the stockholders listed on the signature pages of this Agreement (the "Stockholders"), which are all the stockholders of the Company. RECITALS WHEREAS, the Company is engaged in the plumbing and mechanical services business; WHEREAS, as of the date hereof, the Stockholders own, and as of the Closing Date the Stockholders will own, all of the issued and outstanding capital stock of the Company (the "Company Stock"); WHEREAS, AmPaM is entering into other separate agreements simultaneously with this Agreement that are substantially the same as this Agreement (the "Other Agreements"), each of which is entitled "Acquisition Agreement," with each of the Other Founding Companies (as defined herein) and their respective stockholders in order for AmPaM to acquire additional companies engaged in the plumbing and mechanical services business; WHEREAS, this Agreement and the Other Agreements constitute the "AmPaM Plan of Organization;" WHEREAS, the Stockholders and the boards of directors and the stockholders of AmPaM, and each of the Other Founding Companies that are parties to the Other Agreements, have approved and adopted the AmPaM Plan of Organization as an integrated plan pursuant to which the Stockholders and the stockholders of each of the other Founding Companies will contribute the capital stock of each of the Founding Companies to AmPaM, and the Stockholders and the stockholders of each of the other Founding Companies will acquire the stock of AmPaM (but not cash or other property) as a tax-free transfer of property under Section 351 of the Code; WHEREAS, in consideration of the agreements of the Other Founding Companies pursuant to the Other Agreements, the Stockholders have approved this Agreement as part of the AmPaM Plan of Organization in order to transfer all of the issued and outstanding capital stock of the Company to AmPaM; and NOW, THEREFORE, in consideration of the premises and of the mutual agreements, representations, warranties, provisions and covenants herein contained, the parties hereto hereby agree as follows: 10 Unless the context otherwise requires, capitalized terms used in this Agreement or in any schedule attached hereto and not otherwise defined shall have the following meanings for all purposes of this Agreement: "1933 Act" means the Securities Act of 1933, as amended. "Acquired Party" means the Company, any subsidiary of the Company and any member of a Relevant Group. "Affiliates" means with respect to any person or entity, any other person or entity that directly or indirectly, controls, is controlled by, or is under common control with such person or entity. "AmPaM" has the meaning set forth in the first paragraph of this Agreement. "AmPaM Charter Documents" has the meaning set forth in Section 6.1. "AmPaM Plan of Organization" has the meaning set forth in the recitals of this Agreement. "AmPaM Stock" means the common stock, par value $.01 per share, of AmPaM. "AmPaM Notes" means those notes issued by AmPaM to the Stockholders as a portion of the consideration to be received hereunder and in substantially the form to Annex I as Appendix A. "Balance Sheet Date" has the meaning set forth in Section 5.9. "Charter Documents" has the meaning set forth in Section 5.1. "Closing" has the meaning set forth in Section 4. "Closing Date" has the meaning set forth in Section 4. "Code" means the Internal Revenue Code of 1986, as amended. "Company" has the meaning set forth in the first paragraph of this Agreement. "Company Stock" has the meaning set forth in the recitals of this Agreement. "Delaware GCL" means the General Corporation Law of the State of Delaware. "Environmental Laws" has the meaning set forth in Section 5.13(b). "Expiration Date" has the meaning set forth in Section 5(A) and Section 6, as applicable. 2 11 "Founding Companies" means the following companies: Christianson Enterprises, Inc., a Texas corporation; Christianson Services, Inc., a Texas corporation; GGR Leasing Corporation, a Texas corporation; J.A. Croson Company of Florida, a Florida corporation; J.A. Croson Company, an Ohio corporation; Franklin Fire Sprinkler Company, an Ohio corporation; Keith Riggs Plumbing, Inc., an Arizona corporation; Miller Mechanical Contractors, Inc., a Georgia corporation; Nelson Mechanical Contractors, Inc., a Florida corporation; Power Plumbing Inc., a Delaware corporation; R.C.R. Plumbing, Inc., a California corporation; Sherwood Mechanical, Inc., a California corporation; and Teepe's River City Mechanical, Inc., an Ohio corporation. "GAAP" means generally accepted accounting principles as consistently applied in the United States. "Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Hazardous Substance" has the meaning set forth in Section 5.13(c). "IPO" means a firm commitment underwritten initial public offering of AmPaM Stock managed by one or more nationally recognized national investment banking firms. "known" or "knowledge," when used in reference to a statement regarding the existence or absence of facts in this Agreement, is intended by the parties to mean that the only information to be attributed to such person is information actually known to (a) the person in the case of an individual, (b) in the case of a corporation or other entity other than the Company, an officer or director of such corporation or entity or (c) in the case of the Company and its Subsidiaries, an officer of the Company listed on Schedule 2.2 hereto, except for David Baggett. "Material Adverse Change" means a material adverse change in the business, operations, properties, assets or condition (financial or otherwise), of the subject entity and its subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on the business, operations, properties, assets or condition (financial or otherwise), of the subject entity and its subsidiaries taken as a whole. "Material Documents" has the meaning set forth in Section 5.23. 3 12 "Ordinary Course of Business" means the ordinary course of business consistent with past customs and practice (including with respect to quantity and frequency). "Other Agreements" has the meaning set forth in the recitals of this Agreement. "Other Founding Companies" means all of the Founding Companies other than the Company. "Plans" has the meaning set forth in Section 5.19. "Private Placement Memorandum" means the Private Placement Memorandum, dated as of February 11, 1999, provided to each Stockholder prior to the execution and delivery of this Agreement which sets forth certain information relating to the transactions contemplated by this Agreement and the Other Agreements. "Qualified Plans" has the meaning set forth in Section 5.20. "Relevant Group" means the Company and any affiliated, combined, consolidated, unitary or similar group of which the Company is or was a member. "Restricted Common Stock" has the meaning set forth in Section 1.3(ii). "Returns" means any returns, reports or statements (including any information returns) required to be filed for purposes of a particular Tax. "Schedule" means each Schedule attached hereto, which shall reference the relevant sections of this Agreement, on which parties hereto disclose information as part of their respective representations, warranties and covenants. "SEC" means the United States Securities and Exchange Commission. "State of Incorporation" means the State of California. "Stockholders" has the meaning set forth in the first paragraph of this Agreement. "Subsidiaries" means with respect to a person or entity, any corporation or other entity in which such person or entity owns a 5% or greater ownership interest. "Tax" or "Taxes" means all federal, state, local or foreign net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value added, franchise, withholding, employment, excise, property, deed, stamp, alternative or add-on minimum, or other taxes, assessments, duties, fees, levies or other governmental charges, whether disputed or not, together with any interest, penalties, additions to tax or additional amounts with respect thereto. 4 13 1. ACQUISITION OF STOCK 1.1 ACQUISITION. Upon the terms and subject to the conditions contained in this Agreement and in reliance upon the representations, warranties, covenants and agreements contained in this Agreement, on the Closing Date, the Stockholders shall convey and transfer to AmPaM all of the issued and outstanding shares of Company Stock as set forth in Annex I hereto. 1.2 CONSIDERATION. The consideration for the Company Stock shall be as set forth on Annex I to this Agreement. 1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY AND AMPAM. The respective designations and numbers of outstanding shares and voting rights of each class of outstanding capital stock of the Company and AmPaM as of the date of this Agreement are as follows: (i) as of the date of this Agreement, the authorized and outstanding Company Stock is as set forth on Schedule 5.3 hereto; and (ii) immediately prior to the Closing Date, the authorized capital stock of AmPaM will consist of (A) 100,000,000 shares of AmPaM Stock, of which the number of issued and outstanding shares will be set forth in the Private Placement Memorandum, (B) 10,000,000 shares of redeemable preferred stock, of which the number of issued and outstanding shares will be set forth in the Private Placement Memorandum, and (C) 5,000,000 shares of Restricted Voting Common Stock, $.01 per value (the "Restricted Common Stock"), all of which will be issued and outstanding except as otherwise set forth in the Private Placement Memorandum. 2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY 2.1 BOARD OF DIRECTORS. The Company and the Stockholders shall take action, including solicitation of resignation of directors, necessary so that the Board of Directors of the Company as of the Closing Date shall consist only of the persons identified on Schedule 2.1 hereto. 2.2 OFFICERS. The Company and the Stockholders shall take action, including solicitation of resignation of officers, necessary so that the officers of the Company as of the Closing Date shall consist only of the persons identified on Schedule 2.2 hereto. 5 14 3. DELIVERY OF CONSIDERATION 3.1 STOCKHOLDERS' CONSIDERATION. On the Closing Date, the Stockholders shall, upon surrender of certificates evidencing the Company Stock, receive from AmPaM the respective number of shares of AmPaM Stock, the amount of cash and the principal amount of AmPaM Notes described on Annex I hereto specified with respect to each such Stockholder as payable on the Closing Date. All payments of cash shall be made by certified check or wire transfer of immediately available funds. Consideration consisting of AmPaM Notes shall be substantially in the form of Appendix A to Annex I. 3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at the Closing the certificates representing Company Stock, duly endorsed in blank by the Stockholders, or accompanied by blank stock powers, and with all necessary transfer tax and other revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The Stockholders agree promptly to cure any deficiencies with respect to the endorsement of the stock certificates or other documents of conveyance with respect to such Company Stock or with respect to the stock powers accompanying any Company Stock. 4. CLOSING The consummation of the transactions contemplated by Section 3 (the "Closing") shall take place on March 31, 1999 or such date not later than May 31, 1999 as AmPaM shall determine by giving written notice of such other date as provided in Section 18.7 (the "Closing Date") at the offices of Andrews & Kurth L.L.P., 4200 Chase Tower, 600 Travis, Houston, Texas 77002. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY (A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in the disclosure schedules attached hereto and except as otherwise qualified below, the Company represents and warrants that all of the following representations and warranties in this Section 5(A) are true at the date of this Agreement and, subject to Section 7.7 hereto, shall be true at the time of the Closing, and that such representations and warranties shall survive the Closing Date for a period of eighteen months (the last day of such period being the "Expiration Date"), except that the representations and warranties set forth in Sections 5.3, 5.22 and 5.32 hereof shall survive until such time as the applicable statute of limitations period has run, which shall be deemed to be the Expiration Date for the representations and warranties set forth in Sections 5.3, 5.22 and 5.32. For purposes of this Section 5, the term "Company" shall mean and refer to the Company and all of its Subsidiaries, if any, and any reference to a Material Adverse Effect on the Company or Material Adverse Change with respect to the Company shall mean the Company and its Subsidiaries, taken as a whole. Except as expressly set forth in this Agreement, the Company expressly disclaims any representation or warranty (express, implied or otherwise) relating to the 6 15 Company and any Subsidiary thereof including, without limitation, any warranty of merchantability or fitness for a particular purpose. 5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of Incorporation, and has the requisite power and authority to carry on its business as it is now being conducted. The Company is duly qualified or authorized to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or authorization necessary except where the failure to be so qualified or authorized to do business would not have a Material Adverse Effect on the Company. Schedule 5.1 sets forth a list of all states in which the Company is authorized or qualified to do business, which list indicates which of such entities is authorized or qualified to do business in such states. True, complete and correct copies of the Certificate or Articles of Incorporation and By-laws, each as amended, of the Company (the "Charter Documents") are all attached to Schedule 5.1. The Company has delivered to AmPaM complete and correct copies of (i) the stock records of the Company and (ii) all minutes of meetings, written consents and other evidence, if any, of deliberations of or actions taken by the Company's Board of Directors, any committees of the Board of Directors and stockholders during the last five years. 5.2 AUTHORIZATION. (i) The officers or other representatives of the Company executing this Agreement have the authority to enter into and bind the Company to the terms of this Agreement and (ii) the Company has the full legal right, power and authority to enter into this Agreement and consummate the transactions contemplated hereby. Copies of the most recent resolutions adopted by the Board of Directors of the Company and the most recent resolutions adopted by the Stockholders, which approve this Agreement and the transactions contemplated hereby in all respects, certified by the Secretary or an Assistant Secretary of the Company as being in full force and effect on the date hereof, are attached hereto as Schedule 5.2. 5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the Company and each of its Subsidiaries is as set forth on Schedule 5.3(a). All of the issued and outstanding shares of the capital stock of the Company are owned by the Stockholders in the amounts set forth in Schedule 5.3(a). Except as set forth on Schedule 5.3(a), all of the issued and outstanding capital stock of each Subsidiary is owned by the Company. All of the issued and outstanding shares of the capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable, are owned of record by the Stockholders and further, such shares were offered, issued, sold and delivered by the Company in compliance with all applicable state and Federal laws concerning the issuance of securities. Further, none of such shares were issued in violation of any preemptive rights of any past or present stockholder. 7 16 5.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 5.4(a), the Company has not acquired or redeemed any shares of capital stock of the Company since January 1, 1996. Except as set forth on Schedule 5.4(b), (i) no option, warrant, call, conversion right or commitment of any kind exists which obligates the Company to issue any of its authorized but unissued capital stock; (ii) the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof; and (iii) neither the voting stock structure of the Company nor the relative ownership of shares among any of its Stockholders has been altered or changed in contemplation of the AmPaM Plan of Organization. There are no voting trusts, proxies or other agreements or understandings to which the Company is a party or is bound with respect to the voting of any shares of capital stock of the Company. 5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the shares of Company Stock was issued pursuant to awards, grants or bonuses in contemplation of the AmPaM Plan of Organization. 5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set forth on Schedule 5.6(a), the Company has no Subsidiaries. Except as set forth in Schedule 5.6(b), the Company does not presently own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity nor is the Company, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. 5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7(a) is a list of all predecessor companies of the Company, including the names of any entities acquired by the Company (by stock purchase, merger or otherwise) or owned by the Company or from whom the Company previously acquired material assets, in any case, from the earliest date upon which any Stockholder acquired his or her stock in any Company. Except as disclosed on Schedule 5.7(b), the Company has not been, within such period of time, a subsidiary or division of another corporation or a part of an acquisition which was later rescinded. 5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there has not been any sale, spin-off or split-up of material assets of either the Company or any other person or entity that is an Affiliate of the Company since January 1, 1996. 5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 is a copy of: (i) the balance sheet of the Company as of September 30, 1997 and the related statements of operations, stockholders' equity and cash flows for the one-year period ended September 30, 1997, together with the related notes and schedules (such balance sheets, the related statements of operations, stockholders' equity and cash flows and the related notes and schedules are referred to herein as the "Year-end Financial Statements"); 8 17 (ii) the balance sheet of the Company as of June 30, 1998 and the related statements of operations, stockholders' equity and cash flows for the nine-month periods ended June 30, 1997 and 1998, together with the related notes and schedules (such balance sheets, the related statements of operations, stockholders' equity and cash flows and the related notes and schedules are referred to herein as the "Nine-Month Interim Financial Statements"); (iii) the balance sheet of the Company as of September 30, 1998 (the "Balance Sheet Date") and the related statements of operations, stockholders' equity and cash flows for the twelve-month periods ended September 30, 1997 and 1998 (such balance sheets, the related statements of operations, stockholders' equity and cash flows are referred to herein as the "Twelve-Month Interim Financial Statements"); and (iv) the income statement of the Company for the 12-month period ended June 30, 1998 (the "Valuation Income Statement"). The Year-end Financial Statements, the Nine-Month Interim Financial Statements, the Twelve-Month Interim Financial Statements and the Valuation Income Statement are collectively called the "Financial Statements". The Financial Statements, including those included in the Private Placement Memorandum, have been prepared in accordance with GAAP applied on a consistent basis and fairly present the financial position of the Company as of the dates thereof and the results of its operations and changes in financial position for the periods then ended, subject, in the case of the Nine-Month Interim Financial Statements and the Twelve-Month Interim Financial Statements, to normal year-end audit adjustments and any other adjustments described therein and the absence of certain footnote disclosures. 5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10(a) sets forth an accurate list as of the Balance Sheet Date of (i) all material liabilities of the Company which are not reflected on the balance sheet of the Company at the Balance Sheet Date or otherwise reflected in the Company Financial Statements at the Balance Sheet Date which by their nature would be required in accordance with GAAP to be reflected in the balance sheet, and (ii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages, pledges or other security agreements to which the Company is a party or by which its properties may be bound other than bid bonds and performance bonds made in the Ordinary Course of Business. Except as set forth on Schedule 5.10(b), since the Balance Sheet Date, the Company has not incurred any material liabilities or obligations of any kind, character or description, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than liabilities incurred in the Ordinary Course of Business. The Company has also delivered to AmPaM, on Schedule 5.10(c), a list of contingent liabilities related to pending litigation or litigation that has been threatened in writing, or other material liabilities which are not fixed or otherwise accrued or reserved. For each such contingent liability of the Company or liability of the Company for which the amount is not fixed or is contested, the Company has provided to AmPaM the following information: 9 18 (i) a summary description of the liability together with the following: (a) copies of all relevant documentation in the possession of the Company or its directors, officers or stockholders relating thereto; (b) amounts claimed and any other action or relief sought; and (c) name of claimant and all other parties to the claim, suit or proceeding; (ii) the name of each court or agency before which such claim, suit or proceeding is pending; (iii) the date such claim, suit or proceeding was instituted; and (iv) a good faith estimate of the maximum amount, if any, which the Company expects, based on information available, is likely to become payable with respect to each such liability and the amount, if any, accrued or reserved for each such potential liability on the Financial Statements. AmPaM acknowledges that all estimates referred to above and set forth on Schedule 5.10(c) are only good faith estimates, and that the Company and the Stockholders expressly do not represent or warrant that the actual amounts of such liabilities will be equal to, or more or less than, the amounts of such estimates. 5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11(a) sets forth an accurate list, in all material respects, of the accounts and notes receivable of the Company, as of the Balance Sheet Date, including any such amounts which are not reflected in the balance sheet as of the Balance Sheet Date, and including all receivables from and advances to employees and the Stockholders, which are identified as such. Schedule 5.11(a) also sets forth a materially accurate aging of all accounts and notes receivable as of the Balance Sheet Date showing amounts due in 30-day aging categories. Except to the extent reflected on Schedule 5.11(b), such accounts, notes and other receivables are collectible in the amounts shown on Schedule 5.11(a), net of reserves reflected in the balance sheet as of the Balance Sheet Date. 5.12 LICENSES; INTELLECTUAL PROPERTY. (a) The Company or its employees hold all licenses, franchises, permits and other governmental authorizations ("Licenses") necessary to conduct the business of the Company, the absence of which would cause a Material Adverse Effect on the Company, and the Company has delivered to AmPaM a list that is accurate, in all material respects, and summary description (which is set forth on Schedule 5.12(a)(1)) of all such Licenses. At or prior to the Closing, all such Licenses owned or held by any employee of the Company will be assigned or licensed to the Company for no additional consideration. The Licenses listed on Schedule 5.12(a)(1) are valid, and the Company has not received any notice that any person intends to cancel, terminate or not renew any such License. The Company has conducted and is conducting its business in compliance in all material respects with the requirements, standards, criteria and 10 19 conditions set forth in the Licenses listed on Schedule 5.12(a)(1) and is not in violation of any of the foregoing in any material respect. Except as specifically provided in Schedule 5.12(a)(2), the consummation by the Company of the transactions contemplated by this Agreement will not result in a default under or a breach or violation of, or adversely affect the rights and benefits afforded to the Company by, any such Licenses. (b) The Company owns or possesses adequate licenses or other rights to use (without making any payment or granting rights to any person in exchange) all patents, patent applications, trademarks, copyrights, service marks and trade names (collectively, the "Intellectual Property") necessary to conduct its business as currently conducted. A description of any Intellectual Property licensed by the Company, including the material terms of any such license, is described on Schedule 5.12(b)(1). Neither the validity of the Intellectual Property nor the title thereto or use thereof by the Company is being questioned in any pending litigation, and the conduct of the Company's business, as currently conducted, does not conflict with licenses, copyrights, uncopyrighted works, trade marks, service marks, trade names, trade name rights, patents, patent rights, unpatented inventions or trade secrets of others. Neither the validity of the Intellectual Property nor the title thereto or use thereof by the Company is being questioned in any pending or, to the knowledge of the Company, threatened infringement claims or litigation, and the conduct of the Company's business, as now conducted, does not conflict with licenses, copyrights, uncopyrighted works, trade marks, service marks, trade names, trade name rights, patents, patent rights, unpatented inventions or trade secrets of others. Except as specifically provided in Schedule 5.12(b)(2), the consummation by the Company of the transactions contemplated by this Agreement will not adversely affect the rights and benefits afforded to the Company by any such Intellectual Property. 5.13 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule 5.13 attached hereto, (i) the Company has conducted its businesses in compliance in all material respects with all applicable Environmental Laws, including, without limitation, having all environmental permits, licenses and other approvals and authorizations necessary for the operation of its business as presently conducted, except where the failure to have such permit, license, approval or authorization would not have a Material Adverse Effect on the Company, (ii) none of the properties owned by the Company contain any Hazardous Substance as a result of any activity of the Company in amounts exceeding the levels permitted by applicable Environmental Laws, except where amounts in excess of such levels would not have a Material Adverse Effect on the Company, (iii) the Company has not received any notices, demand letters or requests for information from any Federal, state, local or foreign governmental entity or third party indicating that the Company may be in violation of, or liable under, any Environmental Law in connection with the ownership or operation of its business, (iv) there are no civil, criminal or administrative actions, suits, demands, claims, hearings, investigations or proceedings pending or, to the knowledge of the Company, threatened, against the Company relating to any violation, or alleged violation, of any Environmental Law, except where such violation would not have a Material Adverse Effect on the Company, (v) no reports have been filed, or are required to be filed, by the Company concerning the release of any Hazardous Substance or the threatened or actual violation of any Environmental Law, (vi) no Hazardous Substance has 11 20 been disposed of, released or transported in violation of any applicable Environmental Law from any properties owned by the Company as a result of any activity of the Company during the time such properties were owned, leased or operated by the Company, (vii) there have been no environmental investigations, studies, audits, tests, reviews or other analyses regarding compliance or non-compliance with any applicable Environmental Law conducted by or which are in the possession of the Company relating to the activities of the Company which are not listed on Schedule 5.13 attached hereto prior to the date hereof, (viii) to the knowledge of the Company, (A) there are no underground storage tanks on, in or under any properties owned by the Company and (B) no underground storage tanks have been closed or removed from any of such properties during the time such properties were owned, leased or operated by the Company which are not listed on Schedule 5.13, (ix) to the knowledge of the Company, (A) there is no asbestos or asbestos-containing material present in any material quantity in any of the properties owned by the Company, and (B) no asbestos has been removed from any of such properties during the time such properties were owned, leased or operated by the Company, and (x) neither the Company nor any of its properties are subject to any material liabilities or expenditures (fixed or contingent) relating to any suit, settlement, court order, administrative order, regulatory requirement, judgment or claim asserted or arising under any Environmental Law. (b) As used herein, "Environmental Law" means, as of the Closing Date, any Federal, state, local or foreign law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction or agreement with any governmental entity to which the Company is a party or subject relating to (x) the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource) or to human health or safety or (y) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances, in each case as amended and as in effect on the Closing Date. The term Environmental Law includes, without limitation, (i) the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as amended and as in effect on the Closing Date, and (ii) any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of, effects of or exposure to any Hazardous Substance. (c) As used herein, "Hazardous Substance" means any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive, or dangerous, or otherwise regulated, under any Environmental Law. Hazardous Substance includes any substance to which exposure is regulated by any government authority or any Environmental Law including, without 12 21 limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste, industrial substance or petroleum or any derivative or by-product thereof, radon, radioactive material, asbestos or asbestos-containing material, urea formaldehyde foam insulation, lead or polychlorinated biphenyls. 