-----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, D7QVss8kLCAXENv07WUNntYyeL6FYBFx9DFhra3Ub6kgugPLgEnh96hGVoMPFOCA LW8mU7q/KyywyrewYBIHOg== 0000950129-99-001256.txt : 19990402 0000950129-99-001256.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950129-99-001256 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GROUP MAINTENANCE AMERICA CORP CENTRAL INDEX KEY: 0001039690 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION SPECIAL TRADE CONTRACTORS [1700] IRS NUMBER: 760535259 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13565 FILM NUMBER: 99579667 BUSINESS ADDRESS: STREET 1: 8 E GREENWAY PLAZA STREET 2: SUITE 1500 CITY: HOUSTON STATE: TX ZIP: 77046 BUSINESS PHONE: 7138600100 MAIL ADDRESS: STREET 1: 8 E GREENWAY PLAZA STREET 2: SUITE 1500 CITY: HOUSTON STATE: TX ZIP: 77046 10-K405 1 GROUP MAINTENANCE AMERICA CORP. - 12/31/98 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NO. 1-13565 GROUP MAINTENANCE AMERICA CORP. (Exact name of registrant as specified in its charter) TEXAS 76-0535259 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 8 GREENWAY PLAZA, SUITE 1500 HOUSTON, TEXAS 77046 (Address of principal executive offices) (Zip Code)
(713) 860-0100 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common stock, par value $0.001 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. As of March 17, 1999, (i) there were 35,438,090 shares of common stock, par value $0.001 per share, of the registrant issued and outstanding and (ii) the aggregate market value of the common stock held by non-affiliates of the registrant (based on the closing price per share of the registrant's common stock reported on the New York Stock Exchange on that date) was $357,911,994. For purposes of the above statement only, all directors and executive officers of the registrant are assumed to be affiliates. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement relating to the registrant's 1999 Annual Meeting of Shareholders (to be filed within 120 days after the end of the fiscal year) are incorporated by reference into Part III of this report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS PART I
PAGE ---- Item 1. Description of Business..................................... 1 Item 2. Properties.................................................. 7 Item 3. Legal Proceedings........................................... 8 Item 4. Submission of Matters to a Vote of Security Holders......... 8 Item 4A. Executive Officers.......................................... 8 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 11 Item 6. Selected Financial Data..................................... 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 14 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................................ 24 Item 8. Financial Statements and Supplementary Data................. 25 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 56 PART III Item 10. Directors and Executive Officers of the Registrant.......... 56 Item 11. Executive Compensation...................................... 56 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 56 Item 13. Certain Relationships and Related Transactions.............. 56 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................... 57
3 PART I ITEM 1. DESCRIPTION OF BUSINESS. Group Maintenance America Corp. ("GroupMAC"), a Texas corporation incorporated in 1997, is a leading nationwide provider of mechanical and electrical services. Its operations are conducted through subsidiaries which provide services to commercial/industrial and residential customers in 56 cities across 26 states. As used herein, the "Company" refers to GroupMAC and its subsidiaries. During 1998, the Company acquired 39 mechanical and electrical contracting companies with combined annual revenues of approximately $700 million. As a result of these acquisitions, the portion of the Company's revenues derived from maintenance, repair and replacement services shifted from 45% of total revenues at December 31, 1997 to approximately 60% at December 31, 1998. These acquisitions also resulted in an increase in the portion of the Company's business derived from commercial/industrial customers as the Company focused its acquisition program on contractors that could further the implementation of the Company's national accounts and energy service provider initiatives. The Company significantly expanded its electrical and cabling business with the acquisition of eight electrical contractors. At December 31, 1998, the Company comprised 59 operating companies and had $1.08 billion in pro forma 1998 revenues. Since that date, the Company has acquired three other businesses and currently comprises 62 operating companies in 57 cities in 26 states. The Company intends to make additional acquisitions across the main technical disciplines (mechanical and electrical) within the commercial/industrial and residential markets. The Company's long term objective is to develop maintenance, repair and replacement capabilities (both commercial/industrial and residential) in the top 100 markets within the United States, while offering new installation services across a more limited range of markets where new construction in the commercial/industrial and/or residential sectors is expected to out-pace the national average over the long term. Over time, this objective is expected to shift the revenues of the Company to an increased percentage of maintenance, repair and replacement revenue. SEGMENT FINANCIAL INFORMATION Information concerning the Company's principal business segments is set forth in Note 16 to the Consolidated Financial Statements of Group Maintenance America Corp. and Subsidiaries. The following tables summarize (i) revenues, (ii) operating income and (iii) allocable assets of the business segments of the Company for the periods indicated (in thousands):
YEAR ENDED TEN MONTHS ENDED YEAR ENDED DECEMBER 31, 1998 DECEMBER 31, 1997 FEBRUARY 28, 1997 ------------------ ------------------ ----------------- REVENUES Commercial/Industrial................ $472,451 62.0% $ 23,305 16.8% $ -- --% Residential.......................... 286,737 37.7 113,927 82.3 81,880 100.0 Other................................ 2,353 0.3 1,247 0.9 -- -- -------- ----- -------- ----- ------- ----- Total Revenues.................. $761,541 100.0% $138,479 100.0% $81,880 100.0% ======== ===== ======== ===== ======= ===== INCOME FROM OPERATIONS Commercial/Industrial................ $ 33,890 55.4% $ 1,108 9.4% $ -- --% Residential.......................... 27,168 44.4 10,559 90.0 3,563 100.0 Other................................ 98 0.2 71 0.6 -- -- -------- ----- -------- ----- ------- ----- Segment Operating Earnings...... 61,156 100.0% 11,738 100.0% 3,563 100.0% ===== ===== ===== Unallocated Net Corporate Expenses(a)........................ (9,090) (11,516)(b) -- -------- -------- ------- Income From Operations.......... $ 52,066 $ 222 $ 3,563 ======== ======== ======= ASSETS Commercial/Industrial................ $542,998 77.4% $ 65,566 34.0% $ -- --% Residential.......................... 123,775 17.7 96,237 50.0 27,153 100.0 Other................................ 34,308 4.9 30,884 16.0 -- -- -------- ----- -------- ----- ------- ----- Total Assets.................... $701,081 100.0% $192,687 100.0% $27,153 100.0% ======== ===== ======== ===== ======= =====
4 - --------------- (a) Unallocated net corporate expenses primarily include (i) corporate overhead, (ii) corporate and operating company management bonuses, and (iii) savings from national purchase agreements relating to materials and property/casualty insurance. (b) Includes a $7.0 million non-recurring, non-cash compensation charge related to the reverse acquisition of Airtron, Inc. COMMERCIAL/INDUSTRIAL GROUP Through its Commercial/Industrial Group, the Company provides mechanical and electrical contracting services to commercial/industrial customers. The following table shows the approximate percentages of the revenues of the Commercial Group's revenue mix for the fiscal year ended December 31, 1998:
ELECTRICAL MECHANICAL AND OTHER TOTAL ---------- ---------- ----- Maintenance, Repair and Replacement..................... 51.4% 13.0% 64.4% New Installation........................................ 30.5 5.1 35.6 ---- ---- ----- Total Commercial/Industrial................... 81.9% 18.1% 100.0% ==== ==== =====
SERVICES PROVIDED Mechanical. The Company designs, installs, maintains, repairs and replaces the heating, ventilating and air conditioning ("HVAC"), control and monitoring and process piping systems of commercial and industrial facilities such as manufacturing and processing facilities, power generation facilities, hospitals and other critical care facilities, colleges and universities, hotels, commercial office buildings, retail stores, and restaurants, supermarkets, and convenience stores. The services provided include both maintenance, repair and replacement ("MRR") services and new installation services for products such as compressor-bearing HVAC equipment, boilers, chillers, central plants, process piping and control systems. The MRR work includes preventative maintenance (periodic checkups, cleaning and filter change-outs), emergency repairs and the replacement (in conjunction with the retrofitting or remodeling of a commercial building, or as a result of an emergency request) of HVAC systems and associated parts, plumbing fixtures, pipes, water feed and sewer lines, water heaters, softeners, filters and controls. The Commercial/Industrial Group also designs and installs mechanical, electrical and other systems on behalf of owners or general contractors in commercial buildings. Electrical, Voice and Data. The Company installs, maintains and upgrades the electrical systems of commercial/industrial facilities, including process controls, lighting, power, lifesafety systems and energy management systems. The Company also designs, installs, upgrades, maintains and repairs low energy systems ("LES") including voice and data cabling, high speed data network infrastructure systems, fiber optics, video, security and sound. LES is the fastest growing segment of the electrical construction business. Additionally, through its information technology unit, Total Site Solutions(SM), the Company provides consulting services, turnkey design and installation work for various mission critical facilities such as telecommunications facilities, call centers, network control rooms, mainframe data centers, trading floors, laboratories and medical facilities, which must remain on line 100% of the time. Total Site Solutions(SM) also provides broad-based service agreements that include provision and administration of bundled preventative maintenance and emergency response services for these facilities. CUSTOMERS The Company's commercial/industrial customers include general contractors, facility owners, facility managers, developers, utilities, energy service companies, property managers, engineers, consultants, and architects. The Company expects to perform an increasing amount of services for energy service companies seeking to bundle their service and commodity product offerings. The Company was recently selected by PG&E Energy Services as its preferred provider of commercial HVAC services nationwide. As an unregulated 2 5 subsidiary of the third largest utility in the United States, PG&E Energy Services has a national presence and is likely to be a significant participant in the rapidly growing energy services market. The Company is seeking to expand the services it provides to building owners and operators through a national accounts marketing effort focusing on entities that are responsible for operating the mechanical and electrical systems of buildings located throughout the United States. The Company's customers include Microsoft, Lincoln Properties, Builders Square, Pep Boys, Blockbuster and MCI Worldcom. No customer accounts for more than 2% of the Commercial/Industrial Group's revenues. RESIDENTIAL GROUP Through its Residential Group, the Company provides mechanical and other contracting services to home builders and home owners. The Residential Group operates through 24 subsidiaries from 39 locations. Although most of the group's locations perform MRR services, four of the operating companies emphasize new construction work and represent 66.1% of the group's revenues. The following table shows the revenue mix of the Residential Group for the fiscal year ended December 31, 1998: New Installation............................................ 66.9% Maintenance, Repair and Replacement......................... 33.1 ----- Total Residential................................. 100.0% =====
SERVICES The Residential Group installs HVAC and plumbing systems in homes, apartment and condominium complexes and small commercial buildings. It also provides maintenance services for these systems, such as inspections, cleaning, repair and replacement of HVAC systems and associated parts; repair and replacement of bathroom fixtures, water filters and water heaters; and cleaning, repair and replacement of pipes, sewer lines and residential sanitary systems. In connection with its maintenance, repair and replacement services, the Company sells a wide range of HVAC, plumbing and other equipment, including complete HVAC systems and a variety of parts and components. CUSTOMERS The Company markets its residential new installation contracting services to local, regional and national home builders, including U.S. Home Corporation, Pulte Home Corporation, Centex Corporation, and Beazer Homes Corporation, or to general contractors working for builders. The Company targets its growth in the residential new installation market in those areas of the United States that have growth rates above the national average. Through strong existing relationships with major national homebuilders, the Company is marketing its capabilities to provide consistent, reliable installation services on a regional basis. No customer accounts for more than 4% of the Residential Group's revenues. The Company's customers for residential maintenance repair and replacement services consist primarily of homeowners. The Company advertises its maintenance services in the yellow pages, on billboards, on television and radio, and through direct mail. It also relies upon service contracts to attract and retain customers. 3 6 OPERATIONS In providing maintenance, repair and replacement services, the Company uses specialized systems to log service orders, schedule service calls, identify and ready the necessary parts and equipment, track the work order, provide information for communication with the service technicians and customers, and prepare accurate invoices. Service histories and specific product information are generally accessible to the dispatcher in a database that may be searched by customer name or address. Maintenance, repair and replacement calls are initiated when a customer requests emergency repair service or the Company calls the client to schedule periodic service agreement maintenance. Service technicians are scheduled for the call or routed to the customer's business or residence by the dispatcher via a scheduling board or daily work sheet (for non- emergency service) or through cellular telephone, pager or radio. Service personnel work out of the Company's service vehicles, which carry an inventory of equipment, tools, parts and supplies needed to complete the typical variety of jobs. The technician assigned to a service call travels to the business or residence, interviews the customer, diagnoses the problem, presents the solution, obtains agreement from the customer and performs the work. A portion of the Company's service work is done to satisfy manufacturers' equipment warranties. For such services, the Company is generally compensated by the manufacturer responsible for the defective equipment under warranty. The Company attempts to enter into service contracts whereby the customer pays an annual or semiannual fee for periodic diagnostic and preventive services. The customers under service contracts receive specific discounts from standard prices for repair and replacement services. Commercial new installation work begins with a design request from the owner or general contractor. Initial meetings with the parties allow the contractor to prepare preliminary and then more detailed design specifications, engineering drawings and cost estimates. Once a project is awarded, it is conducted in pre-agreed phases and progress billings are rendered to the owner for payment, less a retainage. Actual field work (ordering of equipment and materials, fabrication or assembly of certain components, delivery of materials to the job sites, scheduling of work crews with the necessary skills, and inspection and quality control) is coordinated in these same phases. The Company has established a policy to review and approve any new installation project by an operating unit that exceeds 5% of the projected annual revenue of that unit. The Company will generally perform work contracted by it using its personnel who work from one of the Commercial/Industrial Group's 47 locations. However, the Company may subcontract with other contractors to perform work in locations where the Company does not have a facility or where the Company's backlog requires additional resources. The Company generally subcontracts with members of United Service Alliance when possible. United Service Alliance is a member organization owned by the Company which provides industry training programs and national account opportunities to independent service contractors. Residential service technicians may carry a Customer Assurance Pricing manual developed by the Company which specifies the labor, equipment and parts required to fulfill certain tasks and the associated flat rate prices for those tasks. This manual is custom generated for each company from a database containing over 15,000 different repair operations and is regularly updated for price changes. This "flat rate pricing" strategy allows the Company to monitor margins and labor productivity at the point of sale, while increasing the level of customer satisfaction by demonstrating greater fairness and objectivity in pricing. Payment for maintenance, repair and replacement services not covered by a warranty or service contract is generally requested in cash, check or credit card at the service location. SOURCES OF SUPPLY The raw materials and components used by the Company include HVAC system components, ductwork, steel sheet metal and copper tubing and piping. These raw materials and components are generally available from a variety of domestic or foreign suppliers at competitive prices. Delivery times are typically short for most raw materials and standard components, but during periods of peak demand, may extend to a month or more. Chillers for large units typically have the longest delivery time and generally have lead times of up to three to four months. The major components of HVAC systems are compressors and chillers that are manufactured primarily by Trane Air Conditioning Company, Carrier Corporation, and York Heating and Air Conditioning 4 7 Company. The major suppliers of control systems are Honeywell Inc., Johnson Controls, Inc. and Andover Control Corporation. The Company is not materially dependent on any of these outside sources. EMPLOYEES As of December 31, 1998, the Company had approximately 9,000 full and part-time employees, of whom approximately 6,900 are installation/service technicians. In the course of performing installation work, the Company may utilize the services of subcontractors. Approximately 1,600 employees (in 13 of the Company's subsidiaries) are members of unions and work under collective bargaining agreements. The collective bargaining agreements have expiration dates between April 1999 and June 2003. The Company believes that its relationship with its employees is generally satisfactory. SEASONALITY The Company's business tends to be affected adversely by moderate weather patterns. Comparatively warm winters and cool summers reduce the demand for its maintenance, repair and replacement services. Additionally, its new installation business is affected adversely by extremely cold weather and large amounts of rain. As a result, the Company expects that its revenues and operating results will be lower in the first and, to a lesser degree, fourth calendar quarters. Prolonged weather conditions or seasonal variations may cause unpredictable fluctuations in operating results. BACKLOG At December 31, 1998, the Company's backlog of work was approximately $420.7 million. Of the backlog, approximately $382.6 million related to the Company's commercial/industrial operations and the remaining $38.1 million related to the Company's residential operations. COMPETITION The market for mechanical and electrical services is highly competitive. The Company believes that the principal competitive factors in the commercial/industrial and residential services industry are (i) timeliness, reliability and quality of services provided, (ii) range of services offered, (iii) market share and visibility and (iv) price. The Company believes its strategy of creating a leading national provider of comprehensive services directly addresses these factors. The ability of the Company to employ, train and retain highly motivated service technicians to provide quality services should be enhanced by its ability to utilize professionally managed recruiting and training programs. In addition, the Company expects to offer compensation, health and savings benefits that are more comprehensive than most offered in the industry. Competitive pricing is possible through purchasing economies and other cost saving opportunities that exist across each of the service lines offered and from productivity improvements. Most of the Company's competitors are small, owner-operated companies that typically operate in a single market. Certain of these smaller competitors may have lower overhead cost structures and may be able to provide their services at lower rates. Moreover, many homeowners have traditionally relied on individual persons or small repair service firms with whom they have long-established relationships for a variety of home repairs. There are currently a limited number of public companies focused on providing commercial/industrial or residential services in some of the same service lines provided by the Company. In addition, there are a number of national retail chains that sell a variety of plumbing fixtures and equipment and HVAC equipment for residential use and offer, either directly or through various subcontractors, installation, warranty and repair services. Other companies or trade groups engage in franchising their names and marketing programs in some service lines. In the future, competition may be encountered from, among others, HVAC equipment manufacturers, the unregulated business segments of regulated gas and electric utilities or from newly deregulated utilities entering into various commercial/industrial or residential service areas. Certain of the Company's competitors and potential competitors have greater financial resources than the Company to finance acquisition and development opportunities, to pay higher prices for the same 5 8 opportunities or to develop and support their own commercial/industrial or residential service operations if they decide to enter the field. GOVERNMENTAL REGULATION Many aspects of the Company's operations are subject to various federal, state and local laws and regulations, including, among others, (1) permitting and licensing requirements applicable to service technicians in their respective trades, (2) building, mechanical and electrical codes and zoning ordinances, (3) laws and regulations relating to consumer protection, including laws and regulations governing service contracts for residential services, and (4) laws and regulations relating to worker safety and protection of human health. In Florida, warranties provided for in the Company's service agreements subject the Company and such agreements to some aspects of that state's insurance laws and regulations. Specifically, the Company is required to maintain funds on deposit with the Florida Office of Insurance Commissioner and Treasurer, the amount of which is not material to the Company's business. The Company is in compliance with these deposit requirements. The Company believes it has all required permits and licenses to conduct its operations and is in substantial compliance with applicable regulatory requirements relating to its operations. Failure of the Company to comply with the applicable regulations could result in substantial fines or revocation of the Company's operating permits. A large number of state and local regulations governing the residential services trades require various permits and licenses to be held by individuals. In some cases, a required permit or license held by a single individual may be sufficient to authorize specified activities for all the Company's service technicians who work in the geographic area covered by the permit or licenses. ENVIRONMENTAL REGULATION The Company's operations are subject to numerous federal, state and local environmental laws and regulations, including those governing the remediation of contaminated soil and groundwater, vehicle emissions and the use and handling of refrigerants. These laws and regulations are administered by the United States Environmental Protection Agency, the Coast Guard, the Department of Transportation and various state and local governmental agencies. The technical requirements of these laws and regulations are becoming increasingly complex and stringent, and meeting these requirements can be expensive. The nature of the Company's operations and its ownership or operation of property expose it to the risk of claims with respect to such matters, and there can be no assurance that material costs or liabilities will not be incurred in connection with such claims. Federal and state environmental laws include statutes intended to allocate the cost of remedying contamination among specifically identified parties. For example, the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA" or "Superfund") can impose strict, joint and several liability on past and present owners or operators of facilities at, from or to which a release of hazardous substances has occurred, on parties who generated hazardous substances that were released at such facilities and on parties who arranged for the transportation of hazardous substances to such facilities. A majority of states have adopted "Superfund" statutes comparable to, and in some cases more stringent than, CERCLA. If the Company were to be found to be a responsible party under CERCLA or a similar state statute, the Company could be held liable for all investigative and remedial costs associated with addressing such contamination, even though the releases were caused by a prior owner or operator or third party. In addition, claims alleging personal injury or property damage may be brought against the Company as a result of alleged exposure to hazardous substances resulting from the Company's operations. Prior to entering into the agreements relating to the acquisition of businesses, the Company evaluated the properties owned or leased by those businesses and in some cases engaged an independent environmental consulting firm to conduct or review assessments of environmental conditions at certain of those properties. No material environmental problems were discovered in these reviews, and the Company is not otherwise aware of any actual or potential environmental liabilities that would be material to the Company. There can be no assurance that all such liabilities have been identified, that such liabilities will not occur in the future, that a 6 9 party could not assert a material claim against the Company with respect to such liabilities, or that the Company would be required or able to answer for such claim. The Company's operations are subject to the Clean Air Act, Title VI of which governs air emissions and imposes specific requirements on the use and handling of substances known or suspected to cause or contribute significantly to harmful effects on the stratospherical ozone layer, such as chlorofluorocarbons and certain other refrigerants ("CFCs"). Clean Air Act regulations require the certification of service technicians involved in the service or repair of systems, equipment and appliances containing these refrigerants and also regulate the containment and recycling of these refrigerants. These requirements have increased the Company's training expenses and expenditures for containment and recycling equipment. The Clean Air Act is intended ultimately to eliminate the use of CFCs in the United States and require alternative refrigerants to be used in replacement HVAC systems. The implementation of the Clean Air Act restrictions has also increased the cost of CFCs in recent years and is expected to continue to increase such costs in the future. As a result, the number of conversions of existing HVAC systems that use CFCs to systems using alternative refrigerants is expected to increase. The Company's operations in certain geographic regions are subject to laws that will, over the next few years, require specified percentages of vehicles in large vehicle fleets to use "alternative" fuels, such as compressed natural gas or propane, and meet reduced emissions standards. The Company does not anticipate that the cost of fleet conversion that may be required under current laws will be material. Future costs of compliance with these laws will be dependent upon the number of vehicles purchased in the future for use in the covered geographic regions, as well as the number and size of future business acquisitions by the Company in these regions. The Company cannot determine to what extent its future operations and earnings may be affected by new regulations or changes in existing regulations relating to vehicle emissions. Capital expenditures related to environmental matters during the fiscal year ended December 31, 1998, were not material. The Company does not currently anticipate any material adverse effect on its business or consolidated financial position as a result of future compliance with existing environmental laws and regulations controlling the discharge of materials into the environment. Future events, however, such as changes in existing laws and regulations or their interpretation, more vigorous enforcement policies of regulatory agencies or stricter or different interpretations of existing laws and regulations may require additional expenditures by the Company which may be material. ITEM 2. PROPERTIES. The Company's executive offices are located in leased office space at 8 Greenway Plaza, Suite 1500, Houston, Texas 77046. The Company operates a fleet of approximately 3,550 owned or leased service trucks, vans and support vehicles. It believes these vehicles generally are well-maintained, ordinary wear and tear excepted, and adequate for the Company's current operations. The Company has a total of 112 facilities, six of which it owns and 106 of which are under leases with remaining terms up to 12 years from the date hereof on terms the Company believes to be commercially reasonable. The aggregate of the leased or owned space at the Company's facilities is approximately 1.6 million square feet. A majority of the Company's facilities are leased from certain former shareholders (or entities controlled by certain former shareholders) of its subsidiaries. None of these leases expire prior to 2000. The provisions of the leases are on terms the Company believes to be at least as favorable to the Company as could have been negotiated by the Company with unaffiliated third parties. The Company believes the owned and leased facilities are adequate to serve its current level of operations. The Company believes that it has generally satisfactory title to the property owned by it, subject to the liens for current taxes, liens incident to minor encumbrances and easements and restrictions that do not materially detract from the value of such property or the interests therein or the use of such property in its business. Additionally, the inventory and accounts receivable of the Company are subject to a lien under its credit facility. 7 10 ITEM 3. LEGAL PROCEEDINGS. The Company is a party to various legal proceedings. It is not possible to predict the outcome of these matters. However, in the opinion of management, the resolution of these matters will not have a material adverse effect on the Company's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company did not submit any matter to a vote of its security holders during the fourth quarter of 1998. ITEM 4A. EXECUTIVE OFFICERS. The following table sets forth certain information concerning the executive officers of the Company:
NAME AGE POSITION - ---- --- -------- James P. Norris........................... 60 Chairman of the Board; Director J. Patrick Millinor, Jr................... 53 Chief Executive Officer; Director Donald L. Luke............................ 62 President and Chief Operating Officer; Director William Michael Callahan.................. 53 Executive Vice President -- Training and Development Chester J. Jachimiec...................... 44 Executive Vice President -- Acquisitions; Director Darren B. Miller.......................... 39 Executive Vice President and Chief Financial Officer Alfred R. Roach, Jr....................... 54 Executive Vice President -- Commercial/Industrial Group Richard S. Rouse.......................... 52 Executive Vice President -- Corporate Development and Administration Randolph W. Bryant........................ 48 Senior Vice President, General Counsel and Secretary Daniel W. Kipp............................ 39 Senior Vice President and Corporate Controller Robert Tyler.............................. 49 Senior Vice President -- Residential Group David L. Henninger........................ 54 President of Van's Comfortemp Air Conditioning, Inc.; Director Timothy Johnston.......................... 43 Senior Vice President of Airtron, Inc.; Director Andrew Jeffrey Kelly...................... 44 Chief Executive Officer of K&N Plumbing, Heating & Air Conditioning, Inc.; Director Robert Munson, III........................ 52 President of Trinity Contractors, Inc.; Director Fredric J. Sigmund........................ 57 President and Chief Executive Officer of MacDonald- Miller Industries, Inc.; Director William M. Witz........................... 59 Chief Executive Officer of Continental Electrical Construction Co.; Director