5.14 PERSONAL PROPERTY. The Company has delivered to AmPaM an accurate list (which is set forth on Schedule 5.14(a)) of (x) all personal property material to the operations of the Company as of the Balance Sheet Date included in "plant, property and equipment" on the balance sheet of the Company as of such date, (y) all other items of personal property owned by the Company with an individual value in excess of $15,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all material leases and agreements in respect of personal property, including, in the case of each of (x), (y) and (z), (1) true, complete and correct copies of all such leases and (2) an indication as to which assets are currently owned, or were formerly owned, by Stockholders, relatives of Stockholders, or Affiliates of the Company. Except as set forth on Schedule 5.14(b), (i) all personal property material to, and used by, the Company in its business is either owned by the Company or leased by the Company pursuant to a lease included on Schedule 5.14(a), (ii) all of the personal property listed on Schedule 5.14(a) or replacement property thereof is in working order and condition, ordinary wear and tear excepted and (iii) all leases and agreements included on Schedule 5.14(a) are in full force and effect and constitute valid and binding agreements of the Company, in each case in accordance with their respective terms. 5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. (a) The Company has delivered to AmPaM a materially accurate list (which is set forth on Schedule 5.15(a)(1)) of all customers (persons or entities) representing 5% or more of the Company's annual revenues for any period covered by any of the Financial Statements. Except to the extent set forth on Schedule 5.15(a)(2), none of such customers has canceled or, to the knowledge of the Company, are currently threatening to cancel a currently effective contract with the Company. (b) The Company has listed on Schedule 5.15(b) all material contracts, commitments and similar agreements to which the Company is a party or by which it or any of its properties are bound (including, but not limited to, contracts with customers listed on Schedule 5.15(a), joint venture or partnership agreements, contracts with any labor organizations, strategic alliances and options to purchase land), other than agreements listed on Schedules 5.10(a), Schedule 5.14(a) or Schedule 5.16(a), (a) in existence as of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and in each case has delivered or made available to AmPaM true, complete and correct copies of such agreements. For purposes of the preceding sentence, a contract, commitment or similar agreement is "material" if it (i) has a term of more than one year (other than contracts, commitments or agreements that are cancelable without liability or penalty within 30 days of notice from the Company of cancellation or that can be terminated by the Company without material penalty upon notice of 30 days or less) or (ii) requires the payment by or to the Company of more than $100,000 during any 12-month period. Except for expenditures in the ordinary course of 13 22 business, the Company has also indicated on Schedule 5.15(b) a summary description of all plans or projects involving the opening of new operations, expansion of existing operations, or the acquisition of any personal property, business or assets requiring, in any event, the payment of more than $50,000 by the Company during any 12-month period. (c) Except as set forth on Schedule 5.15(c), the Company is not required to provide any bonding or other financial security arrangements in any material amount in connection with any contract listed on Schedule 5.15(b). 5.16 REAL PROPERTY. Schedule 5.16(a) includes a list of all real property owned or leased by the Company at the date hereof and all other real property, if any, used by the Company in the conduct of its business. The Company has good and insurable title to any real property owned by it that is shown on Schedule 5.16(a), other than property intended to be sold or distributed prior to the Closing Date as provided in Section 7.1(c) of this Agreement, and all real property so owned is subject to no mortgage, pledge, lien, conditional sales agreement, encumbrance, lease, possessory rights of third parties or charge, except for: (i) liens reflected on Schedule 5.10(a) or Schedule 5.16(b) as securing specified liabilities (with respect to which no material default by the Company exists); (ii) liens for current taxes not yet payable and assessments not in default; (iii) easements for utilities serving the property; and (iv) easements, covenants and restrictions and other exceptions to title which do not adversely affect the current use of the property. Copies of all leases and agreements in respect of such real property leased by the Company, which are true, complete and correct in all material respects, are attached to Schedule 5.16(a), and an indication as to which such properties, if any, are currently owned, or were formerly owned, by Stockholders or Affiliates of the Company or Stockholders is included in Schedule 5.16(a). Except as set forth on Schedule 5.16(b), all of such leases included on Schedule 5.16(a) are, as to the Company, in full force and effect and constitute valid and binding agreements of the Company in accordance with their respective terms. 5.17 INSURANCE. The Company has delivered to AmPaM (i) an accurate list as of the Balance Sheet Date of all insurance policies carried by the Company and (ii) an accurate list of all insurance loss runs or workers compensation claims received for the past three policy years (which lists are set forth on Schedule 5.17). The Company has also delivered or made available to AmPaM true, complete and correct copies of all insurance policies currently in effect that are referred in Schedule 5.17. Such insurance policies evidence all of the insurance the Company is required to carry pursuant to all of its contracts and other agreements and pursuant to all applicable laws. All of such insurance policies are currently in full force and effect except as stated in Schedule 5.17. 14 23 Since January 1, 1996, no insurance carried by the Company has been canceled by the insurer and the Company has not been denied coverage under any such policy. 5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS. (a) The Company has delivered to AmPaM an accurate list (which is set forth on Schedule 5.18(a)(1)) showing all officers, directors and key employees of the Company, listing all employment agreements with such officers, directors and key employees and the rate of compensation (and the portions thereof attributable to salary, bonus and other compensation, respectively) of each of such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The Company has provided to AmPaM true, complete and correct copies of any employment agreements for persons listed on Schedule 5.18(a)(1). Since the Balance Sheet Date, except as disclosed on Schedule 5.18(a)(2), there have been no increases in the compensation payable or any bonuses to any officer, director, key employee or other employee, except ordinary salary increases implemented on a basis consistent with past practices and except for bonuses paid on a basis consistent with past practices. (b) Except as set forth on Schedule 5.18(b), (i) the Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any arrangement with any labor union, (ii) to the knowledge of the Company, no campaign to establish such arrangement is in progress and (iii) there is no pending or, to the Company's knowledge, threatened labor dispute involving the Company and any group of its employees nor has the Company experienced any labor interruptions over the past three years. The Company believes its relationship with employees to be generally good. (c) Except as set forth in Schedule 5.18(c) attached hereto, (i) there are no claims, actions or proceedings pending or, to the knowledge of the Company, threatened between the Company and any of its employees, (ii) the Company has complied in all material respects with all laws relating to the employment of labor, including, without limitation, any provisions thereof relating to wages, hours, collective bargaining, and the payment of social security and similar taxes, and (iii) the Company has not received written notice from any person asserting that the Company is liable in any material amount for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. 5.19 EMPLOYEE PLANS. The Company has delivered to AmPaM accurate schedule (Schedule 5.19(a)) showing all employee benefit plans of the Company, including all employment agreements and other agreements or arrangements containing "golden parachute" or other similar provisions, and deferred compensation agreements, together with true, complete and correct copies of such plans, agreements and any trusts related thereto, and classifications of employees covered thereby as of the Balance Sheet Date and as of the date of this Agreement. Except for the employee benefit plans, if any, described on Schedule 5.19(a), the Company does not sponsor, maintain or contribute to any plan program, fund or arrangement that constitutes an "employee pension benefit plan", and neither the Company nor any Subsidiary has any obligation to contribute to or accrue or 15 24 pay any benefits under any deferred compensation or retirement funding arrangement on behalf of any employee or employees (such as, for example, and without limitation, any individual retirement account or annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred compensation arrangement). For the purposes of this Agreement, the term "employee pension benefit plan" shall have the same meaning as is given that term in Section 3(2) of ERISA. The Company has not sponsored, maintained or contributed to any employee pension benefit plan other than the plans set forth on Schedule 5.19(a), and, except as described on Schedule 5.19(b), the Company is not or could not be required to contribute to any retirement plan pursuant to the provisions of any collective bargaining agreement establishing the terms and conditions or employment of any of the Company's employees. Except as set forth on Schedule 5.19(c), the Company is not now, or will not as a result of its past activities become, liable to the Pension Benefit Guaranty Corporation or to any multiemployer employee pension benefit plan under the provisions of Title IV of ERISA. All employee benefit plans listed on Schedule 5.19(a) and the administration thereof are in compliance in all material respects with their terms and all applicable provisions of ERISA and the regulations issued thereunder, as well as with all other applicable federal, state and local statutes, ordinances and regulations. All accrued contribution obligations of the Company as of the Balance Sheet Date with respect to any plan listed on Schedule 5.19(a) have either been fulfilled in their entirety or are fully reflected on the balance sheet of the Company as of the Balance Sheet Date. 5.20 COMPLIANCE WITH ERISA. All plans listed on Schedule 5.19(a) that are intended to qualify under Section 401 (a) of the Code (the "Qualified Plans") are, and have been so qualified and have been determined by the Internal Revenue Service to be so qualified, and copies of such determination letters are attached to Schedule 5.19(a). Except as disclosed on Schedule 5.20, all reports and other documents required to be filed with any governmental agency or distributed to plan participants or beneficiaries (including, but not limited to, actuarial reports, audits or tax returns) since January 1, 1992 have been timely filed or distributed, and copies thereof have been made available to AmPaM. No such plan listed on Schedule 5.19(a) nor the Company has engaged in any transaction prohibited under the provisions of Section 4975 of the Code or Section 406 of ERISA. No such Plan listed on Schedule 5.19(a) has incurred an accumulated funding deficiency, as defined in Section 412(a) of the Code and Section 302(l) of ERISA; and the Company has not incurred any liability for excise tax or penalty due to the Internal Revenue Service nor any liability to the Pension Benefit Guaranty Corporation. The Company further represents that except as set forth on Schedule 5.20 hereto: (i) there have been no terminations, partial terminations or discontinuations of contributions to any Qualified Plan intended to qualify under Section 401(a) of the Code without notice to and approval by the Internal Revenue Service; 16 25 (ii) no plan listed on Schedule 5.19(a) subject to the provisions of Title IV of ERISA has been terminated; (iii) there have been no "reportable events" (as that phrase is defined in Section 4043 of ERISA) with respect to any such plan listed in Schedule 5.19(a); (iv) the Company (including any Subsidiaries) has not incurred liability under Section 4062 of ERISA; and (v) no circumstances exist pursuant to which the Company could have any direct or indirect liability whatsoever (including, but not limited to, any liability to any multiemployer plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for any excise tax or penalty, or being subject to any statutory lien to secure payment of any such liability) with respect to any plan now or heretofore maintained or contributed to by any entity other than the Company that is, or at any time was, a member of a "controlled group" (as defined in Section 412(n)(6)(B) of the Code) that includes the Company. 5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on Schedule 5.21 or Schedule 5.13, the Company has not violated within the five years prior to the date of this Agreement and is not currently in violation of any law or regulation or any order of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it other than violations that would not have a Material Adverse Effect on the Company; and except to the extent set forth on Schedule 5.10(c) or Schedule 5.13, there are no claims, actions, suits or proceedings, pending or, to the knowledge of the Company, threatened in writing against the Company, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over the Company and no written notice of any claim, action, suit or proceeding, whether pending or threatened, has been received by the Company, and to the knowledge of the Company there is no valid basis for any such claim, action, suit or proceeding that could reasonably be expected to have a Material Adverse Effect on the Company. 5.22 TAXES. The Company has timely filed all requisite Federal, state and other Tax Returns or extension requests for all fiscal periods ended on or before the Balance Sheet Date; and except as set forth on Schedule 5.22(a), there are no examinations in progress or claims pending against the Company for federal, state and other Taxes (including penalties and interest) for any period or periods prior to and including the Balance Sheet Date and no notice of any claim for Taxes, whether pending or threatened, has been received. All Tax, including interest and penalties (whether or not shown on any Tax Return), due by the Company has been paid. The amounts shown as accruals for Taxes on the Financial Statements are sufficient for the payment of all Taxes of the kinds indicated (including penalties and interest) for all fiscal periods ended on or before the date of the respective Financial Statements. Copies of (i) any tax examinations, (ii) extensions of statutory limitations and (iii) the federal and local income Tax Returns and franchise Tax Returns of Company for their last three (3) fiscal years, or such shorter period of time as any of them shall 17 26 have existed, are attached hereto as Schedule 5.22(a) or have otherwise been delivered to AmPaM. The Company has a taxable year ended September 30. Except as set forth on Schedule 5.22(a), the Company uses the accrual method of accounting for income tax purposes, and the Company's methods of accounting have not changed in any material respect in the past five years (except as required to conform to changes in GAAP). The Company is not an investment company as defined in Section 351(e)(1) of the Code. The Company is not and has not during the last five years been a party to any tax sharing agreement or agreement of similar effect. Except as set forth on Schedule 5.22(a), the Company is not and has not during the last five years been a member of any consolidated group for federal tax purposes. The Company has not received, been denied, or applied for any private letter ruling from the IRS during the last ten years. 5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC. (a) The Company is not in violation of any Charter Document. Except as set forth on Schedule 5.23(a), the Company is not in default under any lease, instrument, agreement, license, or permit set forth on Schedule 5.12(a), Schedule 5.14(a), Schedule 5.15(b) or Schedule 5.16(a) (collectively, the "Material Documents"). (b) Except as set forth on Schedule 5.23(b)(1), the execution and delivery of this Agreement by each of the Company and the Stockholders do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company under any of the terms, conditions or provisions of (i) the Charter Documents of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to the Company or any of its properties or assets, or (iii) any Material Document to which the Company is now a party or by which the Company or any of its properties or assets may be bound or affected. The consummation by the Company and the Stockholders of the transactions contemplated hereby will not result in any material violation, conflict, breach, right of termination or acceleration or creation of liens under any of the terms, conditions or provisions of the items described in clauses (i) through (iii) of the preceding sentence, subject, in the case of the terms, conditions or provisions of the items described in clause (iii) above, to obtaining (prior to the Effective Time) such consents as may be required from commercial lenders, lessors or other third parties as listed on Schedule 5.23(b)(2). (c) Except as set forth on Schedule 5.23(c) and except for the Hart-Scott Act, none of the Material Documents requires notice to, or the consent or approval of, any governmental agency or other third party with respect to the consummation by the Company and the Stockholders of any of the transactions contemplated hereby in order to remain in full force and effect, and consummation by the Company and the Stockholders of the transactions contemplated hereby will not give rise to any right to termination, cancellation or acceleration or loss of any material right or benefit under any Material Document. 18 27 (d) Except for (i) any filings to be made with the SEC pursuant to the 1933 Act or with any state securities authorities in connection with the offer and sale of AmPaM Stock and AmPaM Notes pursuant to this Agreement and (ii) any filing required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby. (e) Except as set forth on Schedule 5.23(e), none of the Material Documents prohibits the disclosure or publication by the Company or AmPaM of the name of any other party to such Material Document, and none of the Material Documents prohibits or restricts the Company from freely providing services or selling products to any other customer or potential customer of the Company, AmPaM or any Other Founding Company. 5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the Company is not now a party to any governmental contract subject to price redetermination or renegotiation. 5.25 ABSENCE OF CHANGES. (a) Since the Balance Sheet Date, except as set forth on Schedule 5.25 or as otherwise contemplated hereby, there has not been: (i) any Material Adverse Change in the Company; (ii) any damage, destruction or casualty loss (whether or not covered by insurance), alone or in the aggregate, which has caused a Material Adverse Effect on the Company; (iii) any change in the authorized capital of the Company or its outstanding securities or any change in its ownership interests or any grant of any options, warrants, calls, conversion rights or commitments; (iv) any declaration or payment of any dividend or distribution in respect of the capital stock or any direct or indirect redemption, purchase or other acquisition of any of the capital stock of the Company except for distributions that would have been permitted after the date hereof under Section 7.3(iii) hereof, (v) any increase in the compensation, bonus, sales commissions or fee arrangement payable or to become payable by the Company to any of its officers, directors, Stockholders, employees, consultants or agents, except for ordinary and customary bonuses and salary increases for employees in accordance with past practice; (vi) any work interruptions, labor grievances or claims filed, or any event or condition of any character, which has caused a Material Adverse Effect on the Company; 19 28 (vii) any sale or transfer, or any agreement to sell or transfer, any material assets, property or rights of the Company to any person, including, without limitation, the Stockholders and their affiliates, except inventory sold or transferred in the Ordinary Course of Business; (viii) any cancellation, or agreement to cancel, any indebtedness or other obligation owing to the Company, including without limitation any indebtedness or obligation of any Stockholders or any Affiliate thereof; (ix) any plan, agreement or arrangement granting any preferential rights to purchase or acquire any interest in any of the material assets, property or rights of the Company or requiring consent of any party to the transfer and assignment of any such assets, property or rights; (x) any purchase or acquisition of, or agreement, plan or arrangement to purchase or acquire, any property, rights or assets outside of the Ordinary Course of Business; (xi) any waiver of any material rights or claims of the Company; (xii) any amendment or termination of any Material Document to which the Company is a party except for the termination of a Material Document in accordance with its terms without any action on the part of the Company; (xiii) any transaction by the Company outside the Ordinary Course of Business; (xiv) any cancellation or termination of a material contract with a customer or client listed on Schedule 5.15(a) prior to the scheduled termination date thereof; or (xv) any other distribution of property or assets by the Company other than in the Ordinary Course of Business, other than (a) distributions of nonoperating assets specifically identified on Schedule 5.25, (b) distributions of real estate required by Section 7.1(c) of this Agreement and (c) distributions of cash or promissory notes permitted by Annex I hereto. (b) Except as set forth on Schedule 5.25, the Company has not, between the Balance Sheet Date and the date hereof, taken any of the actions set forth in Section 7.3. 5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to AmPaM an accurate schedule (which is set forth on Schedule 5.26) as of the date of the Agreement of: (i) the name of each financial institution in which the Company has an account or safe deposit box; (ii) the names in which the accounts or boxes are held; 20 29 (iii) the type of account and account number; and (iv) the name of each person authorized to draw thereon or have access thereto. Schedule 5.26 also sets forth the name of each person, corporation, firm or other entity holding a general or special power of attorney from the Company and a description of the terms of such power. 5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement by the Company and the performance of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of the Company and this Agreement has been duly and validly authorized by all necessary corporate action and is a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. 5.28 RELATIONS WITH GOVERNMENTS. The Company has not, and to the knowledge of the Company none of the Stockholders or any Affiliate of any of them has, given or offered anything of value to any governmental official, political party or candidate for government office or otherwise taken any action which would cause the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. 5.29 DISCLOSURE. This Agreement, including the Annexes and Schedules hereto, and the completed questionnaire related to the Hart-Scott Act furnished to AmPaM by the Company, do not contain an untrue statement of a material fact concerning the Company or omit to state a material fact concerning the Company necessary to make the statements herein and therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing does not apply to statements contained in or omitted from any of such documents made or omitted in reliance upon information furnished in writing by AmPaM. 5.30 NO WARRANTIES OR INSURANCE. Except for warranty liability under applicable law and except for warranty liability under the warranties issued by the Company of the types described on Schedule 5.30, the Company has no liability to any person under any warranty and the Company does not offer or sell insurance or consumer protection plans or other arrangements that could result in the Company being required to make any payment to or perform any service for any person. 5.31 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY TRANSACTIONS. Except as described on Schedule 5.31 or in Section 8.11, no Stockholder, officer, director or Affiliate of the Company (i) owns, directly or indirectly, any financial interest in, or is a director, officer, employee or affiliate of, any corporation, firm, association or business organization that is a client, supplier, customer, lessor, lessee or competitor of the Company, or (ii) is or will be a party to an agreement or relationship with the Company other than through a customary "at will" employment relationship. 21 30 5.32 PRIVATE PLACEMENT MEMORANDUM. None of the information supplied or to be supplied by the Company in writing specifically for inclusion in the Private Placement Memorandum contained or, as of the Closing Date, will contain any untrue statement of a material fact concerning the Company or omitted or will omit to state any material fact required to be stated therein or necessary in order to make the statements contained in such information supplied or to be supplied by the Company concerning the Company, in light of the circumstances under which they are made, not misleading. (B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS. Each Stockholder severally represents and warrants that the representations and warranties set forth below are true as of the date of this Agreement and, subject to Section 7.7 hereof, shall be true at the time of Closing, and that the representations and warranties set forth in this Section 5(B) shall survive the Closing Date. 5.33 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right, power and authority to enter into this Agreement, and this Agreement is a legal, valid and binding obligation of such Stockholder, enforceable against the Stockholder in accordance with its terms. Except as set forth on Schedule 5.33(a), the execution and delivery of this Agreement by such Stockholder does not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of such Stockholder under any of the terms, conditions or provisions of (i) the Charter Documents of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to such Stockholder or any of such Stockholder's properties or assets, or (iii) any lease, instrument, agreement, license or permit to which such Stockholder is now a party or by which such Stockholder or any of such Stockholder's properties or assets may be bound or affected. Except for (i) any filings to be made with the SEC pursuant to the 1933 Act and any state securities authorities in connection with the offer and sale of AmPaM Stock and AmPaM Notes pursuant to this Agreement, (ii) any filing required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by such Stockholder or the consummation by such Stockholder of the transactions contemplated hereby. Except as set forth on Schedule 5.33(b), such Stockholder owns beneficially and of record all of the shares of the Company Stock identified on Annex I hereto as being owned by such Stockholder, and, such Company Stock is owned free and clear of all liens, security interests, pledges, charges, voting trusts, voting agreements, restrictions, encumbrances and claims of every kind. 22 31 5.34 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby waives, any preemptive or other right to acquire shares of Company Stock or AmPaM Stock that such Stockholder has or may have had. Nothing herein, however, shall limit or restrict the rights of any Stockholder to acquire AmPaM Stock pursuant to (i) this Agreement, (ii) any option granted or to be granted by AmPaM to such Stockholder, (iii) a purchase through a broker in a regular stock market transaction or (iv) a purchase from a stockholder of a Founding Company (subject to compliance with any contractual restrictions or securities law restrictions applicable thereto specified in Section 15 hereof). 5.35 NO COMMITMENT TO DISPOSE OF AMPAM STOCK. No Stockholder is under any binding commitment or contract to sell, exchange or otherwise dispose of shares of AmPaM Stock or AmPaM Notes received pursuant to this Agreement. 5.36 DISCLOSURE. The completed Director and Officer Questionnaires with respect to such Stockholder (if any), the completed investor questionnaire furnished to AmPaM by such Stockholder in connection with the proposed acquisition by such Stockholder of AmPaM Stock and AmPaM Notes and any other information provided to AmPaM in writing by such Stockholder relating specifically to such Stockholder for inclusion in the Private Placement Memorandum do not contain an untrue statement of a material fact concerning such Stockholder or omit to state a material fact concerning such Stockholder necessary to make the statements herein and therein, in light of the circumstances under which they were made, not misleading. 6. REPRESENTATIONS OF AMPAM Except as otherwise qualified below, AmPaM represents and warrants that all of the following representations and warranties in this Section 6 are true at the date of this Agreement and, subject to Section 7.7 hereof, shall be true at the time of Closing, and that such representations and warranties shall survive the Closing Date for a period of eighteen months (the last day of such period being the "Expiration Date" for purposes of the representations and warranties set forth in this Section 6), except that the representations and warranties set forth in Section 6.3, 6.11 and 6.15 shall survive until such time as the applicable statute of limitations period has run, which shall be deemed to be the Expiration Date for the representations and warranties set forth in Sections 6.3, 6.11 and 6.15. AmPaM acknowledges that in purchasing the shares of Company Stock, it is relying upon its own independent investigation as well as the representations and warranties of the Company and the Stockholders as set forth in this Agreement. 6.1 DUE ORGANIZATION. AmPaM is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of Delaware, and has the requisite power and authority to carry on its business as it is now being conducted and as contemplated by the Private Placement Memorandum. AmPaM is duly qualified or authorized to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of 23 32 its properties makes such qualification or authorization necessary, except where the failure to be so qualified or authorized to do business would not have a Material Adverse Effect. True, complete and correct copies of the Certificate of Incorporation and By-laws, each as proposed to be amended and as such documents shall be in effect as of the Closing Date, of AmPaM (the "AmPaM Charter Documents") are attached hereto as Annex II. 6.2 AUTHORIZATION. (i) The officers of AmPaM executing this Agreement have the authority to enter into and bind AmPaM to the terms of this Agreement and (ii) AmPaM has the full legal right, power and authority to enter into this Agreement and consummate the transactions contemplated hereby. All corporate acts and other proceedings required to have been taken by AmPaM to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and properly taken. 6.3 CAPITAL STOCK OF AmPaM. The authorized capital stock of AmPaM is as set forth in Section 1.3(ii). Immediately prior to the Closing Date, all of the issued and outstanding shares of the capital stock of AmPaM will be as set forth in the Private Placement Memorandum, free and clear of all liens, security interests, pledges, charges, voting trusts, restrictions, encumbrances and claims of every kind other than any restrictions described in the Private Placement Memorandum. All of the issued and outstanding shares of the capital stock of AmPaM have been duly authorized and validly issued, are fully paid and nonassessable and such shares were offered, issued, sold and delivered by AmPaM in compliance with all applicable state and Federal laws concerning the issuance of securities. Further, none of such shares were issued in violation of the preemptive rights of any past or present stockholder of AmPaM. Upon the Closing Date, the authorized, issued and outstanding shares of capital stock of AmPaM will be as set forth in the Private Placement Memorandum under the caption "Capitalization." Upon the Closing Date, the aggregate number of shares of AmPaM Stock issued and outstanding on the Closing Date that are owned by Sterling City Capital, LLC, any Affiliates of Sterling City Capital, LLC and the officers and directors of AmPaM will not be greater than the number of shares of AmPaM Stock reflected in the Private Placement Memorandum as the aggregate number of shares of AmPaM Stock to be issued and outstanding and owned by Sterling City Capital, LLC, any Affiliates of Sterling City Capital, LLC and the officers and directors of AmPaM. 6.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements and except as set forth in the Private Placement Memorandum, (i) no option, warrant, call, conversion right or commitment of any kind exists as of the date of this Agreement which obligates AmPaM to issue any of its authorized but unissued capital stock; and (ii) AmPaM has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof. The material terms of any options, warrants or other rights to acquire shares of the stock of AmPaM referred to in the preceding sentence will be as described in the Private Placement Memorandum. 24 33 6.5 SUBSIDIARIES. As of the date of this Agreement, AmPaM has no subsidiaries. As of the date of this Agreement, AmPaM does not own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity, and AmPaM is not, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. 6.6 FINANCIAL STATEMENTS. The historical financial statements of AmPaM included in the Private Placement Memorandum (the "AmPaM Financial Statements") have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except as noted thereon), and the balance sheet included therein presents fairly the financial position of AmPaM as of its date. Management of AmPaM believes that the assumptions underlying the pro forma adjustments utilized in the preparation of such pro forma financial statements are reasonable, and such pro forma adjustments have been properly applied to the historical financial amounts in the compilation of the pro forma financial statements. Based on the representations in Section 5.9 of this Agreement and in Section 5.9 of each of the Other Agreements, the pro forma financial information of AmPaM fairly presents the pro forma financial position, results of operations and other information purported to be shown therein at the respective dates and for the respective periods specified. 6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Private Placement Memorandum, as of the date of this Agreement, AmPaM has no material liabilities or obligations of any kind, character or description, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than liabilities incurred in the ordinary course of business and consistent with past practices, liabilities or obligations set forth in or contemplated by this Agreement and the Other Agreements and except for fees incurred in connection with the transactions contemplated hereby and thereby. 6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the Private Placement Memorandum, AmPaM is not in violation of any law or regulation or any order of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it and its stockholders and, there are no claims, actions, suits or proceedings, pending or, to the knowledge of AmPaM, threatened against or affecting, AmPaM, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over it and no notice of any claim, action, suit or proceeding, whether pending or threatened, has been received. AmPaM has conducted and is conducting its businesses in compliance in all material respects with the requirements, standards, criteria and conditions set forth in applicable Federal, state and local statutes, ordinances, permits, licenses, orders, approvals, variances, rules and regulations and is not in violation, in any material respect, of any of the foregoing. 25 34 6.9 NO VIOLATIONS. (a) AmPaM is not in violation of any AmPaM Charter Document. AmPaM is not in default under any lease, instrument, agreement, license, or permit to which AmPaM is a party or by which AmPaM or any of its properties are bound (collectively, the "AmPaM Documents"). (b) The execution and delivery of this Agreement by AmPaM do not violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of AmPaM under any of the terms, conditions or provisions of (i) the AmPaM Charter Documents, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to AmPaM or any of its properties or assets, or (iii) any AmPaM Document; provided that the representations and warranties specified in clause (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. The consummation by AmPaM of the transactions contemplated hereby will not result in any material violation, conflict, breach, right of termination or acceleration or creation of liens under any of the terms, conditions or provisions of the items described in clauses (i) through (iii) of the preceding sentence, subject, in the case of the terms, conditions or provisions of the items described in clause (iii) above, to obtaining (prior to the Closing Date) (x) such approvals, consents or orders from the SEC, state blue sky authorities and authorities administering the Hart-Scott Act and (y) such other consents as may be required from commercial lenders, lessors or other third parties which are listed on Schedule 6.9. (c) Except for (i) any filings to be made with the SEC pursuant to the 1933 Act and filings with various state securities authorities in connection with the transactions contemplated by this Agreement, and (ii) any filings required to be made under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, none of the AmPaM Documents requires notice to, or the consent or approval of, any governmental agency or other third party with respect to the consummation by AmPaM of any of the transactions contemplated hereby in order to remain in full force and effect, and consummation by AmPaM of the transactions contemplated hereby will not give rise to any right to termination, cancellation or acceleration or loss of any material right or benefit under the AmPaM Documents; provided that the representations and warranties specified in clauses (i) and (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the 26 35 stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. (d) Except for (i) any filings with the SEC pursuant to the 1933 Act and filings with various state securities authorities in connection with the transactions contemplated by this Agreement and (ii) any filings required under the Hart-Scott Act in connection with the transactions contemplated by this Agreement, no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by AmPaM or the consummation by AmPaM of the transactions contemplated hereby; provided that the representations and warranties specified in clauses (i) and (ii) of this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. 6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement by AmPaM and the performance of the transactions contemplated herein have been duly and validly authorized by the Board of Directors of AmPaM and this Agreement has been duly and validly authorized by all necessary corporate action and is a legal, valid and binding obligation of AmPaM, enforceable against AmPaM in accordance with its terms. 6.11 AmPaM STOCK. At the time of issuance thereof and delivery to the Stockholders, the AmPaM Stock to be delivered to the Stockholders pursuant to this Agreement will constitute valid, duly authorized and legally issued shares of AmPaM, fully paid and nonassessable, and with the exception of restrictions upon resale set forth in Sections 15 and 16 hereof, will be identical in all substantive respects (which do not include the form of certificate upon which it is printed or the presence or absence of a CUSIP number on any such certificate) to the AmPaM Stock issued and outstanding as of the date hereof, other than the Restricted Common Stock. The AmPaM Stock issued and delivered to the Stockholders shall at the time of such issuance and delivery be free and clear of any liens, claims or encumbrances of any kind or character. The offer and sale of the shares of AmPaM Stock to be issued to the Stockholders pursuant to this Agreement are not required to be registered under the 1933 Act; provided that the representations and warranties specified in this sentence (A) are based on information in the investor questionnaires and related purchaser representative questionnaires executed and delivered by the Stockholders of the Company and the stockholders of the Other Founding Companies, the representations and warranties of the Stockholders set forth in Section 16 hereof and the representations and warranties of the stockholders of the Other Founding Companies set forth in Section 16 of the Other Agreements and (B) are 27 36 subject to the accuracy and completeness of the information contained in such investor questionnaires and related purchaser representative questionnaires and the truthfulness of such representations and warranties. 6.12 AmPaM NOTES. The AmPaM Notes have been duly authorized and, at the Closing Date, will have been duly executed by AmPaM and, when authenticated, issued and delivered, will constitute valid and binding obligations of AmPaM, enforceable against AmPaM in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers) reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). 6.13 NO SIDE AGREEMENTS. AmPaM has not entered into any agreement with any of the Founding Companies or any of the Stockholders of the Founding Companies other than this Agreement, the Other Agreements, the agreements referred to in this Agreement and in the Other Agreements and the Private Placement Memorandum. AmPaM has not entered into any agreements providing for rights to register shares of AmPaM Stock under the 1933 Act except as provided in Section 17 of this Agreement, in Section 17 of the Other Agreements and in an agreement with Sterling City Capital, LLC, its Affiliates and officers and directors of AmPaM having terms substantially similar to those set forth in Section 17 hereof. 6.14 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. AmPaM was formed in June 1998 and has conducted no material business since the date of its inception except for activities related to the transaction contemplated by this Agreement, the Other Agreements and the Private Placement Memorandum. Except as described in the Private Placement Memorandum, as of the date of this Agreement, AmPaM does not own any real property or any material personal property and is not a party to any other material agreement other than this Agreement, the Other Agreements and the agreements contemplated hereby and thereby. 6.15 RELATIONS WITH GOVERNMENTS. Neither AmPaM nor any of its directors, officers or Affiliates has given or offered anything of value to any government official, political party or candidate for government office, nor has AmPaM, any of its directors, officers or Affiliates of any of them otherwise taken any action, which would cause AmPaM to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect. 6.16 DISCLOSURE. The Private Placement Memorandum delivered to the Company and the Stockholders does not as of the date hereof contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing does not apply to statements contained in or omitted from any of such documents made or omitted in reliance upon, and in conformity with, information furnished to AmPaM by the Company or the Stockholders in writing specifically for inclusion in the Private Placement Memorandum. 28 37 6.17 OTHER AGREEMENTS. The Other Agreements have been duly authorized, executed and delivered by AmPaM and constitute the legal, valid and binding obligation of AmPaM enforceable against AmPaM in accordance with their respective terms. The terms and conditions of the Other Agreements (excluding the terms relating to the consideration payable by AmPaM thereunder) are identical in all material respects to the terms and conditions in this Agreement. 7. COVENANTS PRIOR TO CLOSING 7.1 ACCESS AND COOPERATION; DUE DILIGENCE; TRANSFER OF REAL ESTATE. (a) Between the date of this Agreement and the Closing Date, the Company will afford to the officers and authorized representatives of AmPaM reasonable access during normal business hours to all of the Company's sites, properties, books and records and will furnish AmPaM with such additional financial and operating data and other information as to the business and properties of the Company as AmPaM may from time to time reasonably request. The Company will cooperate with AmPaM, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. AmPaM, the Stockholders and the Company will treat all information obtained in connection with the negotiation and performance of this Agreement or the due diligence investigations conducted with respect to the Company as confidential in accordance with the provisions of Section 14 hereof. (b) Between the date of this Agreement and the Closing Date, AmPaM will afford to the officers and authorized representatives of the Company access to all of AmPaM's sites, properties, books and records and will furnish the Company with such additional financial and operating data and other information as to the business and properties of AmPaM and the Other Founding Companies as the Company may from time to time reasonably request. AmPaM will cooperate with the Company, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. The Company will cause all information obtained pursuant to this Section 7.1(b) or obtained in connection with the negotiation and performance of this Agreement to be treated as confidential in accordance with the provisions of Section 14 hereof. (c) Except as set forth on Schedule 7.1, any real property owned by the Company will be sold or distributed by the Company on terms mutually acceptable to AmPaM and the Company and leased back by the Company on terms no less favorable to the Company than those available from an unaffiliated party and otherwise reasonably acceptable to AmPaM at or prior to the Closing Date. (d) The Stockholder shall cause the guarantees referred to in Schedule 5.10 to be fully and unconditionally released by the beneficiaries thereof within 60 days following the Closing Date. 29 38 7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this Agreement and the Closing Date, the Company will, except as set forth on Schedule 7.2: (i) carry on its businesses in the Ordinary Course of Business and not introduce any material new method of management, operation or accounting; (ii) use all commercially reasonable efforts to maintain its properties and facilities, including those held under leases, in as good working order and condition as at present, ordinary wear and tear, depreciation and insured losses excepted; (iii) perform in all material respects all of its obligations under all Material Documents relating to or affecting its respective assets, properties or rights; (iv) use its commercially reasonable efforts to keep in full force and effect present insurance policies or other comparable insurance coverage; (v) use its commercially reasonable efforts to maintain and preserve its business organization intact, retain its respective present key employees and maintain its relationships with suppliers, customers and others having business relations with the Company; (vi) use its commercially reasonable efforts to maintain compliance with all material permits, laws, rules and regulations, consent orders, and all other orders of applicable courts, regulatory agencies and similar governmental authorities; (vii) maintain present debt and lease instruments in accordance with their terms and not enter into new or amended debt or lease instruments without the knowledge and consent of AmPaM (which consent shall not be unreasonably withheld), provided that debt and/or lease instruments may be replaced without the consent of AmPaM if such replacement instruments are on terms at least as favorable to the Company as the instruments being replaced; (viii) maintain or reduce present salaries and commission levels for all officers, directors, employees and agents except for ordinary and customary bonus and salary increases for employees in accordance with past practices; and (ix) use commercially reasonable efforts to cause the actual amount of its Current Assets (as defined in Annex I hereto) to be not less than 150% of the actual amount of its Current Liabilities (as defined in Annex I hereto). 30 39 7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between the date hereof and the Closing Date, the Company will not, without prior written consent of AmPaM: (i) make any change in its Charter Documents; (ii) issue any securities, options, warrants, calls, conversion rights or commitments relating to its securities of any kind other than in connection with the exercise of options or warrants listed in Schedule 5.4; (iii) except as permitted pursuant to the terms and conditions for distributions described in Annex I, declare or pay any dividend, or make any distribution in respect of its stock whether now or hereafter outstanding, or purchase, redeem or otherwise acquire or retire for value any shares of its stock; (iv) enter into any contract or commitment or incur or agree to incur any liability or make any capital expenditures, except if it is in the Ordinary Course of Business or involves an amount not in excess of three percent (3%) of the Company's gross revenues for fiscal 1997; (v) create, assume or permit to exist any mortgage, pledge or other lien or encumbrance upon any assets or properties whether now owned or hereafter acquired, except (1) with respect to purchase money liens incurred in connection with the acquisition of equipment with an aggregate cost not in excess of three percent (3%) of the Company's gross revenues for fiscal 1997 necessary or desirable for the conduct of the businesses of the Company, (2) (A) liens for taxes either not yet due or being contested in good faith and by appropriate proceedings (and for which contested taxes adequate reserves have been established and are being maintained) or (B) materialmen's, mechanics', workers', repairmen's, employees' or other like liens arising in the Ordinary Course of Business (the liens set forth in clause (2) being referred to herein as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or Schedule 5.15 hereto; (vi) sell, assign, lease or otherwise transfer or dispose of any property or equipment except in the Ordinary Course of Business and other than distributions of real estate and other assets as permitted in this Agreement (including Annex I hereto); (vii) negotiate for the acquisition of any business or the start-up of any new business; (viii) merge or consolidate or agree to merge or consolidate with or into any other corporation; 31 40 (ix) waive any material rights or claims of the Company, provided that the Company may negotiate and adjust bills and accounts in the course of good faith disputes with customers in a manner consistent with past practice; (x) amend or terminate any Material Document except for the termination of a Material Document in accordance with its terms without any action on the part of the Company; or (xi) enter into any other material transaction outside the Ordinary Course of Business or any transaction prohibited hereunder. 7.4 NO SHOP. None of the Stockholders, the Company, nor any agent, officer, director, trustee or any representative of any of the foregoing will, during the period commencing on the date of this Agreement and ending with the earlier to occur of the Closing Date or the termination of this Agreement in accordance with its terms, directly or indirectly: (i) solicit or initiate the submission of proposals or offers from any person for, (ii) participate in any discussions pertaining to, or (iii) furnish any information to any person other than AmPaM or its authorized agents relating to, any acquisition or purchase of all or a material amount of the assets of, or any equity interest in, the Company or a merger, consolidation or business combination of the Company. 7.5 AGREEMENTS. Except as disclosed on Schedule 7.5(a), the Stockholders and the Company shall terminate (i) any stockholders agreements, voting agreements, voting trusts, agreements providing for the grant by the Company of any options, warrants and employment agreements between the Company and any employee listed on Schedule 8.11 hereto and (ii) except as otherwise provided in this Agreement, any existing agreement between the Company and any Stockholder, on or prior to the Closing Date provided that nothing herein shall prohibit or prevent the Company from paying (either prior to or on the Closing Date) notes or other obligations from the Company to the Stockholders described in Schedule 7.5(b) in accordance with the terms thereof. 7.6 NOTIFICATION OF CERTAIN MATTERS. Each Stockholder and the Company shall give prompt notice to AmPaM upon obtaining knowledge of (i) the occurrence or non-occurrence of any event the occurrence or nonoccurrence of which would be likely to cause any representation or warranty of the Company or such Stockholder contained herein to be untrue or inaccurate in any material respect at or prior to the Closing and (ii) any material failure of such Stockholder or the Company to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by such person hereunder. AmPaM shall give prompt notice to the Company of (i) the occurrence or non-occurrence of any event the occurrence or non-occurrence of which would be likely to cause any representation or warranty of AmPaM contained herein to be untrue or inaccurate 32 41 in any material respect at or prior to the Closing, (ii) any material failure of AmPaM to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; (iii) any termination of any Other Agreement for any reason; and (iv) the issuance by the SEC or any state securities regulatory authority of any issuance of or threatened issuance of any order challenging the availability of an exemption from registration or suspending the qualification of any securities described in the Private Placement Memorandum for sale in any jurisdiction. However, subject to the provisions of Section 7.7, such notification shall not relieve either the Company or such Stockholder of their respective obligations under this Agreement. The delivery of any notice pursuant to this Section 7.6 shall not be deemed to (i) modify the representations or warranties hereunder of the party delivering such notice, which modification may only be made pursuant to Section 7.7, (ii) modify the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect the remedies available hereunder to the party receiving such notice. 7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to the representations and warranties of such party contained in this Agreement, such party shall have the continuing obligation until 24 hours prior to the Closing Date to notify AmPaM with respect to any matter (i) hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or described in the Schedules or (ii) which may have been omitted from the Schedules previously provided by such party. Notwithstanding the foregoing sentence, no amendment or supplement to a Schedule prepared by the Company may be made unless AmPaM consents to such amendment or supplement; and provided further, that no amendment or supplement to a Schedule prepared by AmPaM may be made unless the Stockholders consent to such amendment or supplement. For all purposes of this Agreement, including without limitation for purposes of determining whether the conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules hereto, as amended or supplemented with the consent of AmPaM or the Stockholders, as the case may be, as provided above, shall be deemed to be the Schedules to this Agreement. 7.8 FURTHER ASSURANCES. The parties hereto agree to execute and deliver, or cause to be executed and delivered, such further instruments or documents or take such other action as may be reasonably necessary or appropriate to carry out the transactions contemplated hereby and to cause the conditions to the Closing Date to be satisfied as promptly as practicable. 7.9 AUTHORIZED CAPITAL. Prior to the Closing Date, AmPaM shall maintain its authorized capital stock as set forth in the Private Placement Memorandum. 7.10 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this Agreement hereby recognize that one or more filings under the Hart-Scott Act may be required in connection with the transactions contemplated herein. If it is determined by the parties to this Agreement that filings under the Hart-Scott Act are required, then: (i) each of the parties hereto agrees to cooperate and use its best efforts to comply with the Hart-Scott Act and (ii) such compliance by the Stockholders and the parties agree to cooperate and use their best efforts to cause all filings required under the Hart- Scott Act to be made. If filings under the Hart-Scott Act are required, the costs and expenses thereof (including filing fees) shall be borne by AmPaM. 33 42 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY The obligations of the Stockholders and the Company with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the following conditions. As of the Closing Date, if any such applicable conditions have not been satisfied, any one or more of the Stockholders who would be entitled to receive a majority of the Aggregate Consideration (as defined herein) received by all Stockholders if the transactions contemplated hereby were consummated shall have the right to waive any condition not so satisfied. Any act or action of the Stockholders in consummating the Closing or delivering the certificates representing Company Stock as of the Closing Date shall constitute a waiver of any conditions not so satisfied. However, no such waiver shall be deemed to affect the survival of the representations and warranties of AmPaM contained in Section 6 hereof. 8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All representations and warranties of AmPaM contained in Section 6 shall be true and correct as of the Closing Date as though such representations and warranties had been made as of that time; all of the terms, covenants and conditions of this Agreement to be complied with and performed by AmPaM on or before the Closing Date shall have been duly complied with and performed in all material respects; and certificates to the foregoing effect dated the Closing Date and signed by the President or any Vice President of AmPaM shall have been delivered to the Stockholders. 8.2 SATISFACTION. All actions, proceedings, instruments and documents that are not within the control of the Company or the Stockholders and that are required to carry out this Agreement or incidental hereto shall be reasonably satisfactory to the Company, the Stockholders and their counsel. 8.3 NO LITIGATION. No action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock. 8.4 OPINION OF COUNSEL. The Company shall have received opinions from counsel for AmPaM, dated the Closing Date, addressed to the Company and the Stockholders in the form annexed hereto as Annex III. 8.5 CONSENTS AND APPROVALS. All necessary consents of and filings with any governmental authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made; any waiting periods under the Hart-Scott Act, if applicable, shall have expired or been terminated; all consents and approvals of third parties listed on Schedule 6.9 shall have been obtained; and no action or proceeding shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock and no governmental agency or body shall have taken any other action or made any request of Company as a result of which Company deems it inadvisable to proceed with the transactions hereunder. 34 43 8.6 GOOD STANDING CERTIFICATES. AmPaM shall have delivered to the Company a certificate, dated as of a date no later than ten days prior to the Closing Date, duly issued by the Delaware Secretary of State and in each state in which AmPaM is authorized to do business, showing that AmPaM is in good standing and authorized to do business and that all state franchise and/or income tax returns and taxes for AmPaM for all periods prior to the Closing have been filed and paid. 8.7 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have occurred which would constitute a Material Adverse Change with respect to AmPaM from the date of the Private Placement Memorandum. 