JAMES P. NORRIS became a Director and Chairman of the Board of the Company in June 1997. From 1969 to May 1997, he served as Executive Vice President of Air Conditioning Contractors of America ("ACCA"), an industry trade association based in Washington, D.C. J. PATRICK MILLINOR, JR. is a Director and Chief Executive Officer of the Company and has served in such capacities with the Company and its predecessor since October 1996. He also served as President of the Company and its predecessor from October 1996 to August 1997. From September 1994 to October 1996, Mr. Millinor worked directly for Gordon Cain, a major stockholder in the Company, assisting in the formation and management of Agennix Incorporated and Lexicon Genetics, two biotechnology companies. From March 1993 to September 1994, he served as Chief Executive Officer of UltrAir, Inc., a start-up passenger airline. From October 1992 to March 1993, he served as Chief Financial Officer of UltrAir, Inc. He currently serves as a director of Agennix Incorporated and Haelan Health(R) Corporation. DONALD L. LUKE became a Director and President and Chief Operating Officer of the Company in August 1997. From November 1996 to July 1997, he served as Chairman of Arriva Air International, Inc. a start-up commercial air cargo business, and a partner in McFarland Grossman Capital Ventures, L.C., a consolidator 8 11 of fastener distribution companies. From September 1996 to August 1997, he served as the Chief Executive Officer of CTW, Inc. a privately held acquisitions and management company, and a consultant to Batteries Batteries, Inc., a consolidator of specialty battery distribution companies which completed its initial public offering in April 1996. From 1995 to September 1996, he served as President, Chief Executive Officer and Director of Batteries Batteries, Inc. From 1991 to 1995, Mr. Luke served as President and Chief Executive Officer of Miracle Ear New York City. WILLIAM MICHAEL CALLAHAN became Executive Vice President -- Training and Development of the Company in August 1997. From 1989 to July 1997, Mr. Callahan was a partner in Callahan Roach & Associates, a firm which provided consulting services to residential HVAC contractors nationwide prior to its acquisition by the Company. From 1972 to 1989, Mr. Callahan served as President of Capital City Heating & Cooling, a company he founded. In 1988, Mr. Callahan served as President of ACCA. CHESTER J. JACHIMIEC is a Director and Executive Vice President -- Acquisitions of the Company, having served in such capacities with the Company and its predecessor since October 1996. From February 1994 to October 1996, Mr. Jachimiec served as the Director of Acquisitions & Investments for Tenneco Energy. From 1990 to 1994, he was an investor in or consultant to various private ventures engaged in natural gas gathering, processing and exploration as well as computer software development. Prior to 1990, Mr. Jachimiec practiced securities law and public accounting with several professional firms. DARREN B. MILLER has been an Executive Vice President of the Company since July 1998 and has been Chief Financial Officer of the Company and its predecessor since October 1996. He was also a Senior Vice President from October 1996 until July 1998. From 1989 to 1996, Mr. Miller served in several capacities at Allwaste, Inc., a consolidator of industrial service companies, including Vice President -- Treasurer and Controller from 1995 to 1996. Prior to 1989, he was employed in the audit practice of Arthur Andersen LLP. ALFRED R. ROACH, JR. became Executive Vice President -- Commercial/Industrial Group of the Company in January 1998 and previously served as Executive Vice President -- Marketing, Sales and Product Support from August 1997 until January 1998. From 1989 to July 1997, Mr. Roach was a partner in Callahan Roach & Associates. From 1986 to 1989, he served as President and General Counsel of Service America Corporation, an HVAC franchise company. From 1970 to 1986, Mr. Roach engaged in the private practice of law. RICHARD S. ROUSE is Executive Vice President -- Corporate Development and Administration of the Company, having served in such capacity with the Company and its predecessor since October 1996. From July 1994 to July 1996, Mr. Rouse was Vice President and General Manager of Southcoast Services, a privately held landfill operating company. From 1992 to 1994, he served as Vice President and General Manager of SWS, an industrial services company. RANDOLPH W. BRYANT became Senior Vice President, General Counsel and Secretary of the Company upon its formation in 1997. From December 1996 to April 1997, Mr. Bryant served as Associate General Counsel of El Paso Natural Gas Company. From 1984 to 1996, he was an attorney with Tenneco Inc. and Tenneco Energy Inc., last serving as Associate General Counsel. DANIEL W. KIPP has been a Senior Vice President of the Company since July 1998 and its Corporate Controller since February 1997. He also served as a Vice President of the Company from February 1997 through July 1998. From February 1994 until February 1997, Mr. Kipp was a sales executive with American Sterling, a provider of hazard insurance outsourcing services to the mortgage banking industry, and from July 1990 until February 1994 he was Vice President and Controller of Allwaste Recycling, Inc., a glass recycler and powdered glass processor. Prior to July 1990, he was employed in the audit practice of Arthur Andersen LLP. ROBERT TYLER has been Senior Vice President -- Residential Group of the Company since June 1998. From February 1994 until June 1998, he was Vice President, Sales, for Amana Heating and Air Conditioning, a manufacturer of HVAC equipment. He previously served as National Sales Manager for Friedrich Air Conditioning, a manufacturer of HVAC equipment, from January 1990 until February 1994. 9 12 DAVID L. HENNINGER became a Director of the Company in November 1997. He is President of Van's Comfortemp Air Conditioning, Inc., a subsidiary of the Company providing HVAC services to residential and light commercial customers in the Palm Beach-Ft. Lauderdale, Florida, area. He acquired Van's in 1975 and has served as its President since that time. TIMOTHY JOHNSTON became a Director of the Company in May 1997 in connection with the acquisition of Airtron, which installs HVAC systems in new residences. Mr. Johnston joined Airtron, Inc. in 1988 and has served as its Senior Vice President since 1995. He has also served as Secretary/Treasurer of Airtron since 1991 and Chief Financial Officer of Airtron since 1988. ANDREW JEFFREY KELLY became a Director of the Company in November 1997. Mr. Kelly is Chief Executive Officer of K&N, a subsidiary of the Company providing plumbing and HVAC services to residential new construction markets in the Dallas-Ft. Worth and Austin areas. He founded K&N in 1979 and has served as its Chief Executive Officer since that time. ROBERT MUNSON, III became a Director of the Company in November 1998. He is President of Trinity Contractors, Inc, a subsidiary of the Company which provides mechanical and electrical contracting services to commercial and industrial customers, primarily in the Dallas-Ft. Worth area. He founded Trinity in 1981 and has served as its President since that time. FREDRIC J. SIGMUND became a Director of the Company in November 1997. Mr. Sigmund is President and Chief Executive Officer of MacDonald-Miller Industries, Inc., a subsidiary of the Company providing a full range of HVAC services to commercial and industrial customers in the Pacific Northwest. He became an employee of MacDonald-Miller in 1967 and has been its President and Chief Executive Officer since 1986. WILLIAM M. WITZ became a Director of the Company in March 1999. He is Chief Executive Officer of Continental Electrical Construction Co., a subsidiary of the Company that provides electrical contracting services in the Chicago metropolitan area. Mr. Witz joined Continental Electrical in 1973 and has served as its Chief Executive Officer since 1976. 10 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Since November 1997, the Common Stock of the Company has been listed for trading on the New York Stock Exchange (the "NYSE") under the symbol "MAK." As of March 17, 1999, there were 35,438,090 shares of Common Stock outstanding, held by approximately 640 shareholders of record. The number of record holders does not necessarily bear any relationship to the number of beneficial owners of the Common Stock. SALES PRICES OF COMMON STOCK The following table sets forth the range of high and low sales prices for the Common Stock on the NYSE (as reported by National Quotation Bureau, LLC) for the periods indicated:
HIGH LOW ------ ------ Year ended December 31, 1997 4th quarter (November 7 to December 31).................. $17 3/16 $13 Year ended December 31, 1998 1st quarter.............................................. $17 1/8 $14 2nd quarter.............................................. 19 5/8 15 1/2 3rd quarter.............................................. 20 5/8 11 1/4 4th quarter.............................................. 14 3/16 10 5/16
DIVIDENDS Under applicable corporate law, the Company may pay dividends out of surplus (as defined under the Texas Business Corporation Act). At December 31, 1998, the Company had surplus of approximately $315.9 million for the payment of dividends. The Company has not paid a dividend on the Common Stock since its incorporation and does not anticipate paying any dividends on the Common Stock in the foreseeable future because it intends to retain any earnings to finance the expansion of its business, to repay indebtedness and for general corporate purposes. Any payment of future dividends will be at the discretion of the Board of Directors and will depend upon, among other things, the Company's earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions with respect to the payment of dividends and other relevant factors. Additionally, the Company's revolving credit facility prohibits the payment of dividends without the consent of the lenders, and the Company's indenture relating to its Senior Subordinated Notes due 2009 (the "Notes") places restrictions on the ability of the Company to pay dividends. For additional information concerning the Company's revolving credit facility and the Notes, see Note 7 to the Consolidated Financial Statements included under Item 8 of this Annual Report. SALES OF UNREGISTERED SECURITIES DURING 1998 During the fiscal year ended December 31, 1998, the Company issued securities that were not registered pursuant to the Securities Act of 1933, as amended (the "Securities Act"), as follows: (a) On January 12, 1998, the Company issued 191,900 shares of Common Stock to the partners of Callahan/Roach & Associates ("Callahan Roach") as part of the consideration for the purchase of the assets of Callahan Roach. The Company incurred the obligation to issue these shares of Common Stock in 1997; (b) On March 20, 1998, the Company issued 3,750 shares of Common Stock to the former shareholders of Linford Service Company ("Linford") as part of a post-closing adjustment to the purchase price for Linford; 11 14 (c) On April 20, 1998, the Company issued 22,528 shares of Common Stock to the former shareholder of All Service Electric, Inc. ("All Service") as part of the post-closing adjustment of the purchase price for the acquisition of All Service; (d) On April 20, 1998, the Company issued 38,482 shares of Common Stock to the former shareholders of Willis Refrigeration, Air Conditioning & Heating, Inc. ("Willis") as part of the post-closing adjustment of the purchase price for the acquisition of Willis; (e) On April 20, 1998, the Company issued 21,555 shares of Common Stock to the former shareholders of Paul E. Smith Co., Inc. ("PES") as part of the post-closing adjustment of the purchase price for the acquisition of PES; (f) On April 20, 1998, the Company issued 1,422 shares of Common Stock to the former shareholders of Mechanical Services, Inc. ("MSI") as part of the post-closing adjustment of the purchase price for the acquisition of MSI; (g) On April 20, 1998, the Company issued 12,959 shares of Common Stock to the former shareholders of Arkansas Mechanical Services, Inc. ("AMS") as part of the post-closing adjustment of the purchase price for the acquisition of AMS; (h) On April 20, 1998, the Company issued 3,822 shares of Common Stock to the former shareholders of Southeast Mechanical Service, Inc. ("Southeast Mechanical") as part of the post-closing adjustment of the purchase price for the acquisition of Southeast Mechanical; (i) On April 29, 1998, the Company issued 726 shares of Common Stock to the former shareholders of Central Carolina Air Conditioning Company ("Central Carolina") as part of the post-closing adjustment of the purchase price for the acquisition of Central Carolina; (j) On April 29, 1998, the Company issued 22,149 shares of Common Stock to the former shareholders of Yale Incorporated ("Yale") as part of the post-closing adjustment of the purchase price for the acquisition of Yale; (k) On May 11, 1998, and June 12, 1998, the Company issued 24,460 shares and 13,108 shares, respectively, of Common Stock to the former shareholders of Costner Brothers, Inc. ("Costner") as part of the post-closing adjustment of the purchase price for the acquisition of Costner; (l) On November 13, 1998, the Company issued 1,449,980 shares of Common Stock, warrants to purchase 828,853 shares of Common Stock, and $16.0 million aggregate principal amount of subordinated notes in connection with the acquisition of the outstanding capital stock of Trinity Contractors, Inc.; and (m) On December 2, 1998, the Company issued 52,032 shares of Common Stock to the former shareholders of Sibley Services, Inc. ("Sibley") as part of the post-closing adjustment of the purchase price for the acquisition of Sibley. Such sales were completed without registration under the Securities Act in reliance upon the exemption provided by Section 4(2) of the Securities Act, no public offering being involved. 12 15 ITEM 6. SELECTED FINANCIAL DATA. Our first acquisition was that of Airtron. For accounting purposes, this transaction was accounted for as a reverse acquisition, as if Airtron acquired GroupMAC, because the former shareholders of Airtron owned a majority of our common stock upon consummation of the acquisition. As such, the Selected Income Statement and Balance Sheet data set forth below as of and for the three-year period ended February 28, 1997 have been derived from the audited financial statements of Airtron. The financial statements of GroupMAC and its subsidiaries, other than Airtron, are included in the financial statements from their respective dates of acquisition. The selected financial data presented below should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and Item 8, "Financial Statements and Supplementary Data," included elsewhere herein (in thousands, except per share data):
YEAR TEN MONTHS FISCAL YEAR ENDED ENDED ENDED FEBRUARY 28 OR 29,(B) DECEMBER 31, DECEMBER 31, ---------------------------- 1998(A) 1997(A) 1997 1996 1995 ------------ ------------ ------- -------- ------- INCOME STATEMENT DATA: Revenues.................................... $761,541 $138,479 $81,880 $ 73,765 $72,226 Gross Profit................................ 176,145 36,717 23,374 21,091 21,766 Selling, General and Administrative Expenses.................................. 118,119 35,862(c) 19,811 17,615 20,282(d) Goodwill Amortization(e).................... 5,960 633 -- -- -- -------- -------- ------- -------- ------- Income from Operations...................... 52,066 222 3,563 3,476 1,484 Interest Income (Expense), Net.............. (6,188) (1,144) 89 68 76 Other Income, Net........................... 377 112 256 246 140 -------- -------- ------- -------- ------- Income (Loss) Before Income Tax Provision... 46,255 (810) 3,908 3,790 1,700 Income Tax Provision........................ 20,326 2,832 1,572 1,651 911 -------- -------- ------- -------- ------- Net Income (Loss)........................... $ 25,929 $ (3,642) $ 2,336 $ 2,139 $ 789 ======== ======== ======= ======== ======= Net Income (Loss) Per Share: Basic..................................... $ 0.94 $ (0.34) ======== ======== Diluted................................... $ 0.93 $ (0.34) ======== ======== Weighted Average Shares Outstanding: Basic..................................... 27,544 10,800 ======== ======== Diluted................................... 27,948 10,800 ======== ========
FEBRUARY 28 OR 29, DECEMBER 31, DECEMBER 31, ---------------------------- 1998 1997 1997 1996 1995 ------------ ------------ ------- -------- ------- BALANCE SHEET DATA: Cash and Cash Equivalents.................... $ 2,371 $ 25,681 $ 4,339 $ 1,774 $ 650 Working Capital.............................. 86,441 40,478 6,337 3,285 4,561 Total Assets................................. 701,081 192,687 27,153 28,282 23,528 Total Debt................................... 223,959 2,938 1,290 -- -- Shareholders' Equity......................... 315,929 136,653 5,991 6,373 5,955
- --------------- (a) The operations of the acquired businesses (other than Airtron) are included in the financial data from the effective date of their respective acquisition. (b) Concurrent with the initial public offering of GroupMAC's common stock (the "IPO") we changed our fiscal year end from February 28 to December 31. (c) Includes $7.0 million of non-recurring, non-cash compensation expenses related to the reverse acquisition of GroupMAC during the ten months ended December 31, 1997. (d) Includes $2.4 million for compensation expense resulting from revaluation of warrants. (e) Consists of amortization recorded, as a result of the acquisition of acquired businesses, over a 40-year period and computed on the basis described in the notes to consolidated financial statements. 13 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL GroupMAC derives revenues from providing maintenance, repair and replacement and new installation services for mechanical, electrical and other systems to commercial/industrial and residential customers. Our combined 1998 revenues, assuming all businesses were acquired on January 1, 1998, consisted of the following (dollars in thousands):
REVENUES PERCENTAGES ---------- ----------- Maintenance, repair and replacement......................... $ 636,787 59.2% New installation............................................ 439,632 40.8 ---------- ----- Total............................................. $1,076,419 100.0% ========== =====
GroupMAC recognizes maintenance, repair and replacement revenues as the services are performed, except for service contract revenue, which we recognize ratably over the life of the contract. We generally account for revenues from fixed price installation and retrofit contracts on a percentage-of-completion basis, using the cost-to-cost method. GroupMAC intends to make additional acquisitions in both of the technical disciplines (mechanical and electrical) within the commercial/industrial and residential markets. Our long-term objective is to develop maintenance, repair and replacement capabilities (both residential and commercial/industrial) in the top 100 markets within the United States, while offering new installation services across a more limited range of markets where new construction in the commercial/industrial and/or residential sectors is expected to out-pace the national average over the long term. Over time, this objective is expected to shift our revenues to an increased percentage of service revenue. Cost of services consists primarily of components, parts and supplies related to our new installation and maintenance, repair and replacement services, salaries and benefits of service and installation technicians, subcontracted services, depreciation, fuel and other vehicle expenses and equipment rentals. Selling, general and administrative expenses consist primarily of compensation and related benefits for management, administrative salaries and benefits, advertising, office rent and utilities, communications and professional fees. GroupMAC's balanced business mix is reflected to varying degrees in its gross margins. The combined gross margin for the acquired businesses providing services to commercial/industrial markets was 20.6% for the twelve months ended December 31, 1998. Our businesses performing primarily maintenance, repair and replacement services in the residential markets tend to have higher gross margins, averaging 32.1% for the combined twelve months ended December 31, 1998. On average, our residential new installation businesses have lower gross margins. Such companies' combined gross margin was 23.3% for the twelve months ended December 31, 1998. Future consolidated gross margins may vary depending on, among other things, shifts in the business mix as well as the impact of future acquisitions on the business mix. GroupMAC has begun to realize savings from (1) greater volume discounts from suppliers of components, parts and supplies; (2) consolidation of insurance and bonding programs; (3) other general and administrative expenses such as training and advertising; and (4) our ability to borrow at lower interest rates than most, if not all, of our subsidiaries. These savings are offset by costs related to our corporate management structure, costs associated with being a public company and integration costs. The following discussion should be read in conjunction with the historical consolidated financial statements and related notes and Item 6, "Selected Financial Data," contained elsewhere herein. The combined data do not represent combined results of operations presented in accordance with generally accepted accounting principles, but are only a summation of the revenues, cost of sales and gross margin of the acquired businesses on a historical basis. The combined results of operations assume that each of the acquired businesses were combined at the beginning of each period presented. The combined data also exclude the effect of pro forma adjustments and may not be comparable to, and may not be indicative of, our post-combination results of operations because (i) the acquired businesses were not under common control or 14 17 management during the periods presented and (ii) the combined data do not reflect the potential benefits and cost savings GroupMAC expects to realize when operating as a combined entity. Effective April 30, 1997, GroupMAC entered into an Agreement and Plan of Exchange with Airtron (the "Airtron Agreement"), pursuant to which GroupMAC issued $20.4 million in cash, 14.9 million shares of GroupMAC preferred stock and 4.7 million shares of GroupMAC common stock to shareholders of Airtron in exchange for all of the then outstanding shares of Airtron. Although for legal purposes Airtron was acquired by GroupMAC, for accounting purposes the transaction was accounted for as a reverse acquisition, as if Airtron acquired GroupMAC, due to the fact that the former shareholders of Airtron then owned a majority of the outstanding GroupMAC common stock. In connection with the purchase of GroupMAC, the company recorded the consideration paid to the shareholders of GroupMAC as non-recurring compensation expense of $7.0 million in the accompanying consolidated statements of operations for the ten months ended December 31, 1997. The consolidated financial statements included elsewhere herein for the periods prior to the effective date of the acquisition only include the accounts of Airtron. The consolidated statements of shareholders' equity have been converted from Airtron's capital structure to GroupMAC's capital structure to reflect the exchange of shares pursuant to the Airtron Agreement. During 1997, GroupMAC changed its fiscal year end from February 28 to December 31. During 1997, GroupMAC acquired in separate transactions 23 companies (and together with Airtron, the "Founding Companies") through a combination of cash, preferred stock, common stock and warrants to purchase shares of common stock of GroupMAC. During 1998, we acquired 39 additional businesses by offering a combination of cash, notes payable, junior subordinated notes, common stock, options to purchase common stock and warrants to purchase common stock. RESULTS OF OPERATIONS The following table sets forth certain financial data for the periods indicated (dollars in thousands):
HISTORICAL COMBINED ----------------------------------------------------- ------------------------------------- FISCAL YEAR TEN MONTHS FISCAL YEAR TWELVE MONTHS ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, FEBRUARY 28, ------------------------------------- 1998 1997 1997 1998 1997 ---------------- ---------------- --------------- ------------------ ---------------- Revenues................. $761,541 100.0% $138,479 100.0% $81,880 100.0% $1,076,419 100.0% $978,480 100.0% Cost of Services......... 585,396 76.9 101,762 73.5 58,506 71.5 833,819 77.5 756,770 77.3 -------- ----- -------- ----- ------- ----- ---------- ----- -------- ----- Gross Profit............. 176,145 23.1 36,717 26.5 23,374 28.5 $ 242,600 22.5% $221,710 22.7% ========== ===== ======== ===== Selling, General and Administrative Expenses............... 124,079 16.2 36,495 26.3 19,811 24.1 -------- ----- -------- ----- ------- ----- Income from Operations... 52,066 6.9 222 0.2 3,563 4.4 Interest, Net............ (6,188) (0.8) (1,144) (0.8) 89 0.1 Other.................... 377 -- 112 -- 256 0.3 -------- ----- -------- ----- ------- ----- Income (Loss) Before Income Tax Provision... 46,255 6.1 (810) (0.6) 3,908 4.8 Income Tax Provision..... 20,326 2.7 2,832 2.0 1,572 1.9 -------- ----- -------- ----- ------- ----- Net Income (Loss)........ $ 25,929 3.4% $ (3,642) (2.6)% $ 2,336 2.9% ======== ===== ======== ===== ======= =====
TWELVE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO TEN MONTHS ENDED DECEMBER 31, 1997 Revenues. Revenues increased $623.0 million, or 450.0%, to $761.5 million for the twelve months ended December 31, 1998 from $138.5 million for the ten months ended December 31, 1997. The increase in revenues is attributable to the following: - $328.7 million relates to 28 commercial/industrial companies acquired during 1998, - $54.1 million relates to 11 residential companies acquired during 1998, 15 18 - $186.7 million relates to 13 companies acquired simultaneous with the initial public offering of GroupMAC's common stock (the "IPO"), resulting in twelve months of revenues during 1998 compared to two months of revenues during 1997, - $29.3 million relates to the other 10 companies acquired in June and July of 1997, resulting in twelve months of revenue during 1998 compared to six or seven months of revenues during 1997, and - $24.2 million relates to Airtron, resulting in twelve months of revenues in 1998 compared to ten months of revenues in 1997. Gross Profit. Gross profit increased $139.4 million, or 379.8%, to $176.1 million for the twelve months ended December 31, 1998 from $36.7 million for the ten months ended December 31, 1997. The increase in gross profit is attributable to the following: - $66.0 million relates to 28 commercial/industrial companies acquired during 1998, - $15.2 million relates to 11 residential companies acquired during 1998, - $37.2 million relates to 13 companies acquired simultaneous with the IPO, resulting in twelve months of activity during 1998 compared to two months of activity during 1997, - $8.9 million relates to the other 10 companies acquired in June and July of 1997, resulting in twelve months of activity during 1998 compared to six or seven months of activity during 1997, - $10.1 million relates to Airtron, resulting in twelve months of activity in 1998 compared to ten months of activity in 1997, and - $2.0 million relates to materials purchases savings. Gross profit margin decreased 3.4% for the twelve months ended December 31, 1998 compared to the ten months ended December 31, 1997 because of GroupMAC's 1998 acquisition emphasis on commercial/industrial businesses, which support the Company's national accounts initiatives although they typically have lower gross margins than residential businesses. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $87.6 million, or 240.0%, to $124.1 million for the twelve months ended December 31, 1998 from $36.5 million for the ten months ended December 31, 1997. The increase in selling, general and administrative expenses is attributable to the following: - $37.5 million relates to 28 commercial/industrial companies acquired during 1998, - $10.6 million relates to 11 residential companies acquired during 1998, - $23.5 million relates to 13 companies acquired simultaneous with the IPO, resulting in twelve months of activity during 1998 compared to two months of activity during 1997, - $6.5 million relates to the other 10 companies acquired in June and July of 1997, resulting in twelve months of activity during 1998 compared to six or seven months of activity during 1997, - $4.3 million relates to Airtron, resulting in twelve months of activity in 1998 compared to ten months of activity in 1997, - $7.8 million relates to corporate expenses representing the formation of the corporate management team and infrastructure necessary to execute our operating and acquisition strategies, - $5.3 million relates to goodwill amortization associated with the above described acquisitions, and - $2.6 million relates to field bonuses. 16 19 Offsetting the above increases were the following reductions: - $7.0 million reduction in compensation expense recognized in the prior year from the reverse acquisition of Airtron, and - $3.5 million of savings related to our property and casualty insurance programs. As a percentage of revenues, selling, general and administrative expenses, excluding corporate expenses, goodwill amortization and the 1997 non-recurring compensation expense, decreased to 14.5% for the twelve months ended December 31, 1998 from 18.3% for the ten months ended December 31, 1997. This decrease was due primarily to achieving lower selling and administrative expense margins within the 23 companies acquired during 1997 and acquiring a higher mix of commercial/industrial companies which tend to have lower selling and administrative expense structures. When including corporate expenses and goodwill amortization, but excluding the non-recurring, non-cash compensation expense of $7.0 million, selling, general and administrative expenses as a percentage of revenue decreased to 16.2% for the twelve months ended December 31, 1998 from 21.1% for the ten months ended December 31, 1997. Net Interest. Net interest increased $5.0 million during the twelve months ended December 31, 1998 compared to the ten months ended December 31, 1997 due to borrowings under our credit facility to fund our aggressive acquisition program during 1998. See "Liquidity and Capital Resources." Income Tax Provision. The income tax provision increased $17.5 million, or 625.0%, to $20.3 million for the twelve months ended December 31, 1998 from $2.8 million for the ten months ended December 31, 1997. This increase corresponds with the pre-tax income increase of $40.1 million between periods after adding back the $7.0 million of non-recurring, non-cash compensation expense related to the reverse acquisition of Airtron. The effective tax rate for the twelve months ended December 31, 1998 was 43.9% compared to 45.8% for the ten months ended December 31, 1997 after adding back the $7.0 million of non-recurring, non-cash compensation expense related to the reverse acquisition of Airtron. The decrease results primarily from income tax planning strategies implemented during 1998. TEN MONTHS ENDED DECEMBER 31, 1997 COMPARED TO TWELVE MONTHS ENDED FEBRUARY 28, 1997 Revenues. Revenues increased $56.6 million, or 69.1%, to $138.5 million for the ten months ended December 31, 1997 from $81.9 million for the twelve months ended February 28, 1997. The increase in revenues was attributable to the acquisitions in June through November 1997, of nine commercial/industrial companies, 12 residential companies and two companies providing products and services outside of GroupMAC's two primary operating segments. The increase in revenues was partially offset as the period ended December 31, 1997 included ten months while the period ended February 28, 1997 included twelve months. Gross Profit. Gross profit increased $13.3 million, or 56.8%, to $36.7 million for the ten months ended December 31, 1997 from $23.4 million for the twelve months ended February 28, 1997. The increase in gross profit was primarily attributable to the acquisitions in June through November, 1997. Also contributing to the increase were lower material costs at Airtron. The increase in gross profit was partially offset as the period ended December 31, 1997 included ten months while the period ended February 28, 1997 included twelve months. Gross profit margin decreased 2.0% for the ten months ended December 31, 1997 compared to the twelve months ended February 28, 1997 because the gross profit margins of certain of the businesses acquired were considerably lower than those achieved at Airtron. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $16.7 million, or 84.3%, to $36.5 million for the ten months ended December 31, 1997 from $19.8 million for the twelve months ended February 28, 1997. This increase was primarily attributable to the aforementioned acquisitions and to the following: - $7.0 million non-recurring, non-cash compensation charge related to the reverse acquisition of Airtron in May 1997 and 17 20 - $4.1 million increase in corporate expenses representing the formation of the corporate management team and infrastructure necessary to execute our operating and acquisition strategies. As a percentage of revenues, selling, general and administrative expenses, excluding the aforementioned items, decreased to 17.5% for the ten months ended December 31, 1997 from 24.1% for the twelve months ended February 28, 1997, respectively, due primarily to prospective reductions in compensation to former owners to which they agreed. These reductions in salaries are in accordance with the terms of their employment agreements. Net Interest. Net interest was an expense of $1.1 million for the ten months ended December 31, 1997. For the twelve months ended February 28, 1997, net interest income was $0.1 million. Interest charges increased during the ten months ended December 31, 1997 due to borrowings under our credit facilities to fund the cash portion of the acquisition of Airtron and the ten operating companies acquired in June and July 1997. See "Liquidity and Capital Resources." Income Tax Provision. The income tax provision increased $1.2 million, or 75.0%, to $2.8 million for the ten months ended December 31, 1997 from $1.6 million for the twelve months ended February 28, 1997 while pre-tax income decreased $4.7 million. Excluding the effect of the $7.0 million of non-deductible compensation charge discussed above, the effective tax rate for the ten months ended December 31, 1997 was 44.2% compared to 40.2% for the twelve months ended February 28, 1997, resulting primarily from the non- deductible goodwill amortization of $0.6 million in the ten months ended December 31, 1997. COMBINED TWELVE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO COMBINED TWELVE MONTHS ENDED DECEMBER 31, 1997 Revenues. Combined revenues increased $97.9 million, or 10.0%, to $1,076.4 million for the twelve months ended December 31, 1998 from $978.5 million for the twelve months ended December 31, 1997. The increase in combined revenues was attributable to the following: - $58.9 million increase, or 8.2%, relates to companies that provide commercial/industrial services primarily in the Seattle/Portland, Dallas, Baltimore, Salt Lake City, and Fort Lauderdale markets partially offset by economic softening in the Richmond, Virginia market, - $39.6 million increase, or 15.5%, relates to companies that provide residential services. Of this increase, $26.1 million relates to companies that primarily provide new installation services due to an increase in new home starts in the markets they serve and $13.6 million relates to companies that primarily provide maintenance, repair and replacement services due to favorable weather patterns in the markets they serve, and - $0.6 million reduction related to two companies providing products and services outside of those performed by GroupMAC's two primary operating segments. Gross Profit. Combined gross profit increased $20.9 million, or 9.4%, to $242.6 million for the twelve months ended December 31, 1998 from $221.7 million for the twelve months ended December 31, 1997. The increase in combined gross profit was primarily attributable to the increase in combined revenues described above. Gross profit margin decreased to 22.5% for the twelve month period ended December 31, 1998 compared to 22.7% for the twelve months ended December 31, 1997. The slight net decrease in gross profit margin was primarily the result of economic softening in the Richmond, Virginia market offset by the following: - Overall margin improvement at the companies that primarily provide residential new installation services as these companies have operated near full capacity to accommodate housing start demand in the geographic markets they serve, - A slightly higher mix of higher margin maintenance, repair and replacement business in the residential sector from the favorable weather patterns discussed above, and 18 21 - Materials purchases savings experienced in the current year. YEAR 2000 Background. The year 2000 issue refers to the inability of certain date sensitive computer chips, software and systems to recognize a two-digit date field as belonging to the 21st century. Many computer software programs, as well as certain hardware and equipment containing date sensitive data, were structured to utilize a two-digit date field. Accordingly, these programs may not be able to properly recognize dates in the year 2000 and later, which could result in significant system and equipment failures. This is a significant issue for most if not all companies, with far reaching implications, some of which cannot be anticipated or predicted with any degree of certainty. GroupMAC recognizes that it must take action to ensure that its operation will not be adversely impacted by Year 2000 software failures. GroupMAC's State of Readiness. We have completed an initial systems survey of each business acquired. That survey revealed that several of our core business applications possess Year 2000 problems. However, none of these problems are expected to be material to our individual operating companies or, in the aggregate, to GroupMAC because the 59 operating companies acquired by GroupMAC utilize approximately 34 different operating and accounting systems. As further discussed herein, GroupMAC has not migrated its operating companies to a common system platform. Accordingly, even if our Year 2000 evaluation fails to detect or correct an issue at one or more of the operating companies, it would not have a material impact on the other companies in the consolidated group. GroupMAC's Year 2000 plan includes the following phases: Evaluation GroupMAC retained an outside consulting firm to evaluate more thoroughly the extent of the problem and to assist us with cost estimates and in preparing an action plan to address the issues in a timely manner. This phase began in early July 1998 and included all companies from the initial system survey and those acquired through the first quarter of 1999. The evaluation phase has been completed at a cost of approximately $115,000. Additionally, GroupMAC has engaged an outside consulting firm to evaluate and estimate the impact of Year 2000 problems on potential future acquisitions as part of the due diligence process. These evaluations have been performed for all acquisitions to date and are included in the above cost estimates. Upgrading and Testing During the evaluation phase, we determined that most systems in use by GroupMAC could be upgraded to eliminate Year 2000 problems. We estimate that the cost of bringing the evaluated systems into compliance is between $140,000 and $195,000. The estimate includes between $110,000 and $160,000 for software upgrades and between $30,000 and $35,000 for implementation and testing. These costs are expected to be incurred during the first three quarters of 1999. GroupMAC will expense substantially all of these costs and will fund them through cash flow from operations. Management has implemented tracking mechanisms to ensure upgrades are completed in a timely manner. Since each individual company has different systems in use today, the implementation schedule varies for each company and the Year 2000 plan will be modified as events warrant. All upgrading and testing is scheduled to be completed by September 1999. It is not anticipated that management involvement or the use of capital resources in solving Year 2000 problems will have a substantial impact on other information technology projects. Independent of its Year 2000 activities discussed in the previous paragraph, GroupMAC continues to develop a common information system throughout the organization for its overall information needs that will be free of any Year 2000 limitations. While GroupMAC as a whole is not dependent on the implementation of the common system to remedy its Year 2000 problem, one of the acquired businesses requires a completely new system to solve its Year 2000 issues. This company (with annual revenues of approximately $8.0 million) is expected to be one of the first to be implemented on the common system platform discussed herein. 19 22 GroupMAC expects to implement the common information system at the affected company during the third quarter of 1999. General rollout of the common information system will follow promptly thereafter. We are evaluating the effect of the Year 2000 problem on our most significant customers and suppliers, and thus indirectly on GroupMAC. This evaluation includes an ongoing process of contacting customers and suppliers whose systems have, or may have, an effect on the way GroupMAC conducts business. We are attempting to inventory and assess the Year 2000 readiness and compatibility of our material customers and suppliers through the completion of survey questionnaires. GroupMAC is currently reviewing survey questionnaires received to date and we expect to complete the analysis of our customers' and suppliers' systems by September 1999. GroupMAC does not have control of these suppliers and customers. While we will work diligently to coordinate with our suppliers and customers, there can be no assurance they will complete their efforts prior to January 1, 2000. There are no individual customers who will have a material impact on our revenues should they fail to complete their Year 2000 efforts. Additionally, GroupMAC has alternative vendors that can be relied on should a current vendor fail in its Year 2000 preparations. Embedded Technology. GroupMAC has focused its assessments to date on its information technology systems. These assessments indicate that, due to the nature of our operations, the non-information technology systems (i.e. embedded technology such as microcontrollers) do not represent a significant area of risk relative to Year 2000 readiness. GroupMAC's operations do not include capital intensive equipment with embedded microcontrollers. Risks. While GroupMAC does not anticipate any difficulties achieving the upgrading and testing schedule described above, there is a risk that one or more of our companies will not meet the current schedule. If this occurs, the affected company may have to install a system similar to that being utilized at one of the other operating companies until the problem is remedied. Management believes that, if necessary, this could be accomplished without meaningful business interruption and/or significant cost to GroupMAC. Also, there is an unlikely scenario where any of our larger national suppliers would have Year 2000 related constraints causing GroupMAC to shift product orders to other readily available suppliers. Contingency Plan. GroupMAC has not implemented a Year 2000 contingency plan. As explained above, we have initiated action to identify and resolve Year 2000 problems. GroupMAC intends to develop and implement a contingency plan in the event that our present course of action to solve the Year 2000 problem should fall behind schedule. Summary. The following table summarizes the status and historical/estimated completion dates of the various stages of GroupMAC's Year 2000 plan:
HISTORICAL OR ESTIMATED PHASE OF PROJECT STATUS COMPLETION DATE - ---------------- ------ --------------- Initial System Survey.................................... Complete February 1999 Evaluation............................................... Complete February 1999 Upgrade & Testing........................................ In Process September 1999 Customer/Supplier Evaluation............................. In Process September 1999 Contingency Plan......................................... If Necessary November 1999
SEASONALITY AND CYCLICALITY The HVAC industry is subject to seasonal variations. Specifically, the demand for new installations is generally lower during the winter months due to reduced construction activities during inclement weather and less use of air conditioning during the colder months. Demand for HVAC services is generally higher in the second and third quarters. Accordingly, GroupMAC expects its revenues and operating results generally will be lower in the first and, to a lesser degree, fourth quarters. Historically, the construction industry has been highly cyclical. As a result, our volume of business may be adversely affected by declines in new installation projects in various geographic regions of the United States. 20 23 A substantial portion of our business involves installation of mechanical and electrical systems in newly constructed residences and commercial/industrial facilities. Our revenues from new installation services in the residential market is dependent upon the level of housing starts in the areas in which we operate. The housing industry is cyclical, and our revenues from residential new installation will be affected by the factors that affect the housing industry. These factors include changes in employment and income levels, the availability and cost of financing for new home buyers and general economic conditions. The level of new commercial/industrial installation services is also affected by changes in economic conditions and interest rates. General downturns in housing starts or new commercial/industrial construction in the areas in which we operate could have a material adverse effect on our business, including its financial condition and results of operations. INFLATION Inflation did not have a significant effect on the results of operations for the year ended December 31, 1998, the ten months ended December 31, 1997 or the year ended February 28, 1997. LIQUIDITY AND CAPITAL RESOURCES During November and December 1997, GroupMAC completed the IPO involving the sale of 8.3 million shares of common stock at a price to the public of $14.00 per share. The net proceeds from the IPO (after deducting underwriting discounts and commissions and offering expenses) were approximately $103.6 million. Of this amount, $29.8 million was used to pay the cash portion of the closing consideration relating to the acquisitions of 14 businesses, $42.6 million to repay corporate indebtedness and debt assumed in connection with the Founding Companies, $19.3 million to retire all of the then outstanding preferred stock and $11.9 million for general corporate purposes including working capital and final consideration settlements related to previous acquisitions. Historically, GroupMAC has financed its operations and growth with internally generated working capital and borrowings from commercial banks or other lenders. These borrowings are generally secured by the accounts receivable and inventory of GroupMAC. On December 11, 1997, GroupMAC entered into a three year agreement with Texas Commerce Bank National Association (now Chase Bank of Texas, National Association), as Agent, and four other banks to provide a revolving credit facility (the "Credit Agreement") with an initial borrowing capacity of up to $75 million. On June 12, 1998, we amended and restated the Credit Agreement to increase our borrowing capacity from $75 million to $125 million. On October 15, 1998, GroupMAC amended and restated the Credit Agreement to increase our borrowing capacity from $125 million to $230 million. Debt under the Credit Agreement bears interest at variable rates. Under the Credit Agreement, GroupMAC is required to maintain (1) a minimum Fixed Charge Coverage Ratio; (2) a maximum ratio of total indebtedness for borrowed money to capitalization (as defined in the Credit Agreement); (3) a maximum ratio of senior debt to pro forma earnings before interest, taxes, depreciation and amortization; (4) a maximum amount of total indebtedness to EBITDA; (5) a minimum amount of Consolidated Net Worth (as defined in the Credit Agreement) and (6) a maximum amount of Capital Expenditures in relation to Consolidated Net Worth. At December 31, 1998, we were in compliance with those covenants. The Credit Agreement matures on October 13, 2001. To date, neither the terms of the Credit Agreement and the indenture pursuant to which the Notes referred to below were issued, nor the debt represented thereby, have materially restricted our ability to finance future operations or capital needs or to respond to changes in our business or competitive activity. In January 1999, GroupMAC completed a private placement offering (the "Offering") of $130 million of unsecured senior subordinated notes (the "Notes") bearing interest at 9.75% and maturing in January 2009. The net proceeds of the Offering were used to repay indebtedness incurred under the Credit Agreement. Under a registration rights agreement executed as part of the Offering, the Company will file a registration statement within 90 days after the issue date of the Notes enabling holders of the Notes to exchange the privately placed Notes for publicly registered notes with identical terms. The Company is required to use all reasonable efforts to cause the registration statement to become effective within 150 days after the issue date of the Notes and to consummate the exchange offer within 180 days after the issue date of 21 24 the Notes. If the Company cannot effect an exchange offer within the time periods listed above and in other certain circumstances, management will use all reasonable efforts to file a shelf registration statement for the resale of the Notes. If the Company is unable to comply with these obligations under the registration rights agreement, the interest rate on the Notes will increase under certain circumstances. The Notes are guaranteed by all of the Company's current and future U.S. subsidiaries other than "Unrestricted Subsidiaries" (as defined in the indenture governing the Notes). As of the closing of the Offering, there are no "Unrestricted Subsidiaries." These guarantees are full, unconditional and joint and several. The Company entered into an agreement to lock in the ten year U.S. Treasury rate used to price the offering of the Notes. The Company locked in $100 million at 5.5212%, which management believes is an attractive long-term base rate. This agreement expired on January 31, 1999, and was settled on that date based upon the ten year Treasury yield of 4.648%, resulting in an additional pre-tax financing cost of approximately $6.9 million. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 80, Accounting for Futures Contracts, this agreement qualifies as a hedge and was recognized as deferred financing costs. The Company's largest need for capital in the past has been to fund acquisitions. Historically, the Company has generally paid for its acquisitions with cash and common stock in approximately equal amounts. The Company intends to continue to use its common stock as a component of the consideration that it pays for businesses to be acquired as long as the acquisition is immediately accretive to its earnings. As the price of the Company's common stock has declined, the Company has reduced the price it is willing to pay for acquisitions and in some cases anticipates increasing the cash component of the purchase price. If the price of the Company's common stock continues at its present level or declines further, then the Company believes that the number of companies willing to be acquired at an accretive price may be reduced, which could adversely impact the growth of the Company. Furthermore, if the Company pays a greater proportion of the consideration of future acquisitions in cash, then it will exhaust its available credit faster than would otherwise be the case and would increase its ratio of debt to total capitalization. GroupMAC's primary requirements for capital (other than those related to acquisitions) consist of purchasing vehicles, inventory and supplies used in the operation of the business. During the year ended December 31, 1998 and the ten months ended December 31, 1997, capital expenditures aggregated $9.3 million and $2.0 million, respectively. GroupMAC anticipates that its cash flow from operations and existing credit facilities will provide cash in excess of our normal working capital needs, debt service requirements and planned capital expenditures for property and equipment. For the year ended December 31, 1998, the ten months ended December 31, 1997 and the year ended February 28, 1997, we generated $0.9 million, $4.4 million and $3.7 million in cash from operating activities, respectively. For the year ended December 31, 1998, net income, depreciation, amortization, deferred taxes and non-cash compensation generated $43.5 million and changes in asset and liability accounts utilized a net $42.6 million. For the ten months ended December 31, 1997, net loss, depreciation, amortization, deferred taxes and non-cash compensation generated $7.5 million and changes in asset and liability accounts utilized a net $3.1 million. For the year ended February 28, 1997, net income, depreciation, amortization and deferred taxes generated $4.9 million, and changes in asset and liability accounts utilized a net $1.2 million. For the year ended December 31, 1998, GroupMAC used $189.2 million in investing activities. These activities principally consisted of $178.5 million for acquisitions and $9.3 million for capital expenditures. For the ten months ended December 31, 1997, we used $37.9 million in investing activities. These activities principally consisted of $35.8 million for acquisitions and $2.0 million for capital expenditures. The cash impact of investing activities for the year ended February 28, 1997 was not significant. For the year ended December 31, 1998, GroupMAC generated $165.0 million in cash from its financing activities. These activities principally consisted of proceeds from long-term debt of $884.5 million and payments of long-term debt of $719.5 million. For the ten months ended December 31, 1997, GroupMAC generated $54.9 million in cash from its financing activities. These activities principally consisted of issuance of common stock for $109.7 million and proceeds from long-term debt of $32.5 million less distributions to 22 25 shareholders of $20.4 million, payments of long-term debt of $47.7 million and retirement of preferred stock of $19.3 million. The cash impact of financing activities for the year ended February 28, 1997 was not significant. Since the IPO, GroupMAC registered fourteen million shares of common stock under the Securities Act of 1933, as amended, for its use in connection with future acquisitions. After their issuance, those registered shares generally are freely tradable by persons not affiliated with GroupMAC unless we contractually restrict the resale, which we generally do. Substantially all of the shares of common stock issued in connection with the acquisition of the Founding Companies were not registered under the Securities Act and were also subject to contractual restrictions on transfer. However, the holders of these shares are permitted to transfer a limited amount of these shares during 1999. During the first quarter of 1999, GroupMAC completed the acquisition of three commercial/industrial platform companies that will be accounted for as purchases. The combined annual revenues of these acquired companies were approximately $165.5 million. Total consideration paid included cash payments of $35.6 million, $1.6 million of junior subordinated notes, 2.1 million shares of common stock and total debt assumed of $13.8 million. GroupMAC financed the cash portion of the purchase price using; (1) cash borrowed under the Credit Agreement and (2) internally generated funds. As of March 26, 1999, the funds available through the Credit Agreement totaled $73.5 million, subject to the maintenance of financial ratios and covenants. GroupMAC intends to aggressively pursue acquisition opportunities. Management believes that funds provided by operations, together with funds available under the Credit Agreement and other sources, will be adequate to meet our anticipated requirements for acquisitions. Estimates as to working capital needs and other expenditures may be materially affected if the foregoing sources are not available or do not otherwise provide sufficient funds to meet our obligations. NEW ACCOUNTING PRONOUNCEMENTS In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which establishes new accounting and reporting standards for the costs of computer software developed or obtained for internal use. This statement will be applied prospectively in fiscal 1999. The impact of this new standard is not expected to have a significant effect on our financial position or results of operations. In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities," which requires costs of start-up activities to be expensed as incurred. This statement is effective in fiscal 1999. The statement requires capitalized costs related to start-up activities to be expensed as a cumulative effect of a change in accounting principle when the statement is adopted. The adoption of this new standard will not have a significant effect on GroupMAC's financial position or results of operations. In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes new accounting and reporting standards requiring that all derivative instruments (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. This statement is effective for all fiscal years beginning after June 15, 1999. Under present operations, this statement will have no impact on our financial position or results of operations. 23 26 CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS This document includes forward-looking statements. Forward-looking statements can be identified by the use of future tense or other forward-looking terms such as "may," "intend," "will," "expect," "anticipate," "plan," "management believes," "estimate," "continue," "should," "strategy," or "position," or the negatives of those terms or other variations on them or by comparable terminology. In particular, statements, express or implied, concerning future operating results or the ability to generate sales, income or cash flow are forward-looking statements. The Company has based these forward-looking statements on management's current expectations and projections about future events. Although the Company believes that its expectations and projections are based on reasonable assumptions, it can give no assurance that its goals will be achieved. These forward-looking statements are subject to risks, uncertainties and assumptions about the Company including among other things: - the Company's reliance on acquisitions for growth, - its plan to use common stock as consideration for future acquisitions, and the effect of a decline in the stock price on that plan, - the Company's ability to integrate acquired businesses, - the reliance on commercial and residential new construction industries, - anticipated trends and conditions in the Company's industry, including future consolidation, - the effect of moderate weather patterns on the demand for the Company's services, and - the Company's ability to compete in local markets. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The table below provides information about GroupMAC's market sensitive financial instruments and constitutes a "forward-looking statement." Our major market risk exposure is changing interest rates. All items described are non-trading and are stated in U.S. dollars (in thousands).
FAIR VALUE AT DECEMBER 31, 1999 2000 2001 2002 2003 THEREAFTER TOTAL 1998 -------- -------- -------- -------- -------- ---------- -------- --------------- Fixed rate debt...... $ 12,959 $ -- $ -- $ -- $ 16,000 $-- $ 28,959 $ 28,959 Average rate....... 7.12% -- -- -- 6.00% -- 6.50% Credit Agreement..... $ -- $ -- $195,000 $ -- $ -- $-- $195,000 $195,000 Average rate....... -- -- (a) -- -- -- (a)
- --------------- (a) The Credit Agreement borrowings bear interest at a rate per annum, at the Company's option, of either (1) the Alternate Base Rate or (2) the Eurodollar Rate. The Alternate Base Rate is equal to the greater of the Federal Funds Effective Rate plus 0.5% or the Prime Rate plus a Margin depending on the ratio of indebtedness for borrowed money to EBITDA (with all capitalized terms as defined in the Credit Agreement). The Eurodollar Rate is the rate defined in the Credit Agreement plus a Margin depending on the ratio of indebtedness for borrowed money to EBITDA. At December 31, 1998, the weighted average interest rate in effect for the Credit Agreement borrowings was 7.075%. 24 27 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS
PAGE ---- GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES Independent Auditors' Report................................ 26 Consolidated Balance Sheets................................. 27 Consolidated Statements of Operations....................... 28 Consolidated Statements of Shareholders' Equity............. 29 Consolidated Statements of Cash Flows....................... 30 Notes to Consolidated Financial Statements.................. 31 SEPARATE FINANCIAL STATEMENTS OF GROUP MAINTENANCE AMERICA CORP. FROM INCEPTION THROUGH DATE OF REVERSE ACQUISITION Independent Auditors' Report................................ 47 Balance Sheets.............................................. 48 Statements of Operations.................................... 49 Statements of Shareholders' Equity(Deficit)................. 50 Statements of Cash Flows.................................... 51 Notes to Financial Statements............................... 52
25 28 INDEPENDENT AUDITORS' REPORT The Board of Directors Group Maintenance America Corp.: We have audited the accompanying consolidated balance sheets of Group Maintenance America Corp. and Subsidiaries as of December 31, 1998 and 1997 and the related consolidated statements of operations, shareholders' equity and cash flows for the year ended December 31, 1998, the ten months ended December 31, 1997 and the year ended February 28, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Group Maintenance America Corp. and Subsidiaries as of December 31, 1998 and 1997 and the results of their operations and their cash flows for the year ended December 31, 1998, the ten months ended December 31, 1997 and the year ended February 28, 1997, in conformity with generally accepted accounting principles. KPMG LLP Houston, Texas February 23, 1999 26 29 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PAR VALUE) ASSETS
DECEMBER 31, ------------------- 1998 1997 -------- -------- Current Assets: Cash and cash equivalents................................. $ 2,371 $ 25,681 Accounts receivable, net of allowance for doubtful accounts of $5,355 and $1,825, respectively............ 187,251 45,516 Inventories............................................... 17,843 8,834 Costs and estimated earnings in excess of billings on uncompleted contracts.................................. 26,533 3,116 Prepaid expenses and other current assets................. 6,134 1,013 Deferred tax assets....................................... 7,579 1,647 Refundable income taxes................................... 3,341 -- -------- -------- Total current assets.............................. 251,052 85,807 Property and Equipment, net................................. 39,192 11,312 Goodwill, net of accumulated amortization of $6,593 and $633, respectively........................................ 398,714 84,533 Deferred Tax Assets......................................... -- 4,739 Refundable Income Taxes..................................... -- 4,529 Other Long-Term Assets...................................... 12,123 1,767 -------- -------- Total assets...................................... $701,081 $192,687 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Short-term borrowings and current maturities of long-term debt................................................... $ 12,959 $ 2,769 Accounts payable and accrued expenses..................... 99,205 28,519 Due to related parties.................................... 14,961 3,358 Billings in excess of costs and estimated earnings on uncompleted contracts.................................. 27,830 4,737 Deferred service contract revenue......................... 4,429 3,305 Income taxes payable...................................... 2,028 31 Other current liabilities................................. 3,199 2,610 -------- -------- Total current liabilities......................... 164,611 45,329 Revolving Credit Facility................................... 195,000 169 Junior Subordinated Notes................................... 16,000 -- Deferred Tax Liabilities.................................... 733 -- Due to Related Parties...................................... -- 9,745 Other Long-Term Liabilities................................. 8,808 791 Commitments and Contingencies Shareholders' Equity: Preferred stock, $1.00 par value; 50,000 shares authorized; none issued and outstanding................ -- -- Common stock, $0.001 par value; 100,000 shares authorized; 33,154 and 20,629 shares issued and outstanding, respectively........................................... 33 21 Additional paid-in capital................................ 322,478 169,143 Retained deficit.......................................... (6,582) (32,511) -------- -------- Total shareholders' equity........................ 315,929 136,653 -------- -------- Total liabilities and shareholders' equity........ $701,081 $192,687 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 27 30 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
TEN MONTHS YEAR ENDED ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, FEBRUARY 28, 1998 1997 1997 ------------ ------------ ------------ Revenues................................................ $761,541 $138,479 $81,880 Cost of Services........................................ 585,396 101,762 58,506 -------- -------- ------- Gross Profit....................................... 176,145 36,717 23,374 Selling, General and Administrative Expenses............ 117,951 28,643 19,811 Amortization of Goodwill................................ 5,960 633 -- Compensation Expense From Reverse Acquisition and Issuance of Management Shares and Stock Options....... 168 7,219 -- -------- -------- ------- Income from operations............................. 52,066 222 3,563 Other Income (Expense): Interest expense...................................... (6,595) (1,542) (82) Interest income....................................... 407 398 171 Other................................................. 377 112 256 -------- -------- ------- Income (loss) before income tax provision..... 46,255 (810) 3,908 Income Tax Provision.................................... 20,326 2,832 1,572 -------- -------- ------- Net Income (Loss)....................................... $ 25,929 $ (3,642) $ 2,336 ======== ======== ======= Basic Earnings (Loss) Per Share: Earnings (Loss) Per Share............................. $ 0.94 $ (0.34) $ 0.45 ======== ======== ======= Weighted Average Shares Outstanding................... 27,544 10,800 5,172 ======== ======== ======= Diluted Earnings (Loss) Per Share: Earnings (Loss) Per Share............................. $ 0.93 $ (0.34) $ 0.45 ======== ======== ======= Weighted Average Shares Outstanding................... 27,948 10,800 5,172 ======== ======== =======
The accompanying notes are an integral part of these consolidated financial statements. 28 31 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