8.8 SECRETARY'S CERTIFICATE. The Company shall have received a certificate or certificates, dated the Closing Date and signed by the secretary of AmPaM, certifying the truth and correctness of attached copies of AmPaM's Certificate of Incorporation (including amendments thereto), By-Laws (including amendments thereto), and resolutions of the board of directors and, if required, the stockholders of AmPaM approving AmPaM's entering into this Agreement and the Other Agreements and the consummation of the transactions contemplated hereby and thereby. 8.9 TAX MATTERS. The Stockholders shall have received an opinion of Andrews & Kurth L.L.P., in substantially the form of Annex IV hereto, that the AmPaM Plan of Organization will qualify as a tax-free transfer of property under Section 351 of the Code and that the Stockholders will not recognize gain to the extent the Stockholders exchange Company Stock for AmPaM Stock (but not cash or other property) pursuant to this Agreement in connection with the AmPaM Plan of Organization. 8.10 OTHER FOUNDING COMPANIES. The transactions contemplated by the Other Agreements are consummated simultaneously with the consummation of the transactions contemplated by this Agreement. 8.11 COMPANY RELEASE OF STOCKHOLDERS. The Company shall have delivered to the Stockholders an instrument dated the Closing Date, in form reasonably satisfactory to AmPaM and the Stockholders, which shall be effective only upon the occurrence of the Closing Date, releasing the Stockholders from (i) any and all claims of the Company against the Stockholders, known and unknown, and (ii) obligations of the Stockholders to the Company, except for (x) items specifically identified on Schedule 5.10(a) and Schedule 5.15(b) as being claims of or obligations to the Company and (y) continuing obligations to the Company relating to their employment by the Company pursuant to any employment agreement entered into pursuant to Section 8.11 hereof. 8.12 STERLING CITY CAPITAL TRANSFER RESTRICTIONS. Sterling City Capital, LLC and each of its Affiliates which owns AmPaM Stock shall have entered into an agreement with AmPaM containing substantially the same terms and conditions as are contained in Section 15 and Section 17. 35 44 8.13 ELECTION OF CHIEF EXECUTIVE OFFICER. AmPaM shall have taken all corporate action necessary to elect Robert A. Christianson as Chief Executive Officer of AmPaM effective immediately following the Closing Date. 8.14 FUNDING AVAILABILITY. AmPaM shall have entered into binding agreements with financial institutions, lenders or investors that provide AmPaM with sufficient funds to pay (i) the cash amounts specified in Annex I hereto as payable to the Stockholders upon the Closing and (ii) the aggregate cash amounts specified in Annex I to each of the Other Agreements as payable to the stockholders of the Other Founding Companies upon the Closing; and all conditions to the funding of the cash amounts necessary to make such payments specified in the agreements related to such financing arrangements, other than the closing of the transactions contemplated by this Agreement and the Other Agreements, shall have been satisfied as of the Closing Date. 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF AMPAM The obligations of AmPaM with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the following conditions. As of the Closing Date, if any such conditions have not been satisfied, AmPaM shall have the right to terminate this Agreement, or waive any such condition, but no such waiver shall be deemed to affect the survival of the representations and warranties contained in Section 5 hereof. 9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS. All the representations and warranties of the Stockholders and the Company contained in this Agreement shall be true and correct as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date; all of the terms, covenants and conditions of this Agreement to be complied with or performed by the Stockholders and the Company on or before the Closing Date shall have been duly performed or complied with in all material respects; and the Stockholders shall have delivered to AmPaM certificates dated the Closing Date and signed by them to such effect. 9.2 NO LITIGATION. No action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock. 9.3 SECRETARY'S CERTIFICATE. AmPaM shall have received a certificate, dated the Closing Date and signed by the secretary of the Company, certifying the truth and correctness of attached copies of the Company's Articles or Certificate of Incorporation (including amendments thereto), By-Laws (including amendments thereto), and resolutions of the board of directors and the Stockholders approving the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby. 36 45 9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have occurred with respect to the Company which would constitute a Material Adverse Effect, and the Company shall not have suffered any material loss or damages to any of its properties or assets, whether or not covered by insurance, which change, loss or damage materially affects or impairs the ability of the Company to conduct its business. 9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to AmPaM an instrument dated the Closing Date which shall be effective only upon the occurrence of the Closing releasing the Company and AmPaM from (i) any and all claims of the Stockholders against the Company and AmPaM and (ii) obligations of the Company and AmPaM to the Stockholders, except for (A) items specifically identified on Schedule 5.31 as being claims of or obligations to the Stockholders, (B) continuing obligations to Stockholders relating to their employment by the Company pursuant to employment agreements entered into as specified in Section 8.11 hereof, (C) obligations arising under this Agreement or the transactions contemplated hereby and (D) claims of Stockholders against the Company for unreimbursed business expenses incurred by the Stockholders on behalf of the Company (other than expenses related to the transactions contemplated by this Agreement) prior to the Closing Date or unreimbursed medical expenses of the Stockholders incurred prior to the Closing Date which are covered by the Company's existing health insurance coverage. In the event that the Closing Date does not occur, then the release instrument referenced herein shall be void and of no further force or effect. 9.6 SATISFACTION. All actions, proceedings, instruments and documents that are not within the control of AmPaM and that are required to carry out the transactions contemplated by this Agreement or incidental hereto shall have been reasonably approved by counsel to AmPaM. 9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on Schedule 9.7, all existing agreements between the Company and the Stockholders (and between the Company and entities controlled by the Stockholders) specified on Schedule 5.31 shall have been terminated effective prior to or as of the Closing Date without any payment being made by the Company other than payments made for services rendered, materials provided or other benefits provided to the Company prior to the Closing Date pursuant to the terms of such agreements as in effect as of the date of this Agreement. 9.8 OPINION OF COUNSEL. AmPaM shall have received opinions from counsel to the Company and the Stockholders, dated the Closing Date, substantially in the form annexed hereto as Annex V. 9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any governmental authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made; any waiting periods under the Hart-Scott Act, if applicable, shall have expired or been terminated; all consents and approvals of third parties listed on Schedule 5.23(b)(2) shall have been obtained; and no action or proceeding shall have been instituted or threatened to restrain or prohibit the purchase and sale of the Company Stock and no 37 46 governmental agency or body shall have taken any other action or made any request of AmPaM as a result of which AmPaM deems it inadvisable to proceed with the transactions hereunder. 9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to AmPaM a certificate, dated as of a date no earlier than ten days prior to the Closing Date, duly issued by the appropriate governmental authority in the Company's state of incorporation and, unless waived by AmPaM, in each state in which the Company is authorized to do business, showing the Company is in good standing and authorized to do business and that all state franchise and/or income tax returns and taxes for the Company for all periods prior to the Closing have been filed and paid. 9.11 FUNDING AVAILABILITY. AmPaM shall have entered into binding agreements with financial institutions, lenders or investors that provide AmPaM with sufficient funds to pay (i) the cash amounts specified in Annex I hereto as payable to the Stockholders upon the Closing and (ii) the aggregate cash amounts specified in Annex I to each of the Other Agreements as payable to the stockholders of the Other Founding Companies upon the Closing; and all conditions to the funding of the cash amounts necessary to make such payments specified in the agreements related to such financing arrangements, other than the closing of the transactions contemplated by this Agreement and the Other Agreements, shall have been satisfied as of the Closing Date. 9.12 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to AmPaM a certificate to the effect that he is not a foreign person pursuant to Section 1.1445-2(b) of the Treasury regulations. 9.13 RESIGNATIONS OF DIRECTORS AND OFFICERS. Any directors of the Company, other than those identified on Schedule 2.1, shall have resigned as directors of the Company. Any officers of the Company, other than those identified on Schedule 2.2, shall have resigned as officers of the Company. 10. COVENANTS OF AMPAM AND THE STOCKHOLDERS AFTER CLOSING 10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. AmPaM shall use reasonable efforts to have the Stockholders released from any and all guarantees of the Company's indebtedness, including bond obligations, identified on Schedule 10.1. Prior to obtaining the release of such guarantees, AmPaM shall provide its guarantee of such indebtedness to the lenders thereof. In the event that AmPaM cannot obtain such releases from the lenders of any such guaranteed indebtedness identified on Schedule 10.1 on or prior to 90 days subsequent to the Closing Date, AmPaM shall promptly pay off or otherwise refinance or retire such indebtedness such that the Stockholders' personal liability shall be released. AmPaM will indemnify the Stockholders against any loss or damage suffered as a result of the personal guarantees. 38 47 10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated by this Agreement, after the Closing Date, AmPaM shall not and shall not permit any of its Subsidiaries to undertake any act that would jeopardize the tax-free status of the exchange of Company Stock for AmPaM Stock (but not cash or other property), including without limitation: (a) the retirement or reacquisition, directly or indirectly, of all or part of the AmPaM Stock issued in connection with the transactions contemplated hereby; or (b) the entering into of financial arrangements for the benefit of the Stockholders other than as described in the Private Placement Memorandum or as described in this Agreement. 10.3 PREPARATION AND FILING OF TAX RETURNS; PAYMENT OF TAXES. (a) The Company, if possible, or otherwise the Stockholders shall file or cause to be filed all income Tax Returns (federal, state, local or otherwise) of any Acquired Party for all taxable periods that end on or before the Closing Date, and shall permit AmPaM to review all such Tax Returns prior to such filings. Unless the Company is a C corporation, the Stockholders shall pay or cause to be paid all income Tax liabilities (in excess of all amounts already paid with respect thereto or properly accrued or reserved with respect thereto on the Financial Statements) with respect to the Company's operations for all periods through and including the Closing Date. (b) AmPaM shall file or cause to be filed all separate Returns of, or that include, any Acquired Party for all taxable periods ending after the Closing Date. (c) Unless required by applicable law, regulations or government proceedings, AmPaM shall not take any action, including any amendment of a Tax Return of any Acquired Party, if such action would result in additional Tax liabilities payable by any of the Stockholders for periods ending on or prior to the Closing Date. (d) Each party hereto shall, and shall cause its subsidiaries and Affiliates to, provide to each of the other parties hereto such cooperation and information as any of them reasonably may request in filing any Return, amended Return or claim for refund, determining a liability for Taxes or a right to refund of Taxes or in conducting any audit or other proceeding in respect of Taxes. Such cooperation and information shall include providing copies of all relevant portions of relevant Returns, together with relevant accompanying schedules and relevant work papers, relevant documents relating to rulings or other determinations by Taxing Authorities and relevant records concerning the ownership and Tax basis of property, which such party may possess. Each party shall make its employees reasonably available on a mutually convenient basis at its cost to provide explanation of any documents or information so provided. Subject to the preceding sentence, each party required to file Returns pursuant to this Agreement shall bear all costs of filing such Returns. 39 48 (e) Each of the Company, AmPaM and each Stockholder shall comply with the tax reporting requirements of Section 1.351-3 of the Treasury Regulations promulgated under the Code, and treat the transaction as a tax-free contribution under Section 351(a) of the Code subject to gain, if any, recognized on the receipt of cash or other property under Section 351(b) of the Code. 10.4 DIRECTORS. The persons named in the Private Placement Memorandum shall be appointed as directors and elected as officers of AmPaM, as and to the extent set forth in the Private Placement Memorandum, promptly following the Closing Date; provided, however, that the parties hereto acknowledge that if the Company consummates an IPO, the persons who will serve as directors and executive officers of AmPaM will be adjusted as appropriate for a publicly traded entity, with any such changes being subject to the approval of the majority of the Board of Directors of AmPaM. 10.5 LEGAL OPINIONS. If required by the lenders pursuant to the terms of any agreements related to financing of the cash amounts referred to in Section 9.11 hereof, the Company shall cause its counsel to deliver to such lenders, at the Closing, an opinion of counsel in substantially the form attached hereto as Annex V. 11. INDEMNIFICATION The Stockholders and AmPaM each make the following covenants that are applicable to them, respectively: 11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. (a) Each Stockholder covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement until the applicable Expiration Date (as defined in the introductory paragraph to Section 5(A)), provided that for purposes of clause (iii) below, the applicable Expiration Date shall be the date on which the applicable statute of limitations expires), from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM as a result of or arising from (i) any breach of the representations and warranties of the Company set forth herein or on the schedules attached hereto or certificates delivered pursuant to this Agreement, (ii) any breach of any covenant or agreement on the part of the Company under this Agreement, or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating solely to the Company which was based upon information provided to AmPaM or its counsel in writing by the Company specifically for inclusion in the Private Placement Memorandum and is contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact relating to the Company required to be stated therein or necessary to make the statements therein not misleading; provided, however, that no Stockholder shall be liable for any 40 49 indemnification obligation pursuant to this Section 11.1 in excess of such Stockholder's pro rata share thereof determined by reference to the aggregate value of the Base Cash Amount (as defined in Annex I of this Agreement), the principal amount of AmPaM Notes and the shares of AmPaM Stock (valued at a price of $13.00 per share) received by such Stockholder pursuant to Section I.A. of Annex I hereto (without giving effect to the adjustments provided in Sections I.B. and I.C. thereof) (giving effect to the value of such AmPaM Stock and without giving effect to such adjustments, collectively, the "Aggregate Consideration") such Stockholder would receive pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated in relation to the total Aggregate Consideration all Stockholders would receive pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated. (b) Each Stockholder covenants and agrees that such Stockholder will indemnify, defend, protect and hold harmless AmPaM at all times, from and after the date of this Agreement, from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by AmPaM as a result of or arising from (i) any breach of the representations and warranties of such Stockholder set forth in Section 5(B) hereof, (ii) any breach of any covenant or agreement on the part of such Stockholder under this Agreement, (iii) the guarantees of the Company listed on Schedule 5.10 or (iv) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact relating solely to such Stockholder which was based upon information provided to AmPaM or its counsel in writing by such Stockholder specifically for inclusion in the Private Placement Memorandum and is contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact relating solely to such Stockholder required to be stated therein or necessary to make the statements therein in light of the circumstances in which such statements were made not misleading. (c) AmPaM acknowledges and agrees that other than the representations and warranties of the Company or the Stockholders specifically contained in this Agreement, there are no representations or warranties of the Company or the Stockholders, either express or implied, with respect to the transactions contemplated by this Agreement, the Company or its assets, liabilities and business. 11.2 INDEMNIFICATION BY AmPaM. AmPaM covenants and agrees that it will indemnify, defend, protect and hold harmless the Company and the Stockholders at all times from and after the date of this Agreement until the applicable Expiration Date (as defined in the introductory paragraph of Section 6, provided that for purposes of clause (iii) below, the applicable Expiration Date shall be the date on which the applicable statute of limitations expires), from and against all claims, damages, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incurred by the Company or the Stockholders as a result of or arising from (i) any breach by AmPaM of its representations and warranties set forth herein or on the schedules attached 41 50 hereto or certificates delivered pursuant to this Agreement, (ii) any breach of any agreement on the part of AmPaM under this Agreement; or (iii) any liability under the 1933 Act or any Federal or state securities law or regulation, at common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Private Placement Memorandum, or any amendment thereof or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except to the extent such is based upon an untrue statement or alleged untrue statement, or omission or alleged omission, made therein in reliance upon, and in conformity with, the representations and warranties of the Company or the Stockholders specifically contained in this Agreement or other information furnished to AmPaM by the Company or the Stockholders in writing specifically for inclusion therein. 11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the "Indemnified Party") has received notice of or has knowledge of any claim by a person not a party to this Agreement ("Third Person"), or the commencement of any action or proceeding by a Third Person, the Indemnified Party shall, as a condition precedent to a claim with respect thereto being made against any party obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying Party written notice of such claim or the commencement of such action or proceeding. Such notice shall state the nature and the basis of such claim and a reasonable estimate of the amount thereof. The Indemnifying Party shall have the right to defend and settle, at its own expense and by its own counsel reasonably satisfactory to the Indemnified Party, any such matter so long as the Indemnifying Party pursues the same in good faith and diligently, provided that the Indemnifying Party shall not settle any criminal proceeding without the written consent of the Indemnified Party. If the Indemnifying Party undertakes to defend or settle, it shall promptly notify the Indemnified Party of its intention to do so, and the Indemnified Party shall cooperate with the Indemnifying Party and its counsel in the defense thereof and in any settlement thereof. Such cooperation shall include, but shall not be limited to, furnishing the Indemnifying Party with any books, records or information reasonably requested by the Indemnifying Party that are in the Indemnified Party's possession or control. All Indemnified Parties shall use the same counsel, which shall be the counsel selected by Indemnifying Party, provided that if counsel to the Indemnifying Party shall have a conflict of interest or a conflict of interest is reasonably likely to arise that prevents counsel for the Indemnifying Party from representing such Indemnified Party, Indemnified Party shall have the right to participate in such matter through counsel of its own choosing and Indemnifying Party will reimburse the Indemnified Party for the reasonable expenses of its counsel. After the Indemnifying Party has notified the Indemnified Party of its intention to undertake to defend or settle any such asserted liability, and for so long as the Indemnifying Party diligently pursues such defense, the Indemnifying Party shall not be liable for any additional legal expenses incurred by the Indemnified Party in connection with any defense or settlement of such asserted liability, except (i) as set forth in the preceding sentence and (ii) to the extent such participation is requested by the Indemnifying Party, in which event the Indemnified Party shall be reimbursed by the Indemnifying Party for reasonable additional legal expenses and out-of-pocket expenses. If the Indemnifying Party desires to accept a final and complete settlement of any such Third Person claim and the Indemnified Party refuses to consent to such settlement, then the 42 51 Indemnifying Party's liability under this Section with respect to such Third Person claim shall be limited to the amount so offered in settlement by said Third Person. Upon agreement as to such settlement between said Third Person and the Indemnifying Party, the Indemnifying Party shall, in exchange for a complete release from the Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in such settlement. If the Indemnifying Party does not undertake to defend such matter to which the Indemnified Party is entitled to indemnification hereunder, or fails diligently to pursue such defense, the Indemnified Party may undertake such defense through counsel of its choice, at the cost and expense of the Indemnifying Party, and the Indemnified Party may settle such matter, and the Indemnifying Party shall pay the Indemnified Party for the settlement amount and any other liabilities or expenses incurred by the Indemnified Party in connection therewith, provided, however, that under no circumstances shall the Indemnified Party settle any Third Person claim without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. All settlements hereunder shall effect a complete release of the Indemnified Party, unless the Indemnified Party otherwise agrees in writing. With respect to any account, note or other receivable as to which the Stockholders have paid in full any indemnification obligation pursuant to this Section 11 as a result of a breach of the representation and warranty made pursuant to Section 5.11 or as to which a claim in respect thereof has been asserted pursuant to this Section 11 that has been applied against the Indemnification Threshold with respect to the Stockholders as a result of a breach of the representation and warranty made pursuant to Section 5.11, AmPaM shall cause the Company to assign such account, note or other receivable to the Stockholders. The parties hereto will make appropriate adjustments for insurance proceeds in determining the amount of any indemnification obligation under this Section. 11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any action seeking damages or any other form of monetary relief brought by any party to this Agreement against another party to this Agreement with respect to any provision of this Agreement, provided that, nothing herein shall be construed to limit the right of a party, in a proper case, to seek injunctive relief for a breach of this Agreement. AmPaM hereby waives, to the fullest extent permitted under applicable law, any and all other rights, claims and causes of action, known or unknown, it or any indemnified person may have against the Company or any Stockholder relating to this Agreement or the transactions pursuant to this Agreement arising under or based upon any Federal, state, local or foreign statute, law, rule, regulation or otherwise. Any indemnity payment under this Section 11 shall be treated as an adjustment to the exchange consideration for Tax purposes unless a final determination (which shall include the execution of a Form 870-AD or successor form) with respect to the Indemnified Party or any of its Affiliate causes any such payment not to be treated as an adjustment to the exchange consideration for U.S. Federal income Tax purposes. 11.5 LIMITATIONS ON INDEMNIFICATION. (a) AmPaM shall not assert any claim for indemnification under this Section 11 against the Stockholders until such time as, and solely to the extent that, the aggregate of all claims which AmPaM may have against the Stockholders shall exceed the greater of (a) 3.0% of the sum of (i) the cash paid to the Stockholders pursuant to Section 1.2 plus (ii) the value of the AmPaM Stock delivered to the Stockholders pursuant to Section 1.2 43 52 (calculated as provided in this Section 11.5) plus (iii) the principal amount of the AmPaM Notes delivered to the Stockholders pursuant to Section 1.2, or (b) $50,000 (the "Indemnification Threshold"). Stockholders shall not assert any claim for indemnification hereunder against AmPaM until such time as, and solely to the extent that, the aggregate of all claims which Stockholders may have against AmPaM shall exceed $50,000; provided, however, that this sentence shall not be applicable with respect of any failure by AmPaM to (i) deliver the consideration specified in Annex I hereto on the Closing Date upon the satisfaction, or waiver by AmPaM, of all conditions to the occurrence of the Closing Date specified in Section 9 or (ii) comply with its obligations pursuant to Section 10.1. After the $50,000 threshold for AmPaM (subject to the proviso in the preceding sentence) or the Indemnification Threshold for a Stockholder has been met, all claims must be made in $10,000 increments, which claims may be cumulated in order to meet such $10,000 thresholds. For purposes of this paragraph, the AmPaM Stock delivered to the Stockholders shall be valued at $13.00 per share. (b) No person shall be entitled to indemnification under this Section 11 if and to the extent that such person's claim for indemnification is directly or indirectly related to a breach by such person of any representation, warranty, covenant or other agreement set forth in this Agreement. No claim for indemnification against the Stockholders shall limit, diminish or change any obligation of AmPaM pursuant to Section 10.1 hereof. (c) Notwithstanding any other term of this Agreement, no Stockholder shall be liable under this Section 11 for an amount which exceeds eighty-five percent (85%) of the amount of proceeds received by such Stockholder (valued as of the Closing Date) in connection with the purchase and sale of the Company Stock. For purposes of this paragraph, the AmPaM Stock shall be valued at $13.00 per share. (d) A Stockholder may pay any indemnification obligation under Section 11 by means of the payment of cash or a combination of the payment of cash, the forgiveness of amounts owed pursuant to the AmPaM Notes and the delivery to AmPaM of shares of AmPaM Stock; provided that the percentage of the indemnification obligation satisfied by means of the delivery of shares of AmPaM Stock does not exceed the percentage of AmPaM Stock comprising the total consideration paid to such Stockholder by AmPaM to such Stockholder pursuant to Annex I. For the purpose of crediting Stockholders for payments made to AmPaM by means of delivery of shares of AmPaM Stock, the AmPaM Stock shall be valued at $13.00 per share. (e) In determining the amount of any loss, liability or expense for which any party is entitled to indemnification under this Agreement, the gross amount thereof will be reduced by any correlative insurance proceeds or other third party indemnity or reimbursement proceeds realized or to be realized by such party (or, in the case of AmPaM, by AmPaM, the Company or any subsidiary of AmPaM or the Company) and such correlative insurance proceeds or other third party indemnity or reimbursement proceeds shall be net of any insurance premium or other incremental cost or expense owed or payable to any third party which becomes due as a result of such claim. AmPaM 44 53 shall use commercially reasonable efforts to pursue any available insurance coverage or other rights of indemnity or reimbursement from third parties with respect to any such loss, liability or expense. 12. TERMINATION OF AGREEMENT 12.1 TERMINATION. This Agreement may be terminated at any time prior to the Closing Date solely: (i) by mutual consent of AmPaM and the Stockholders; (ii) by the Stockholders, if the transactions contemplated by this Agreement to take place at the Closing Date shall not have been consummated by June 30, 1999, unless the failure of such transactions to be consummated is due to a breach of this Agreement by the Company or the Stockholders prior to or on the Closing Date; (iii) by AmPaM, if the transactions contemplated by this Agreement to take place at the Closing Date shall not have been consummated by June 30, 1999, unless the failure of such transactions to be consummated is due to a breach of this Agreement by AmPaM prior to or on the Closing Date; (iv) by the Stockholders, if a material breach or default shall be made by AmPaM in the observance or in the due and timely performance of any of the covenants or agreements contained herein relating to AmPaM, and the curing of such default shall not have been made (or in the reasonable judgment of such Stockholders cannot be made) on or before the Closing Date; (v) by AmPaM, if a material breach or default shall be made by the Company or the Stockholders in the observance or in the due and timely performance of any of the covenants or agreements contained herein relating to the Company or the Stockholders, and the curing of such default shall not have been made (or in the reasonable judgment of AmPaM cannot be made) on or before the Closing Date; (vi) by the Stockholders, if the conditions set forth in Section 8 hereof have not been satisfied or waived as of the Closing Date; or (vii) by AmPaM, if the conditions set forth in Section 9 hereof have not been satisfied or waived as of the Closing Date. 12.2 PROCEDURE AND EFFECT OF TERMINATION. A determination to terminate this Agreement by AmPaM pursuant to Section 12.1 shall be valid and effective only if a written notice of termination, accompanied by a certified copy of resolutions of the board of directors of AmPaM that evidence the authorization of the officer of AmPaM to deliver a written notice of termination of this Agreement pursuant to Section 12.1, is given to the Stockholders in the manner specified for notices 45 54 in this Agreement. A determination to terminate this Agreement by the Stockholders pursuant to Section 12.1 shall be valid and effective only if a written notice of termination, signed by Stockholders who would be entitled to receive a majority of the shares of AmPaM Stock specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated, is given to AmPaM in the manner specified for notices in this Agreement. Upon the giving of notice of termination of this Agreement pursuant to Section 12.1 as specified in the preceding sentence, this Agreement shall terminate, and the transactions contemplated hereby shall be abandoned, without further action by any of the parties hereto. Immediately upon any such termination, AmPaM shall deliver written notice of such termination to the Other Founding Companies. If this Agreement is terminated as provided in this Section 12, no party hereto shall have any liability or further obligation hereunder to any other party, except as provided in Section 14 and Section 18.6, provided, that, the termination of this Agreement will in no way limit any obligation or liability of any party based on or arising from a breach or default by such party with respect to any of its representations, warranties, covenants or agreements contained in this Agreement including, but not limited to, legal and audit costs and out of pocket expenses that occurred prior to such termination. 13. NONCOMPETITION 13.1 PROHIBITED ACTIVITIES. The Stockholders will not, without the prior written consent of AmPaM, for a period of two (2) years following the Closing Date, for any reason whatsoever, directly or indirectly, for themselves or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature: (i) engage, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, whether paid or unpaid, in any plumbing, piping, mechanical, heating, ventilation or air conditioning contracting, installation or services business or operation, whether for residential, commercial, industrial or governmental customers, or any ancillary contracting, installation or services business directly related thereto (such business and operations referred to herein as the "Plumbing and Mechanical Business"), within 100 miles of where the Company or any of its subsidiaries conducted business within two (2) years prior to the Closing Date (the "Territory"); (ii) call upon any person who is, at the Closing Date, within the Territory, an employee of AmPaM or any subsidiary thereof for the purpose or with the intent of enticing such employee away from or out of the employ of AmPaM or any subsidiary thereof; (iii) call upon any person or entity which is, at the Closing Date, or which has been within three (3) years prior to the Closing Date, a customer of AmPaM or any subsidiary thereof, of the Company or of any of the Other Founding Companies for the purpose of soliciting customers, orders or contracts for any Plumbing and Mechanical Business in direct competition with AmPaM within the Territory; 46 55 (iv) call upon any prospective acquisition candidate, on any Stockholder's own behalf or on behalf of any competitor in the Plumbing and Mechanical Business, which candidate, to the actual knowledge of such Stockholder after due inquiry, was called upon by AmPaM or any subsidiary thereof or for which, to the actual knowledge of such Stockholder after due inquiry, AmPaM or any subsidiary thereof made an acquisition analysis, for the purpose of acquiring such entity; or (v) disclose to any person, firm, partnership, corporation or business the names or identities of any person, firm, partnership, corporation or business which has been a customer of the Company or any of its subsidiaries within the two (2) years prior to the Closing Date for any reason or purpose whatsoever except to the extent that the Company has in the past disclosed such information to the public for valid business reasons; or (vi) testify as an expert witness in matters related to the Plumbing and Mechanical Business for an adverse party to AmPaM, the Company or any Other Founding Companies in litigation. Notwithstanding the above, the foregoing covenant shall not be deemed to prohibit any Stockholder from acquiring as a passive investment (i) not more than one percent (1%) of the capital stock of a competing business whose stock is traded on a national securities exchange, the NASDAQ Stock Market or over-the-counter, or (ii) not more than five percent (5%) of the capital stock of a competing business whose stock is not publicly traded if the Board of Directors of AmPaM consents to such acquisition. 13.2 DAMAGES. Because of the difficulty of measuring economic losses to AmPaM as a result of a breach of the foregoing covenant, and because of the immediate and irreparable damage that could be caused to AmPaM for which it would have no other adequate remedy, each Stockholder agrees that the foregoing covenant may be enforced by AmPaM in the event of breach by such Stockholder, by injunctions and restraining orders. 13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the foregoing covenants in this Section 13 impose a reasonable restraint on the Stockholders in light of the activities and business of AmPaM and the subsidiaries thereof on the date of the execution of this Agreement and the current plans of AmPaM as described in the Private Placement Memorandum. 13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant. Moreover, in the event any court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which the court deems reasonable, and the Agreement shall thereby be reformed. 47 56 13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of any Stockholder against AmPaM or any subsidiary thereof, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by AmPaM of such covenants. It is specifically agreed that the period of two (2) years stated at the beginning of this Section 13, during which the agreements and covenants of each Stockholder made in this Section 13 shall be effective, shall be computed by excluding from such computation any time during which such Stockholder is found to be in violation of any provision of this Section 13 as determined by any of (i) a written agreement to such effect executed and delivered by AmPaM and such Stockholder, (ii) a determination by an arbitration panel pursuant to an arbitration conducted pursuant to Section 18.16 hereof or (iii) a non-appealable judgment of a court of competent jurisdiction. The covenants contained in Section 13 shall not be affected by any breach of any other provision hereof by any party hereto. The covenants contained in Section 13 shall have no effect if the transactions contemplated by this Agreement are not consummated. 13.6 MATERIALITY. The Company and the Stockholders hereby agree that the covenants contained in this Section 13 are a material and substantial part of this transaction. 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION 14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they had in the past, currently have, and in the future may possibly have, access to certain confidential information of the Company, the Other Founding Companies, and/or AmPaM, such as operational policies, customer lists, and pricing and cost policies that are valuable, special and unique assets of the Company's, the Other Founding Companies' and/or AmPaM's respective businesses. The Stockholders agree that they will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, except (a) to authorized representatives of AmPaM, (b) following the Closing, such information may be disclosed by the Stockholders as is required in the course of performing their duties for AmPaM or the Company and (c) to its counsel and other advisers, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section 14.1; provided, however that (i) the foregoing disclosure prohibition shall not apply in the event that (i) such information becomes known to the public generally through no fault of the Stockholders, (ii) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (ii), the Stockholders shall, if possible, give prior written notice thereof to AmPaM and provide AmPaM with the opportunity to contest such disclosure, or (iii) the disclosing party reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party. In the event of a breach or threatened breach by any of the Stockholders of the provisions of this Section, AmPaM shall be entitled to an injunction restraining such Stockholders from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting AmPaM from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. In the event the transactions contemplated 48 57 by this Agreement are not consummated, Stockholders shall have none of the above-mentioned restrictions on their ability to disseminate confidential information with respect to the Company. 14.2 AMPAM. AmPaM recognizes and acknowledges that it had in the past and currently has access to certain confidential information of the Company, such as operational policies, customer lists, and pricing and cost policies that are valuable, special and unique assets of the Company's business. AmPaM agrees that, prior to the Closing, or if the transactions contemplated by this Agreement are not consummated, it will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, except (a) to authorized representatives of the Company, (b) to its counsel and other advisers, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section 14.2, (c) to the Other Founding Companies and their representatives pursuant to Section 7.1(b) of the Other Agreements and (d) to potential purchasers of securities of AmPaM to the extent necessary or advisable in connection with the applicable securities laws; provided, however that the foregoing disclosure prohibition shall not apply in the event that (A) such information becomes known to the public generally through no fault of AmPaM, (B) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (B), AmPaM shall, if possible, give prior written notice thereof to the Company and the Stockholders and provide the Company and the Stockholders with the opportunity to contest such disclosure, or (C) the disclosing party reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party. In the event of a breach or threatened breach by AmPaM of the provisions of this Section 14.2, the Company and the Stockholders shall be entitled to an injunction restraining AmPaM from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting the Company and the Stockholders from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. In the event the transactions contemplated by this Agreement are not consummated for any reason, AmPaM shall nevertheless remain subject to this Section 14.2, except that it shall not be permitted to make any disclosures otherwise than pursuant to clause (A), (B) or (C) above. 14.3 DAMAGES. Because of the difficulty of measuring economic losses as a result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and because of the immediate and irreparable damage that would be caused for which they would have no other adequate remedy, the parties hereto agree that, in the event of a breach by any of them of the foregoing covenants, the covenant may be enforced against the other parties by injunctions and restraining orders. 14.4 SURVIVAL. The obligations of the parties under this Article 14 shall survive the termination of this Agreement for a period of five years from the Closing Date. 49 58 14.5 RETURN OF INFORMATION. If the transactions contemplated by this Agreement are not consummated, AmPaM will return or destroy all confidential information regarding the Company. 15. TRANSFER RESTRICTIONS 15.1 TRANSFER RESTRICTIONS RELATING TO AMPAM STOCK AND AMPAM NOTES. For a period of two years from the Closing Date or, in the event that the Company completes an IPO, for a period through the second anniversary of the date of the closing of such IPO (the "Restricted Period"), no Stockholder shall (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any shares of AmPaM Stock or AmPaM Notes received by the Stockholders pursuant to this Agreement or any securities convertible into, exchangeable or exercisable for any shares of AmPaM Stock or AmPaM Notes received by such Stockholder pursuant to this Agreement, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any shares of AmPaM Stock or AmPaM Notes received by such Stockholder pursuant to this Agreement, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the AmPaM Stock or AmPaM Notes, whether any such swap or transaction is to be settled by delivery of shares of AmPaM Stock or AmPaM Notes or other securities, by the delivery or payment of cash or otherwise, except, in the case of clauses (i), (ii) or (iii) above, (A) as otherwise agreed by AmPaM, (B) for the sale of shares of AmPaM Stock, and entering into agreements relating to the sale of shares of AmPaM Stock, pursuant to Section 17 hereof, (C) for transfers to (I) immediate family members of such Stockholder who agree with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (II) trusts, limited partnerships or other estate planning entities for the benefit of such Stockholder or family members of such Stockholder which have agreed with AmPaM in writing, through action taken by the trustees, partners or other persons having authority to bind the trust, limited partnership or other estate planning entity, to be bound by the restrictions set forth in this Section 15.1, (III) any charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code which agrees with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1, (D) for transfers of AmPaM Stock or AmPaM Notes to AmPaM pursuant to Section 11.5(d), (E) for transfers to another Stockholder, to another person or entity who receives shares of AmPaM Stock or AmPaM Notes or AmPaM Series A Preferred Stock pursuant to the Other Agreements or to Sterling City Capital LLC or any of its Affiliates provided that (1) such transaction is exempt from the registration requirements of the 1933 Act as evidenced by the delivery to AmPaM of an opinion of counsel in form and substance reasonably satisfactory to AmPaM and (2) any such transferee agrees in writing to be bound by the restrictions set forth in this Section 15.1, (F) transfers of shares of AmPam Notes, shares of AmPaM Stock, by such Stockholder to employees of the Company of up to an aggregate of 15% of the shares of AmPaM Stock received by such Stockholder pursuant to this Agreement provided that (1) any such transaction is exempt from the registration requirements of the 1933 Act as evidenced by the delivery to AmPaM of an opinion of counsel in form and substance reasonably satisfactory to AmPaM and (2) any such employee agrees with AmPaM in writing to be bound by the restrictions set forth in this Section 15.1 or (G) the sale by such Stockholder in an IPO of shares of AmPaM Stock representing not more than 10% of the Aggregate Consideration in cash; provided, however, that in no circumstance will a Stockholder be 50 59 entitled to sell shares of AmPaM Stock in an IPO to the extent that the sale of such shares by such Stockholder would result in such Stockholder receiving in excess of 45% of the Aggregate Consideration in cash; and, provided further, if AmPaM is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under Section 17.1 that the number of shares to be sold by persons other than AmPaM is greater than the number of such shares which can be offered without adversely affecting the success of the offering, AmPaM may reduce pro rata (among the Stockholders and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. During the Restricted Period, the certificates evidencing the AmPaM Stock or AmPaM Notes delivered to the Stockholders pursuant to Section 3 of this Agreement will bear a legend substantially in the form set forth below: THE [SHARES/NOTES] REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO THE TERMS OF THE ACQUISITION AGREEMENT PURSUANT TO WHICH SUCH SHARES WERE ISSUED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, PLEDGE OR OTHER DISPOSITION PRIOR TO EXPIRATION OF THE RESTRICTED PERIOD REFERRED TO IN THE ACQUISITION AGREEMENT EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH AGREEMENT. SUCH RESTRICTIONS ON TRANSFER ARE SET FORTH IN AN ACQUISITION AGREEMENT, A COPY OF WHICH IS MAINTAINED AT THE PRINCIPAL OFFICES OF THE ISSUER. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE. 15.2 TRANSFER RESTRICTIONS RELATING TO ADDITIONAL CONSIDERATION. No Stockholder shall (i) sell, assign, exchange, transfer, pledge, or otherwise dispose of any right to receive any consideration pursuant to Section II of Annex I to this Agreement (the "Additional Consideration Right") or any securities convertible into, exchangeable or exercisable for any Additional Consideration Right, (ii) grant any option to purchase, or otherwise enter into any contract to sell, assign, transfer, pledge or otherwise dispose of, any Additional Consideration Right, or (iii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of any Additional Consideration Right, whether any such swap or transaction is to be settled by delivery of shares of AmPaM Stock or other securities, by the delivery or payment of cash or otherwise. 51 60 16. FEDERAL SECURITIES ACT REPRESENTATIONS 16.1 COMPLIANCE WITH LAW. Each Stockholder acknowledges that the shares of AmPaM Stock, the Additional Consideration Right and any AmPaM Notes to be delivered to such Stockholder pursuant to this Agreement have not been and will not be registered under the 1933 Act (except as provided in Section 17 hereof) and therefore may not be sold, assigned, exchanged, transferred, pledged or otherwise disposed of without compliance with the 1933 Act which, among other matters, would require registration under the 1933 Act unless exemption from the registration requirements is available for such transaction. The AmPaM Stock, the Additional Consideration Right and any AmPaM Notes to be acquired by each Stockholder pursuant to this Agreement is being acquired solely for such Stockholder's own account, for investment purposes only, and with no present intention of selling, assigning, exchanging, transferring, pledging, or otherwise disposing of it. Each Stockholder covenants, warrants and represents that neither the shares of AmPaM Stock, the Additional Consideration Right nor any AmPaM Notes issued to such Stockholder will be offered, sold, assigned, exchanged, pledged, transferred or otherwise disposed of except after full compliance with all of the applicable provisions of the 1933 Act and the rules and regulations of the SEC. All certificates representing the AmPaM Stock shall bear the following legend in addition to the legend required under Section 15 of this Agreement: THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE FEDERAL AND STATE SECURITIES LAWS. 16.2 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear the economic risk of an investment in the AmPaM Stock and AmPaM Notes to be acquired pursuant to this Agreement and can afford to sustain a total loss of such investment. Each Stockholder has substantial knowledge and experience in making investment decisions of this type (or is relying on qualified purchaser representatives with such knowledge and experience in making this decision), and is capable, either individually or with such purchaser representatives, of evaluating the merits and risks of this investment. Each Stockholder has had an adequate opportunity to ask questions and receive answers from the officers of AmPaM concerning any and all matters relating to the transactions described herein including, without limitation, the background and experience of the current and proposed officers and directors of AmPaM, the plans for the operations of the business of AmPaM, the business, operations and financial condition of the Founding Companies other than the Company, and any plans for additional acquisitions. Each Stockholder has asked any and all questions of the nature described in the preceding sentence and all questions have been answered to such Stockholder's satisfaction. Except as set forth on Schedule 16.2, each Stockholder is an "accredited investor" as defined in Rule 501(a) of the 1933 Act. Neither the foregoing nor any investigation made by the Stockholders referred to above shall in any way affect the representations, warranties, covenants and agreements of AmPaM made herein except to the extent that AmPaM is relying upon the representations of the Stockholders in Section 16.1 and in this Section 16.2 for purposes of 52 61 AmPaM's representations and warranties in Sections 6.9, 6.11, 6.15 and 6.17 hereof as specified therein. 16.3 RELIANCE BY AmPaM. Each Stockholder acknowledges that AmPaM in relying upon the representations and covenants of such Stockholder set forth in Section 16.1 and Section 16.2 for purposes of compliance by AmPaM with Federal and state securities laws related to the issuance of AmPaM Stock pursuant to this Agreement and the Other Agreements. 17. REGISTRATION RIGHTS 17.1 PIGGYBACK REGISTRATION RIGHTS. Whenever AmPaM proposes to register any AmPaM Stock for its own or other's account under the 1933 Act for a public offering, other than (i) any shelf or other registration of shares to be used as consideration for acquisitions of additional businesses by AmPaM and (ii) registrations relating to employee benefit plans, AmPaM shall give each of the Stockholders prompt written notice of its intent to do so. Upon the written request of any of the Stockholders given within 15 calendar days after receipt of such notice, notwithstanding the provisions of Section 15 (except as specified below with respect to an IPO), AmPaM shall cause to be included in such registration all of the AmPaM Stock issued to such Stockholders pursuant to this Agreement (including any stock issued as or issuable upon the conversion or exchange of any convertible security, warrant, right or other security which is issued by AmPaM as a stock split, dividend or other distribution with respect to, or in exchange for, or in replacement of such AmPaM Stock) which any such Stockholder requests, other than shares of AmPaM Stock which may then be immediately sold under Rule 144(k) (or any similar or successor provision) promulgated under the 1933 Act, and other than shares of AmPaM Stock that have been theretofore sold by the Stockholder in accordance with the 1933 Act, provided that AmPaM shall have the right to reduce pro rata the number of shares of each selling Stockholder included in such registration to the extent that inclusion of such shares would, in the written opinion of tax counsel to AmPaM or its independent auditors, jeopardize the status of the transactions contemplated hereby and by the Private Placement Memorandum as a tax-free organization under Section 351 of the Code; provided, however, that with respect to a proposal by AmPaM to register AmPaM Stock under the 1933 Act in connection with an IPO, no Stockholder shall be permitted pursuant to this Section 17.1 to have included in such registration more shares of AmPaM Stock than permitted to be sold by such Stockholder pursuant to Section 15.1. In addition, if AmPaM is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under this Section 17.1 that the number of shares to be sold by persons other than AmPaM is greater than the number of such shares which can be offered without adversely affecting the success of the offering, AmPaM may reduce pro rata (among the Stockholders and all other selling security holders in the offering) the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. If any Stockholder disapproves of the terms of the underwriting, that Stockholder may elect to withdraw therefrom by written notice to AmPaM and the managing underwriter. That Stockholder's shares of AmPaM Stock so withdrawn shall also be withdrawn from registration; provided, however, that, if by the withdrawal of such shares a greater number of shares of AmPaM 53 62 Stock held by other Stockholders may be included in such registration, then AmPaM shall offer to all other Stockholders of AmPaM the right to include additional shares in the same proportion used in effecting the above limitations. AmPaM shall not, for a period of two years following the Closing Date, grant to any other person any rights to cause AmPaM to register any securities in priority over, or in precedent to, the rights granted to the Stockholders hereunder and to the stockholders of the Other Founding Companies pursuant to Section 17 of the Other Agreements. 17.2 REGISTRATION PROCEDURES. Whenever AmPaM is required to register shares of AmPaM Stock pursuant to Section 17.1, AmPaM will, as expeditiously as possible: (i) Prepare and file with the SEC a registration statement with respect to such shares and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements or term sheets thereto, AmPaM will furnish a representative of the Stockholders with copies of all such documents proposed to be filed) as promptly as practical; (ii) Notify the Stockholders of any stop order issued or threatened by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered; (iii) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 120 days, cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the 1933 Act; and comply with the provisions of the 1933 Act applicable to it with respect to the disposition of all securities covered by such registration statement during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement or supplement to the prospectus; (iv) Furnish to each Stockholder who so requests such number of copies of such registration statement, each amendment and supplement thereto and the prospectus included in such registration statement (including each preliminary prospectus and any term sheet associated therewith), and such other documents as such Stockholder may reasonably request in order to facilitate the disposition of the relevant shares; (v) Make "generally available to its security holders" (within the meaning of Rule 158) an earnings statement satisfying the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder no later than 90 days after the end of the 12-month period beginning with the first day of AmPaM's first fiscal quarter commencing after the effective date of the registration statement; 54 63 (vi) Make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible moment; (vii) If requested by the managing underwriter or underwriters, if any, or any participating Stockholder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters or any participating Stockholder, as the case may be, reasonably requests to be included therein, including, without limitation, information with respect to the number of shares of AmPaM Stock being sold by participating Stockholders to any underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any other terms of an underwritten offering of the shares of AmPaM Stock to be sold in such offering, and promptly make all required filings of such prospectus by supplement or post-effective amendment; (viii) Make available for inspection by participating Stockholders, any underwriter participating in any disposition pursuant to such registration statement, and the counsel retained by the participating Stockholders, counsel for the underwriters and any accountant or other agent retained by participating Stockholders or any such underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of AmPaM (the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause AmPaM's officers, directors and employees to supply all information reasonably requested by any such Inspectors in connection with such registration statement; provided, that records which AmPaM determines, in good faith, to be confidential and which AmPaM notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction after delivery of sufficient notice to AmPaM to enable AmPaM to contest such subpoena or order; (ix) Take all other steps reasonably necessary to effect the registration of the shares of AmPaM Stock contemplated hereby; (x) Use its best efforts to register or qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Stockholders, and to keep such registration or qualification effective during the period such registration statement is required to be kept effective, provided that AmPaM shall not be required to become subject to taxation, to qualify generally to do business or to file a general consent to service of process in any such states or jurisdictions; (xi) Cause all such shares of AmPaM Stock to be listed or included not later than the date of the first sale of shares of AmPaM Stock under such registration statement on any 55 64 securities exchanges or trading systems on which similar securities issued by AmPaM are then listed or included; and (xii) Notify each Stockholder at any time when a prospectus relating thereto is required to be delivered under the 1933 Act within the period that AmPaM is required to keep the registration statement effective of the happening of any event as a result of which the prospectus included in such registration statement (as then in effect), together with any associated term sheet, contains an untrue statement of a material fact or omits to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading, and, at the request of such Stockholder, AmPaM promptly will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of the covered shares, such prospectus will not contain an untrue statement of material fact or omit to state any fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading. All expenses incurred in connection with the registration under this Article 17 and compliance with securities and blue sky laws (including all registration, filing, listing, escrow agent, qualification, legal, printer and accounting fees, but excluding underwriting commissions and discounts), shall be borne by AmPaM. 