COMMON STOCK ADDITIONAL RETAINED TOTAL --------------- PAID-IN EARNINGS TREASURY SUBSCRIPTIONS SHAREHOLDERS' SHARES AMOUNT CAPITAL (DEFICIT) STOCK RECEIVABLE EQUITY ------ ------ ---------- --------- -------- ------------- -------------- BALANCE, February 29, 1996.............. 5,692 $ 6 $ 2,701 $ 3,667 $ -- $ -- $ 6,374 Purchases of stock.................... -- -- -- -- (2,112) -- (2,112) Repurchase of warrants................ -- -- -- (600) -- -- (600) Cancellation of treasury stock........ (1,040) (1) (55) (2,056) 2,112 -- -- Distributions to shareholders......... -- -- -- (7) -- -- (7) Net income............................ -- -- -- 2,336 -- -- 2,336 ------ --- -------- -------- ------- ------- -------- BALANCE, February 28, 1997.............. 4,652 5 2,646 3,340 -- -- 5,991 Purchases of acquired companies....... 5,612 6 58,781 -- -- (6,153) 52,634 Public offering, net of offering costs............................... 8,340 8 103,543 -- -- -- 103,551 Compensation expense from issuance of management shares and stock options............................. 5 -- 241 -- -- -- 241 Preferred stock issued to Airtron shareholders in reverse acquisition......................... -- -- -- (14,873) -- -- (14,873) Distribution to Airtron shareholders in reverse acquisition.............. -- -- -- (17,336) -- -- (17,336) Shares issued under subscription agreement........................... 2,000 2 -- -- -- 6,153 6,155 Exercise of stock options............. 20 -- 61 -- -- -- 61 Common stock to be issued in acquisitions........................ -- -- 3,871 -- -- -- 3,871 Net loss.............................. -- -- -- (3,642) -- -- (3,642) ------ --- -------- -------- ------- ------- -------- BALANCE, December 31, 1997.............. 20,629 21 169,143 (32,511) -- -- 136,653 Purchases of acquired companies....... 12,455 12 148,762 -- -- -- 148,774 Debenture conversion.................. 68 -- 820 -- -- -- 820 Compensation expense from issuance of management shares and stock options............................. -- -- 168 -- -- -- 168 Exercise of stock options............. 2 -- 10 -- -- -- 10 Common stock to be issued in acquisitions........................ -- -- 3,575 -- -- -- 3,575 Net income............................ -- -- -- 25,929 -- -- 25,929 ------ --- -------- -------- ------- ------- -------- BALANCE, December 31, 1998.............. 33,154 $33 $322,478 $ (6,582) $ -- $ -- $315,929 ====== === ======== ======== ======= ======= ========
The accompanying notes are an integral part of these consolidated financial statements. 29 32 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
TEN MONTHS YEAR ENDED ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, FEBRUARY 28, 1998 1997 1997 ------------ ------------ ------------ Cash Flows From Operating Activities: Net income (loss)..................................... $ 25,929 $ (3,642) $ 2,336 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization...................... 13,863 1,413 208 Gain from sale of property and equipment........... (26) (32) (224) Deferred income taxes.............................. 3,499 2,482 2,336 Non-cash compensation expense...................... 168 7,219 -- Changes in operating assets and liabilities, net of effect of acquisitions accounted for as purchases: (Increase) decrease in -- Accounts receivable........................... (27,316) (2,849) (402) Inventories................................... (1,718) (656) 332 Costs and estimated earnings in excess of billings on uncompleted contracts........... (6,950) 503 23 Prepaid expenses and other current assets..... (3,404) 46 (8) Refundable income taxes....................... 1,319 1,665 (3,235) Other long-term assets........................ (780) (299) -- Increase (decrease) in -- Accounts payable.............................. 3,614 (918) (77) Accrued expenses.............................. (2,918) (4,598) 2,534 Due to related parties........................ (5,469) (732) -- Billings in excess of costs and estimated earnings on uncompleted contracts........... 3,885 1,572 (86) Deferred service contract revenue............. (502) 94 6 Income taxes payable.......................... 519 1,586 (296) Other current liabilities..................... (2,282) 1,442 -- Compensation and benefits payable............. -- (8) 255 Other long-term liabilities................... (580) 120 -- --------- -------- ------- Net cash provided by operating activities... 851 4,408 3,702 --------- -------- ------- Cash Flows From Investing Activities: Cash paid for acquisitions, net of cash acquired of $13,176 and $5,263, respectively................... (178,542) (35,767) -- Deferred acquisition costs............................ (1,573) (246) -- Purchases of property and equipment................... (9,292) (2,017) (182) Proceeds from sale of property and equipment.......... 199 83 296 Proceeds from note receivable......................... -- -- 156 --------- -------- ------- Net cash provided by (used in) investing activities............................... (189,208) (37,947) 270 --------- -------- ------- Cash Flows From Financing Activities: Purchase of common stock.............................. -- -- (787) Retirement of preferred stock......................... -- (19,277) -- Repurchase of warrants................................ -- -- (539) Proceeds from long-term debt.......................... 884,515 32,500 -- Payments of long-term debt............................ (719,478) (47,742) (35) Payments of other long-term obligations............... -- -- (39) Issuance of common stock.............................. -- 109,706 -- Exercise of stock options............................. 10 61 -- Distributions to shareholders prior to initial public offering........................................... -- (20,367) (7) --------- -------- ------- Net cash provided by (used in) financing activities............................... 165,047 54,881 (1,407) --------- -------- ------- Net Increase (Decrease) In Cash and Cash Equivalents.... (23,310) 21,342 2,565 Cash and Cash Equivalents, beginning of period.......... 25,681 4,339 1,774 --------- -------- ------- Cash and Cash Equivalents, end of period................ $ 2,371 $ 25,681 $ 4,339 ========= ======== ======= Supplemental Disclosures of Cash Flow Information: Interest Paid......................................... $ 5,163 $ 1,470 $ -- Income Taxes Paid..................................... $ 16,869 $ -- $ 2,586
The accompanying notes are an integral part of these consolidated financial statements. 30 33 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION Group Maintenance America Corp. ("GroupMAC") was incorporated as a Texas corporation to build a national company providing mechanical and electrical services in the commercial, industrial and residential markets. Effective April 30, 1997, GroupMAC entered into an Agreement and Plan of Exchange (the "Airtron Agreement") with Airtron, Inc. ("Airtron") and certain of its shareholders, pursuant to which $20.4 million in cash, 14.9 million shares of GroupMAC preferred stock and 4.7 million shares of GroupMAC common stock were issued to shareholders of Airtron in exchange for all of the then outstanding shares of Airtron. Although for legal purposes Airtron was acquired by GroupMAC, for accounting purposes the transaction was accounted for as a reverse acquisition, as if Airtron acquired GroupMAC, due to the fact that the former shareholders of Airtron then owned a majority of GroupMAC common stock. In connection with the purchase of GroupMAC, the consideration paid to the shareholders of GroupMAC was recorded as non-recurring compensation expense of $7.0 million in the accompanying consolidated statements of operations for the ten months ended December 31, 1997. The consolidated financial statements presented herein for the periods prior to the effective date of the acquisition only include the accounts of Airtron. The consolidated statements of shareholders' equity have been converted from Airtron's capital structure to GroupMAC's capital structure to reflect the exchange of shares pursuant to the Airtron Agreement. The cash and redeemable preferred stock paid to the Airtron shareholders, net of existing liabilities to former shareholders, have been treated as a distribution to the Airtron shareholders. The consolidated group of companies are collectively referred to herein as GroupMAC and Subsidiaries or the "Company." All significant intercompany balances have been eliminated. Concurrent with the initial public offering of GroupMAC's common stock (the "IPO"), the Company changed its fiscal year end from February 28 to December 31. Airtron was incorporated in 1970 as a Delaware corporation. Airtron installs and services brand name heating and air conditioning equipment for residential and commercial customers located in Ohio, Indiana, Kansas, Kentucky, Florida and Texas. In June and July 1997, the Company acquired, in separate transactions, 10 additional companies through a combination of cash, preferred stock, common stock and warrants to purchase shares of common stock. During the fourth quarter of 1997, the Company acquired, concurrently with the IPO, 13 additional companies through a combination of cash and common stock. During 1998, the Company acquired, in separate transactions, 39 additional businesses through a combination of cash, notes payable, junior subordinated debt, common stock, options to purchase common stock and warrants to purchase common stock. The Company accounted for these acquisitions as purchase business combinations, with the results of operations included in the Company's consolidated financial statements from the effective date of acquisition. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition Revenues from work orders are recognized as services are performed. Revenues from service and maintenance contracts are recognized over the life of contracts. Revenues from construction contracts are recognized on a percentage of completion basis using the cost-to-cost method. Provisions for estimated losses 31 34 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability may result in revisions to costs and revenues and are recognized in the period in which the revisions are determined. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Inventories Inventories consist primarily of purchased materials and supplies. The inventory is valued at the lower of cost or market, with cost determined on a first-in, first-out ("FIFO") basis. Property and Equipment Property and equipment is stated at cost. Depreciation is computed principally using the straight-line method over the useful lives of the assets. Leasehold improvements are amortized over the shorter of the remaining lease term 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 or equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the consolidated statements of operations. Goodwill Goodwill represents the excess of the aggregate purchase price over the fair value of net assets acquired and is amortized on a straight-line basis over a period of 40 years. The Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows compared to the carrying value of goodwill. The Company will reassess the recoverability of goodwill if estimated future operating cash flows are not achieved. Deferred Financing Costs Deferred financing costs related to the Company's revolving credit agreement and senior subordinated note offering completed subsequent to December 31, 1998 (see Note 7) are included in other noncurrent assets and amortized to interest expense over the scheduled maturity of the debt. Stock-Based Compensation Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, encourages but does not require companies to record compensation expense for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Accordingly, compensation expense for stock options is measured as the excess, if any, of the quoted market price of GroupMAC's common stock at the date of the grant over the amount an employee must pay to acquire the common stock. 32 35 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Warranty Costs The Company generally warrants all of its work for a period of one year from the date of installation. A provision for estimated warranty costs is made at the time a product is sold or service is rendered. Income Taxes The Company uses the asset and liability method to account for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Earnings Per Share Weighted average shares outstanding for each of the periods presented were as follows (in thousands):
TEN MONTHS YEAR ENDED ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, FEBRUARY 28, 1998 1997 1997 ------------ ------------ ------------ Shares issued in the acquisition of Airtron...... 4,652 4,652 5,172 Shares issued, excluding acquisitions and the IPO............................................ 3,637 3,628 -- Shares issued for 1997 acquisitions.............. 4,733 1,259 -- Shares issued for 1998 acquisitions.............. 6,182 -- -- Shares issued in the IPO......................... 8,340 1,261 -- ------ ------ ----- Weighted average shares outstanding -- Basic... 27,544 10,800 5,172 ------ ------ ----- Incremental effect of options and warrants outstanding.................................... 404 -- -- ------ ------ ----- Weighted average shares outstanding -- Diluted...................... 27,948 10,800 5,172 ====== ====== =====
Basic earnings per share have been calculated by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings per share are computed by dividing net income by the weighted average number of common shares outstanding plus potentially dilutive common shares. Because the Company reported a net loss for the ten months ended December 31, 1997, the potentially dilutive common shares (including warrants and stock options discussed in Note 9) had an anti-dilutive effect on earnings per share. As of December 31, 1998, options to purchase 0.4 million shares of common stock and warrants to purchase 1.3 million shares of common stock were not included in the calculation of diluted earnings per share because the options' or warrants' exercise price was greater than the average market price of the common shares. Reclassifications Certain amounts recorded in the year ended February 28, 1997 and the ten months ended December 31, 1997 have been reclassified to conform with the current year presentation. 3. BUSINESS COMBINATIONS During 1997, the Company acquired 23 companies for approximately $44.2 million in cash, 4.5 million shares of common stock, 4.4 million shares of redeemable preferred stock (which were retired in connection 33 36 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) with the IPO), options to acquire 0.1 million shares of common stock and warrants to purchase 0.5 million shares of common stock. Of the total recorded consideration, approximately $3.2 million of cash and 0.5 million shares of common stock were due to former owners at December 31, 1997. During 1998, a reduction of approximately $1.0 million in cash and 0.1 million shares of common stock was recorded to reflect final settlements on certain 1997 acquisitions. In addition, payments of approximately $1.9 million in cash and 0.4 million shares of common stock were made to former shareholders on certain 1997 acquisitions. During 1998, the Company completed the acquisition of 39 platform and five tuck-in companies for approximately $194.8 million in cash, $4.0 million of notes payable, $16.0 million of junior subordinated debt, 12.1 million shares of common stock, options to purchase 0.3 million shares of common stock and warrants to purchase 0.8 million shares of common stock. Of the total consideration, approximately $7.2 million of cash was due to former owners at December 31, 1998. In conjunction with the above mentioned acquisitions, the Company assumed $26.2 million and $16.1 million of debt for acquisitions completed in 1998 and 1997, respectively. For the above mentioned acquisitions, the common stock, options and warrants were valued at estimated fair value at the time of the respective acquisition and the preferred stock was valued at its redemption value of $1 per share. For certain 1998 acquisitions, allocation of purchase price to the assets acquired and liabilities assumed has been initially assigned and recorded based on preliminary estimates of fair value and may be revised as additional information becomes available. Such additional information includes appraisals on property, contingent liabilities of the acquired business, and working capital settlements related to the acquisition consideration and the net assets acquired. However, the Company does not expect any significant adjustments to the purchase price allocations or amount of goodwill at December 31, 1998. Several former owners of businesses acquired by the Company have the ability to receive additional amounts of purchase price, payable in cash and common stock contingent upon the occurrence of future events. The Company records such contingent consideration as additional purchase price when earned. During 1997, approximately $0.3 million in cash and 22,500 shares of common stock were earned and due to former owners related to these contingent payments. These amounts were paid in 1998. During 1998, approximately $5.2 million of cash and 0.3 million shares of common stock were earned related to these contingent payments, of which approximately $3.3 million of cash and 0.3 million shares of common stock were due to former owners as of December 31, 1998. Additional cash and common stock may become payable in 1999 through 2001 contingent upon future events. The unaudited pro forma data presented below consists of the combined income statement data for GroupMAC and its subsidiaries as if the acquisitions were effective on the first day of the period being reported (in thousands, except for per share amounts).
PRO FORMA DATA (UNAUDITED) --------------------------- TWELVE MONTHS ENDED DECEMBER 31, --------------------------- 1998 1997 ------------- ----------- Revenues.................................................... $1,076,419 $978,480 Net income.................................................. $ 33,201 $ 27,372 Net income per share: Basic..................................................... $ 0.99 $ 0.82 Diluted................................................... $ 0.98 $ 0.81
Pro forma adjustments reflected in the amounts above include compensation differentials, adjustment for goodwill amortization over a period of 40 years, elimination of historical interest income and historical interest expense on long-term debt which was repaid with the proceeds of the IPO or otherwise retired, additional 34 37 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) interest expense on funds borrowed for certain 1998 acquisitions, and adjustment to the federal and state income tax provisions based on pro forma operating results. Net income per share assumes all shares issued for the acquisitions were outstanding for the periods presented. 4. DETAIL OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES (IN THOUSANDS)
DECEMBER 31, ------------------- 1998 1997 ------- ------- Accounts payable, trade..................................... $59,067 $13,804 Accrued payroll costs and benefits.......................... 29,736 11,167 Warranties.................................................. 2,502 1,297 Other accrued expenses...................................... 7,900 2,251 ------- ------- $99,205 $28,519 ======= =======
5. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS The summary of the status of uncompleted contracts is as follows (in thousands):
DECEMBER 31, --------------------- 1998 1997 --------- --------- Costs incurred.............................................. $ 618,547 $ 85,101 Estimated earnings recognized............................... 129,912 27,268 --------- --------- 748,459 112,369 Less billings on contracts.................................. (749,756) (113,990) --------- --------- $ (1,297) $ (1,621) ========= =========
These costs and estimated earnings on uncompleted contracts are included in the accompanying consolidated balance sheets under the following captions (in thousands):
DECEMBER 31, -------------------- 1998 1997 -------- ------- Costs and estimated earnings in excess of billings on uncompleted contracts..................................... $ 26,533 $ 3,116 Billings in excess of costs and estimated earnings on uncompleted contracts..................................... (27,830) (4,737) -------- ------- $ (1,297) $(1,621) ======== =======
35 38 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. PROPERTY AND EQUIPMENT The principal categories and estimated useful lives of property and equipment were as follows (in thousands):
DECEMBER 31, ESTIMATED USEFUL ------------------ LIVES 1998 1997 ---------------- -------- ------- Land.............................................. -- $ 1,144 $ 218 Buildings and improvements........................ 20-30 years 6,128 677 Service and other vehicles........................ 4-7 years 17,643 5,385 Machinery and equipment........................... 5-10 years 9,491 2,873 Office equipment, furniture and fixtures.......... 5-10 years 10,842 3,761 Leasehold improvements............................ -- 4,334 1,220 -------- ------- 49,582 14,134 Less accumulated depreciation..................... (10,390) (2,822) -------- ------- $ 39,192 $11,312 ======== =======
7. SHORT- AND LONG-TERM DEBT Short- and long-term debt consists of the following (in thousands):
DECEMBER 31, ------------------ 1998 1997 -------- ------- Bank revolving credit agreement (7.1% at December 31, 1998)..................................................... $195,000 $ -- Junior subordinated notes payable to former shareholders of an acquired business at 6%, due November 2003............. 16,000 -- Notes payable to former shareholders of acquired businesses at 6%, due January 1999 and May 1998, respectively........ 4,399 2,466 Note payable to a bank at 8%, due January 1999.............. 8,000 -- Equipment installment loans payable to banks and other lenders, interest varying from 2.9% to 10%, secured by certain equipment, due in monthly and quarterly installments.............................................. 495 228 Other notes payable to former shareholders at interest rates ranging from 4.8% to 8.25%, due in monthly installments... 65 244 -------- ------- Total short- and long-term debt................... 223,959 2,938 Less short-term borrowings and current maturities........... (12,959) (2,769) -------- ------- $211,000 $ 169 ======== =======
On May 2, 1997, the Company entered into a credit agreement (the "Original Credit Agreement") with a total commitment of $35 million. The Original Credit Agreement consisted of three portions: (i) a revolving credit agreement providing up to $3 million for use as working capital, (ii) a $12 million advancing acquisition line of credit to finance acquisitions, and (iii) a $20 million term loan to finance the acquisition of Airtron. Borrowings under the Original Credit Agreement totaled $32.5 million to fund the cash portion of the purchase prices related to Airtron and the businesses acquired in June and July 1997. The Original Credit Agreement was repaid from the proceeds of the IPO and terminated in December 1997. On December 11, 1997, the Company entered into a three-year revolving credit agreement with an initial borrowing capacity of $75 million. On June 12, 1998, the Company amended and restated this facility (the "Credit Agreement") to increase its borrowing capacity from $75 million to $125 million. On October 15, 1998, the Company amended and restated the Credit Agreement to increase its borrowing capacity from 36 39 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) $125 million to $230 million. Borrowings under the Credit Agreement are guaranteed by the Company's domestic subsidiaries, including future domestic subsidiaries. The obligations of the Company under the Credit Agreement and the obligations under the guarantees are secured by a first priority lien on the accounts receivable and inventory of the domestic subsidiaries, and by a pledge of stock of its domestic subsidiaries. Borrowings under the Credit Agreement bear interest at a rate per annum, at the Company's option, of either (1) the Alternate Base Rate or (2) the Eurodollar Rate. The Alternate Base Rate is equal to the greater of the Federal Funds Effective Rate plus 0.5% or the Prime Rate plus a Margin depending on the ratio of indebtedness for borrowed money to EBITDA (with all capitalized terms as defined in the Credit Agreement). The Eurodollar Rate is the rate defined in the Credit Agreement plus a Margin depending on the ratio of indebtedness for borrowed money to EBITDA. The Company is subject to commitment fees payable quarterly in arrears and administration fees payable annually to the Agent until such time as the Credit Agreement is terminated. The commitment fees range from 0.25% to 0.375% per annum with respect to the unused commitments under the Credit Agreement depending on the ratio of indebtedness for borrowed money to EBITDA. In addition, the Company paid various underwriting and arrangement fees and closing costs associated with the origination and syndication of the Credit Agreement. The unamortized portion of these expenses is included as deferred financing costs in the accompanying consolidated balance sheets and amounted to approximately $2.4 million and $0.7 million at December 31, 1998 and 1997, respectively. Under the Credit Agreement, the Company is required to maintain certain financial covenants and tests, including: (1) a minimum Fixed Charge Coverage Ratio; (2) a maximum ratio of total indebtedness for borrowed money to capitalization (as defined in the Credit Agreement); (3) a maximum ratio of senior debt to pro forma earnings before interest, taxes, depreciation and amortization; (4) a maximum ratio of total indebtedness to EBITDA; (5) a minimum amount of Consolidated Net Worth (as defined in the Credit Agreement) and (6) a maximum amount of Capital Expenditures in relation to Consolidated Net Worth. The Credit Agreement places limitations upon the amount of letters of credit which may be drawn, investments which may be permitted, and liens which may be granted to secure other debt. The Company may not pay any dividends or redeem, retire or guarantee the value of shares of any class of stock in the Company without prior approval from the lending banks, other than the purchase of outstanding shares of the Company's stock within defined limits. At December 31, 1998, the Company was in compliance with these covenants. The Credit Agreement matures on October 13, 2001. In connection with the acquisition of Trinity Contractors, Inc. ("Trinity"), the Company paid cash and issued $16.0 million of subordinated notes (the "Trinity Notes"), common stock and warrants to purchase common stock (the "Trinity Warrants"). Unless prepaid in whole or part at any time by the Company, the balance of the Trinity Notes was due in November 2003. Holders of the Trinity Notes have a one-time option to require the Company to repurchase the Trinity Notes (the "Put Option") in the event the Company issues $50,000,000 or more in principal amount of debt that is either (1) registered under the Securities Act and sold to the public or (2) sold to qualified institutional buyers. Subsequent to December 31, 1998 and in connection with the private placement offering discussed below, the Put Option was exercised by substantially all the holders of the Trinity Notes, such notes were repaid by the Company and the related Trinity Warrants were surrendered. The aggregate maturities of debt as of December 31, 1998 are as follows (in thousands): 1999...................................................... $ 12,959 2000...................................................... -- 2001...................................................... 195,000 2002...................................................... -- 2003...................................................... 16,000 -------- $223,959 ========
37 40 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In January 1999, the Company completed a private placement offering (the "Offering") of $130 million of unsecured senior subordinated notes (the "Notes") bearing interest at 9.75% and maturing in January 2009. The net proceeds of the offering were used to repay indebtedness incurred under the Credit Agreement. Under a registration rights agreement executed as part of the Offering, the Company will file a registration statement within 90 days after the issue date of the Notes enabling holders of the Notes to exchange the privately placed Notes for publicly registered notes with identical terms. The Company is required to use all reasonable efforts to cause the registration statement to become effective within 150 days after the issue date of the Notes and to consummate the exchange offer within 180 days after the issue date of the Notes. If the Company cannot effect an exchange offer within the time periods listed above and in other certain circumstances, management will use all reasonable efforts to file a shelf registration statement for the resale of the Notes. If the Company is unable to comply with these obligations under the registration rights agreement, the interest rate on the Notes will increase under certain circumstances. The Notes are guaranteed by all of the Company's current and future U.S. subsidiaries other than "Unrestricted Subsidiaries" (as defined in the indenture governing the Notes). As of the closing of the Offering, there were no "Unrestricted Subsidiaries." These guarantees are full, unconditional and joint and several. Accordingly, no separate financial statements of the guarantor subsidiaries are presented because management believes this information is not material to users of its financial statements. The Notes pay interest semi-annually commencing July 15, 1999 and are redeemable at the option of the Company at any time on or after January 15, 2004. Additionally, the Notes' indenture has restrictive covenants or limitations on the payment of dividends, the distribution or redemption of capital stock as well as limitations on the incurrence of debt and on the sale of assets. The Company entered into an agreement to lock in the ten year U.S. Treasury rate used to price the offering of the Notes. The Company locked in $100 million at 5.5212%, which management believes is an attractive long-term base rate. This agreement expired on January 31, 1999, and was settled on that date based upon the ten year Treasury yield of 4.648%, resulting in an additional pre-tax financing cost of approximately $6.9 million. In accordance with SFAS No. 80, Accounting for Futures Contracts, this agreement qualifies as a hedge and was recognized as deferred financing costs. 8. DUE TO RELATED PARTIES Under the Airtron Agreement, part of the cash purchase price payable to former shareholders of Airtron relates to the tax benefits which have been or will be received by the Company related to the exercise of previously outstanding warrants and distributions under deferred compensation arrangements. The Company recognized liabilities of $9.7 million at the date of acquisition as an estimate of these amounts. This amount is paid to the former shareholders of Airtron as the tax benefit is realized by the Company either through receipt of net operating loss carryback claims or utilization of current deductions and net operating loss carryforwards to reduce estimated tax payments. The $9.7 million liability and the related refundable income taxes and deferred tax assets were reflected as long-term in the December 31, 1997 balance sheet as such tax benefits were not expected to be realized during 1998. During 1998, the Company was able to realize certain tax benefits under the Airtron Agreement and correspondingly paid $5.3 million of the original liability to the former shareholders. As of December 31, 1998, the $4.4 million remaining liability and the related refundable income taxes and deferred tax assets are reflected as current assets and liabilities in the December 31, 1998 consolidated balance sheet as all remaining tax benefits are expected to be realized during 1999. 38 41 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. STOCK-BASED PLANS GroupMAC has implemented the following stock-based programs for its employees and others: Stock Awards Plan -- In August 1997, GroupMAC adopted the Group Maintenance America Corp. 1997 Stock Awards Plan which provides GroupMAC the latitude to grant a variety of awards, such as stock options, stock appreciation rights ("SARs"), restricted stock, performance awards and phantom stock awards, to officers, directors, key employees and other persons working for GroupMAC and its subsidiaries. The plan requires that options and SARs be granted at not less than the fair market value of a share of common stock on the grant date. The plan also requires that no stock option granted shall vest in less than six months after the grant date. GroupMAC may issue not more than 9% of the number of total shares outstanding (determined on a quarterly basis) under the plan, which will terminate on June 30, 2007. At December 31, 1998, options to purchase 3.0 million shares at an average exercise price of $12.86 were outstanding under this plan. Stock Option Plan -- In August 1997, GroupMAC adopted the Group Maintenance America Corp. 1997 Stock Option Plan under which GroupMAC may grant options to employees who are not eligible for awards under the Stock Awards Plan. The plan requires that options be granted at not less than fair market value of a share of common stock on the grant date. The plan also requires that no stock option granted shall vest in less than six months after the grant date. GroupMAC may issue not more that 3% of the number of shares outstanding (determined on a quarterly basis) under this plan, which will terminate on June 30, 2007. At December 31, 1998, options to purchase 0.7 million shares at an average exercise price of $13.98 were outstanding under this plan. Founder Options -- Between October 1996 and August 1997, the Company granted to directors, senior management and other employees options to purchase an aggregate of 388,800 shares of common stock at an exercise price of $3.08. These options vest and expire over various periods. During 1998, the Company issued options to purchase approximately 1.6 million shares of common stock at a weighted average exercise price of $14.32. These options vest at a rate of 25% per year and expire at various dates during 2003. Additionally, the Company issued options to purchase 0.3 million and 0.1 million shares of common stock in connection with acquisitions at a weighted average exercise price of $4.09 and $11.89 in 1998 and 1997, respectively. These options were valued at $3.4 million and $1.2 million in 1998 and 1997, respectively, and are included in the purchase price of the acquired company. Substantially all of these options are immediately exercisable. As consideration for a company acquired in November 1998, the Company issued 829,000 warrants to purchase shares of common stock at $19.30 per share. As indicated in Note 7, substantially all of these warrants were surrendered subsequent to year end and accordingly no value was included for these warrants in the purchase price of the acquired company. In connection with the purchase of one company in July 1997, the Company issued warrants to purchase 514,000 shares of common stock at $17.50 per share. These warrants were valued at $1.0 million and are included in the purchase price of the acquired company. 39 42 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is a summary of stock option and warrant activity (in thousands, except for exercise price):
WEIGHTED AVERAGE NUMBER OF EXERCISE OPTIONS AND PRICE WARRANTS -------- ----------- Granted..................................................... $3.08 292 ----- Balance at December 31, 1996................................ 3.08 292 Granted..................................................... 3.08 69 ----- Balance at April 30, 1997, date of Airtron Agreement........ 3.08 361 Granted..................................................... 14.33 2,611 Exercised................................................... 3.08 (20) Surrendered................................................. 3.08 (25) ----- Balance at December 31, 1997................................ 13.07 2,927 Granted..................................................... 14.56 2,701 Exercised................................................... 5.77 (2) Surrendered................................................. 14.54 (165) ----- Balance at December 31, 1998................................ 13.77 5,461 =====
A summary of outstanding and exercisable options and warrants as of December 31, 1998 follows:
WEIGHTED AVERAGE WEIGHTED NUMBER OF WEIGHTED EXERCISE NUMBER OF RANGE OF AVERAGE OUTSTANDING AVERAGE PRICE OF EXERCISABLE OPTION AND OPTION AND OPTIONS AND REMAINING EXERCISABLE OPTIONS AND WARRANT WARRANT WARRANTS CONTRACTUAL OPTIONS AND WARRANTS PRICES PRICES (THOUSANDS) LIFE (YEARS) WARRANTS (THOUSANDS) - ---------------- ---------- ----------- ------------ ----------- ----------- $ 3.08 to $ 5.00 $ 3.57 713 5.8 $ 3.69 576 $ 5.01 to $10.00 $ 6.54 38 2.8 $ 6.39 25 $10.01 to $15.00 $13.60 2,890 4.2 $14.00 456 $15.01 to $19.30 $18.14 1,820 6.2 $18.61 1,343 ----- ----- 5,461 2,400 ===== =====
The Company applies Accounting Principle Board Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for its stock options (other than options issued in connection with acquisitions). Accordingly, compensation cost has been recognized only for the options that have an exercise price less than the fair market value of the underlying stock at the date of grant. A compensation charge of approximately $0.2 million is reflected in the consolidated statements of operations and shareholders' equity for the fiscal year ended December 31, 1998 and the ten months ended December 31, 1997 related to the issuance of management shares and stock options at prices below the fair market value at the date of issue or grant. 40 43 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following pro forma data is calculated as if compensation expense for the Company's stock option plans were determined based on the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS No. 123, Accounting for Stock-Based Compensation (in thousands, except per share data):
YEAR ENDED TEN MONTHS ENDED DECEMBER 31, 1998 DECEMBER 31, 1997 ----------------------- ----------------------- AS REPORTED PRO FORMA AS REPORTED PRO FORMA ----------- --------- ----------- --------- Net income (loss)......................... $25,929 $23,173 $(3,642) $(3,983) Net income (loss) per share: Basic................................... $ 0.94 $ 0.84 $ (0.34) $ (0.37) Diluted................................. $ 0.93 $ 0.83 $ (0.34) $ (0.37)
The pro forma compensation cost may not be representative of that to be expected in future years because options vest over several years and additional awards may be made each year. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
TEN MONTHS ENDED DECEMBER 31, 1997 --------------------------- YEAR ENDED SUBSEQUENT TO PRIOR TO DECEMBER 31, THE AIRTRON THE AIRTRON 1998 AGREEMENT AGREEMENT ------------ ------------- ----------- Dividend yield................................... -- -- -- Expected volatility.............................. 48.0% 33.0% 0% Risk-free interest rate.......................... 4.70% 5.83% 6.26% Expected lives................................... 5.0 years 6.6 years 10 years Fair value of options at grant date.............. $7.445 $5.425 $1.425
The Company had outstanding 60,000 warrants to purchase common stock for $1.00 per share at February 29, 1996. In August 1996, 15,000 of these warrants were purchased from a former shareholder for $0.5 million, resulting in a reduction in retained earnings for the original recorded value of the warrants of $0.6 million with the offset recorded as other income. At February 28, 1997, 45,000 warrants were outstanding. In connection with the Airtron Agreement these warrants were exchanged for cash and preferred and common shares of GroupMAC. Airtron had deferred compensation arrangements for certain members of its management and its board of directors. The Company reflected the assets and liabilities associated with these arrangements as distributions in the accompanying consolidated financial statements. 10. SHAREHOLDERS' EQUITY On October 24, 1996, the Company entered into a stock subscription agreement with an individual providing for the sale of up to 2.6 million shares of common stock at a purchase price of $3.08 per share. At December 31, 1997, the Company had sold all of the 2.6 million shares. During November and December 1997, the Company completed the IPO involving the sale of 8.3 million shares of common stock at a price to the public of $14.00 per share. The net proceeds from the IPO (after deducting underwriting discounts and commissions and offering expenses) were approximately $103.6 million. Of this amount, $29.8 million was used to pay the cash portion of the closing consideration relating to certain acquired businesses, $42.6 million to repay corporate indebtedness and debt assumed in connection with the acquisition of businesses, $19.3 million to retire all of the then outstanding preferred stock and $11.9 million 41 44 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) for general corporate purposes including working capital, final consideration settlements related to acquired businesses and future acquisitions. In March 1998, the Company issued $0.8 million of subordinated convertible debentures to fund a portion of the consideration of one acquisition. These debentures were converted to 68,000 shares of common stock during 1998. 11. INCOME TAXES Income tax expense (benefit) consists of the following (in thousands):
YEAR TEN MONTHS YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, FEBRUARY 28, 1998 1997 1997 ------------ ------------ ------------ Current: Federal....................................... $13,553 $ -- $(1,020) State......................................... 3,274 489 385 ------- ------ ------- 16,827 489 (635) Deferred: Federal and state............................. 3,499 2,343 2,207 ------- ------ ------- $20,326 $2,832 $ 1,572 ======= ====== =======
Total income tax expense differs from the amounts computed by applying the U.S. federal statutory income tax rate to income (loss) before income tax provision as a result of the following (in thousands):
YEAR TEN MONTHS YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, FEBRUARY 28, 1998 1997 1997 ------------ ------------ ------------ Income (loss) before income tax provision....... $46,255 $ (810) $3,908 Applicable U.S federal statutory rate........... 35.0% 34.0% 34.0% ------- ------ ------ Tax provision (benefit) at statutory rate....... 16,189 (275) 1,329 Increase (decrease) resulting from: State income taxes, net of federal benefit.... 2,128 323 254 Compensation expense from reverse acquisition and issuance of management shares and stock options.................................... 59 2,455 -- Non-deductible goodwill amortization.......... 1,975 199 -- Other......................................... (25) 130 (11) ------- ------ ------ $20,326 $2,832 $1,572 ======= ====== ======
42 45 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of the deferred income tax assets and liabilities are as follows (in thousands):
DECEMBER 31, ---------------- 1998 1997 ------ ------- Deferred income tax assets: Allowance for doubtful accounts........................... $2,088 $ 713 Inventories............................................... 300 279 Accrued expenses.......................................... 5,101 2,489 Deferred revenue.......................................... 1,510 348 Compensation and benefits................................. 280 3,736 Net operating loss carryforward........................... 497 1,231 Other..................................................... 259 183 ------ ------- Total deferred income tax assets.................. 10,035 8,979 ------ ------- Deferred income tax liabilities: Depreciation.............................................. (951) (585) Completed contract accounting for tax purposes............ (1,899) (1,836) Other..................................................... (339) (172) ------ ------- Total deferred income tax liabilities............. (3,189) (2,593) ------ ------- Net deferred income tax assets.................... $6,846 $ 6,386 ====== =======
These deferred income tax assets and liabilities are included in the accompanying consolidated balance sheets under the following captions (in thousands):
DECEMBER 31, --------------- 1998 1997 ------ ------ Deferred tax assets -- current.............................. $7,579 $1,647 Deferred tax assets -- long-term............................ -- 4,739 Deferred tax liabilities -- long-term....................... (733) -- ------ ------ $6,846 $6,386 ====== ======
Management believes it is more likely than not that the Company will realize the benefits of the net deferred tax assets. Accordingly, no valuation allowance has been recorded as of December 31, 1998 or December 31, 1997. 12. LEASES Operating leases for certain facilities and transportation equipment expire at various dates through 2011. Certain leases contain renewal options. Approximate minimum future rental payments as of December 31, 1998 are as follows (in thousands): 1999........................................................ $11,172 2000........................................................ 10,059 2001........................................................ 8,901 2002........................................................ 7,843 2003........................................................ 4,358 Thereafter.................................................. 19,685 ------- $62,018 =======
43 46 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Total rental expense for the year ended December 31, 1998, the ten months ended December 31, 1997 and the year ended February 28, 1997 was approximately $13.5 million, $2.3 million and $1.7 million, respectively (including $4.3 million, $1.2 million and $0.6 million, respectively, to related parties). 13. EMPLOYEE BENEFIT PLANS Several of GroupMAC's subsidiaries maintain defined contribution employee retirement plans, which are open to certain employees after various lengths of service. Employee contributions and employer matching contributions occur at different rates and the matched portions of the funds vest over a period of years. Company contributions to these plans totaled approximately $4.8 million, $0.4 million and $0.2 million for the year ended December 31, 1998, the ten months ended December 31, 1997 and the year ended February 28, 1997, respectively. Certain of GroupMAC's subsidiaries make contributions to union-administered benefit funds that cover the majority of these companies' union employees. For the year ended December 31, 1998 and the ten months ended December 31, 1997, the participant costs charged to operations were approximately $8.8 million and $0.6 million, respectively. Governmental regulations require that, in the event of plan termination or employer withdrawal, an employer may be liable for a portion of the plan's unfunded vested benefits, if any. The Company is not aware of any liabilities resulting from unfunded vested benefits related to union administered benefit plans. The Company does not anticipate withdrawal from the plans, nor is the Company aware of any expected plan terminations. 14. COMMITMENTS AND CONTINGENCIES The Company is involved in various legal actions. It is not possible to predict the outcome of these matters; however, in the opinion of management, the resolution of these matters will not have a material adverse effect on the Company's consolidated financial position or results of operations. 15. FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash and cash equivalents and short- and long-term debt. The Company believes that the carrying values of these instruments on the accompanying consolidated balance sheets approximate their fair value. 16. OPERATING SEGMENTS The Company's reportable segments are strategic business units that offer products and services to two distinct customer groups. They are managed separately because each business requires different operating and marketing strategies. The Company has two reportable segments: commercial/industrial and residential markets. The commercial/industrial segment provides maintenance, repair and replacement services and new installation services in manufacturing and processing facilities, power generation facilities, hospitals and other critical care facilities, colleges and universities, hotels, commercial office buildings and complexes, retail stores and restaurants, supermarkets and convenience stores. The residential segment provides maintenance, repair and replacement services and new installation services in single family and low-rise multifamily housing units. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on income from operations of the respective business units prior to unallocated corporate expenses. Other activities include financial data of two operating subsidiaries that provide products and services outside of those performed by the Company's two primary operating segments. Unallocated corporate 44 47 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) expenses primarily include (1) corporate overhead, (2) corporate and operating company management bonuses, and (3) savings from national purchase agreements relating to materials and property/casualty insurance. Assets, capital expenditures and depreciation expense for the corporate function are included in the "Other" column in the presentation below. Segment information for the year ended December 31, 1998, the ten months ended December 31, 1997 and the year ended February 28, 1997 was as follows (in thousands):
COMMERCIAL/ INDUSTRIAL RESIDENTIAL OTHER TOTAL ----------- ----------- ------- -------- YEAR ENDED DECEMBER 31, 1998: Revenues.................................. $472,451 $286,737 $ 2,353 $761,541 Operating costs........................... 434,431 257,917 2,077 694,425 -------- -------- ------- -------- Subtotal.................................. 38,020 28,820 276 67,116 Goodwill amortization..................... 4,130 1,652 178 5,960 -------- -------- ------- -------- Segment operating earnings................ $ 33,890 $ 27,168 $ 98 61,156 ======== ======== ======= Unallocated corporate expenses............ (9,090) -------- Income from operations.................... $ 52,066 ======== Assets.................................... $542,998 $123,775 $34,308 $701,081 Capital expenditures...................... 6,157 2,376 759 9,292 Depreciation expense...................... 4,847 2,745 311 7,903 TEN MONTHS ENDED DECEMBER 31, 1997: Revenues.................................. $ 23,305 $113,927 $ 1,247 $138,479 Operating costs........................... 22,023 103,017 1,068 126,108 -------- -------- ------- -------- Subtotal.................................. 1,282 10,910 179 12,371 Goodwill amortization..................... 174 351 108 633 -------- -------- ------- -------- Segment operating earnings................ $ 1,108 $ 10,559 $ 71 11,738 ======== ======== ======= Unallocated corporate expenses............ (11,516) -------- Income from operations.................... $ 222 ======== Assets.................................... $ 65,566 $ 96,237 $30,884 $192,687 Capital expenditures...................... 355 1,376 286 2,017 Depreciation expense...................... 147 575 58 780 YEAR ENDED FEBRUARY 28, 1997: Revenues.................................. $ -- $ 81,880 $ -- $ 81,880 Operating costs........................... -- 78,317 -- 78,317 -------- -------- ------- -------- Subtotal.................................. -- 3,563 -- 3,563 Goodwill amortization..................... -- -- -- -- -------- -------- ------- -------- Segment operating earnings................ $ -- $ 3,563 $ -- 3,563 ======== ======== ======= Unallocated corporate expenses............ -- -------- Income from operations.................... $ 3,563 ======== Assets.................................... $ -- $ 27,153 $ -- $ 27,153 Capital expenditures...................... -- 182 -- 182 Depreciation expense...................... -- 208 -- 208
45 48 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Maintenance, repair and replacement services represented 53%, 35% and 19% and new installation services represented 47%, 65% and 81% of total revenues for the year ended December 31, 1998, the ten months ended December 31, 1997 and the year ended February 28, 1997, respectively. The heavy emphasis on new installation services in the earlier two fiscal periods is a result of the operations of Airtron, which represent a significant portion of revenues during the ten months ended December 31, 1997 and all of the revenues during the year ended February 28, 1997. 17. QUARTERLY FINANCIAL SUMMARY (UNAUDITED)(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOURTH THIRD SECOND FIRST -------- -------- -------- -------- 1998 Revenues................................... $283,597 $211,667 $159,185 $107,092 Operating income........................... 19,746 16,297 11,452 4,571 Net income................................. 9,193 8,369 6,095 2,272 Earnings per share: Basic.................................... $ 0.28 $ 0.30 $ 0.24 $ 0.10 Diluted.................................. $ 0.28 $ 0.30 $ 0.24 $ 0.10 1997(A) Revenues................................... $ 68,011 $ 39,382 $ 25,419 $ 17,425 Operating income........................... 2,552 2,438 (5,055) (1,060) Net income................................. 1,158 1,025 (5,998) (484) Earnings per share(b): Basic.................................... $ 0.08 $ 0.11 $ (0.70) $ (0.10) Diluted.................................. $ 0.07 $ 0.11 $ (0.70) $ (0.10)
- --------------- (a) Concurrent with the IPO, the Company changed its fiscal year end from February 28 to December 31 (see Note 1). The accompanying consolidated statements of operations contain results for the ten month period ended December 31, 1997; however, the quarterly financial summary above contains four calendar quarters of information for 1997, as reported on Forms 10-Q. (b) Because the Company reported a net loss in the first two quarters of 1997, the potentially dilutive common shares (including warrants and stock options discussed in Note 9) had an anti-dilutive effect on earnings per share. Accordingly, diluted earnings per share is the same as basic earnings per share for each of these periods. 18. SUBSEQUENT EVENTS (UNAUDITED) During the first quarter of 1999, the Company completed the acquisition of three platform companies. The combined annual revenues of the companies were approximately $165.5 million. Total consideration paid included cash payments of $35.6 million, $1.6 million of junior subordinated notes, 2.1 million shares of common stock and total debt assumed of $13.8 million. The Company will account for these acquisitions using the purchase method of accounting. 46 49 INDEPENDENT AUDITORS' REPORT The Board of Directors Group Maintenance America Corp. We have audited the accompanying balance sheets of Group Maintenance America Corp. (the Company) as of December 31, 1996 and April 30, 1997, and the related statements of operations, shareholders' equity (deficit), and cash flows for the periods from October 21, 1996 (inception) to December 31, 1996 and the four months ended April 30, 1997. 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 audits 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 Group Maintenance America Corp. as of December 31, 1996 and April 30, 1997 and the results of its operations and its cash flows for the periods from October 21, 1996 (inception) to December 31, 1996 and the four months ended April 30, 1997, in conformity with generally accepted accounting principles. KPMG LLP Houston, Texas July 11, 1997 47 50 GROUP MAINTENANCE AMERICA CORP. BALANCE SHEETS ASSETS
DECEMBER 31, APRIL 30, 1996 1997 ------------ ----------- Current assets: Cash and cash equivalents................................. $ 228,036 $ 516,838 Due from employee......................................... 1,200 6,759 Prepaid expenses.......................................... 2,341 -- ----------- ----------- Total current assets.............................. 231,577 523,597 Property and equipment, net................................. 100,996 120,694 Other noncurrent assets..................................... 19,473 1,094,708 ----------- ----------- Total assets...................................... $ 352,046 $ 1,738,999 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable.......................................... $ 137,377 $ 527,869 Accrued expenses.......................................... 6,118 1,478,898 ----------- ----------- Total current liabilities......................... 143,495 2,006,767 Long-term debt.............................................. 75,000 75,000 Other long-term liabilities................................. -- 73,424 Commitments and contingencies Shareholders' equity (deficit): Preferred stock, $.001 par value; 50,000,000 shares authorized; none issued or outstanding................. -- -- Common stock, $.001 par value; 100,000,000 shares authorized; 1,211,345 and 1,611,345 shares issued, respectively........................................... 1,211 1,611 Additional paid-in capital................................ 8,238,857 8,238,457 Retained earnings......................................... (722,517) (2,503,260) Subscriptions receivable.................................. (7,384,000) (6,153,000) ----------- ----------- Total shareholders' equity (deficit).............. 133,551 (416,192) ----------- ----------- Total liabilities and shareholders' equity........ $ 352,046 $ 1,738,999 =========== ===========
The accompanying notes are an integral part of these financial statements. 48 51 GROUP MAINTENANCE AMERICA CORP. STATEMENTS OF OPERATIONS
INCEPTION (OCTOBER 21, 1996) FOUR MONTHS THROUGH ENDED DECEMBER 31, APRIL 30, 1996 1997 ------------ ----------- Revenues.................................................... $ -- $ -- Cost of services............................................ -- -- --------- ----------- Gross profit...................................... -- -- Selling, general and administrative expenses................ 724,006 1,783,409 --------- ----------- Loss from operations.............................. (724,006) (1,783,409) --------- ----------- Other income (expense): Interest expense.......................................... (1,118) (2,000) Interest income........................................... 2,607 4,666 --------- ----------- Loss before income tax provision.................. (722,517) (1,780,743) Income tax provision........................................ -- -- --------- ----------- Net loss.................................................... $(722,517) $(1,780,743) ========= ===========
The accompanying notes are an integral part of these financial statements. 49 52 GROUP MAINTENANCE AMERICA CORP. STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
COMMON STOCK ------------------ ADDITIONAL SHAREHOLDERS' NUMBER OF PAID-IN RETAINED SUBSCRIPTIONS EQUITY SHARES AMOUNT CAPITAL EARNINGS RECEIVABLE (DEFICIT) --------- ------ ---------- ----------- ------------- ------------- Balance, October 21, 1996....... -- $ -- $ -- $ -- $ -- $ -- Net loss...................... -- -- -- (722,517) -- (722,517) Issuance of subscription agreement.................. -- -- 8,000,000 -- (8,000,000) -- Issuance of common stock...... 791,345 791 32,807 -- -- 33,598 Shares issued under subscription agreement..... 200,000 200 (200) -- 616,000 616,000 Compensation expense related to issuance of management shares..................... 220,000 220 206,250 -- -- 206,470 --------- ------ ---------- ----------- ----------- ----------- Balance, December 31, 1996...... 1,211,345 1,211 8,238,857 (722,517) (7,384,000) 133,551 Net loss...................... -- -- -- (1,780,743) -- (1,780,743) Shares issued under subscription agreement..... 400,000 400 (400) -- 1,231,000 1,231,000 --------- ------ ---------- ----------- ----------- ----------- Balance, April 30, 1997......... 1,611,345 $1,611 $8,238,457 $(2,503,260) $(6,153,000) $ (416,192) ========= ====== ========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 50 53 GROUP MAINTENANCE AMERICA CORP. STATEMENTS OF CASH FLOWS
INCEPTION (OCTOBER 21, FOUR 1996) MONTHS THROUGH ENDED DECEMBER 31, APRIL 30, 1996 1997 ------------ ----------- Cash flows from operating activities: Net loss.................................................. $(722,517) $(1,780,743) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.......................... 3,343 12,877 Noncash compensation charge............................ 206,250 -- Changes in operating assets and liabilities: (Increase) decrease in -- Prepaid expenses and other assets................. (3,541) (3,218) Other noncurrent assets........................... -- (1,567) Increase (decrease) in -- Accounts payable.................................. 137,377 390,492 Accrued expenses.................................. 6,118 979,562 --------- ----------- Net cash used in operating activities........... (372,970) (402,597) --------- ----------- Cash flows from investing activities: Purchases of property and equipment....................... (104,339) (32,575) --------- ----------- Cash flows from financing activities: Proceeds from issuance of common stock.................... 649,818 1,231,000 Proceeds from borrowings.................................. 75,000 -- Deferred offering costs................................... (19,473) (439,205) Deferred financing costs.................................. -- (67,821) --------- ----------- Net cash provided by financing activities....... 705,345 723,974 --------- ----------- Increase in cash and cash equivalents....................... 228,036 288,802 Cash and cash equivalents, beginning of period.............. -- 228,036 --------- ----------- Cash and cash equivalents, end of period.................... $ 228,036 $ 516,838 ========= ===========
The accompanying notes are an integral part of these financial statements. 51 54 GROUP MAINTENANCE AMERICA CORP. NOTES TO FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION Group Maintenance America Corp. (the Company or GroupMAC Parent) was incorporated in October 1996 and, therefore, the financial statements reflect the period since the Company's inception through December 31, 1996 and the four months ended April 30, 1997. The Company's primary business is to build a national company providing heating, ventilation and air conditioning (HVAC), plumbing and electrical services. Effective April 30, 1997, GroupMAC Parent entered into an Agreement and Plan of Exchange (the Agreement) with Airtron, Inc. (Airtron), in which $20,366,951 in cash, 14,873,133 shares of GroupMAC Parent preferred stock and 4,652,140 shares of GroupMAC Parent common stock were issued to shareholders of Airtron in exchange for 100 percent of the then outstanding shares of Airtron. In connection with this merger the combined company is referred to as GroupMAC and Subsidiaries. The Agreement closed on May 2, 1997 with the cash portion funded by the Company's available credit facility and a capital contribution from a shareholder pursuant to a stock subscription agreement (see note 6). For accounting purposes, the transaction was accounted for as a reverse acquisition, as if Airtron acquired GroupMAC Parent, as the former shareholders of Airtron then owned a majority of GroupMAC Parent's common stock. Concurrent with this transaction, the resulting combined entity will be named Group Maintenance America Corp. and Subsidiaries. The Company is included in the consolidated financial statements of GroupMAC and Subsidiaries, presented elsewhere herein, for periods subsequent to the effective date of the acquisition. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and 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. Cash and Cash Equivalents For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. There were no cash payments for interest or income taxes in 1996 or in the four months ended April 30, 1997. Property and Equipment Property and equipment are stated at cost. 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 of major renewals and betterments, which extend the useful lives of existing equipment, are capitalized and depreciated. Upon retirement or disposition of property or 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. Income Taxes The Company follows the liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards No. 109. Under this method deferred income taxes are recorded based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using 52 55 GROUP MAINTENANCE AMERICA CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) the enacted tax rates and laws that will be in effect when the underlying assets or liabilities are received or settled. The Company has recorded a full valuation allowance against all deferred tax assets due to the uncertainty of ultimate realizability. Accordingly, no income tax benefit has been recorded for the losses incurred. 3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS Other noncurrent assets consists of the following:
DECEMBER 31, APRIL 30, 1996 1997 ------------ ---------- Deferred offering costs................................ $13,648 $ 452,853 Deferred financing costs............................... -- 634,463 Other noncurrent assets................................ 5,825 7,392 ------- ---------- $19,473 $1,094,708 ======= ==========
Accrued expenses consists of the following:
DECEMBER 31, APRIL 30, 1996 1997 ------------ ---------- Accrued compensation................................... $ -- $ 767,476 Accrued financing costs................................ -- 566,642 Other accrued expenses................................. 6,118 144,780 ------ ---------- $6,118 $1,478,898 ====== ==========
4. PROPERTY AND EQUIPMENT The principal categories and estimated useful lives of property and equipment are as follows:
ESTIMATED DECEMBER 31, APRIL 30, USEFUL LIVES 1996 1997 ------------ ------------ --------- Office equipment, furniture and fixtures..... 3-7 years $104,339 $136,358 Less accumulated depreciation................ (3,343) (15,664) -------- -------- $100,996 $120,694 ======== ========
5. LONG-TERM DEBT CREDIT AGREEMENT In May 1997, the Company entered into a credit agreement (the Credit Agreement) with a group of banks providing for secured facilities consisting of an 18-month revolving credit line of $3 million, a six-year term loan of $20 million used in connection with the acquisition of Airtron (see note 1) and a term loan facility, available until October 31, 1998, providing for up to $12 million in term loans having a final maturity six years after the date of the Credit Agreement, to be used in connection with future acquisitions. Loans under the revolving credit facility are limited to a borrowing base consisting of 70% of eligible accounts receivable. Interest on outstanding borrowings is payable in quarterly installments beginning August 31, 1997. A commitment fee of .25% is payable on the unused portion of the revolving credit line. The Credit Agreement contains covenants which, among other matters, restrict or limit the ability of the Company to pay dividends, incur indebtedness, make capital expenditures and repurchase capital stock. The 53 56 GROUP MAINTENANCE AMERICA CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Company must also maintain a minimum fixed charge coverage ratio (as defined) and certain other ratios, among other restrictions. As of June 30, 1997, available borrowing capacity under the Credit Agreement was $5.4 million. LONG-TERM DEBT On October 24, 1996, the Company executed a $75,000 subordinated note with a Texas limited liability company. The note bears interest at eight percent (8%) and is payable upon the earlier of (i) the closing of the Company's first public offering of its common stock or (ii) two years from the date of the note. The note is subordinate to all indebtedness of the Company to the banks and is guaranteed by certain officers of the Company. 6. SHAREHOLDERS' EQUITY (DEFICIT) COMMON STOCK The Company is authorized to issue 100 million shares of common stock, $.001 par value. There were 1,211,345 and 1,611,345 shares of common stock issued and outstanding at December 31, 1996 and April 30, 1997, respectively. In connection with the sale of certain shares of common stock to management, a nonrecurring, noncash compensation charge of $206,250 was recorded in 1996 to reflect the difference between the amount paid for the shares and the estimated fair value of the shares on the date of sale. On October 24, 1996, the Company entered into a stock subscription agreement with an individual allowing for the purchase of up to 2.6 million shares of common stock at a purchase price of $3.08 per share. Under this agreement, 0.2 million shares were purchased in October 1996, 0.2 million in January 1997 and 0.2 million in April 1997 and additional shares are required to be purchased upon written notice from the Company, but in no event later than October 24, 1998. Subsequent to April 30, 1997, an additional 1.658 million shares have been purchased under the Subscription Agreement. PREFERRED STOCK The Company is authorized to issue up to 50 million shares of preferred stock, par value $.001 per share, in one or more series. As of December 31, 1996 and April 30, 1997, none were outstanding. OPTIONS Under an option agreement dated October 24, 1996, the Company is authorized to grant stock options with respect to 388,800 shares of the Company's common stock to directors and senior management. The following is a summary of stock option activity and number of shares reserved for outstanding options.