17.3 INDEMNIFICATION. (a) In connection with any registration under Section 17.1, AmPaM shall indemnify, to the extent permitted by law, each selling Stockholder (an "Indemnified Party") against all losses, claims, damages, liabilities and expenses arising out of or resulting from any untrue or alleged untrue statement of material fact contained or incorporated by reference in any registration statement, prospectus or preliminary prospectus or associated term sheet or any omission or alleged omission to state or incorporated by reference therein a material fact required to be stated or incorporated by reference therein or necessary to make the statements therein not misleading except insofar as the same are caused by or contained in or omitted from any information furnished in writing to AmPaM by such Indemnified Party expressly for use therein or by any Indemnified Parties' failure to deliver a copy of the registration statement or prospectus or any amendment or supplements thereto after AmPaM has furnished such Indemnified Party with a sufficient number of copies of the same. (b) In connection with any registration under Section 17.1, each selling Stockholder shall furnish to AmPaM in writing such information concerning the Stockholder and his or her proposed offering of shares as is reasonably requested by AmPaM for use in any such registration statement or prospectus and will indemnify, to the extent permitted by law, AmPaM, its directors and officers and each person who controls AmPaM (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged 56 65 untrue statement of a material fact or any omission or alleged omission to state therein a material fact required to be stated in the registration statement or prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, but only to the extent that such untrue or alleged untrue statement or omission or alleged omission is contained in or omitted from information so furnished in writing to AmPaM by such Stockholder expressly for use in the registration statement. Notwithstanding the foregoing, the liability of a Stockholder under this Section 17.3 shall be limited to an amount equal to the net proceeds actually received by such Stockholder from the sale of the relevant shares covered by the registration statement. (c) Any person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified parties' reasonable judgment, a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. Any failure to give prompt notice shall deprive a party of its right to indemnification hereunder only to the extent that such failure shall have adversely affected the indemnifying party. If the defense of any claim is assumed, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent shall not be unreasonably withheld). An indemnifying party that is not entitled or elects not, to assume the defense of a claim, will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. 17.4 UNDERWRITING AGREEMENT. In connection with each registration pursuant to Sections 17.1 covering an underwritten registered offering, (i) each participating Stockholder shall execute and deliver to AmPaM a written power of attorney instrument that (A) appoints an officer of AmPaM as such Stockholder's attorney-in-fact for purposes of executing and delivering an underwriting agreement among AmPaM, the underwriters named therein and such Stockholder specifying the terms and conditions applicable to the sale of AmPaM Stock of such Stockholder in such offering and (B) otherwise is in such form and containing such provisions as are customary in the securities business for such an arrangement in connection with an underwritten registered offering in which one or more stockholders of the issuer are participants, including a provision that authorizes the attorney-in-fact appointed by such Stockholder to execute and deliver such an underwriting agreement in the event that the net price per share to be received by such Stockholder from the sale of the shares of AmPaM Stock to be sold in such offering is not less than a price specified in such instrument and (iii) AmPaM and each participating Stockholder agree to enter into a written agreement with the managing underwriters in such form and containing such provisions as are customary in the securities business for such an arrangement between such managing underwriters and companies of AmPaM's size and investment stature, including indemnification; provided, however, that (A) such Stockholder shall be exempt and excluded from any indemnification of the managing underwriters other than with respect to information provided by such Stockholder with respect to such Stockholder to AmPaM or the managing underwriters 57 66 specifically for inclusion in any such registration statement and (B) such Stockholder shall not be obligated to enter into such an underwriting agreement in the event that the net price per share to be received by such Stockholder from the sale of shares of AmPaM Stock to be sold in such offering is less than the floor price specified in the power of attorney instrument executed and delivered to AmPaM pursuant to clause (i) above. 17.5 TRANSFER OF RIGHTS. The right to cause AmPaM to register shares of AmPaM Stock under this Agreement may be assigned to a transferee or assignee of any Stockholder to the extent that such transferee or assignee is a member of the immediate family of a Stockholder, a trust, limited partnership or other estate planning entity for the benefit of any such persons or a charitable organization that qualifies for receipt of charitable contributions under Section 170(c) of the Code. 17.6 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the SEC that may permit the sale of AmPaM stock to the public without registration, following an IPO AmPaM agrees to use its reasonable efforts, from and after the completion of an IPO, to: (i) make and keep public information regarding AmPaM available as those terms are understood and defined in Rule 144 under the 1933 Act beginning 90 days following the effective date of a registration statement relating to an IPO; (ii) file with the SEC in a timely manner all reports and other documents required of AmPaM under the 1933 Act and the 1934 Act at any time after it has become subject to such reporting requirements; and (iii) so long as a Stockholder owns any restricted AmPaM Stock, furnish to each Stockholder forthwith upon written request a written statement by AmPaM as to its compliance with the current public information requirements of Rule 144 (at any time from and after 90 days following the effective date of a registration statement relating to an IPO), and of the 1933 Act and the 1934 Act (any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of AmPaM, and such other reports and documents so filed as a Stockholder may reasonably request in availing itself of any rule or regulation of the SEC allowing a Stockholder to sell any such shares without registration. 18. REDEMPTION OF AmPaM STOCK 18.1 REDEMPTION TRIGGER. In the event that, within three years of the Closing Date, (i) AmPaM has not consummated an IPO and (ii) any Stockholder has not received cash (including proceeds from the public or private sale of AmPaM Stock received as consideration hereunder and the receipt of principal payments, if any, made with respect to AmPaM Notes held by such Stockholder) equal to or exceeding 50% of the Aggregate Consideration on or prior to the third anniversary of the Closing Date, such Stockholder shall have the right (the "Put Right"), but not the obligation, commencing on the third anniversary date of the Closing Date to require AmPaM to 58 67 purchase a number of shares of AmPaM Stock then owned by such Stockholder, subject to the limitations set forth in Section 18.2 below. The purchase price for such redemption shall be $13.00 per share, such price to be subject to appropriate adjustment to reflect any reclassification, stock dividend, subdivision, split-up or combination of shares of AmPaM Stock after the date hereof. 18.2 MINIMUM REDEMPTION; LIMITATIONS. If the events specified in Section 18.1(i) and 18.1(ii), with Section 18.1(ii) being determined on an individual Stockholder basis, have not occurred within the time specified, AmPaM shall be obligated to purchase from each eligible Stockholder no less than 10% of the AmPaM Stock held by such Stockholder annually; provided, however, that the Stockholders shall not be entitled to exercise their Put Rights if and to the extent the Company has not achieved the Target Net Income (as defined in Annex I hereto) for the year preceding the year in which a Stockholder seeks to exercise his Put Right. The redemptions will be funded by internal cash flows or alternative financing arrangements but AmPaM's obligation to make any redemption pursuant to this Section 18 will be subject to the covenants and restrictions contained in AmPaM's then existing private or public debt or equity instruments. 18.3 NOTICE; EXERCISE. The Stockholders may exercise their Put Right by giving written notice (the "Put Notice") to AmPaM within thirty (30) days of the third anniversary of the execution hereof. If any Stockholder does not provide AmPaM with a Put Notice within such thirty-day period, the Put Right applicable to such Stockholder shall expire. The date for closing the sale of any shares of AmPaM Stock pursuant to a proper exercise of a Put Right shall in no event be earlier than 90 days after the date AmPaM receives the Put Notice. Any such closing shall be at such time of day and place as shall be mutually agreed between such holder and AmPaM. At such closing AmPaM shall make payment for the AmPaM Stock to be repurchased by wire transfer of immediately available funds to a bank account designated by such Stockholder for such purpose and such Stockholder shall deliver to AmPaM certificates, duly endorsed for transfer, representing the shares of AmPaM Stock to be purchased and sold pursuant to the exercise of such Put Right. 18.4 ADDITIONAL REDEMPTIONS. In the event AmPaM has not consummated an IPO and notwithstanding the foregoing, to the extent the Stockholders who have received greater than 50% of their Aggregate Consideration in cash wish to tender AmPaM Stock to AmPaM for purchase, AmPaM will use its commercially reasonable efforts to continue to repurchase up to 10% of the AmPaM Stock held by such Stockholder annually. 18.5 TERMINATION OF REDEMPTION OBLIGATION. Put Rights with respect to any individual Stockholder will terminate upon receipt by such Stockholder of 50% of his Aggregate Consideration in cash; such termination will not, however, limit such Stockholders ability to participate in the additional redemptions provided in Section 18.4. Notwithstanding the foregoing, all of AmPaM's redemption obligations contained in this Section 18 shall terminate on the earlier to occur of (i) an IPO, (ii) any sale of all or substantially all of AmPaM's assets in one transaction or series of transactions, (iii) any merger or consolidation which involves AmPaM and in which AmPaM is not the surviving entity or (iv) any transaction after which the shares of AmPaM Common Stock, if any, which are then held by persons other than the holders of AmPaM Common Stock as of the Closing 59 68 Date constitute 50% or more of AmPaM Common Stock outstanding as of the date of the consummation of such transaction. 19. GENERAL 19.1 COOPERATION. The Company, Stockholders and AmPaM shall each deliver or cause to be delivered to the other on the Closing Date, and at such other times and places as shall be reasonably agreed to, such additional instruments as the other may reasonably request for the purpose of carrying out this Agreement. The Company will cooperate and use its reasonable efforts to have the present officers, directors and employees of the Company cooperate with AmPaM on and after the Closing Date in furnishing information, evidence, testimony and other assistance in connection with any tax return filing obligations, actions, proceedings, arrangements or disputes of any nature with respect to matters pertaining to all periods prior to the Closing Date. 19.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties hereunder may not be assigned (except by operation of law and except as provided in Section 17.5) and shall be binding upon and shall inure to the benefit of the parties hereto, the successors of AmPaM and the Company, and the heirs, successors and legal representatives of the Stockholders. 19.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits and annexes attached hereto) and the documents delivered pursuant hereto constitute the entire agreement and understanding among the Stockholders, the Company and AmPaM and supersede any prior agreement and understanding relating to the subject matter of this Agreement. This Agreement, upon execution, constitutes a valid and binding agreement of the parties hereto enforceable in accordance with its terms and may be modified or amended only by a written instrument executed by the Stockholders, the Company and AmPaM, acting through their respective officers or trustees, duly authorized by their respective Boards of Directors. Any disclosure made on any Schedule delivered pursuant hereto shall be deemed to have been disclosed for purposes of any other Schedule required hereby, provided that the Company shall make a good faith effort to cross reference disclosure, as necessary or advisable, between related Schedules. 19.4 COUNTERPARTS. This Agreement may be executed simultaneously in two (2) or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument. A telecopied facsimile of an executed counterpart of this Agreement shall be sufficient to evidence the binding agreement of each party to the terms hereof. However, each party agrees to return to the other parties an original, duly executed counterpart of this Agreement promptly after delivery of a telecopied facsimile thereof. 19.5 BROKERS AND AGENT. Except as disclosed on Schedule 18.5, each party hereto represents and warrants that it employed no broker or agent in connection with this transaction and agrees to indemnify the other parties hereto against all loss, cost, damages or expense arising out of claims for fees or commission of brokers employed or alleged to have been employed by such indemnifying party. 60 69 19.6 EXPENSES. Whether or not the transactions herein contemplated shall be consummated, AmPaM will pay the reasonable fees, expenses and disbursements of AmPaM and its agents, representatives, accountants and counsel incurred in connection with the subject matter of this Agreement and any amendments thereto, including all costs and expenses incurred in the performance and compliance with all conditions to be performed by AmPaM under this Agreement, including the fees and expenses of Arthur Andersen LLP, Andrews & Kurth L.L.P., and any other person or entity retained by AmPaM, and the costs of preparing the Private Placement Memorandum incurred in connection with the subject matter of this Agreement and any amendments thereto. In addition, whether or not the transactions contemplated herein shall be consummated, AmPaM will pay the reasonable fees and expenses of Bracewell & Patterson LLP incurred on behalf of the Company and the Stockholders in connection with the subject matter of this Agreement. Whether or not the transactions herein contemplated shall be consummated, the Company will pay all of its costs and expenses incurred on behalf of the Company and the Stockholders in connection with the subject matter of this Agreement except that (i) the Company shall not be required to pay any of the costs, fees and expenses specified above as to which AmPaM is responsible for the payment thereof and (ii) neither the Company nor the Stockholders shall be responsible for the payment of the costs, fees and expenses incurred by or on behalf of AmPaM. Whether or not the transactions herein contemplated shall be consummated, AmPaM shall reimburse Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any of the foregoing fees, expenses and disbursements paid by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) and shall repay Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for any loans or advances made by Sterling City Capital, LLC (or any person or entity which is an Affiliate thereof) for the purpose of providing AmPaM funds to pay any such fees, expenses and disbursements, provided that such reimbursement and loan repayment obligation shall be limited to the foregoing fees, expenses, and disbursements which are out-of-pocket expenses of AmPaM, Sterling City Capital, LLC or any person or entity which is an Affiliate thereof. Sterling City Capital, LLC shall be reimbursed by AmPaM in the form of AmPaM Notes. AmPaM retains the right, within a reasonable period following the Closing Date, to conduct an audit of the expenses for which Sterling City Capital, LLC is reimbursed. Each Stockholder shall pay all sales, use, transfer, real property transfer, recording, gains, stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in connection with the purchase and sale of the Company Stock, other than Transfer Taxes, if any, imposed by the State of Delaware. Each Stockholder shall file all necessary documentation and Returns with respect to such Transfer Taxes. In addition, each Stockholder acknowledges that he, and not the Company or AmPaM, will pay all Taxes due by him upon receipt of the consideration payable pursuant to Section 1 hereof. The Stockholders acknowledge that the risks of the transactions contemplated hereby include Tax risks, with respect to which the Stockholders are relying substantially on the opinion contemplated by Section 8.12 hereof and representations by AmPaM in this Agreement. 61 70 19.7 NOTICES. All notices of communication required or permitted hereunder shall be in writing and may be given by depositing the same in United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested, or by delivering the same in person or via a nationally recognized courier service to an officer or agent of such party. (a) If to AmPaM addressed to it at: American Plumbing & Mechanical, Inc. 515 Post Oak Blvd., Suite 450 Houston, Texas 77027 Attention: Chief Executive Officer with copies to: Thomas P. Mason Andrews & Kurth L.L.P. 4200 Chase Tower Houston, Texas 77002 (b) If to the Stockholders, addressed to them at their addresses set forth on the signature pages hereto. (c) If to the Company, addressed to it at: Bob Sherwood Sherwood Mechanical, Inc. 13630 Danielson St. Powcey, California 92064 or to such other address or counsel as any party hereto shall specify pursuant to this Section 18.7 from time to time. 19.8 GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of Texas, excluding any conflicts of law, rule or principle that might refer same to the laws of another jurisdiction. 62 71 19.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations, warranties, covenants and agreements of the parties made herein and at the time of the Closing or in writing delivered pursuant to the provisions of this Agreement shall survive the consummation of the transactions contemplated hereby and any examination on behalf of the parties until the respective Expiration Dates referred to herein with respect thereto or, if no Expiration Date is applicable with respect thereto, until the expiration of all applicable statute of limitations periods. 19.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided herein, no delay of or omission in the exercise of any right, power or remedy accruing to any party as a result of any breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver. 19.11 TIME. Time is of the essence with respect to this Agreement. 19.12 REFORMATION AND SEVERABILITY. In case any provision of this Agreement shall be invalid, illegal or unenforceable, it shall, to the extent possible, be modified in such manner as to be valid, legal and enforceable but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement, and in either case the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. No provision of this Agreement shall be interpreted or construed against any party solely because that party or its legal representative drafted such provision. 19.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term of this Agreement shall be deemed exclusive but each shall be cumulative with all other rights, remedies and elections available at law or in equity. 19.14 CAPTIONS. The headings of this Agreement are inserted for convenience only, shall not constitute a part of this Agreement or be used to construe or interpret any provision hereof. 19.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived only with the written consent of AmPaM, the Company and Stockholders who would receive a majority of the Aggregate Consideration specified in Section I of Annex I to this Agreement if the transactions contemplated hereby were consummated. Any amendment or waiver effected in accordance with this Section 19.15 shall be binding upon each of the parties hereto, any other person receiving AmPaM Stock in connection with the purchase and sale of the Company Stock and each future holder of such AmPaM Stock. Any consent of the Stockholders who would receive a majority of the Aggregate Consideration pursuant to Section I of Annex I of this Agreement if the transactions contemplated hereby were consummated shall be deemed to be the consent of the Stockholders for purposes of provisions of this Agreement as to which a consent of the Stockholders may be requested or required. 63 72 19.16 MEDIATION AND ARBITRATION. If a dispute arises out of or relates to this Agreement, or the breach thereof, and if said dispute cannot be settled through direct discussions, the parties agree to first endeavor to settle the dispute in an amicable manner by mediation administered by the American Arbitration Association under its then prevailing Commercial Mediation Rules, before resorting to arbitration. Thereafter, any unresolved controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association in accordance with its then prevailing Commercial Arbitration Rules. The enforcement, interpretation and procedural and substantive effect of the obligation to arbitrate created by this Section 19.16 shall be governed by the Federal Arbitration Act as amended from time to time, 9 U.S.C. Section 1 et seq. The parties hereby disclaim any intention to have the substantive or procedural law of any state or other jurisdiction, other than the law of the United States as embodied in the Federal Arbitration Act, applied to such obligation. Any such mediation or arbitration proceeding will be conducted in Houston, Texas. 19.17 INFORMATION PROVIDED FOR PRIVATE PLACEMENT MEMORANDUM. For purposes of this Agreement, the information provided by the Company in writing specifically for inclusion in the Private Placement Memorandum shall include solely (i) the Financial Statements (in the form that they appear in the Private Placement Memorandum), (ii) any financial statements provided to AmPaM pursuant to Section 7.9, (iii) the description of the Company contained in the Private Placement Memorandum under the caption "The Company", (iv) the description of the Company's results of operations and its liquidity and capital resources, if any, contained in the Private Placement Memorandum under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and (v) the description, if any, of matters related to the Company contained in the Private Placement Memorandum under the caption "Certain Transactions Transactions involving Certain Officers, Directors and Stockholders". For purposes of this Agreement, the information provided by a Stockholder in writing specifically for inclusion in the Private Placement Memorandum shall include only (i) the description, if any, of matters related to such Stockholder contained in the Private Placement Memorandum under the caption "Certain Transactions - Transactions involving Certain Officers, Directors and Stockholders" and (ii) the biographical description of such Stockholder, if any, contained in the Private Placement Memorandum under the caption "Management." 19.18 EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective upon (i) the execution and delivery of this Agreement by all of the parties hereto and (ii) the delivery to AmPaM of each Employment Agreement attached hereto as Annex VI-1 executed by each of the Company, the employees named therein and AmPaM. 64 73 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. AMERICAN PLUMBING & MECHANICAL, INC. By: /s/ DAVID BAGGETT --------------------------------- Name: David Baggett ------------------------------- Title: Chief Financial Officer ------------------------------ SHERWOOD MECHANICAL, INC. By: /s/ ROBERT W. SHERWOOD --------------------------------- Robert W. Sherwood President By: /s/ MITCHELL C. ROBERTS --------------------------------- Mitchell C. Roberts Vice President [Remainder of page intentionally left blank] 65 74 STOCKHOLDERS: /s/ ROBERT W. SHERWOOD - ---------------------------------- Robert W. Sherwood 11610 Scripps Lake Drive San Diego, California 92131 66 EX-12 20 RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS OF DOLLARS)
Four Months Four Months Year Ended Three Months Ended Years Ended August 31, Ended Ended December 31, March 31, ------------------------------ December 31, December 31, ------------------ ------------------ 1994 1995 1996 1995 1996 1997 1998 1998 1999 ------- ------- -------- ------------ ------------ ------- ------- ------ ------- CHRISTIANSON (ACCOUNTING ACQUIROR) Earnings: Income before income taxes . . . . . . . . . $ 256 $ 838 $ 1,343 $ 370 $(1,402) $ 1,967 $ 648 $ 449 $ 3,564 Fixed charges . . . . . . 93 133 152 49 52 252 269 165 197 ------- ------- -------- -------- ------- ------- ------- ------ ------- $ 349 $ 971 $ 1,495 419 $(1,350) $ 2,219 $ 917 $ 614 $ 3,761 ======= ======= ======== ======== ======= ======= ======= ====== ======= Fixed Charges: Interest expense . . . . . $ 10 $ 72 $ 92 $ 29 $ 33 $ 102 $ 116 $ 37 $ 27 Portion of rental cost representing interest . 83 61 60 20 19 150 153 128 170 ------- ------- -------- -------- ------- ------- ------- ------ ------- $ 93 $ 133 $ 152 49 $ 52 $ 252 $ 269 $ 165 $ 197 ======= ======= ======== ======== ======= ======= ======= ====== ======= Ratio of earnings to fixed charges . . . . . . . . . 3.7x 7.3x 9.9x 8.6X --x 8.8x 3.4x 3.7x 19.1x ======= ======= ======== ======== ======= ======= ======= ====== ======= PRO FORMA COMBINED: Earnings: Income before income taxes . . . . . . . . . $18,710 $ 8,395 Fixed charges . . . . . . 16,412 4,114 Preference dividends . . . (1,363) (341) ------- ------- $33,759 $12,168 ======= ======= Fixed Charges: Interest expense . . . . . Amortized premiums, discounts and capitalized expenses $14,201 $ 3,550 related to debt . . . . 500 125 Portion of rental cost representing interest . 348 98 Preference dividends . . . 1,363 341 ------- ------- $16,412 $ 4,114 ======= ======= Ratio of earnings to fixed charges . . . . . . . . . 2.1x 3.0x ======= =======
EX-23.2 21 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm) included in or made a part of this registration statement. ARTHUR ANDERSEN LLP Houston, Texas June 15, 1999 EX-99.1 22 FORM OF LETTER OF TRANSMITTAL 1 EXHIBIT 99.1 AMERICAN PLUMBING & MECHANICAL, INC. LETTER OF TRANSMITTAL FOR TENDER OF ALL OUTSTANDING 11 5/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A IN EXCHANGE FOR 11 5/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 PURSUANT TO THE PROSPECTUS DATED __________, 1999 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON __________, 1999, UNLESS THE EXCHANGE OFFER IS EXTENDED. TO: STATE STREET BANK AND TRUST COMPANY (THE "EXCHANGE AGENT") By Mail or Hand Delivery: By Registered or Certified Mail: State Street Bank and Trust Company State Street Bank and Trust Company Corporate Trust Window, Fifth Floor Corporate Trust Department 2 Avenue De Lafayette P.O. Box 778 Boston, Massachusetts 02111-1724 Boston, Massachusetts 02102-0778 Attention: Kellie Mullen Attention: Kellie Mullen By Facsimile Transmission: (for Eligible Institutions only) State Street Bank and Trust Company (617) 664-5395 Attention: Kellie Mullen For Information or Confirmation by Telephone: (617) 664-5587 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OR TRANSMISSION TO A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES, IS AT THE RISK OF THE HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. The undersigned acknowledges that he or she has received the Prospectus, dated __________, 1999 (the "Prospectus") of American Plumbing & Mechanical, Inc., a Delaware Corporation (the "Company") and this Letter of Transmittal and the instructions hereto (the "Letter of Transmittal"), which together constitute the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount of its 115/8% Senior Subordinated Notes due 2008, Series B (the "Exchange Notes") that have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which the Prospectus is a part, for each $1,000 principal amount of its outstanding 115/8% Senior Subordinated Notes due 2008, Series A (the "Old Notes"), of which $125,000,000 aggregate principal amount is outstanding, upon the terms and subject to the conditions set forth in the Prospectus. The term "Expiration Date" shall mean 5:00 p.m., New York City time, on __________, 1999, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term shall mean the latest date and time to which the Exchange Offer is extended by the Company. 2 This Letter of Transmittal is to be used either if (i) certificates representing Old Notes are to be physically delivered to the Exchange Agent herewith by Holders, (ii) tender of Old Notes is to be made by book-entry transfer to an account maintained by the Exchange Agent at The Depository Trust Company ("DTC"), pursuant to the procedures set forth in "The Exchange Offer--Procedures for Tendering" in the Prospectus by any financial institution that is a participant in DTC and whose name appears on a security position listing as the owner of Old Notes or (iii) tender of Old Notes is to be made according to the guaranteed delivery procedures set forth in the Prospectus under "The Exchange Offer--Guaranteed Delivery Procedures." Delivery of this Letter of Transmittal and any other required documents must be made to the Exchange Agent. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. The term "Holder" as used herein means any person in whose name Old Notes are registered on the books of the Company or any other person who has obtained a properly completed bond power from the registered holder. All Holders of Old Notes who wish to tender their Old Notes must, prior to the Expiration Date: (1) complete, sign, and deliver this Letter of Transmittal, or a facsimile thereof, to the Exchange Agent, in person or to the address set forth above; and (2) tender (and not withdraw) his or her Old Notes or, if a tender of Old Notes is to be made by book-entry transfer to the account maintained by the Exchange Agent at DTC, confirm such book-entry transfer (a "Book-Entry Confirmation"), in each case in accordance with the procedures for tendering described in the instructions to this Letter of Transmittal. Holders of Old Notes whose certificates are not immediately available, or who are unable to deliver their certificates or Book-Entry Confirmation and all other documents required by this Letter of Transmittal to be delivered to the Exchange Agent on or prior to the Expiration Date, must tender their Old Notes according to the guaranteed delivery procedures set forth under the caption "The Exchange Offer - -- Guaranteed Delivery Procedures" in the Prospectus. (See Instruction 2.) Upon the terms and subject to the conditions of the Exchange Offer, the acceptance for exchange of the Old Notes validly tendered and not withdrawn and the issuance of the Exchange Notes will be made promptly following the Expiration Date. For the purposes of the Exchange Offer, the Company shall be deemed to have accepted for exchange validly tendered Old Notes when, as and if the Company has given written notice thereof to the Exchange Agent. The undersigned has completed, executed and delivered this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. Holders who wish to tender their Old Notes must complete this Letter of Transmittal in its entirety. PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY BEFORE CHECKING ANY BOX BELOW. THE INSTRUCTIONS INCLUDED IN THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS, THIS LETTER OF TRANSMITTAL AND THE NOTICE OF GUARANTEED DELIVERY MAY BE DIRECTED TO THE EXCHANGE AGENT. SEE INSTRUCTION 12 HEREIN. HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR OLD NOTES MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY AND COMPLY WITH ALL OF ITS TERMS. -2- 3 List below the Old Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, the Certificate Numbers and Principal Amounts should be listed on a separate signed schedule, attached hereto. The minimum permitted tender is $1,000 in principal amount of 115/8% Senior Subordinated Notes due 2008, Series A. All other tenders must be in integral multiples of $1,000. DESCRIPTION OF 115/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A BOX I