OPTION PRICE PER NUMBER SHARE OF SHARES --------- --------- Granted..................................................... $3.08 291,600 ------- Balance at December 31, 1996................................ 291,600 Granted..................................................... $3.08 69,200 ------- Balance at April 30, 1997................................... 360,800 =======
At April 30, 1997, options representing 28,000 shares were available to be granted under the option agreement. 54 57 GROUP MAINTENANCE AMERICA CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Company has adopted the disclosure-only provisions of the Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-based Compensation. Accordingly, no compensation cost has been recognized for the option agreement as all options have an exercise price equal to or greater than the fair value of the underlying stock at date of grant. Had compensation cost for the Company's stock option plan been determined consistent with the provisions of SFAS No. 123, net loss would have been increased by the following pro forma amounts:
INCEPTION (OCTOBER 21, 1996) FOUR MONTHS THROUGH ENDED DECEMBER 31, APRIL 30, 1996 1997 ------------ ----------- Net loss: As reported.............................................. $(722,517) $(1,780,743) Pro forma................................................ $(745,602) $(1,837,870)
The pro forma compensation cost may not be representative of that to be expected in future years because options vest over several years and additional awards may be made each year. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used by the plan for fiscal 1996 and for the four months ending April 30, 1997: no dividend yield; expected volatility of 0%; risk-free interest rate of 6.26%; and expected lives of ten years. The weighted average fair value per share of the options granted during fiscal 1996 and in the four months ending April 30, 1997 is estimated to be $1.425. 7. INCOME TAXES There is no Federal income tax provision as losses were incurred and a valuation allowance has been established against future benefits deriving from the carryforward of these losses. 8. COMMITMENTS AND CONTINGENCIES The Company has entered into various operating lease agreements, primarily for office space, furniture and service equipment. Minimum annual rental payments under non-cancelable operating leases as of June 30, 1997, were approximately as follows:
FOR THE YEAR ENDING APRIL 30, - ----------------------------- 1997........................................................ $46,000 1998........................................................ 600 1999........................................................ 300
Rental expense under operating leases was $9,032 for the period ended December 31, 1996 and $49,194 for the four months ending April 30, 1997. 9. EVENT SUBSEQUENT TO INDEPENDENT AUDITORS' REPORT -- STOCK SPLIT On August 16, 1997, the Company's Board of Directors declared a 1-for-2.5 reverse stock split of the Company's common stock. All share data included in the consolidated financial statements have been restated to reflect the stock split. 55 58 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information appearing under the caption "Election of Directors" in the Company's proxy statement for the 1999 Annual Meeting of Shareholders is incorporated herein by reference. Information regarding executive officers of the Company is presented in Item 4A of this Form 10-K under the caption "Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION. Information appearing under the caption "Executive Compensation" in the Company's proxy statement for the 1999 Annual Meeting of Shareholders is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information appearing under the caption "Stock Ownership" in the Company's proxy statement for the 1999 Annual Meeting of Shareholders is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information appearing under the caption "Transactions with Management and Others" in the Company's proxy statement for the 1999 Annual Meeting of Shareholders is incorporated herein by reference. 56 59 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this report: (1) Financial statements See "Index to Financial Statements of Group Maintenance America Corp. and Subsidiaries" set forth in Item 8, "Financial Statements and Supplementary Data." (2) Financial statement schedules None (3) Exhibits
NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 2 -- None 3.1* -- Articles of Incorporation of the Company, as amended (Exhibit 3.1 to Registration Statement No. 333-34067). 3.2 -- By-laws of the Company, as amended. 4.1 -- Indenture dated as of January 22, 1999, between Group Maintenance America Corp., the subsidiaries named therein and State Street Bank and Trust Company, as trustee. 4.2 -- First Supplemental Indenture dated March 22, 1999, between Group Maintenance America Corp., the subsidiaries named therein and State Street Bank and Trust Company, as trustee. 9 -- None 10.1*+ -- Group Maintenance America Corp. 1997 Stock Awards Plan (Exhibit 10.1 to Registration Statement No. 333-34067). 10.2*+ -- Group Maintenance America Corp. 1997 Stock Option Plan (Exhibit 10.2 to Registration Statement No. 333-34067). 10.3+ -- Form of Employment Agreement between Group Maintenance America Corp. and James P. Norris. 10.4+ -- Form of Employment Agreement between Group Maintenance America Corp. and J. Patrick Millinor, Jr. 10.5+ -- Form of Employment Agreement between Group Maintenance America Corp. and Donald L. Luke. 10.6*+ -- Form of Employment Agreement between Group Maintenance America Corp. and Timothy Johnston (Exhibit 10.32 to Registration Statement No. 333-34067). 10.7+ -- Form of Employment Agreement between Group Maintenance America Corp. and Ronald D. Bryant. 10.8 -- Credit Agreement among Group Maintenance America Corp., the Subsidiaries listed as Guarantors, Chase Bank of Texas, National Association, and the signatory banks, dated as of October 15, 1998. 10.9* -- Agreement and Plan of Exchange by and among Group Maintenance America Corp. and the Holders of a Majority of the Outstanding Common Stock of Airtron, Inc., dated April 30, 1997 (Exhibit 10.3 to Registration Statement No. 333-34067).(Confidential information has been omitted from this document and has been filed separately with the Commission.) 11 -- None.
57 60
NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 12 -- Statement re: Computation of Ratio of Earnings to Fixed Charges. 13 -- None. 16 -- None. 18 -- None. 21 -- Subsidiaries of Group Maintenance America Corp. as of December 31, 1998. 22 -- None. 23 -- Consent of KPMG LLP. 24 -- Powers of Attorney 27 -- Financial Data Schedule. 99 -- None.
- --------------- * Incorporated by reference from a prior filing as indicated. + Management contract or compensatory plan or arrangement. UNDERTAKING GroupMAC has not filed with this report copies of certain instruments defining the rights of holders of long-term debt of GroupMAC and its subsidiaries. GroupMAC agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request. (b) Reports on Form 8-K: On October 28, 1998, GroupMAC filed a Current Report on Form 8-K which disclosed, under Item 2 thereof, the Company's acquisition of Continental Electrical Construction Co. ("Continental"). This report was amended on December 22, 1998, to include audited financial statements of Continental and the pro forma financial statements of the Company reflecting the acquisition of Continental. On November 4, 1998, GroupMAC filed a Current Report on Form 8-K which disclosed, under Item 5 thereof, that the Company had signed a definitive purchase agreement to purchase all of the capital stock of Trinity Contractors, Inc. ("Trinity"). On November 25, 1998, GroupMAC filed a Current Report on Form 8-K which disclosed, under Item 2 thereof, the Company's acquisition of Trinity. This report was amended on December 22, 1998, to include audited financial statements of Trinity and the pro forma financial statements of the Company reflecting the acquisition of Trinity. On December 22, 1998, GroupMAC filed a Current Report on Form 8-K which contained, in Item 5 thereof, risk factors that could affect an investment in the Company's equity securities and Management's Discussion and Analysis of Financial Condition and Results of Operations, and, under Item 7 thereof, financial statements of certain businesses acquired by the Company. 58 61 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 30th day of March, 1999. GROUP MAINTENANCE AMERICA CORP. By:/s/ J. PATRICK MILLINOR, JR. ---------------------------------- J. Patrick Millinor, Jr. Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ JAMES P. NORRIS* Chairman of the Board and March 30, 1999 - --------------------------------------------------- Director James P. Norris /s/ J. PATRICK MILLINOR, JR. Chief Executive Officer and March 30, 1999 - --------------------------------------------------- Director J. Patrick Millinor, Jr. /s/ DARREN B. MILLER Executive Vice President and March 30, 1999 - --------------------------------------------------- Chief Financial Officer Darren B. Miller (Principal Financial Officer) /s/ DANIEL W. KIPP Senior Vice President and March 30, 1999 - --------------------------------------------------- Corporate Controller (Principal Daniel W. Kipp Accounting Officer) /s/ DONALD L. LUKE President, Chief Operating March 30, 1999 - --------------------------------------------------- Officer and Director Donald L. Luke /s/ DAVID L. HENNINGER* Director March 30, 1999 - --------------------------------------------------- David L. Henninger /s/ CHESTER J. JACHIMIEC Director March 30, 1999 - --------------------------------------------------- Chester J. Jachimiec /s/ TIMOTHY JOHNSTON* Director March 30, 1999 - --------------------------------------------------- Timothy Johnston
59 62
SIGNATURE TITLE DATE --------- ----- ---- /s/ ANDREW J. KELLY* Director March 30, 1999 - --------------------------------------------------- Andrew J. Kelly /s/ THOMAS B. MCDADE* Director March 30, 1999 - --------------------------------------------------- Thomas B. McDade /s/ ROBERT MUNSON, III* Director March 30, 1999 - --------------------------------------------------- Robert Munson, III /s/ FREDRIC J. SIGMUND* Director March 30, 1999 - --------------------------------------------------- Fredric J. Sigmund /s/ JOHN M. SULLIVAN* Director March 30, 1999 - --------------------------------------------------- John M. Sullivan /s/ JAMES D. WEAVER* Director March 30, 1999 - --------------------------------------------------- James D. Weaver *By: /s/ RANDOLPH W. BRYANT --------------------------------------------- Randolph W. Bryant Attorney-in-fact
60 63 EXHIBIT INDEX
NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 2 -- None 3.1* -- Articles of Incorporation of the Company, as amended (Exhibit 3.1 to Registration Statement No. 333-34067). 3.2 -- By-laws of the Company, as amended. 4.1 -- Indenture dated as of January 22, 1999, between Group Maintenance America Corp., the subsidiaries named therein and State Street Bank and Trust Company, as trustee. 4.2 -- First Supplemental Indenture dated March 22, 1999, between Group Maintenance America Corp., the subsidiaries named therein and State Street Bank and Trust Company, as Trustee. 9 -- None 10.1*+ -- Group Maintenance America Corp. 1997 Stock Awards Plan (Exhibit 10.1 to Registration Statement No. 333-34067). 10.2*+ -- Group Maintenance America Corp. 1997 Stock Option Plan (Exhibit 10.2 to Registration Statement No. 333-34067). 10.3+ -- Form of Employment Agreement between Group Maintenance America Corp. and James P. Norris. 10.4+ -- Form of Employment Agreement between Group Maintenance America Corp. and J. Patrick Millinor, Jr. 10.5+ -- Form of Employment Agreement between Group Maintenance America Corp. and Donald L. Luke. 10.6*+ -- Form of Employment Agreement between Group Maintenance America Corp. and Timothy Johnston (Exhibit 10.32 to Registration Statement No. 333-34067). 10.7+ -- Form of Employment Agreement between Group Maintenance America Corp. and Ronald D. Bryant. 10.8 -- Credit Agreement among Group Maintenance America Corp., the Subsidiaries listed as Guarantors, Chase Bank of Texas, National Association, and the signatory banks, dated as of October 15, 1998. 10.9* -- Agreement and Plan of Exchange by and among Group Maintenance America Corp. and the Holders of a Majority of the Outstanding Common Stock of Airtron, Inc., dated April 30, 1997 (Exhibit 10.3 to Registration Statement No. 333-34067).(Confidential information has been omitted from this document and has been filed separately with the Commission.) 11 -- None. 12 -- Statement re: Computation of Ratio Earnings to Fixed Charges. 13 -- None. 16 -- None. 18 -- None. 21 -- Subsidiaries of Group Maintenance America Corp. as of December 31, 1998. 22 -- None. 23 -- Consent of KPMG LLP. 24 -- Powers of Attorney 27 -- Financial Data Schedule. 99 -- None.
- --------------- * Incorporated by reference from a prior filing as indicated. + Management contract or compensatory plan or arrangement. EX-3.2 2 BY-LAWS OF THE COMPANY 1 EXHIBIT 3.2 BYLAWS OF GROUP MAINTENANCE AMERICA CORP. As amended November 19, 1998 2
TABLE OF CONTENTS ARTICLE 1. Offices....................................................1 Section 1.1 Principal Office...........................................1 Section 1.2 Registered Office..........................................1 Section 1.3 Other Offices..............................................1 ARTICLE 2. Shareholders Meetings......................................1 Section 2.1 Annual Meeting.............................................1 Section 2.2 Special Meetings...........................................1 Section 2.3 Notices of Meetings and Adjourned Meetings.................2 Section 2.4 Notice of Shareholder Business and Nominations.............2 Section 2.5 Voting Lists...............................................5 Section 2.6 Quorum.....................................................5 Section 2.7 Chairman of Shareholder Meetings...........................5 Section 2.8 Voting.....................................................5 Section 2.9 Voting of Shares by Certain Holders........................6 Section 2.10 Closing of Transfer Records or Fixing of Record Date.......6 Section 2.11 Action by Written Consent..................................8 Section 2.12 Authorization of Proxies...................................8 Section 2.13 Inspectors and Voting Procedures...........................8 ARTICLE 3. Directors..................................................9 Section 3.1 Management.................................................9 Section 3.2 Number and Term............................................9 Section 3.3 Quorum and Manner of Action................................9 Section 3.4 Vacancies..................................................9 Section 3.5 Resignations..............................................10 Section 3.6 Removals..................................................10 Section 3.7 Annual Meetings...........................................10 Section 3.8 Regular Meetings..........................................10 Section 3.9 Special Meetings..........................................10 Section 3.10 Organization of Meetings..................................11 Section 3.11 Place of Meetings.........................................11 Section 3.12 Compensation of Directors.................................11 Section 3.13 Action by Unanimous Written Consent.......................11 Section 3.14 Participation in Meetings by Telephone....................11 Section 3.15 Nominations for Director..................................12
3 ARTICLE 4. Committees of the Board...................................12 Section 4.1 Membership and Authorities................................12 Section 4.2 Minutes...................................................12 Section 4.3 Vacancies.................................................12 Section 4.4 Telephone Meetings........................................13 Section 4.5 Action Without Meeting....................................13 ARTICLE 5. Officers..................................................13 Section 5.1 Number and Title..........................................13 Section 5.2 Term of Office; Vacancies.................................13 Section 5.3 Removal of Elected officers...............................14 Section 5.4 Resignations..............................................14 Section 5.5 The Chairman of the Board.................................14 Section 5.6 Chief Executive Officer...................................14 Section 5.7 President.................................................14 Section 5.8 Vice Presidents...........................................15 Section 5.9 Secretary.................................................15 Section 5.10 Assistant Secretaries.....................................15 Section 5.11 Treasurer or Chief Financial Officer......................15 Section 5.12 Assistant Treasurers......................................16 Section 5.13 Subordinate Officers......................................16 Section 5.14 Salaries and Compensation.................................16 ARTICLE 6. Indemnification...........................................16 ARTICLE 7. Capital Stock.............................................17 Section 7.1 Certificates of Stock.....................................17 Section 7.2 Lost Certificates.........................................18 Section 7.3. Dividends. ...............................................18 Section 7.4. Registered Shareholders...................................18 Section 7.5. Transfer of Stock. .......................................19 ARTICLE 8. Miscellaneous Provisions..................................19 Section 8.1. Corporate Seal. ..........................................19 Section 8.2. Fiscal Year...............................................19 Section 8.3. Checks, Drafts, Notes. ...................................19 Section 8.4. Notice and Waiver of Notice...............................19 Section 8.5. Examination of Books and Records..........................20 Section 8.6. Voting Upon Shares Held by the Corporation. ..............20 ARTICLE 9. Amendments................................................20
4 BYLAWS OF GROUP MAINTENANCE AMERICA CORP. ARTICLE 1. OFFICES Section 1.1 Principal Office. The principal office of the Corporation shall be in the City of Houston, Texas. Section 1.2 Registered Office. The registered office of the Corporation required to be maintained in the State of Texas by the Texas Business Corporation Act (the "TBCA") may be, but need not be, identical with the Corporation's principal office, and the address of the registered office may be changed from time to time by the Board of Directors. Section 1.3 Other Offices. The Corporation may also have offices at such other places both within and without the State of Texas as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE 2. SHAREHOLDERS MEETINGS Section 2.1 Annual Meeting. The annual meeting of the holders of shares of each class or series of stock as are entitled to notice thereof and to vote at such meeting pursuant to applicable law and the Corporation's Articles of Incorporation for the purpose of electing directors and transacting such other proper business as may come before it shall be held in each year, at such time, on such day and at such place, within or without the State of Texas, as may be designated by the Board of Directors. Section 2.2 Special Meetings. In addition to such special meetings as are provided by law or the Corporation's Articles of Incorporation, special meetings of the holders of any class or series or of all classes or series of the Corporation's stock for any purpose or purposes, may be called at any time by (i) the Chairman of 5 the Board, the Chief Executive Officer, the President or the Board of Directors or (ii) the holders of at least 50% of all the shares entitled to vote at such special meeting and may be held on such day, at such time and at such place, within or without the State of Texas, as shall be designated by the person or persons calling such meeting. Section 2.3 Notices of Meetings and Adjourned Meetings. Except as otherwise provided by law or by the Corporation's Articles of Incorporation, written or printed notice of any meeting of Shareholders (i) shall be given either by personal delivery or by mail to each Shareholder of record entitled to vote at such meeting, (ii) shall be in such form as approved by the Board of Directors, and (iii) shall state the date, place and hour of the meeting, and, in the case of a special meeting, the purpose for which the meeting is called. Unless otherwise provided by law or by the Corporation's Articles of Incorporation, such written notice shall be given not less than ten nor more than 60 days before the date of the meeting. Except when a Shareholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened, presence in person or by proxy of a Shareholder shall constitute a waiver of notice of such meeting. Further, a written waiver of any notice required by law or by these Bylaws, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Except as otherwise provided by law or by the Corporation's Articles of Incorporation, the business that may be transacted at any special meeting of the Shareholders shall be limited to and consist of the purpose or purposes stated in such notice. If a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the adjournment is for more than 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 Shareholder of record entitled to vote at the meeting. Section 2.4 Notice of Shareholder Business and Nominations. (a) Annual Meetings of Shareholders. (1) Nominations of persons for election to the Board of Directors and the proposal of business to be considered by the Shareholders may be made at an annual meeting of Shareholders (A) pursuant to the Corporation's notice of meeting, (B) by or at the direction of the Board of Directors, (C) by any nominating committee or person appointed by the Board or (D) by any Shareholder who was a Shareholder of record at the time of giving of notice provided for in this Section, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section. (2) For nominations or other business to be properly brought before an annual meeting by a Shareholder pursuant to Section 2.4(a)(1)(D), the Shareholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for Shareholder action. To be timely, a Shareholder's 2 6 notice shall be delivered to the Secretary at the principal office of the Corporation not later than the close of business on the 120th day nor earlier than the close of business on the 150th day prior to the first anniversary of the mailing date of the preceding year's proxy statement (the "Mailing Date"); provided, however, that in the event that the Mailing Date is more than 30 days before or more than 60 days after the anniversary of the prior year's Mailing Date, notice by the Shareholder to be timely must be so delivered not earlier than the close of business on the 90th day prior to such Mailing Date and not later than the close of business on the later of the 60th day prior to such Mailing Date or the tenth day following the day on which public announcement of the date of the Corporation's annual meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a Shareholder's notice as described above. Such Shareholder's notice shall set forth: (A) as to each person whom the Shareholder proposes to nominate for election or reelection as a Director all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); (B) as to any other business that the Shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such Shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) whose behalf the nomination or proposal is made (i) the name and address of such Shareholder, as they appear on the Corporation's books, and of such beneficial owner, (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such Shareholder and such beneficial owner, and (iii) whether the proponent intends (or is part of a group which intends) to solicit proxies from other Shareholders in support of such nomination or proposal. (3) Notwithstanding anything in the second sentence of Section 2.4(a)(2) to the contrary, in the event that the number of Directors to be elected to the Board of Directors is increased and there is no public announcement by the Corporation naming all of the nominees for Director or specifying the size of the increased Board of Directors at least 70 days prior to the first anniversary of the preceding year's annual meeting, a Shareholder's notice required by this Section shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the Corporation. 3 7 (b) Special Meetings of Shareholders. Only such business shall be conducted at a special meeting of Shareholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of Shareholders at which Directors are to be elected pursuant to such notice of meeting (a) by or at the direction of the Board of Directors or (b) provided that the Board of Directors has determined that Directors shall be elected at such meeting, by any Shareholder who is a Shareholder of record at the time of giving of notice provided for in this Bylaw, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw. In the event the Corporation calls a special meeting of Shareholders for the purpose of electing one or more Directors to the Board of Directors, any such Shareholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation's notice of meeting, if the Shareholder's notice required by Section 2(a)(2) shall be delivered to the Secretary at the principal office of the Corporation not earlier than the close of business on the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a Shareholder's notice as described above. (c) General. (1) Only such persons who are nominated in accordance with the procedures set forth in this Section 2.4 shall be eligible to serve as Directors and only such business shall be conducted at a meeting of Shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.4. Except as otherwise provided by applicable law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 2.4 and, if any proposed nomination or business is not in compliance with this Section 2.4, to declare that such defective proposal or nomination shall be disregarded. (2) For purposes of this Section 2.4, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this Section 2.4, a Shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.4. Nothing in this Section 2.4 shall be deemed to affect any rights (i) of Shareholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange 4 8 Act; or (ii) of the holders of any series of preferred stock to elect Directors under specified circumstances. Section 2.5 Voting Lists. The officer or agent having charge of the share transfer books for shares of the Corporation shall make, at least ten days before each meeting of Shareholders, a complete list of Shareholders entitled to vote at meetings or any adjournments thereof, arranged in alphabetical order, with the address of and the number of shares held by each, in accordance with applicable law and shall make same available prior to and during each Shareholders' meeting for inspection by the Corporation's Shareholders as required by law. The Corporation's original share transfer books shall be prima facie evidence as to who are the Shareholders entitled to examine such list or transfer books or to vote at any meeting of Shareholders. Section 2.6 Quorum. Except as otherwise provided by law or by the Corporation's Articles of Incorporation, the holders of a majority of the Corporation's shares entitled to vote at a meeting, represented at the meeting in person or represented by proxy, without regard to class or series, shall constitute a quorum at all meetings of the Shareholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the Shareholders, the holders of a majority of the shares represented in person or by proxy at that meeting may adjourn any meeting from time to time without notice other than announcement at the meeting, except as otherwise required by these Bylaws, until such time and to such place as may be determined by a vote of the holders of a majority of the shares represented in person or by proxy at that meeting. At any such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally called. Section 2.7 Chairman of Shareholder Meetings. Each annual and special meeting of Shareholders shall be presided over by a Chairman, who shall have the exclusive authority to, among other things, determine (a) whether business and nominations have been properly brought before such meetings, (b) the order in which business and nominations properly brought before such meeting shall be considered and (c) the adjournment of meetings, whether or not a quorum is present. The Chairman of each annual and special meeting shall be the Chairman of the Board of Directors or such person as shall be appointed by the Board of Directors. The Secretary, or, in his absence, any Assistant Secretary or any person appointed by the individual presiding over the meeting, shall act as Secretary at meetings of the Shareholders. Section 2.8 Voting. Each Shareholder of record, as determined pursuant to Section 2.10, who is entitled to vote in accordance with the terms of the Corporation's Articles of Incorporation and in accordance with the provisions of these Bylaws, shall be entitled to one vote, in person or by proxy, for each share 5 9 of stock registered in his name on the books of the Corporation. Every Shareholder entitled to vote at any Shareholders' meeting may authorize another person or persons to act for him by proxy executed in writing pursuant to Section 2.12, provided that no proxy shall be valid after 11 months from the date of its execution, unless the proxy provides for a longer period. A duly executed proxy shall be revocable unless the proxy form conspicuously states that the proxy is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A Shareholder's attendance at any meeting shall not have the effect of revoking a previously granted proxy unless such Shareholder shall in writing so notify the Secretary of the meeting prior to the voting of the proxy. Unless otherwise provided by law, no vote on the election of directors or any question brought before the meeting need be by ballot unless the chairman of the meeting shall determine that it shall be by ballot or the holders of a majority of the shares of stock present in person or by proxy and entitled to participate in such vote shall so demand. In a vote by ballot, each ballot shall state the number of shares voted and the name of the Shareholder or proxy voting. Except as otherwise provided by law, by the Corporation's Articles of Incorporation or these Bylaws, all elections of directors shall be elected by a plurality of votes cast by the holders of shares entitled to vote in the election of directors at a meeting of Shareholders at which a quorum is present. Except as otherwise provided by law or the Corporation's Articles of Incorporation, all other matters before the Shareholders shall be decided by the vote of the holders of a majority of the shares entitled to vote on that matter and represented in person or by proxy at a meeting of Shareholders at which a quorum is present. In the election of directors, votes may not be cumulated. Section 2.9 Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by an officer, agent or proxy as designated in the bylaws of such corporation, or in the absence of such designation, as the board of directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver and shares held by or under the control of a receiver may be voted by such receiver without the transfer into his name if authority to do so be contained in an appropriate order of the Court by which such receiver was appointed. A Shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Shares standing in the name of the Corporation or held by it in a fiduciary capacity shall not be voted, directly or indirectly, at any meeting, and shall not be counted in determining the total number of outstanding shares at any given time. Section 2.10 Closing of Transfer Records or Fixing of Record Date. (a) Fixing Record Dates for Matters Other than Consents to Action. The Board of Directors of the Corporation may provide that the stock transfer books be closed for a stated period not to exceed 60 days for the purpose of determining Shareholders entitled to notice of or to vote at any meeting of Shareholders or any adjournment thereof, or 6 10 Shareholders entitled to receive payment of any distribution or share dividend, or in order to make a determination of Shareholders for any other proper purpose (other than a distribution involving a purchase or redemption by the Corporation of any of its own shares). If the share transfer records are closed as set forth in this Section, the records shall be closed for at least ten days immediately preceding the meeting. In lieu of closing the share transfer records, the Board of Directors may fix in advance a date as the record date for any such determination of Shareholders, the date to be not more than 60 days, and in case of a meeting of Shareholders not less than ten days, prior to the date on which the particular action requiring determination of Shareholders is to be taken. If the share transfer records are not closed and no record date is fixed for determination of Shareholders entitled to notice of or to vote at a meeting of Shareholders, or Shareholders entitled to receive payment of a distribution or share dividend (other than a distribution involving a purchase or redemption by the Corporation of any of its own shares), the date on which notice of the meeting is mailed, or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for determination of Shareholders. When a determination of Shareholders entitled to vote at any meeting of Shareholders has been made as provided in this Section, such determination shall apply to any adjournment thereof except where the determination has been made by closing the share transfer records and the stated period of closing has expired. (b) Fixing Record Dates for Consents to Action. Unless a record date has previously been determined by the Board of Directors, whenever action by Shareholders is proposed to be taken by consent in writing without a meeting of Shareholders, the Board of Directors may fix a record date for the purpose of determining Shareholders entitled to consent to that action, which record date shall not proceed, and shall not be more than ten days after, the date on which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors and the prior action of the Board of Directors is not otherwise required by statute, the record date for determining Shareholders entitled to consent to action in writing without a meeting shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office, its principal place of business, or an officer or agent of the Corporation having custody of the books in which proceedings of meetings of Shareholders are recorded. Delivery to the Corporation's principal place of business shall be addressed to the President or the principal executive officer of the Corporation. If no record date shall have been fixed by the Board of Directors and prior action of the Board of Directors is required by statute, the record date for determining Shareholders entitled to consent to action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts a resolution taking such prior action. 7 11 Section 2.11 Action by Written Consent. Unless otherwise provided by law or the Corporation's Articles of Incorporation, any action required or permitted to be taken by the Shareholders of the Corporation may be taken without a meeting, without prior notice and without a vote, if a consent in writing setting forth the action so taken, shall have been signed by all of the Shareholders entitled to vote with respect to the action that is the subject of the consent. Except as provided above, no action shall be taken by the Shareholders by written consent. Section 2.12 Authorization of Proxies. Any Shareholder may vote either in person or by proxy executed in writing by the Shareholder. A telegram, telex, cablegram, or similar transmission by the Shareholder, or a photographic, photostatic, facsimile, or similar reproduction or a writing executed by the Shareholder, shall be treated as an execution in writing. No proxy will be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy. A proxy shall be revocable unless the proxy form conspicuously states that the proxy is irrevocable and the proxy is coupled with an interest. Section 2.13 Inspectors and Voting Procedures. (a) The Corporation may, in advance of any meeting of Shareholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of Shareholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. (b) If any inspectors are elected, the inspectors shall (i) ascertain the number of shares outstanding and the voting power of each share, the number of shares represented at the meeting, the existence of a quorum, and the authority, validity and effect of proxies, (ii) count and tabulate all votes, assents and consents, and determine and announce results, and (iii) do all other acts as may be proper to conduct elections or votes with fairness to all Shareholders. The inspectors, if any are elected, may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. 8 12 ARTICLE 3. DIRECTORS Section 3.1 Management. The property, affairs and business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all powers of the Corporation and do all lawful acts and things as are not by law, by the Corporation's Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the Shareholders. Section 3.2 Number and Term. The number of directors may be fixed from time to time by resolution of the Board of Directors adopted by the affirmative vote of a majority of the entire Board of Directors, but shall consist of not less than nine members nor more than 18 members. Directors need not be Shareholders. No decrease in the number of directors shall have the effect of shortening the term of office of any incumbent director. Section 3.3 Quorum and Manner of Action. At all meetings of the Board of Directors a majority of the total number of directors holding office shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law, by the Corporation's Articles of Incorporation or these Bylaws. If at any meeting of the Board of Directors there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained, and no further notice thereof need be given other than by announcement at such adjourned meeting. Attendance by a director at a meeting shall constitute a waiver of notice of such meeting except where a director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 3.4 Vacancies. Except as otherwise provided by law or the Corporation's Articles of Incorporation, in the case of any vacancy in the Board of Directors, however created, the vacancy or vacancies may be filled by majority vote of the directors remaining on the whole Board of Directors although less than a quorum, or by a sole remaining director. In the event one or more directors shall resign, effective at a future date, such vacancy or vacancies shall be filled by election at an annual or special meeting of Shareholders called for that purpose, or by a majority of the directors who will remain on the whole Board of Directors, although less than a quorum, or by a sole remaining director. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Any directorship to be filled by reason of an increase in the number of Directors shall be filled by the 9 13 Board of Directors for a term of office continuing only until the next election of one or more directors by the Shareholders; provided that the Board of Directors may not fill more than two such directorships during the period between any two successive annual meetings of Shareholders. Section 3.5 Resignations. A director may resign at any time upon written notice of resignation to the Corporation. Any resignation shall be effective immediately unless a certain effective date is specified therein, in which event it will be effective upon such date and acceptance of any resignation shall not be necessary to make it effective. Section 3.6 Removals. Any director or the entire Board of Directors may be removed, only for cause, and another person or persons may be elected to serve for the remainder of his or their term, by the holders of a majority of the shares of the Corporation entitled to vote in the election of directors. In case any vacancy so created shall not be filled by the Shareholders at such meeting, such vacancy may be filled by the directors as provided in Section 3.4. Section 3.7 Annual Meetings. The annual meeting of the Board of Directors shall be held, if a quorum be present, immediately following each annual meeting of the Shareholders at the place such meeting of Shareholders took place, for the purpose of organization and transaction of any business that might be transacted at a regular meeting of the Board of Directors, and no notice of such meeting shall be necessary. If a quorum is not present, such annual meeting may be held at any other time or place that may be specified in a notice given in the manner provided in Section 3.9 for special meetings of the Board of Directors or in a waiver of notice thereof. Section 3.8 Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such places and times as shall be determined from time to time by resolution of the Board of Directors. Except as otherwise provided by law, any business may be transacted at any regular meeting of the Board of Directors. Section 3.9 Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the Chief Executive Officer, the President, or by any director. Notice of any special meeting, effective upon delivery in accordance herewith, shall be given at least two days prior thereto by written notice delivered personally, or by written notice mailed or sent by facsimile transmission to each director at his business address. If mailed, the notice shall be deemed to be delivered three days following its deposit in the United States mail so addressed, with postage thereon prepaid. If given by 10 14 facsimile transmission, the notice shall be deemed to be delivered when sent and confirmed electronically. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any special meetings need be specified in any notice or written waiver of notice unless so required by the Corporation's Articles of Incorporation or by these Bylaws. Any and all business may be transacted at a special meeting, unless limited by law, the Corporation's Articles of Incorporation or by these Bylaws. Section 3.10 Organization of Meetings. At any meeting of the Board of Directors, business shall be transacted in such order and manner as such Board of Directors may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present at any meeting at which there is a quorum, except as otherwise provided by the Corporation's Articles of Incorporation, these Bylaws or by law. Section 3.11 Place of Meetings. The Board of Directors may hold its meetings and have one or more offices, and keep the books of the Corporation, outside the State of Texas, at any office or offices of the Corporation, or at any other place as it may from time to time by resolution determine. Section 3.12 Compensation of Directors. Directors shall not receive any stated salary for their services as directors, but by resolution of the Board of Directors a fixed honorarium or fees and expenses, if any, of attendance may be allowed for attendance at each meeting. Nothing herein contained shall be construed to 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 such committee meetings. Section 3.13 Action by Unanimous Written Consent. Unless otherwise restricted by law, the Corporation's Articles 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 of such 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 the committee. Section 3.14 Participation in Meetings by Telephone. Unless otherwise restricted by the Corporation's Articles of Incorporation or these Bylaws, members of the Board of Directors or of any committee thereof may participate in a meeting of such 11 15 Board of Directors or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting in such manner shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the grounds that the meeting is not lawfully called or convened. Section 3.15 Nominations for Director. Nominations of persons for election to the Board of the corporation at the Annual Meeting of Stockholders, other than by the Board or a nominating committee designated by the Board, must be made in compliance with Section 2.4(a)(1)(C). ARTICLE 4. COMMITTEES OF THE BOARD Section 4.1 Membership and Authorities. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board of Directors, designate one or more directors to constitute such committees as the Board of Directors may determine, each of which committees to the extent provided in such resolution or resolutions or in these Bylaws, shall have and may exercise, subject to the provisions of Article 2.36 of the TBCA, all the powers of the Board of Directors in the management of the business and affairs of the Corporation, except in those cases where the authority of the Board of Directors is specifically denied to such committee or committees by law, the Corporation's Articles of Incorporation or these Bylaws, and may authorize the seal of the Corporation to be affixed to all papers that may require such seal. The designation of any committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed upon it or him by law. Section 4.2 Minutes. Each committee designated by the Board of Directors shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. Section 4.3 Vacancies. The Board of Directors may designate one or more of its members as alternate members of any committee who may replace any absent or disqualified member at any meeting of such committee. If no alternate members have been appointed, the committee member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting 12 16 in the place of any absent or disqualified member. The Board of Directors shall have the power at any time to fill vacancies in, to change the membership of, and to dissolve, any committee. Section 4.4 Telephone Meetings. Members of any committee designated by the Board of Directors may participate in or hold a meeting by use of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this Section 4.4 shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 4.5 Action Without Meeting. Any action required or permitted to be taken at a meeting of any committee designated by the Board of Directors may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the members of the committee and filed with the minutes of the committee proceedings. Such consent shall have the same force and effect as a unanimous vote at a meeting. ARTICLE 5. OFFICERS Section 5.1 Number and Title. The officers of the Corporation shall be a Chairman of the Board; a Chief Executive Officer; a President; one or more Executive Vice Presidents, Senior Vice Presidents and Vice Presidents; a Secretary; a Treasurer; and such other officers as the Board of Directors may deem to be necessary. Any two or more offices may be held by the same person. If any two or more offices are held by the same person, such person shall be entitled to exercise the rights and duties of each office as set forth hereinafter. If the holder of two or more corporate offices is required to sign any corporate documents, instruments, certificates, agreements, or any other documents on the Corporation's behalf, then the signature of such person in any one of his capacities shall be sufficient to bind the Corporation. Section 5.2 Term of Office; Vacancies. So far as is practicable, all officers shall be elected by the Board of Directors at the annual meeting of the Board of Directors each year and shall hold office until the next such meeting of the Board of Directors in the subsequent year and until their respective successors are elected and qualified or until their earlier resignation or removal. If any vacancy shall occur in any office, the 13 17 Board of Directors may elect or appoint a successor to fill such vacancy for the remainder of the term. Section 5.3 Removal of Elected Officers. Any officer may be removed at any time, with or without cause, by affirmative vote of a majority of the whole Board of Directors, at any regular meeting or at any special meeting called for such purpose. Section 5.4 Resignations. Any officer may resign at any time upon written notice of resignation to the President, Secretary or Board of Directors of the Corporation. Any resignation shall be effective immediately unless a date certain is specified for it to take effect, in which event it shall be effective upon such date, and acceptance of any resignation shall not be necessary to make it effective, irrespective of whether the resignation is tendered subject to such acceptance. Section 5.5 The Chairman of the Board. The Chairman of the Board, if one shall be elected, shall preside at all meetings of the Shareholders and Board of Directors, unless otherwise determined by the Board of Directors. In addition, the Chairman of the Board shall perform whatever duties and shall exercise all powers that are given to him by the Board of Directors. Section 5.6 Chief Executive Officer. The Chief Executive Officer shall be the most senior executive officer of the Corporation; shall (in the absence of the Chairman of the Board, if one be elected) preside at meetings of the Shareholders and Board of Directors; shall have general and active management of business of the Corporation; shall implement the general directives, plans and policies formulated by the Board of Directors; and shall further have such duties, responsibilities and authorities as may be assigned to him by the Board of Directors. He may sign, with any other proper officer, certificates for shares of the Corporation and any deeds, bonds, mortgages, contracts and other documents which the Board of Directors has authorized to be executed, except where required by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors or these Bylaws, to some other officer or agent of the corporation. In the absence of the Chief Executive Officer, his duties shall be performed and his authority may be exercised by the President of the Corporation. Section 5.7 President. The President shall, after the Chief Executive Officer, be the most senior executive officer of the corporation and shall, subject to the authority of the Chief Executive Officer, implement the 14 18 general plans and directives of the Board of Directors and perform such other duties as may be assigned to him by the Board of Directors. Section 5.8 Vice Presidents. The several Vice Presidents, including Executive Vice Presidents and Senior Vice Presidents, shall have such powers and duties as may be assigned to them by these Bylaws and as may from time to time be assigned to them by the Board of Directors and may sign, with any other proper officer, certificates for shares of the Corporation. Section 5.9 Secretary. The Secretary, if available, shall attend all meetings of the Board of Directors and all meetings of the Shareholders and record the proceedings of the meetings in a book to be kept for that purpose and shall perform like duties for any committee of the Board of Directors as shall designate him to serve. He shall give, or cause to be given, notice of all meetings of the Shareholders and meetings of the Board of Directors and committees thereof and shall perform such other duties incident to the office of secretary or as may be prescribed by the Board of Directors or the President, under whose supervision he shall be. He shall have custody of the corporate seal of the Corporation and he, or any Assistant Secretary, or any other person whom the Board of Directors may designate, 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 any Assistant Secretary or by the signature of such other person so affixing such seal. Section 5.10 Assistant Secretaries. Each Assistant Secretary shall have the usual powers and duties pertaining to his office, together with such other powers and duties as may be assigned to him by the Board of Directors, the President or the Secretary. The Assistant Secretary or such other person as may be designated by the President shall exercise the powers of the Secretary during that officer's absence or inability to act. Section 5.11 Treasurer or Chief Financial Officer. The Treasurer or Chief Financial Officer shall have the custody of and be responsible for the corporate funds and securities, shall keep full and separate accounts of receipts and disbursements in the books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and 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 or Chief Financial Officer and of the financial condition of the Corporation and he shall perform all other duties incident to the position of Treasurer or Chief Financial Officer, or as may be prescribed by the Board of Directors or the President. If required 15 19 by the Board of Directors, he shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 5.12 Assistant Treasurers. Each Assistant Treasurer shall have the usual powers and duties pertaining to his office, together with such other powers and duties as may be assigned to him by the Board of Directors, the President or the Treasurer. The Assistant Treasurer or such other person designated by the President shall exercise the power of the Treasurer during that officer's absence or inability to act. Section 5.13 Subordinate Officers. The Board of Directors may (i) appoint such other subordinate officers and agents as it shall deem necessary who shall hold their offices for such terms, have such authority and perform such duties as the Board of Directors may from time to time determine, or (ii) delegate to any committee or officer the power to appoint any such subordinate officers or agents. Section 5.14 Salaries and Compensation. The salary or other compensation of officers shall be fixed from time to time by the Board of Directors. The Board of Directors may delegate to any committee or officer the power to fix from time to time the salary or other compensation of officers. ARTICLE 6. INDEMNIFICATION (a) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, any appeal in such action, suit or proceeding, and any inquiry or investigation that would lead to such action, suit or proceeding (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the TBCA, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader 16 20 indemnification rights than permitted prior thereto), against all judgments, fines, penalties (including excise tax and similar taxes), settlements, and reasonable expenses actually incurred by such indemnitee in connection therewith. The right to indemnification conferred in this Section shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the TBCA requires, an advancement of expenses incurred by an indemnitee shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by that such indemnitee is not entitled to be indemnified for such expenses under this Section or otherwise. (b) Insurance. The Corporation may purchase and maintain insurance, at its expense, on behalf of any indemnitee against any liability asserted against him and incurred by him in such a capacity or arising out of his status as a representative of the Corporation, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the TBCA. (c) Indemnity of Employees and Agents of the Corporation. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article or as otherwise permitted under the TBCA with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. ARTICLE 7. CAPITAL STOCK Section 7.1 Certificates of Stock. Certificates of stock shall be issued to each Shareholder certifying the number of shares owned by him in the Corporation and shall be in a form not inconsistent with the Articles of Incorporation and as approved by the Board of Directors. The certificates shall be signed by the Chairman of the Board, the Chief Executive Officer, the President or a Vice President and by the Secretary or an Assistant Secretary, or the Treasurer, Chief Financial Officer or an Assistant Treasurer and may be sealed with the seal of the Corporation or a facsimile thereof. Any or all of the signatures 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 ceases to hold such position, such certificate may nevertheless be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, each certificate representing shares shall conspicuously set forth in full or summarize on the face or back of the certificate either (i) the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof to the 17 21 extent they have been filed and determined and the authority of the Board of Directors to fix and determine the designations, preferences, limitations and relative rights of subsequent series, or (ii) a summary thereof; provided that, except as otherwise provided by statute, 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 such information is set forth in the Articles of Incorporation on file in the office of the Secretary of State of the State of Texas, and the Corporation will furnish without charge to each Shareholder who so requests the powers, 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. Section 7.2 Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the owner of such certificate, or his legal representative. When authorizing the issuance of a new certificate, the Board of Directors may in its discretion, as a condition precedent to the issuance thereof, require the owner, or his legal representative, to give a bond in such form and substance with such surety as it may direct, to indemnify the Corporation against any claim that may be made on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate. Section 7.3. Dividends. Subject to Article 2.38 of the TBCA and the provisions of the Corporation's Articles of Incorporation, if any, and except as otherwise provided by law, the directors may declare dividends upon the capital stock of the Corporation as and when they deem it to be expedient. Such dividends may be paid in cash, in property or in shares of the Corporation's capital stock. Before declaring any dividend there may be set apart out of the funds of the Corporation available for dividends, such sum or sums as the directors from time to time in their discretion determine to be proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends, or for such other purposes as the directors shall determine to be in the best interest of the Corporation and the directors may modify or abolish any such reserve in the manner in which it was created. Section 7.4. Registered Shareholders. Except as expressly provided by law, the Corporation's Articles of Incorporation or these Bylaws, the Corporation shall be entitled to treat registered Shareholders as the only holders and owners in fact of the shares standing in their respective names and the Corporation shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, regardless of whether it shall have express or other notice thereof. 18 22 Section 7.5. Transfer of Stock. Transfers of shares of the capital stock of the Corporation shall be made only on the books of the Corporation by the registered owners thereof, or by their legal representatives or their duly authorized attorneys. Upon any such transfers the old certificates shall be surrendered to the Corporation by the delivery thereof to the person in charge of the stock transfer books and ledgers, by whom they shall be canceled and new certificates shall thereupon be issued. ARTICLE 8. MISCELLANEOUS PROVISIONS Section 8.1. Corporate Seal. If one is adopted, the corporate seal shall have inscribed thereon the name of the Corporation and shall be in such form as may be approved by the Board of Directors. Such seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced. Section 8.2. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. Section 8.3. Checks, Drafts, Notes. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation, and in such manner as shall from time to time be determined by resolution (whether general or special) of the Board of Directors or may be prescribed by any officer or officers, or any officer and agent jointly, thereunto duly authorized by the Board of Directors. Section 8.4. Notice and Waiver of Notice. Whenever notice is required to be given to any director or Shareholder under the provisions of applicable law, the Corporation's Articles of Incorporation or these Bylaws, such notice shall be in writing and delivered whether (i) personally, or (ii) by registered or certified mail, or (iii) by telegram, telecopy, or similar facsimile means (delivered during the recipient's regular business hours). Such notice shall be sent to such director or Shareholder at the address or telecopy number as it appears on the records of the Corporation, unless prior to the sending of such notice he has designated, in a written request to the Secretary of the Corporation, another address or telecopy number to which notices are to be sent. Notices shall be deemed given when received, if sent by telegram, telex, telecopy or similar facsimile means (confirmation of such receipt by confirmed facsimile transmission being deemed receipt of communications sent by telex, telecopy or other facsimile means); and when delivered and receipted for (or upon the date of attempted delivery 19 23 where delivery is refused), if hand delivered, sent by express courier or delivery service, or sent by certified or registered mail. Whenever notice is required to be given under any provision of law, the Corporation's Articles of Incorporation or these Bylaws, a waiver thereof in writing, by telegraph, cable or other form of recorded communication, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Shareholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the Corporation's Articles of Incorporation or these Bylaws. Section 8.5. Examination of Books and Records. The Board of Directors shall determine from time to time whether, and if allowed, when and under what conditions and regulations the accounts and books of the Corporation (except such as may by statute be specifically opened to inspection) or any of them shall be open to inspection by the Shareholders, and the Shareholders' rights in this respect are and shall be restricted and limited accordingly. Section 8.6. Voting Upon Shares Held by the Corporation. Unless otherwise provided by law or by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President, acting on behalf of the Corporation, shall have full power and authority to attend and to act and to vote at any meeting of shareholders of any corporation, partnership, venture or limited liability company in which the Corporation may hold stock or other equity interest and, at any such meeting, shall possess and may exercise any and all of the rights and powers incident to the ownership of such equity interest which, as the owner thereof, the Corporation might have possessed and exercised, if present. The Board of Directors by resolution from time to time may confer like powers upon any person or persons. ARTICLE 9. AMENDMENTS Except as expressly provided in the Corporation's Articles of Incorporation, the directors, by the affirmative vote of a majority of the entire Board of Directors and without the assent or vote of the Shareholders, may at any meeting, provided the substance of the proposed amendment shall have been stated in the notice of the meeting, make, repeal, alter, amend or rescind any of these Bylaws or to adopt new Bylaws. The Shareholders shall not make, repeal, alter, amend or rescind any of the provisions of these Bylaws except by the holders of not less than a majority of the shares of stock of the Corporation entitled to vote in the election of directors. 20 EX-4.1 3 INDENTURE - STATE STREET BANK & TRUST COMPANY 1 EXHIBIT 4.1 =============================================================================== GROUP MAINTENANCE AMERICA CORP. as the Company and THE SUBSIDIARIES NAMED HEREIN as Guarantors to STATE STREET BANK AND TRUST COMPANY as Trustee ----------------------- INDENTURE Dated as of January 22, 1999 ----------------------- up to $200,000,000 9 3/4% Senior Subordinated Notes due 2009, Series A 9 3/4% Senior Subordinated Notes due 2009, Series B =============================================================================== 2 CROSS-REFERENCE TABLE
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
- -------------------------- Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture N.A. means Not Applicable * Definition of "Outstanding." 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..........................32 SECTION 1.3. Form of Documents Delivered to Trustee........................33 SECTION 1.4. Acts of Holders; Record Dates.................................33 SECTION 1.5. Notices to Trustee, the Company or a Guarantor................36 SECTION 1.6. Notice to Holders; Waiver.....................................37 SECTION 1.7. Conflict with Trust Indenture Act.............................37 SECTION 1.8. Effect of Headings and Table of Contents......................37 SECTION 1.9. Successors and Assigns........................................37 SECTION 1.10. Separability Clause...........................................38 SECTION 1.11. Benefits of Indenture.........................................38 SECTION 1.12. Governing Law.................................................38 SECTION 1.13. Legal Holidays................................................38 ARTICLE II Security Forms SECTION 2.1. Forms Generally...............................................38 ARTICLE III The Securities SECTION 3.1. Title and Terms...............................................39 SECTION 3.2. Denominations.................................................40 SECTION 3.3. Execution, Authentication, Delivery and Dating................40 SECTION 3.4. Temporary Securities..........................................41 SECTION 3.5. Registration, Registration of Transfer and Exchange...........42 SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Securities..............43 SECTION 3.7. Payment of Interest; Rights Preserved.........................44 SECTION 3.8. Persons Deemed Owners.........................................45 SECTION 3.9. Cancellation..................................................45
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Page ---- SECTION 3.10. Computation of Interest.......................................46 SECTION 3.11. CUSIP and CINS Numbers........................................46 SECTION 3.12. Deposits of Monies............................................46 SECTION 3.13. Book-Entry Provisions for Global Securities...................46 SECTION 3.14. Special Transfer Provisions...................................47 ARTICLE IV Satisfaction and Discharge SECTION 4.1. Satisfaction and Discharge of Indenture.......................51 SECTION 4.2. Application of Trust Money....................................52 ARTICLE V Remedies SECTION 5.1. Events of Default.............................................53 SECTION 5.2. Acceleration of Maturity; Rescission and Annulment............55 SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee.......................................................56 SECTION 5.4. Trustee May File Proofs of Claim..............................57 SECTION 5.5. Trustee May Enforce Claims Without Possession of Securities...58 SECTION 5.6. Application of Money Collected................................58 SECTION 5.7. Limitation on Suits...........................................59 SECTION 5.10. Unconditional Right of Holders to Receive Principal, Premium and Interest..................................................60 SECTION 5.11. Restoration of Rights and Remedies............................60 SECTION 5.12. Rights and Remedies Cumulative................................60 SECTION 5.13. Delay or Omission Not Waiver..................................60 SECTION 5.14. Control by Holders............................................61 SECTION 5.15. Waiver of Past Defaults.......................................61 SECTION 5.16. Undertaking for Costs.........................................61 SECTION 5.17. Waiver of Stay or Extension Laws..............................62 ARTICLE VI The Trustee SECTION 6.1. Certain Duties and Responsibilities...........................62 SECTION 6.2. Notice of Defaults............................................63 SECTION 6.3. Certain Rights of Trustee.....................................64
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Page ---- SECTION 6.4. Not Responsible for Recitals or Issuance of Securities........65 SECTION 6.5. May Hold Securities...........................................65 SECTION 6.6. Money Held in Trust...........................................66 SECTION 6.7. Compensation and Reimbursement................................66 SECTION 6.8. Conflicting Interests.........................................67 SECTION 6.9. Corporate Trustee Required; Eligibility.......................67 SECTION 6.10. Resignation and Removal; Appointment of Successor.............67 SECTION 6.11. Acceptance of Appointment by Successor........................69 SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business...70 SECTION 6.13. Preferential Collection of Claims Against the Company or a Guarantor.....................................................70 SECTION 6.14. Appointment of Authenticating Agent...........................70 ARTICLE VII Holders' Lists and Reports by Trustee and Company SECTION 7.1. Company to Furnish Trustee Names and Addresses of Holders.....72 SECTION 7.2. Preservation of Information; Communications to Holders........72 SECTION 7.3. Reports by Trustee............................................73 SECTION 7.4. Reports by Company............................................73 ARTICLE VIII Consolidation, Merger, Conveyance, Transfer or Lease SECTION 8.1. Company or Guarantor May Consolidate, Etc. Only on Certain Terms.........................................................74 SECTION 8.2. Successor Substituted.........................................75 ARTICLE IX Amendments; Waivers; Supplemental Indentures SECTION 9.1. Amendments, Waivers and Supplemental Indentures Without Consent of Holders............................................76 SECTION 9.2. Modifications, Amendments and Supplemental Indentures with Consent of Holders............................................77 SECTION 9.3. Execution of Supplemental Indentures..........................78 SECTION 9.4. Effect of Supplemental Indentures.............................79
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Page ---- SECTION 9.5. Conformity with Trust Indenture Act...........................79 SECTION 9.6. Reference in Securities to Supplemental Indentures............79 SECTION 9.7. Waiver of Certain Covenants...................................79 SECTION 9.8. No Liability for Certain Persons..............................80 ARTICLE X Covenants SECTION 10.1. Payment of Principal, Premium and Interest....................80 SECTION 10.2. Maintenance of Office or Agency...............................80 SECTION 10.3. Money for Security Payments to be Held in Trust...............81 SECTION 10.4. Existence; Activities.........................................82 SECTION 10.5. Maintenance of Properties.....................................83 SECTION 10.6. Payment of Taxes and Other Claims.............................83 SECTION 10.7. Maintenance of Insurance......................................83 SECTION 10.8. Limitation on Indebtedness....................................84 SECTION 10.9. Limitation on Restricted Payments.............................84 SECTION 10.10. Limitation on Issuance of Preferred Stock of Restricted Subsidiaries..................................................88 SECTION 10.11. Limitation on Transactions with Affiliates....................88 SECTION 10.12. Limitation on Liens...........................................89 SECTION 10.13. Change of Control.............................................89 SECTION 10.14. Disposition of Proceeds of Asset Sales........................90 SECTION 10.15. Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries.............................93 SECTION 10.16. Limitation on Issuance of Subordinated Indebtedness...........94 SECTION 10.17. Additional Subsidiary Guarantees..............................94 SECTION 10.18. Limitation on Designations of Unrestricted Subsidiaries.......95 SECTION 10.19. Provision of Financial Information............................96 SECTION 10.20. Statement by Officers as to Default; Compliance Certificates..97 ARTICLE XI Redemption of Securities SECTION 11.1. Right of Redemption...........................................97 SECTION 11.2. Applicability of Article......................................97 SECTION 11.3. Election to Redeem; Notice to Trustee.........................97
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Page ---- SECTION 11.4. Selection by Trustee of Securities To Be Redeemed............98 SECTION 11.5. Notice of Redemption.........................................98 SECTION 11.6. Deposit of Redemption Price..................................99 SECTION 11.7. Securities Payable on Redemption Date........................99 SECTION 11.8. Securities Redeemed in Part.................................100 ARTICLE XII Defeasance and Covenant Defeasance SECTION 12.1. Company's Option To Effect Defeasance or Covenant Defeasance..................................................100 SECTION 12.2. Defeasance and Discharge....................................101 SECTION 12.3. Covenant Defeasance.........................................101 SECTION 12.4. Conditions to Defeasance or Covenant Defeasance.............102 SECTION 12.5. Deposited Money and U.S. Government Obligations To Be Held in Trust; Miscellaneous Provisions..........................104 SECTION 12.6. Reinstatement...............................................105 ARTICLE XIII Guaranty SECTION 13.1. Guaranty....................................................105 SECTION 13.2. Limitation on Liability.....................................108 SECTION 13.3. Execution and Delivery of Guarantees........................108 SECTION 13.4. Guarantors May Consolidate, Etc., on Certain Terms..........109 SECTION 13.5. Release of Guarantors.......................................109 SECTION 13.6. Successors and Assigns......................................110 SECTION 13.7. No Waiver, etc..............................................110 SECTION 13.8. Modification, etc...........................................110 SECTION 13.9. Subordination of Guarantees.................................111 ARTICLE XIV Subordination SECTION 14.1. Securities Subordinate to Senior Indebtedness and Senior to Subordinated Indebtedness...................................111 SECTION 14.2. Payment Over of Proceeds Upon Dissolution, Etc..............112 SECTION 14.3. No Payment When Designated Senior Indebtedness in Default...112
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Page ---- SECTION 14.4. Subrogation to Rights of Holders of Senior Indebtedness.....114 SECTION 14.5. Provisions Solely to Define Relative Rights.................114 SECTION 14.6. Trustee to Effectuate Subordination.........................115 SECTION 14.7. No Waiver of Subordination Provisions.......................115 SECTION 14.8. Notice to Trustee...........................................115 SECTION 14.9. Reliance on Judicial Order or Certificate of Liquidating Agent.......................................................116 SECTION 14.10. Trustee Not Fiduciary for Holders of Senior Indebtedness....116 SECTION 14.11. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights............................117 SECTION 14.12. Article Applicable to Paying Agents.........................117
- ---------------------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -vi- 9 Schedule A The Guarantors Exhibit A-1 Form of Security Exhibit A-2 Form of Series B Security Exhibit B Global Securities Legend Exhibit C Transfer Letter Exhibit D Form of Notation on Security Relating to Guaranty