Name(s) and Address(es) of Registered Holder(s) * (Please fill in, if blank) - ------------------------------------------------------------------ --------------------------------------------------- (A) (B) Aggregate Principal Amount Tendered Certificate Number(s)* (if less than all)** - ------------------------------------------------------------------ --------------------------------------------------- -------------------------- ----------------------- -------------------------- ----------------------- -------------------------- ----------------------- -------------------------- ----------------------- Total Principal Amount of Old Notes Tendered ========================== =======================
- ---------------- * Need not be completed by book-entry holders. ** Need not be completed by Holders who wish to tender with respect to all Old Notes listed. -3- 4 PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS BOX II ================================================================================ SPECIAL REGISTRATION INSTRUCTIONS (SEE INSTRUCTIONS 4, 5, 6 AND 7) To be completed ONLY if certificates for Old Notes in a principal amount not tendered, or Exchange Notes issued in exchange for Old Notes accepted for exchange, are to be issued in the name of someone other than the undersigned. Issue certificate(s) to: Name --------------------------------------------------------------------------- (PLEASE PRINT) - -------------------------------------------------------------------------------- (PLEASE PRINT) Address ------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (INCLUDING ZIP CODE) - -------------------------------------------------------------------------------- (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER) ================================================================================ BOX III ================================================================================ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 4, 5, 6 AND 7) To be completed ONLY if certificates for Old Notes in a principal amount not tendered, or Exchange Notes issued in exchange for Old Notes accepted for exchange, are to be delivered to someone other than the undersigned. Deliver certificate(s) to: Name --------------------------------------------------------------------------- (PLEASE PRINT) - -------------------------------------------------------------------------------- (PLEASE PRINT) Address ------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (INCLUDING ZIP CODE) - -------------------------------------------------------------------------------- (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER) ================================================================================ IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATE(S) FOR OLD NOTES OR A CONFIRMATION OF BOOK-ENTRY TRANSFER OF SUCH OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS) OR, IF GUARANTEED DELIVERY PROCEDURES ARE TO BE COMPLIED WITH, A NOTICE OF GUARANTEED DELIVERY, MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE. [ ] CHECK HERE IF OLD NOTES ARE BEING DELIVERED BY DTC TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING: Name of Tendering Institution ----------------------------------- [ ]The Depository Trust Company Account Number -------------------------------------------------- Transaction Code Number ----------------------------------------- Holders whose Old Notes are not immediately available or who cannot deliver their Old Notes and all other documents required hereby to the Exchange Agent on or prior to the Expiration Date may tender their Old Notes according to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." (See Instruction 2.) -4- 5 [ ] CHECK HERE IF OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of tendering Holder(s) ----------------------------------------- Date of Execution of Notice of Guaranteed Delivery --------------------- Name of Institution which Guaranteed Delivery -------------------------- Transaction Code Number ------------------------------------------------ [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ------------------------------------------------------------------ Address: --------------------------------------------------------------- If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undesigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Subject to the terms and conditions of the Exchange Offer, the undersigned hereby tenders to American Plumbing & Mechanical, Inc. (the "Company") the principal amount of Old Notes indicated above. Subject to and effective upon the acceptance for exchange of the principal amount of Old Notes tendered hereby in accordance with this Letter of Transmittal, the undersigned sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to the Old Notes tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as its agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Company and as Trustee and Registrar under the Indenture for the Old Notes and the Exchange Notes) with respect to the tendered Old Notes with full power of substitution (such power of attorney being deemed an irrevocable power coupled with an interest), subject only to the right of withdrawal described in the Prospectus, to (i) deliver certificates for such Old Notes to the Company or transfer ownership of such Old Notes on the account books maintained by DTC, together, in either such case, with all accompanying evidences of transfer and authenticity to, or upon the order of, the Company and (ii) present such Old Notes for transfer on the books of the Company and receive all benefits and otherwise exercise all rights of beneficial ownership of such Old Notes, all in accordance with the terms of the Exchange Offer. The undersigned acknowledges that the Exchange Offer is being made in reliance upon interpretative advice given by the staff of the Securities and Exchange Commission to third parties in connection with transactions similar to the Exchange Offer, so that the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than a broker-dealer who purchased -5- 6 such Old Notes directly from the Company for resale pursuant to Rule 144A or any other available exemption under the Securities Act or a person that is an "affiliate" of the Company or any Guarantor within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of such Exchange Notes. The undersigned agrees that acceptance of any tendered Old Notes by the Company and the issuance of Exchange Notes in exchange therefor shall constitute performance in full by the Company of its obligations under the registration rights agreement, (as referred to in the Prospectus) and that, upon the issuance of the Exchange Notes, the Company will have no further obligations or liabilities thereunder (except in certain limited circumstances). The undersigned represents and warrants that (i) the Exchange Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary course of business of the person receiving Exchange Notes (which shall be the undersigned unless otherwise indicated in the box entitled "Special Delivery Instructions" above) (the "Recipient"), (ii) neither the undersigned nor the Recipient (if different) is engaged in, intends to engage in or has any arrangement or understanding with any person to participate in the distribution of such Exchange Notes, and (iii) neither the undersigned nor the Recipient (if different) is an "affiliate" of the Company or any Guarantor as defined in Rule 405 under the Securities Act. If the undersigned is not a broker-dealer, the undersigned further represents that it is not engaged in, and does not intend to engage in, a distribution of the Exchange Notes. If the undersigned is a broker-dealer, the undersigned further (x) represents that it acquired Old Notes for the undersigned's own account as a result of market-making activities or other trading activities, (y) represents that it has not entered into any arrangement or understanding with the Company or any "affiliate" of the Company (within the meaning of Rule 405 under the Securities Act) to distribute the Exchange Notes to be received in the Exchange Offer and (z) acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act (for which purposes delivery of the Prospectus, as the same may be hereafter supplemented or amended, shall be sufficient) in connection with any resale of Exchange Notes received in the Exchange Offer. Such a broker-dealer will not be deemed, solely by reason of such acknowledgment and prospectus delivery, to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned understands and agrees that the Company reserves the right not to accept tendered Old Notes from any tendering holder if the Company determines, in its sole and absolute discretion, that such acceptance could result in a violation of applicable securities laws. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, exchange, assign and transfer the Old Notes tendered hereby and to acquire Exchange Notes issuable upon the exchange of such tendered Old Notes, and that, when the same are accepted for exchange, the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned also warrants that it will, upon request, execute and deliver any additional documents deemed to be necessary or desirable by the Exchange Agent or the Company in order to complete the exchange, assignment and transfer of tendered Old Notes or transfer of ownership of such Old Notes on the account books maintained by a book-entry transfer facility. The undersigned understands and acknowledges that the Company reserves the right in its sole discretion to purchase or make offers for any Old Notes that remain outstanding subsequent to the Expiration Date or, as set forth in the Prospectus under the caption "The Exchange Offer--Procedures for Tendering," to terminate the Exchange Offer and, to the extent permitted by applicable law, purchase Old Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers could differ from the terms of the Exchange Offer. The undersigned understands that the Company may accept the undersigned's tender by delivering written notice of acceptance to the Exchange Agent, at which time the undersigned's right to withdraw such tender will terminate. For purposes of the Exchange Offer, the Company shall be deemed to have accepted validly tendered Old Notes when, as and if the Company has given oral (which shall be confirmed in writing) or written notice thereof to the Exchange Agent. -6- 7 The undersigned understands that the first interest payment following the Expiration Date will include unpaid interest on the Old Notes accrued through the date of issuance of the Exchange Notes. The undersigned understands that tenders of Old Notes pursuant to the procedures described under the caption "The Exchange Offer--Procedures for Tendering" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. The undersigned acknowledges that the Exchange Offer is subject to the more detailed terms set forth in the Prospectus and, in case of any conflict between the terms of the Prospectus and this Letter of Transmittal, the Prospectus shall prevail. If any tendered Old Notes are not accepted for exchange pursuant to the Exchange Offer for any reason, certificates for any such unaccepted Old Notes will be returned (except as noted below with respect to tenders through DTC), at the Company's cost and expense, to the undersigned at the address shown below or at a different address as may be indicated herein under "Special Delivery Instructions" as promptly as practicable after the Expiration Date. All authority conferred or agreed to be conferred by this Letter of Transmittal shall survive the death, incapacity or dissolution of the undersigned, and every obligation of the undersigned under this Letter of Transmittal shall be binding upon the undersigned's heirs, personal representatives, successors and assigns. This tender may be withdrawn only in accordance with the procedures set forth in this Letter of Transmittal. By acceptance of the Exchange Offer, each broker-dealer that receives Exchange Notes pursuant to the Exchange Offer hereby acknowledges and agrees that upon the receipt of notice by the Company of the happening of any event which makes any statement in the Prospectus untrue in any material respect or which requires the making of any changes in the Prospectus in order to make the statements therein not misleading (which notice the Company agrees to deliver promptly to such broker-dealer), such broker-dealer will suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented prospectus to such broker-dealer. Unless otherwise indicated under "Special Registration Instructions," please issue the certificates representing the Exchange Notes issued in exchange for the Old Notes accepted for exchange and return any certificates for Old Notes not tendered or not exchanged, in the name(s) of the undersigned (or, in either such event in the case of Old Notes tendered by DTC, by credit to the account at DTC). Similarly, unless otherwise indicated under "Special Delivery Instructions," please send the certificates representing the Exchange Notes issued in exchange for the Old Notes accepted for exchange and any certificates for Old Notes not tendered or not exchanged (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s), unless, in either event, tender is being made through DTC. In the event that both "Special Registration Instructions" and "Special Delivery Instructions" are completed, please issue the certificates representing the Exchange Notes issued in exchange for the Old Notes accepted for exchange in the name(s) of, and return any certificates for Old Notes not tendered or not exchanged to, the person(s) so indicated. The undersigned understands that the Company has no obligations pursuant to the "Special Registration Instructions" or "Special Delivery Instructions" to transfer any Old Notes from the name of the registered Holder(s) thereof if the Company does not accept for exchange any of the Old Notes so tendered. Holders who wish to tender the Old Notes and (i) whose Old Notes are not immediately available or (ii) who cannot deliver their Old Notes, this Letter of Transmittal or any other documents required hereby to the Exchange Agent prior to the Expiration Date, may tender their Old Notes according to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 1 regarding the completion of the Letter of Transmittal. PLEASE SIGN HERE WHETHER OR NOT OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY AND WHETHER OR NOT TENDER IS TO BE MADE -7- 8 PURSUANT TO THE GUARANTEED DELIVERY PROCEDURES This Letter of Transmittal must be signed by the registered holder(s) as their name(s) appear on the Old Notes or, if tendered by a participant in DTC, exactly as such participant's name appears on a security listing as the owner of Old Notes, or by person(s) authorized to become registered holder(s) by a properly completed bond power from the registered holder(s), a copy of which must be transmitted with this Letter of Transmittal. If Old Notes to which this Letter of Transmittal relate are held of record by two or more joint holders, then all such holders must sign this Letter of Transmittal. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, then such person must (i) set forth his or her full title below and (ii) unless waived by the Company, submit evidence satisfactory to the Company of such person's authority so to act. (See Instruction 4.) X - ---------------------------------------- -------------------------------- Date X - ---------------------------------------- -------------------------------- Date Signature(s) of Holder(s) or Authorized Signatory Name(s): Address: ------------------------ ----------------------------------- ------------------------ ----------------------------------- (Please Print) (including Zip Code) Capacity: Area Code and Telephone Number: ---------------------- ------------ Social Security No.: ------------ PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN -8- 9 BOX IV ================================================================================ SIGNATURE GUARANTEE (SEE INSTRUCTION 1) CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION - -------------------------------------------------------------------------------- (Name of Eligible Institution Guaranteeing Signatures) - -------------------------------------------------------------------------------- (Address (including zip code) and Telephone Number (including area code) of Firm) - -------------------------------------------------------------------------------- (Authorized Signature) - -------------------------------------------------------------------------------- (Printed Name) - -------------------------------------------------------------------------------- (Title) Date: --------------------- ================================================================================ INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. Guarantee of Signatures. Signatures on this Letter of Transmittal need not be guaranteed if (a) this Letter of Transmittal is signed by the registered holder(s) of the Old Notes tendered herewith and such holder(s) have not completed the box set forth herein entitled "Special Registration Instructions" or the box entitled "Special Delivery Instructions" or (b) such Old Notes are tendered for the account of an Eligible Institution. (See Instruction 6.) Otherwise, all signatures on this Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States (an "Eligible Institution"). All signatures on bond powers and endorsements on certificates must also be guaranteed by an Eligible Institution. 2. Delivery of this Letter of Transmittal and Old Notes. Certificates for all physically delivered Old Notes or confirmation of any book-entry transfer to the Exchange Agent at DTC of Old Notes tendered by book-entry transfer, as well as, in each case (including cases where tender is affected by book-entry transfer), a properly completed and duly executed copy of this Letter of Transmittal or facsimile hereof and any other documents required by this Letter of Transmittal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. The method of delivery of the tendered Old Notes, this Letter of Transmittal and all other required documents to the Exchange Agent is at the election and risk of the Holder and the delivery will be deemed made only when actually received by the Exchange Agent. If Old Notes are sent by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery. No Letter of Transmittal or Old Notes should be sent to the Company. The Exchange Agent will make a request to establish an account with respect to the Old Notes at the Depositary for purposes of the Exchange Offer within two business days after receipt of this Prospectus, and any financial institution that is a participant in the Depositary may make book-entry delivery of Old Notes by causing the Depositary to transfer -9- 10 such Old Notes into the Exchange Agent's account at the Depositary in accordance with the Depositary's procedures for transfer. However, although delivery of Old Notes may be effected through book-entry transfer at the Depositary, the Letter of Transmittal, with any required signature guarantees or an Agent's Message (as defined below) in connection with a book-entry transfer and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at the address specified on the cover page of the Letter of Transmittal on or prior to the Expiration Date or the guaranteed delivery procedures described below must be complied with. A Holder may tender Old Notes that are held through the Depositary by transmitting its acceptance through the Depositary's Automatic Tender Offer Program, for which the transaction will be eligible, and the Depositary will then edit and verify the acceptance and send an Agent's Message to the Exchange Agent for its acceptance. The term "Agent's Message" means a message transmitted by the Depositary to, and received by, the Exchange Agent and forming part of the Book-Entry Confirmation, which states that the Depositary has received an express acknowledgment from each participant in the Depositary tendering the Old Notes and that such participant has received the Letter of Transmittal and agrees to be bound by the terms of the Letter of Transmittal and the Company may enforce such agreement against such participant. Holders who wish to tender their Old Notes and (i) whose Old Notes are not immediately available, or (ii) who cannot deliver their Old Notes, this Letter of Transmittal or any other documents required hereby to the Exchange Agent prior to the Expiration Date or comply with book-entry transfer procedures on a timely basis must tender their Old Notes according to the guaranteed delivery procedures set forth in the Prospectus. See "Exchange Offer - --Guaranteed Delivery Procedures." Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution; (ii) prior to the Expiration Date, the Exchange Agent must have received from the Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, overnight courier, mail or hand delivery) setting forth the name and address of the Holder of the Old Notes, the certificate number or numbers of such Old Notes and the principal amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the Expiration Date, this Letter of Transmittal (or facsimile hereof) together with the certificate(s) representing the Old Notes and any other required documents will be deposited by the Eligible Institution with the Exchange Agent; and (iii) such properly completed and executed Letter of Transmittal (or facsimile hereof), as well as all other documents required by this Letter of Transmittal and the certificate(s) representing all tendered Old Notes in proper form for transfer (or a confirmation of book-entry transfer of such Old Notes into the Exchange Agent's account at DTC), must be received by the Exchange Agent within three New York Stock Exchange trading days after the Expiration Date, all in the manner provided in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." Any Holder who wishes to tender his Old Notes pursuant to the guaranteed delivery procedures described above must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m., New York City time, on the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to Holders who wish to tender their Old Notes according to the guaranteed delivery procedures set forth above. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Old Notes, and withdrawal of tendered Old Notes will be determined by the Company in its sole discretion, which determination will be final and binding. All tendering holders, by execution of this Letter of Transmittal (or facsimile thereof), shall waive any right to receive notice of the acceptance of the Old Notes for exchange. The Company reserves the absolute right to reject any and all Old Notes not properly tendered or any Old Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any irregularities or conditions of tender as to particular Old Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in this Letter of Transmittal) shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Old Notes, nor shall any of them incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such defects or irregularities have been cured to the Company's satisfaction or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering Holders pursuant to the Company's determination, unless otherwise provided in this Letter of Transmittal as soon as practicable following the Expiration Date. The Exchange Agent has no fiduciary duties to the Holders with respect to the Exchange Offer and is acting solely on the basis of directions of the Company. -10- 11 3. Inadequate Space. If the space provided is inadequate, the certificate numbers and/or the number of Old Notes should be listed on a separate signed schedule attached hereto. 4. Tender by Holder. Only a Holder of Old Notes may tender such Old Notes in the Exchange Offer. Any beneficial owner of Old Notes who is not the registered Holder and who wishes to tender should arrange with such registered holder to execute and deliver this Letter of Transmittal on such beneficial owner's behalf or must, prior to completing and executing this Letter of Transmittal and delivering his Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such beneficial owner's name or obtain a properly completed bond power from the registered holder or properly endorsed certificates representing such Old Notes. 5. Partial Tenders; Withdrawals. Tenders of Old Notes will be accepted only in integral multiples of $1,000. If less than the entire principal amount of any Old Notes is tendered, the tendering Holder should fill in the principal amount tendered in the third column of the box entitled "Description of 115/8% Senior Subordinated Notes due 2008, Series A" above. The entire principal amount of any Old Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire principal amount of all Old Notes is not tendered, then Old Notes for the principal amount of Old Notes not tendered and a certificate or certificates representing Exchange Notes issued in exchange for any Old Notes accepted will be sent to the Holder at his or her registered address, unless a different address is provided in the "Special Delivery Instructions" box above on this Letter of Transmittal or unless tender is made through DTC, promptly after the Old Notes are accepted for exchange. Except as otherwise provided herein, tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Old Notes in the Exchange Offer, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the certificate number or numbers and principal amount of such Old Notes, or, in the case of Old Notes transferred by book-entry transfer the name and number of the account at DTC to be credited), (iii) be signed by the Depositor in the same manner as the original signature on the Letter of Transmittal by which such Old Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Registrar with respect to the Old Notes register the transfer of such Old Notes into the name of the person withdrawing the tender and (iv) specify the name in which any such Old Notes are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Old Notes so withdrawn are validly retendered. Any Old Notes which have been tendered but which are not accepted for exchange by the Company will be returned to the Holder thereof without cost to such Holder as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described in the Prospectus under "The Exchange Offer--Procedures for Tendering" at any time prior to the Expiration Date. 6. Signatures on the Letter of Transmittal; Bond Powers and Endorsements. If this Letter of Transmittal (or facsimile hereof) is signed by the registered holder(s) of the Old Notes tendered hereby, the signature must correspond with the name(s) as written on the face of the Old Note without alteration, enlargement or any change whatsoever. If any of the Old Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If a number of Old Notes registered in different names are tendered, it will be necessary to complete, sign and submit as many copies of this Letter of Transmittal as there are different registrations of Old Notes. If this Letter of Transmittal (or facsimile hereof) is signed by the registered Holder or Holders (which term, for the Purposes described herein, shall include a book-entry transfer facility whose name appears on a security listing as the owner of the Old Notes) of Old Notes tendered and the certificate or certificates for Exchange Notes issued in exchange -11- 12 therefor is to be issued (or any untendered principal amount of Old Notes to be reissued) to the registered Holder, then such Holder need not and should not endorse any tendered Old Notes, nor provide a separate bond power. In any other case, such Holder must either properly endorse the Old Notes tendered or transmit a properly completed separate bond power with this Letter of Transmittal with the signatures on the endorsement or bond power guaranteed by an Eligible Institution. If this Letter of Transmittal (or facsimile hereof) is signed by a person other than the registered Holder or Holders of any Old Notes listed, such Old Notes must be endorsed or accompanied by appropriate bond powers in each case signed as the name of the registered Holder or Holders appears on the Old Notes. If this Letter of Transmittal (or facsimile hereof) or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, or officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority so to act must be submitted with this Letter of Transmittal. Endorsements on Old Notes or signatures on bond powers required by this Instruction 6 must be guaranteed by an Eligible Institution. 7. Special Registration and Delivery Instructions. Tendering Holders should indicate, in the applicable box or boxes, the name and address to which Exchange Notes or substitute Old Notes for principal amounts not tendered or not accepted for exchange are to be issued or sent, if different from the name and address of the person signing this Letter of Transmittal. In the case of issuance in a different name, the taxpayer identification or social security number of the person named must also be indicated. 8. Backup Federal Income Tax Withholding and Substitute Form W-9. Under the federal income tax laws, payments that may be made by the Company on account of Exchange Notes issued pursuant to the Exchange Offer may be subject to backup withholding at the rate of 31%. In order to avoid such backup withholding, each tendering holder should complete and sign the Substitute Form W-9 included in this Letter of Transmittal and either (a) provide the correct taxpayer identification number ("TIN") and certify, under penalties of perjury, that the TIN provided is correct and that (i) the holder has not been notified by the Internal Revenue Service (the "IRS") that the holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the IRS has notified the holder that the holder is no longer subject to backup withholding; or (b) provide an adequate basis for exemption. If the tendering holder has not been issued a TIN and has applied for one, or intends to apply for one in the near future, such holder should write "Applied For" in the space provided for the TIN in Part I of the Substitute Form W-9, sign and date the Substitute Form W-9 and sign the Certificate of Payee Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I, the Company (or the Paying Agent under the indenture governing the Exchange Notes) shall retain 31% of payments made to the tendering holder during the sixty-day period following the date of the Substitute Form W-9. If the Holder furnishes the Exchange Agent or the Company with its TIN within sixty days after the date of the Substitute Form W-9, the Company (or the Paying Agent) shall remit such amounts retained during the sixty-day period to the Holder and no further amounts shall be retained or withheld from payments made to the Holder thereafter. If, however, the Holder has not provided the Exchange Agent or the Company with its TIN within such sixty-day period, the Company (or the Paying Agent) shall remit such previously retained amounts to the IRS as backup withholding. In general, if a Holder is an individual, the TIN is the Social Security number of such individual. If the Exchange Agent or the Company are not provided with the correct TIN, the Holder may be subject to a $50 penalty imposed by the IRS. Certain Holders (including, among others, certain corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, such Holder must submit a statement (generally, IRS Form W-8), signed under penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Exchange Agent. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one and how to complete the Substitute Form W-9 if Old Notes are registered in more than one name), consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. -12- 13 Failure to complete the Substitute Form W-9 will not, by itself, cause Old Notes to be deemed invalidly tendered, but may require the Company (or the Paying Agent) to withhold 31% of the amount of any payments made on account of the Exchange Notes. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If backup withholding results in an overpayment of taxes, a refund may be obtained from the IRS. 9. Transfer Taxes. The Company will pay all transfer taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates representing Exchange Notes or Old Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered in the name of, any person other than the registered holder of the Old Notes tendered hereby, or if tendered Old Notes are registered in the name of a person other than the person signing this Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or on any other persons) will be payable by the tendering Holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with this Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering Holder. See the Prospectus under "The Exchange Offer--Solicitation of Tenders; Fees and Expenses." Except as provided in this Instruction 9, it will not be necessary for transfer tax stamps to be affixed to the Old Notes listed in this Letter of Transmittal. 10. Waiver of Conditions. The Company reserves the right, in their sole discretion, to amend, waive or modify specified conditions in the Exchange Offer in the case of any Old Notes tendered. 11. Mutilated, Lost, Stolen or Destroyed Old Notes. Any tendering Holder whose Old Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated herein for further instructions. 12. Requests for Assistance or Additional Copies. Requests for assistance and requests for additional copies of the Prospectus or this Letter of Transmittal may be directed to the Exchange Agent at the address specified in the Prospectus. Holder may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer. -13- 14 (DO NOT WRITE IN SPACE BELOW) CERTIFICATE SURRENDERED OLD NOTES TENDERED OLD NOTES ACCEPTED ----------------------- ------------------ ------------------ ----------------------- ------------------ ------------------ Date Received Accepted by Checked by ------------------ ------- -------- Delivery Prepared by Checked by Date ------------------ ------- --------------
IMPORTANT TAX INFORMATION Under federal income tax laws, a Holder whose tendered Old Notes are accepted for payment is required to provide the Exchange Agent (as payer) with such Holder's correct TIN on Substitute Form W-9 below or otherwise establish a basis for exemption from backup withholding. If such Holder is an individual, the TIN is his social security number. If the Exchange Agent is not provided with the correct TIN, a $50 penalty may be imposed by the IRS, and payments made pursuant to the Exchange Offer may be subject to backup withholding. Certain Holders (including, among others, certain corporations and certain foreign persons) are not subject to these backup withholding and reporting requirements. Exempt Holders should indicate their exempt status on Substitute Form W-9. A foreign person may qualify as an exempt recipient by submitting to the Exchange Agent a properly completed IRS Form W-8, signed under penalties of perjury, attesting to that Holder's exempt status. A Form W-8 can be obtained from the Exchange Agent. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. If backup withholding applies, the Exchange Agent is required to withhold 31% of any payments made to the Holder or other payee. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the IRS. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup withholding on payments made with respect to the Exchange Offer, the Holder is required to provide the Exchange Agent with either: (i) the Holder's correct TIN by completing the Substitute Form W-9 below, certifying that the TIN provided on Substitute Form W-9 is correct (or that such Holder is awaiting a TIN) and that (A) the Holder has not been notified by the IRS that the Holder is subject to backup withholding as a result of failure to report all interest or dividends or (B) the IRS has notified the Holder that the Holder is no longer subject to backup withholding or (ii) an adequate basis for exemption. WHAT NUMBER TO GIVE THE EXCHANGE AGENT The Holder is required to give the Exchange Agent the TIN (e.g., social security number or employer identification number) of the registered Holder of the Old Notes. If the Old Notes are held in more than one name or are held not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. -14- 15 CERTIFICATION OF PAYEE AWAITING TAXPAYER INDEMNIFICATION NUMBER I certify, under penalties of perjury, that a Taxpayer Identification Number has not been issued to me, and that I mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administration Office (or I intend to mail or deliver an application in the near future). I understand that if I do not provide a Taxpayer Identification Number to the payer, 31% of all payments made to me on account of the Exchange Notes shall be retained until I provide a Taxpayer Identification Number to the payer and that, if I do not provide my Taxpayer Identification Number within sixty days, such retained amounts shall be remitted to the Internal Revenue Service as backup withholding and 31% of all reportable payments made to me thereafter will be withheld and remitted to the Internal Revenue Service until I provide a Taxpayer Identification Number. SIGNATURE DATE -------------------------------------- -------------------------- NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE EXCHANGE NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. -15- 16 TO BE COMPLETED BY ALL TENDERING HOLDERS (SEE INSTRUCTION 8) Department of the Treasury INTERNAL REVENUE SERVICE PAYER'S NAME: AMERICAN PLUMBING & MECHANICAL, INC. ======================================================================================================================== SUBSTITUTE PART I - TAXPAYER IDENTIFICATION NUMBER (TIN) SOCIAL SECURITY NUMBER FORM W-9 ENTER YOUR TIN IN THE APPROPRIATE BOX. FOR ------------------------------ INDIVIDUALS, THIS IS YOUR SOCIAL SECURITY NUMBER (SSN). OR DEPARTMENT OF THE TREASURY FOR SOLE PROPRIETORS, SEE THE INSTRUCTIONS IN THE INTERNAL REVENUE SERVICE ENCLOSED GUIDELINES. FOR OTHER ENTITIES, IT IS YOUR EMPLOYER IDENTIFICATION NUMBER EMPLOYER IDENTIFICATION NUMBER (EIN). IF YOU DO NOT REQUEST FOR TAXPAYER HAVE A NUMBER, SEE HOW TO GET A TIN IN THE ENCLOSED ------------------------------ IDENTIFICATION NUMBER GUIDELINES. AND CERTIFICATION NOTE: IF THE ACCOUNT IS IN MORE THAN ONE NAME, SEE THE CHART ON PAGE 2 OF THE ENCLOSED GUIDELINES FOR INSTRUCTIONS ON WHOSE NUMBER TO ENTER. ----------------------------------------------------------------------------------------- PART II - FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING (See Part II instructions in the enclosed Guidelines.) - ------------------------------------------------------------------------------------------------------------------------ PART III - CERTIFICATION - UNDER PENALTIES OF PERJURY, I CERTIFY THAT: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. Signature Date , 1999 --------------------------------------------------- ------------------------------------ ========================================================================================================================
CERTIFICATION INSTRUCTIONS.-You must cross out item 2 above if you have been notified by the IRS that you are currently subject to backup withholding because you have failed to report all interest or dividends on your tax return. For real estate transactions, item 2 does not apply. For mortgage interest paid, the acquisition or abandonment of secured property, cancellation of debt, contributions to an individual retirement arrangement (IRA), and generally payments other than interest and dividends, you are not required to sign the Certification, but you must provide your correct TIN. -16- EX-99.2 23 FORM OF NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY FOR 11 5/8% SENIOR SUBORDINATED NOTES DUE 2008, Series A OF AMERICAN PLUMBING & MECHANICAL, INC. As set forth in the Prospectus dated __________, 1999 (the "Prospectus") of American Plumbing & Mechanical, Inc. (the "Company") and in the Letter of Transmittal (the "Letter of Transmittal"), this form or a form substantially equivalent to this form must be used to accept the Exchange Offer (as defined below) if the certificates for the outstanding 115/8% Senior Subordinated Notes due 2008, Series A (the "Old Notes") of the Company and all other documents required by the Letter of Transmittal cannot be delivered to the Exchange Agent by the expiration of the Exchange Offer or compliance with book-entry transfer procedures cannot be effected on a timely basis. Such form may be delivered by hand or transmitted by facsimile transmission, telex or mail to the Exchange Agent no later than the Expiration Date, and must include a signature guarantee by an Eligible Institution as set forth below. TO: State Street Bank and Trust Company (the "Exchange Agent") By Mail or Hand Delivery: By Registered or Certified Mail: State Street Bank and Trust Company State Street Bank and Trust Company Corporate Trust Window, Fifth Floor Corporate Trust Department 2 Avenue De Lafayette P.O. Box 778 Boston, Massachusetts 02111-1724 Boston, Massachusetts 02102-0778 Attention: Kellie Mullen Attention: Kellie Mullen By Facsimile Transmission: (for Eligible Institutions only) State Street Bank and Trust Company (617) 664-5395 Attention: Kellie Mullen For Information or Confirmation by Telephone: (617) 664-5587 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES, IS AT THE RISK OF THE HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. THE INSTRUCTIONS ACCOMPANYING THE LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS NOTICE OF GUARANTEED DELIVERY IS COMPLETED. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instructions thereto, such signatures must appear in the applicable space provided on the Letter of Transmittal for Guarantee of Signature(s). 2 Ladies and Gentlemen: The undersigned acknowledges receipt of the Prospectus and the related Letter of Transmittal which describes the Company's offer (the "Exchange Offer") to exchange $1,000 in principal amount of a new series of 115/8% Senior Subordinated Notes due 2008, Series B (the "Exchange Notes") for each $1,000 in principal amount of the Old Notes. The undersigned hereby tenders to the Company the aggregate principal amount of Old Notes set forth below on the terms and conditions set forth in the Prospectus and the related Letter of Transmittal pursuant to the guaranteed delivery procedure set forth in the "The Exchange Offer--Guaranteed Delivery Procedures" section in the Prospectus and the accompanying Letter of Transmittal. The undersigned understands that no withdrawal of a tender of Old Notes may be made on or after the expiration date of the Exchange Offer. The undersigned understands that for a withdrawal of a tender of Old Notes to be effective, a written notice of withdrawal that complies with the requirements of the Exchange Offer must be timely received by the Exchange Agent at one of its addresses specified on the cover of this Notice of Guaranteed Delivery prior to the Expiration Date. The undersigned understands that the exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of (i) such Old Notes (or Book-Entry Confirmation of the transfer of such Old Notes into the Exchange Agent's account at The Depository Trust Company (the "Depositary" or "DTC")) and (ii) a Letter of Transmittal (or facsimile thereof) with respect to such Old Notes, properly completed and duly executed, with any required signature guarantees, this Notice of Guaranteed Delivery and any other documents required by the Letter of Transmittal or a properly transmitted Agent's Message. The term "Agent's Message" means a message transmitted by the Depositary to, and received by, the Exchange Agent and forming part of the confirmation of a book-entry transfer, which states that the Depositary has received an express acknowledgment from each participant in the Depositary tendering the Old Notes and that such participant has received the Letter of Transmittal and agrees to be bound by the terms of the Letter of Transmittal and the Company may enforce such agreement against such participant. All authority conferred or agreed to be conferred by this Notice of Guaranteed Delivery shall not be affected by, and shall survive, the death or incapacity of the undersigned, and every obligation of the undersigned under this Notice of Guaranteed Delivery shall be binding upon the heirs, executors, administrators, trustees in bankruptcy, personal and legal representatives, successors and assigns of the undersigned. -2- 3 PLEASE SIGN AND COMPLETE Signature(s) of Registered Owner(s) or Authorized Name(s) of Registered Holder(s) Signatory: ------------------------------------------ ----------------------------------------------------- - ----------------------------------------------------- ----------------------------------------------------- - ----------------------------------------------------- ----------------------------------------------------- Principal Amount of Old Notes Tendered: Address: -------------------------------------------- - ----------------------------------------------------- ----------------------------------------------------- Certificate No(s) of Old Notes (if available): Area Code and Telephone No.: ------------------------- - ----------------------------------------------------- If Old Notes will be delivered by book-entry transfer at The Depository Trust Company, insert - ---------------------------------------------------- Depository Account No.: - ----------------------------------------------------- ------------------------------ Date: -----------------------------------------------
This Notice of Guaranteed Delivery must be signed by the registered Holder(s) of Old Notes exactly as its (their) name(s) appear on certificates for Old Notes or on a security position listing as the owner of Old Notes, or by person(s) authorized to become registered Holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information. PLEASE PRINT NAME(S) AND ADDRESS(ES) Name(s): ------------------------------------------------------------------- ------------------------------------------------------------------- Capacity: ------------------------------------------------------------------- Address(es): ------------------------------------------------------------------- ------------------------------------------------------------------- ------------------------------------------------------------------- DO NOT SEND OLD NOTES WITH THIS FORM. OLD NOTES SHOULD BE SENT TO THE EXCHANGE AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL. -3- 4 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or a correspondent in the United States, or otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby (a) represents that each holder of Old Notes on whose behalf this tender is being made "own(s)" the Old Notes covered hereby within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (b) represents that such tender of Old Notes complies with Rule 14e-4 of the Exchange Act and (c) guarantees that, within three New York Stock Exchange trading days from the expiration date of the Exchange Offer, a properly completed and duly executed Letter of Transmittal (or a facsimile thereof), together with certificates representing the Old Notes covered hereby in proper form for transfer (or confirmation of the book-entry transfer of such Old Notes into the Exchange Agent's account at The Depository Trust Company, pursuant to the procedure for book-entry transfer set forth in the Prospectus) and required documents will be deposited by the undersigned with the Exchange Agent. The undersigned acknowledges that it must deliver the Letter of Transmittal and Old Notes tendered hereby to the Exchange Agent within the time period set forth above and that failure to do so could result in financial loss to the undersigned. Name of Firm: ------------------------ ------------------------------------- Authorized Signature Address: Name: ----------------------------- -------------------------------- Title: - ------------------------------------- -------------------------------- Area Code and Telephone No.: Date: ----------- -------------------------------- -4- EX-99.3 24 FORM OF LETTER TO CLIENTS 1 EXHIBIT 99.3 AMERICAN PLUMBING & MECHANICAL, INC. OFFER TO EXCHANGE its 11 5/8% Senior Subordinated Notes Due 2008, Series B for any and all of its 11 5/8% Senior Subordinated Notes due 2008, Series A To Our Clients: Enclosed for your consideration are the Prospectus dated __________, 1999 (the "Prospectus") and the related Letter of Transmittal (which together with the Prospectus constitute the "Exchange Offer") in connection with the offer by American Plumbing & Mechanical, Inc., a Delaware corporation (the "Company"), to exchange its outstanding 115/8% Senior Subordinated Notes due 2008, Series A (the "Exchange Notes") for any and all of the outstanding 115/8% Senior Subordinated Notes due 2008, Series B (the "Old Notes"), upon the terms and subject to the conditions set forth in the Exchange Offer. We are the Registered Holders of Old Notes held for your account. An exchange of the Old Notes can be made only by us as the Registered Holders and pursuant to your instructions. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to exchange the Old Notes held by us for your account. The Exchange Offer provides a procedure for holders to tender by means of guaranteed delivery. We request information as to whether you wish us to exchange any or all of the Old Notes held by us for your account upon the terms and subject to the conditions of the Exchange Offer. Your attention is directed to the following: 1. The Exchange Notes will be exchanged for the Old Notes at the rate of $1,000 principal amount of Exchange Notes for each $1,000 principal amount of Old Notes. Interest on the Notes will accrue at the rate of 115/8% per annum and will be payable semi-annually on each April 15 and October 15 commencing October 15, 1999, to the holders of record of Notes at the close of business on the April 1 and October 1, respectively, immediately preceding such interest payment date. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the original date of issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The form and terms of the Exchange Notes are identical in all material respects to the form and terms of the Old Notes, except that (i) the offering of the Exchange Notes has been registered under the Securities Act of 1933, as amended (the "Securities Act"), (ii) the Exchange Notes will not be subject to transfer restrictions and (iii) certain provisions relating to an increase in the stated interest rate on the Old Notes provided for under certain circumstances will be eliminated. 2. Based on an interpretation by the staff of the Securities and Exchange Commission, Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act or a "broker" or "dealer" registered under the Securities Exchange Act of 1934, as amended) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. See the discussion in the Prospectus under "The Exchange Offer--Purpose and Effect of the Exchange Offer." 2 3. The Exchange Offer is not conditioned on any minimum principal amount of Old Notes being tendered. 4. Notwithstanding any other term of the Exchange Offer, the Company will not be required to accept for exchange, or exchange Exchange Notes for, any Old Notes not theretofore accepted for exchange, and may terminate or amend the Exchange Offer as provided herein before the acceptance of such Old Notes, if any of the conditions described in the Prospectus under "The Exchange Offer--Conditions to the Exchange Offer" exist. 5. Tendered Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on , 1999. 6. Any transfer taxes applicable to the exchange of the Old Notes pursuant to the Offer will be paid by the Company, except as otherwise provided in the Prospectus under "The Exchange Offer--Solicitation of Tenders; Fees and Expenses" and in Instruction 9 of the Letter of Transmittal. If you wish to have us tender any or all of your Old Notes, please so instruct us by completing, detaching and returning to us the instruction form attached hereto. An envelope to return your instructions is enclosed. If you authorize a tender of your Old Notes, the entire principal amount of Old Notes held for your account will be tendered unless otherwise specified on the instruction form. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf by the Expiration Date. The Exchange Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of the Old Notes in any jurisdiction in which the making of the Exchange Offer or acceptance thereof would not be in compliance with the laws of such jurisdiction or would otherwise not be in compliance with any provision of any applicable security law. -2- EX-99.4 25 FORM OF LETTER TO NOMINEES 1 EXHIBIT 99.4 AMERICAN PLUMBING & MECHANICAL, INC. OFFER TO EXCHANGE its 115/8% Senior Subordinated Notes Due 2008, Series B for any and all of its 115/8% Senior Subordinated Notes due 2008, Series A To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We are enclosing herewith an offer by American Plumbing & Mechanical, Inc., a Delaware corporation (the "Company"), to exchange its 115/8% Senior Subordinated Notes due 2008, Series B (the "Exchange Notes") for any and all of its outstanding 115/8% Senior Subordinated Notes due 2008, Series A (the "Old Notes"), upon the terms and subject to the conditions set forth in the accompanying Prospectus dated __________, 1999 (the "Prospectus") and related Letter of Transmittal (which together with the Prospectus constitutes the "Exchange Offer"). The Exchange Offer provides a procedure for holders to tender the Old Notes by means of guaranteed delivery. The Exchange Offer will expire at 5:00 p.m., New York City time, on __________, 1999, unless extended (the "Expiration Date"). Tendered Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. Based on an interpretation by the staff of the Securities and Exchange Commission, Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act or a "broker" or "dealer" registered under the Securities Exchange Act of 1934, as amended) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of such Exchange Notes. See the discussion in the Prospectus under "The Exchange Offer--Purpose and Effect of the Exchange Offer." The Exchange Offer is not conditioned on any minimum principal amount of Old Notes being tendered. Notwithstanding any other term of the Exchange Offer, the Company will not be required to accept for exchange, or exchange Exchange Notes for, any Old Notes not theretofore accepted for exchange, and may terminate or amend the Exchange Offer as provided herein before the acceptance of such Old Notes, if any of the conditions described in the Prospectus under "The Exchange Offer--Conditions to the Exchange Offer" exist. The Company reserves the right not to accept tendered Old Notes from any tendering holder if the Company determines, in its sole and absolute discretion, that such acceptance could result in a violation of applicable securities laws. For your information and for forwarding to your clients for whom you hold Old Notes registered in your name or in the name of your nominee, we are enclosing the following documents: 1. A Prospectus dated __________, 1999. 2. A Letter of Transmittal for your use and for the information of your clients. 2 3. A printed form of letter which may be sent to your clients for whose accounts you hold Old Notes registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Exchange Offer. 4. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 of the Internal Revenue Service (included in Letter of Transmittal). WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. Any inquiries you may have with respect to the Exchange Offer may be addressed to, and additional copies of the enclosed materials may be obtained from, the Exchange Agent at the following telephone number: (617) 664- 5587. Very truly yours, AMERICAN PLUMBING & MECHANICAL, INC. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU AS THE AGENT OF THE COMPANY, THE EXCHANGE AGENT OR ANY OTHER PERSON OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. -2- EX-99.5 26 FORM OF INSTRUCTION TO REGISTERED HOLDER 1 EXHIBIT 99.5 AMERICAN PLUMBING & MECHANICAL, INC. OFFER TO EXCHANGE its 115/8% Senior Subordinated Notes Due 2008, Series B for any and all of its 115/8% Senior Subordinated Notes due 2008, Series A INSTRUCTION TO REGISTERED HOLDER FROM BENEFICIAL OWNER The undersigned acknowledge(s) receipt of your letter and the enclosed Prospectus and the related Letter of Transmittal, in connection with the offer by American Plumbing & Mechanical, Inc. (the "Company") to exchange the 115/8% Senior Subordinated Notes due 2008, Series A (the "Old Notes"). This will instruct you to tender the principal amount of Old Notes indicated below held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Prospectus and the related Letter of Transmittal. The undersigned represents that (i) the 115/8% Senior Subordinated Notes due 2008, Series B (the "Exchange Notes") to be acquired pursuant to the Exchange Offer in exchange for the Old Notes designated below are being obtained in the ordinary course of business of the person receiving such Exchange Notes, (ii) neither the undersigned nor any other person receiving such Exchange Notes is participating, intends to participate, or has any arrangement or understanding with any person to participate, in the distribution of such Exchange Notes, and (iii) it is not an "affiliate," as defined under Rule 405 of the Securities Act of 1933 (the "Securities Act"), of the Company or, if it is an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the undersigned is a "broker" or "dealer" registered under the Securities Exchange Act of 1934 that acquired Old Notes for its own account pursuant to its market-making or other trading activities (other than Old Notes acquired directly from the Company), the undersigned understands and acknowledges that it may be deemed to be an "underwriter" within the meaning of the Securities Act and, therefore, must deliver a prospectus relating to the Exchange Notes in connection with any resales by it of Exchange Notes acquired for its own account in the Exchange Offer. Notwithstanding the foregoing, the undersigned does not thereby admit that it is an "underwriter" within the meaning of the Securities Act. YOU ARE HEREBY INSTRUCTED TO TENDER ALL OLD NOTES HELD FOR THE ACCOUNT OF THE UNDERSIGNED UNLESS OTHERWISE INDICATED BELOW. [ ] DO NOT TENDER ANY OLD NOTES [ ] TENDER OLD NOTES IN THE AGGREGATE PRINCIPAL AMOUNT OF $_______________ SIGNATURE: - -------------------------------------------------------------------------------- NAME OF BENEFICIAL OWNER (PLEASE PRINT) BY ------------------------------------------------------------------------------ SIGNATURE - -------------------------------------------------------------------------------- ADDRESS - -------------------------------------------------------------------------------- AREA CODE AND TELEPHONE NUMBER DATED: , 1999 -----END PRIVACY-ENHANCED MESSAGE-----