10 INDENTURE, dated as of January 22, 1999, among GROUP MAINTENANCE AMERICA CORP., a corporation duly organized and existing under the laws of the State of Texas (herein called the "Company"), having its principal office at 8 Greenway Plaza, Suite 1500, Houston, Texas 77046, 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 9 3/4% Senior Subordinated Notes due 2009 (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 each Guaranty, 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: 11 (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); (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 other than Indebtedness incurred in connection with, or in contemplation of, such Asset Acquisition or such Person becoming a Subsidiary. "Act," when used with respect to any Holder, has the meaning specified in Section 1.4. "Affiliate" means, with respect to any specified Person, (i) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person, (ii) any other Person that owns, directly or indirectly, 10% or more of such specified Person's Voting Stock or (iii) any officer or director of (A) any such specified Person, (B) any Subsidiary of such specified Person or (C) any Person described in clauses (i) or (ii) above. -2- 12 "Asset Acquisition" means (a) an Investment by the Company or any Restricted Subsidiary of the Company in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Company, or shall be merged with or into the Company or any Restricted Subsidiary of the Company, or (b) the acquisition by the Company or any Restricted Subsidiary of the Company 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. "Asset Sale" means any sale, issuance, conveyance, transfer, lease (that has the effect of a disposition) or other disposition by the Company or any Restricted Subsidiary of the Company to any Person other than the Company or a Restricted Subsidiary of the Company, of (a) any Capital Stock of any Restricted Subsidiary of the Company; (b) all or substantially all of the properties and assets of any division or line of business of the Company or any Restricted Subsidiary of the Company; 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 $5,000,000, (iii) sales of accounts receivable for financing purposes, (iv) the grant in the ordinary course of business of any non-exclusive license of patents, trademarks, registrations therefor and other similar intellectual property, (v) any Lien (or foreclosure thereon) securing Indebtedness to the extent that such Lien is granted in compliance with Section 10.12 and (vi) any Restricted Payment permitted by Section 10.9. 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 of Article VIII. "Asset Sale Offer" has the meaning specified in Section 10.14. "Asset Sale Offer Price" has the meaning specified in Section 10.14. "Asset Sale Purchase Date" has the meaning specified in Section 10.14. "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. -3- 13 "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 from such date of such determination to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund requirements) of such Indebtedness and (b) the amount of each such principal payment by (ii) the sum of all such 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 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 or the city in which the corporate trust office of the Trustee is located 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 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 and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease -4- 14 prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Cash Equivalents" means, at any time, (i) any evidence of Indebtedness, maturing not more than one year after such time, issued or guaranteed by the United States Government or any agency thereof, (b) commercial paper, maturing not more than one year from the date of issue, or corporate demand notes, in each case rated at least A-1 by S&P or P-1 by Moody's, (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 commercial 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 $500,000,000, (d) any repurchase agreement entered into with any commercial banking institution of the stature referred to in clause (c) which (i) is secured by a fully perfected security interest in any obligation of the type described in any of clauses (a) through (c) and (ii) has a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such commercial banking institution thereunder, (e) investments in short term asset management accounts managed by any bank party to the New Credit Agreement (or by affiliate of any such bank) which are invested in indebtedness of any state or municipality of the United States or of the District of Columbia and which are rated under one of the two highest ratings then obtainable from S&P or by Moody's or investments of the types described in clauses (a) through (d) above, and (f) investments in funds investing primarily in investments of the types described in clauses (a) through (e) above. "Cedel" means Cedel Bank, Societe anonyme. "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 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 -5- 15 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 Section 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 all 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 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 $0.001 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 -6- 16 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 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, (i) the sum of, without duplication, the amounts for such period, taken as a single accounting period, of (a) Consolidated Net Income, (b) Consolidated Non-cash Charges, (c) Consolidated Interest Expense, (d) Consolidated Income Tax Expense (other than income tax expense (either positive or negative) attributable to extraordinary gains or losses), (e) one-fourth of Consolidated Rental Payments, and (f) if any Asset Sale or Asset Acquisition shall have occurred since the first day of any four-quarter period for which "Consolidated Cash Flow Available for Fixed Charges" is being calculated (including to the date of calculation) (A) the amount of 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 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 Acquisition, to the extent such amounts under clauses (A) and (B) would be permitted to be eliminated in a pro forma income statement prepared in accordance with Rule 11-02 of Regulation S-X, less (ii) the sum of (x) non-cash items increasing Consolidated Net Income and (y) 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 the most recent Four Quarter Period (as defined in the definition of "Consolidated Fixed Charge Coverage Ratio"). "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 -7- 17 herein as the "Four Quarter Period") to the aggregate amount of Consolidated Fixed Charges of such Person for the Four Quarter Period. In calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio", (i) 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 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 clause 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, (ii) the aggregate amount of dividends and other distributions paid or accrued during such period in respect of Redeemable Capital Stock of such Person and its Restricted Subsidiaries on a consolidated basis and (iii) one-fourth of Consolidated Rental Payments. "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) any amortization of debt 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 and (e) all accrued interest 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 -8- 18 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 extraordinary gains or losses (net of fees and expenses relating to the transaction giving rise thereto), (ii) the portion of net income of such Person and its Restricted Subsidiaries allocable to minority interests in unconsolidated Persons or to Investments in Unrestricted Subsidiaries to the extent that cash dividends or distributions have not actually been received by such Person or one of its Restricted Subsidiaries, (iii) 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, (iv) 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, (v) the net income of any Restricted 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 regulations applicable to that Restricted Subsidiary or its stockholders and (vi) any gain or loss realized as a result of the cumulative effect of a change in accounting principles. "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 expenses of such Person and its Restricted Subsidiaries reducing Consolidated Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charges constituting an extraordinary item or loss). "Consolidated Rental Payments" of any Person means, for any period, the aggregate rental obligations of such Person and its Restricted Subsidiaries (not including taxes, insurance, maintenance and similar expenses that the lessee is obligated to pay under the terms of the relevant leases), determined on a consolidated basis in accordance with GAAP, payable in respect of such period (net of income from subleases thereof, not including taxes, insurance, maintenance and similar expenses that the sublessee is obligated to pay under the -9- 19 terms of such sublease), whether or not such obligations are reflected as liabilities or commitments on a consolidated balance sheet of such Person and its Restricted Subsidiaries or in the notes thereto, excluding, however, in any event, (i) that portion of Consolidated Interest Expense of such Person representing payments by such Person or any of its Restricted Subsidiaries in respect of Capitalized Lease Obligations (net of payments to such Person or any of its Restricted Subsidiaries under subleases qualifying as capitalized lease subleases to the extent that such payments would be deducted in determining Consolidated Interest Expense) and (ii) the aggregate amount of amortization of obligations of such Person and its Restricted Subsidiaries in respect of such Capitalized Lease Obligations for such period (net of payments to such Person or any of its Restricted Subsidiaries and subleases qualifying as capitalized lease subleases to the extent that such payments could be deducted in determining such amortization amount). "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "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. "corporation" means (except in the definition of "Subsidiary") a corporation, association, company, joint-stock company or business trust. "Covenant Defeasance" has the meaning specified in Section 12.3. "Credit Facility" means one or more debt or commercial paper facilities with banks or other institutional lenders (including the New Credit Agreement) providing for revolving credit loans, term loans, receivables or inventory financing (including through the sale of receivables or inventory to such lenders or to special purpose, bankruptcy remote entities formed to borrow from such lenders against such receivables or inventory) or letters of credit, in each case together with any amendments, supplements, modifications (including by any extension of the maturity thereof), substitutions, refinancing or replacements thereof by a lender or syndicate of lenders in one or more successive transactions (including any such transaction -10- 20 that changes the amount available thereunder, replaces such agreement or document, or provides for other agents or lenders). "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "Defeasance" has the meaning specified in Section 12.2. "Depository" means The Depositary 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 Indebtedness under the New Credit Agreement and (ii) any other issue of 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." "Disinterested Member of the Board of Directors of the Company" means, with respect to any transaction or series of 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 transactions or who is an Affiliate, 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 transactions. "Distribution Compliance Period" has the meaning set forth in Section 3.14. "Equity Offering" means a sale of Common Stock of the Company net cash proceeds to the Company of at least $25,000,000. "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System. "Event of Default" has the meaning specified in Section 5.1. "Excess Proceeds" has the meaning specified in Section 10.14. -11- 21 "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Securities" has the meaning specified in the form of the Security in Exhibit A. "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 complete the transaction. Fair Market Value shall be determined by the Board of Directors of the Company in good faith. "Federal Bankruptcy Code" means Title 11, U.S. Code. "Foreign Restricted Subsidiary" means a Restricted Subsidiary which is not 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. "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 applicable at the date of the Indenture. "Global Securities" means one or more Regulation S Global Securities and 144A Global Securities. "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. The term "guarantee" used as a verb has a corresponding meaning. The term "guarantor" shall mean any Person providing a guarantee of any obligation. -12- 22 "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 Guaranty. Without limiting the generality of the foregoing, (x) "Guarantor Senior Indebtedness" shall include 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 New Credit Agreement, including, without limitation, principal of and interest on, and all fees, indemnities and expenses payable under the New Credit Agreement, and (y) in the case of amounts owing under the New Credit Agreement 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 Notes or the Guarantees, (b) Indebtedness that is expressly subordinate or junior in right of payment to any 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 without recourse to such Guarantor, (d) Indebtedness which is represented by Redeemable Capital Stock, (e) Indebtedness for goods, materials or services purchased in the ordinary course of business or Indebtedness consisting of trade payables or other current liabilities (other than any current liabilities owing under the New Credit Agreement, or the current portion of any long-term Indebtedness which would constitute Guarantor Senior Indebtedness but for the operation of this clause (e)), (f) Indebtedness of or amounts owed by such Guarantor for compensation to employees or for services rendered to such Guarantor, (g) any liability for federal, state, local or other taxes owed or owing by such Guarantor, (h) 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 Subsidiaries, (i) that portion of any Indebtedness which is incurred by such Guarantor in violation of this Indenture, (j) Indebtedness of such Guarantor that by operation of law is subordinate to any general unsecured obligations of such Guarantor and (k) amounts owing under leases. "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. -13- 23 "Guarantors" shall mean each Initial Guarantor and each future Subsidiary that is not designated an Unrestricted Subsidiary in accordance with Section 10.18 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, banker's acceptance or other similar credit transaction, (b) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments, (c) all indebtedness 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, trade accounts payable arising in the ordinary course of business, (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) any amendment, supplement, modification, deferral, renewal, extension, refinancing or refunding of any liability of the types referred to in clauses (a) through (h) above; provided, however, that Indebtedness shall not include (i) any holdback or escrow of the purchase price of prop- -14- 24 erty, services, businesses or assets, (ii) any contingent payment obligations incurred in connection with the acquisition of assets or businesses, which are contingent on the performance of the assets or businesses so acquired or (iii) obligations under performance bonds, performance guarantees, surety bonds, appeal bonds, security deposits or similar obligations. 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 hereto, 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. "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" see introduction to this Indenture. "Initial Purchasers" means Merrill Lynch, NationsBanc Montgomery Securities LLC, ABN Amro Incorporated, The Robinson-Humphrey Company, LLC, Jefferies & Company, Inc. and U.S. Bancorp Libra, a division of U.S. Bancorp Investments, Inc. "Initial Securities" means the 9 3/4% Senior Subordinated Notes due 2009, Series A, of the Company. "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. -15- 25 "Interest Rate Protection Obligations" means the net obligations of any Person pursuant to 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), but other than advances to customers in the ordinary course of business recorded as an account receivable in accordance with GAAP on the books of the Person making the advance, 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. "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 (other than a consignment), capital lease or other title retention agreement. "Maturity Date" means January 15, 2009. "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 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 of the Company) 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 of the Company) owning a beneficial interest in the assets subject to the Asset -16- 26 Sale, (iv) payments made to 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 of the Company, 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 of the Company, 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. "New Credit Agreement" means the Second Amended and Restated Credit Agreement dated as of October 15, 1998 among the Company, the Subsidiaries of the Company listed as guarantors therein, Chase Bank of Texas, National Association, as the Agent, Bank of America Texas, N.A., as co-agent, Paribas, as syndication agent and ABN AMRO Bank, N.A., as documentation agent, and the Banks 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, deferred, 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. "Non-U.S. Person" means a Person that is not a U.S. Person as such term is defined in Regulation S. "Notice of Default" means a written notice of the kind specified in Section 5.2. "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 -17- 27 "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 -18- 28 the Company or the Trustee so requires, duly endorsed by, or accompanied by 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); (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 or such other method as the Company shall deem fair and appropriate (subject in each case to applicable rules of the Depositary 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. "Offering Memorandum" means the Offering Memorandum dated January 19, 1999 pursuant to which the Securities were offered, and any supplement thereto. -19- 29 "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. "144A Global Security" 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. "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: (i) Securities theretofore cancelled 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 -20- 30 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. "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. "Permitted Indebtedness" means, without duplication: (a) Indebtedness of the Company and the Guarantors evidenced by up to $130,000,000 principal amount of the Securities and the Guarantees; (b) Indebtedness of the Company and Restricted Subsidiaries under one or more Credit Facilities in an aggregate principal amount at any one time outstanding not to exceed $300,000,000 less any amounts permanently repaid in accordance with Section 10.14; (c) Indebtedness of the Company or any Restricted Subsidiary outstanding on the Issue Date; (d) Indebtedness of the Company or any Restricted Subsidiary of the Company 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 $30,000,000 at any time; but excluding letters of credit issued in respect of or to secure money borrowed; -21- 31 (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 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 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 the Company 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 subordinated in right of payment to the payment and performance of the obligations of the Company under this Indenture and the Notes, except that (i) any transfer of such Indebtedness by a Restricted Subsidiary (other than to another Restricted Subsidiary) and (ii) the sale, transfer or other disposition by the Company or any Restricted Subsidiary of the Company 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 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 arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the -22- 32 ordinary course of business; provided, however, that such Indebtedness is extinguished within five Business Days of incurrence; (i) Indebtedness of the Company or any Restricted Subsidiary, in addition to that described in clauses (a) through (h) of this definition, in an aggregate principal amount outstanding at any time not to exceed $20,000,000; (j) (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 its Restricted Subsidiaries incurred pursuant to the Consolidated Fixed Charge Coverage Ratio test of the proviso of Section 10.8 or clauses (a), (c) or (j) of this definition and (ii) Indebtedness of any Restricted Subsidiary of the Company the proceeds of which are used solely to refinance (whether by amendment, renewal, extension or refunding) Indebtedness of such Restricted Subsidiary incurred pursuant to the Consolidated Fixed Charge Coverage Ratio test of the proviso of Section 10.8 or clauses (a), (c) or (j) of this definition (in each case other than the Indebtedness to be refinanced, redeemed or retired as described under "Use of Proceeds" in the Offering Memorandum); provided, however, that (x) the principal amount of Indebtedness incurred pursuant to this clause (j) (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 the maturity thereof, the original issue price of such Indebtedness) shall not exceed the sum of principal amount of Indebtedness so refinanced, plus the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of such Indebtedness or the amount of any premium reasonably determined by the Company as necessary to accomplish such refinancing by means of a tender offer or privately negotiated purchase, plus the amount of expenses in connection therewith, and (y) in the case of Indebtedness incurred by the Company pursuant to this clause (j) to refinance Subordinated Indebtedness, such Indebtedness (A) has no scheduled principal payment prior to the 91st day after the Maturity Date, (B) has an Average Life to Stated Maturity greater than the remaining Average Life to Stated Maturity of the Securities and (C) is subordinated to the Securities in the same manner and to the same extent that the Subordinated Indebtedness being refinanced is subordinated to the Securities; (k) Indebtedness arising from agreements of the Company or any Restricted Subsidiary providing for indemnification, adjustment or holdback of purchase price or simi- -23- 33 lar 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; and (l) 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 described in the preceding paragraph, (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, 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 less 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 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; (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) advances to employees or officers of the Company or any Restricted Subsidiary in the ordinary course of business; (ix) any Investment to the extent that the consideration therefor is Capital Stock (other than Redeemable Capital Stock) of the Company; (x) any loans, payments or other advances made pursuant to any employee benefit plans (including -24- 34 plans for the benefit of directors) or employment agreements or other compensation arrangements, 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 (xi) other Investments not to exceed $25,000,000 at any time outstanding. "Permitted Liens" means the following types of Liens: (a) any Lien existing as of the Issue Date; (b) Liens securing Indebtedness under the New Credit Agreement; (c) 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 Company or any Restricted Subsidiary other than the property or assets subject to the Lien prior to such incurrence; (d) Liens in favor of the Company or a Restricted Subsidiary; (e) Liens on and pledges of the Capital Stock of any Unrestricted Subsidiary securing any Indebtedness of such Unrestricted Subsidiary; (f) Liens for taxes, assessments or governmental charges or claims 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; (g) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (h) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, contracts for utilities, performance and return-of-money bonds and other similar obligations -25- 35 (exclusive of obligations for the payment of borrowed money); (i) judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (j) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (k) any interest or title of a lessor under any Capitalized Lease Obligation or operating lease; (l) purchase money Liens to finance property or assets of the Company or any Restricted Subsidiary of the Company acquired in the ordinary course of business, provided, however, that (i) the related purchase money Indebtedness shall not be secured by any property or assets of the Company or any Restricted Subsidiary other than the property and assets so acquired and (ii) the Lien securing such Indebtedness shall be created within 90 days of such acquisition; (m) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (n) Liens securing refinancing Indebtedness permitted under clause (j) of the definition of "Permitted Indebtedness"; provided such Liens are not secured by any property or assets of the Company or any Restricted Subsidiary other than the property or assets securing such refinanced Indebtedness; (o) Liens incurred in the ordinary course of business by the Company or any Restricted Subsidiary with respect to obligations that do not exceed $5,000,000 at any time outstanding; (p) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual, or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and set-off; -26- 36 (q) Liens securing Interest Rate Protection Obligations which Interest Rate Protection Obligations relate to Indebtedness that is secured by Liens otherwise permitted under this Indenture; and (r) Liens on property or assets of a Foreign Restricted Subsidiary securing Indebtedness of Foreign Restricted Subsidiaries. "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. "Private Placement Legend" shall mean the legend initially set forth on the Securities in the form set forth on Exhibit A-1. "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 Equity Interest" in a Person means any interest in Capital Stock of such Person, other than Redeemable Capital Stock. "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 -27- 37 Maturity Date or is redeemable at the option of the holder thereof at any time prior to the Maturity Date, or is convertible into or exchangeable for debt securities at any time prior to the Maturity Date; provided that 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. "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 Notes Registration Rights Agreement dated as of January 22, 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. "Regular Record Date" for the interest payable on any Interest Payment Date means the January 1 or July 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Regulation S" means Regulation S under the Securities Act. "Regulation S Global Security" means a permanent global Security in registered form representing the aggregate principal amount of Securities sold in reliance on Regulation S under the Securities Act. "Replacement Assets" has the meaning specified in Section 10.14. "Representative" means the agent in respect of the New Credit Agreement. "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, -28- 38 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 securities designated in the first paragraph of the RECITALS OF THE COMPANY. "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. "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 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 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 New Credit Agreement, including, without limit- -29- 39 ation, principal of and interest on, and all fees, indemnities and expenses payable under the New Credit Agreement 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) under Section 5.1, 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 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 without recourse to the Company, (d) Indebtedness which is represented by Redeemable Capital Stock, (e) Indebtedness for goods, materials or services purchased in the ordinary course of business or Indebtedness consisting of trade payables or other current liabilities (other than any current liabilities owing under the New Credit Agreement, or the current portion of any long-term Indebtedness which would constitute Senior Indebtedness but for the operation of this clause (e)), (f) Indebtedness of or amounts owed by the Company for compensation to employees or for services rendered to the Company, (g) any liability for federal, state, local or other taxes owed or owing by the Company, (h) Indebtedness of the Company to a Subsidiary of the Company or any other Affiliate of the Company or any of such Affiliate's Subsidiaries, (i) that portion of any Indebtedness, which is incurred by the Company in violation of this Indenture (j) Indebtedness of the Company that by operation of law is subordinate to any general unsecured obligations of the Company and (k) amounts owing under leases. "Significant Subsidiary" of any Person means a Restricted Subsidiary of such Person which would be a significant subsidiary of such Person as of such date as determined in accordance with the definition in Rule 1-02(w) of Article I of Regulation S-X promulgated by the Commission and as 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 Security or any installment of interest thereon, the date specified in such Security as the fixed date on which the principal of such Security 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 -30- 40 and payable (including as a result of the exercise of any put option contained in such instrument). "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, has 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 or investments by foreign nationals mandated by applicable law shall be disregarded in determining the ownership of a Subsidiary. "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 in the form set forth in Exhibit A-2, including, without limitation, the Exchange Securities, that do not and are not required to bear the Private Placement Legend. "Unrestricted Subsidiary" means each Subsidiary of the Company designated as such pursuant to and in compliance with Section 10.18. "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." -31- 41 "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 (irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). "Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary of the Company of which 100% of the outstanding Capital Stock is owned by the Company or another Wholly-Owned Restricted Subsidiary of the Company or both. 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. 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; (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 -32- 42 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 instru- -33- 43 ment 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 Indenture 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; pro- -34- 44 vided 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 Securities 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(2) or (v) 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 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 desig- -35- 45 nate 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 and mailed, first class postage prepaid, to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Administration, (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 the address of the Company's principal office, for the attention of the [General Counsel], specified in the first paragraph of this instrument, or at any other address previously furnished in writing to the Trustee by the Company and such Guarantor. -36- 46 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 Com- -37- 47 pany 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. 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 -38- 48 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 $200,000,000 principal amount, of which $130,000,000 will be issued on the Issue Date, except for Securities authenticated and 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 Sections 10.13 or 10.14. The Securities shall be known and designated as the "9 3/4% Senior Subordinated Notes due 2009" of the Company. Their Stated Maturity for payment of principal shall be January 15, 2009. Interest on the Securities shall accrue at the rate of 9 3/4% per annum and shall be payable semi-annually on each January 15 and July 15, commencing July 15, 1999, to the Holders of record of Securities at the close of business on the January 1 and July 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 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 may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. 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. -39- 49 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. 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. 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. Securities offered and sold in reliance on Rule 144A and Securities offered and sold in reliance on Regulation S 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, attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. -40- 50 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. 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 ex- -41- 51 changed 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 purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one more or more new Securities of any authorized denominations 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 re- -42- 52 quire 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 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. -43- 53 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 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 -44- 54 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 delive- -45- 55 ed 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. 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. SECTION 3.12. Deposits of Monies. Except to the extent payment of interest is made by the Company's check 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 cus- -46- 56 todian 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 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 Non-U.S. Persons. The following additional provisions shall apply with respect to the registration of any proposed transfer of and the transfer of the beneficial interest in an Initial Security to any Non-U.S. Person: -47- 57 (i) the Security Registrar shall register the transfer of any Initial Security, whether or not such Security bears the Private Placement Legend, and a 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, the proposed transferor has delivered to the Security Registrar a certificate substantially in the form of Exhibit C hereto or (i) in the case of the transfer of the beneficial interest in an Initial Security, (other than a transfer by an Agent Member, to which clause (ii) below shall apply), the transfer is made in accordance with Regulation S under the Securities Act and in accordance with clause (iii) below to the extent applicable; (ii) if the proposed transferor is an Agent Member seeking to transfer an interest in a 144A Global Security, upon receipt by the Security Registrar of (x) written instructions given in accordance with the Depository's and the Security Registrar's procedures and (y) the appropriate certificate, if any, required by clause (y) of paragraph (i) above, together with any required legal opinions and certifications, the Security Registrar shall register the transfer and reflect on its books and records the date and (A) a decrease in the principal amount of the 144A Global Security from which such interests are to be transferred in an amount equal to the principal amount of the Securities to be transferred and (B) an increase in the principal amount of the Regulation S Global Security in an amount equal to the principal amount of the Global Security to be transferred; and (iii) subject to Section 3.14(b), until the 41st day after the Issue Date (the "Distribution Compliance Period"), an owner of a beneficial interest in the Regulation S Global Security may not transfer such interest to a transferee that is a U.S. Person or for the account or benefit of a U.S. Person within the meaning of Rule 902(o) of the Securities Act. Subject to Section 3.14(b), during the Distribution Compliance Period, all beneficial interests in the Regulation S Global Security shall be transferred only through Cedel or Euroclear, either directly if the transferor and transferee are participants in such -48- 58 systems, or indirectly through organizations that are participants therein. (b) 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 (excluding Non-U.S. Persons): (i) 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 clause (ii) below shall apply), the transfer is made in accordance with Rule 144A under the Securities Act; and (ii) if the proposed transferor is an Agent Member seeking to transfer an interest in a Regulation S Global Security, upon receipt by the Security Registrar of written instructions given in accordance with the Depository's and the Security Registrar's procedures, the Security Reg- -49- 59 istrar shall register the transfer and reflect on its books and records the date and (A) a decrease in the principal amount of the Regulation S Global Security from which interests are to be transferred in an amount equal to the principal amount of the Securities to be transferred and (B) an increase in the principal amount of the 144A Global Security in an amount equal to the principal amount of the Global Security to be transferred. (c) 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 paragraph (a)(i)(x) or (b)(i)(x) of this Section 3.14 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. (d) 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), (b) and (c), 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. (e) 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 -50- 60 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 (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 giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, -51- 61 and the Company, 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 for the purpose an amount sufficient to pay and discharge the entire Indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest on the Securities to the date of such 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 maturity or redemption, as the case may be; (2) the Company has 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, each stating that all conditions precedent herein provided for 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. 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. -52- 62 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 45 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 Significant Subsidiary of the Company then has outstanding Indebtedness in excess of $15,000,000, individually or in the aggregate, and (a) such default or defaults include a failure to make a payment of principal, (b) such Indebtedness is already due and payable in full or (c) such de- -53- 63 fault or defaults have resulted in the acceleration of the maturity of such Indebtedness; 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 $15,000,000, either individually or in the aggregate, shall be entered against the Company or any Significant Subsidiary of the Company 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 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 bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Significant Subsidiary under the Federal Bankruptcy Code or any other similar federal, state or foreign law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or any 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 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 to the entry of a decree or order for relief in respect of the Company or any Significant Subsidiary 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 any Significant Subsidiary, or the filing by the Company or any 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 -54- 64 possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of any of the Company or any 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 in furtherance of any such action; or (9) any of the Guarantees by 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 (i) shall be due and payable and (ii) if there are any amounts outstanding under the New Credit Agreement, shall become immediately due and payable upon the first to occur of an acceleration under the New Credit Agreement or five business days after receipt by the Company and the Representative under the New Credit Agreement of such notice of acceleration. If an Event of Default specified in clause (7) or (8) of Section 5.1 with respect to the Company 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 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 Securities, by written notice to the Company and the Trustee, may rescind such declaration if -55- 65 (1) the Company 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, (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 -56- 66 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 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 -57- 67 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 account 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 -58- 68 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 the 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 60 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 60-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. -59- 69 SECTION 5.10. 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 5.11. 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 5.12. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of 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 5.13. 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. -60- 70 SECTION 5.14. 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 (ii) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 5.15. 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 5.16. 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 -61- 71 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 hall 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 5.17. 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 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 -62- 72 (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 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. -63- 73 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 directing the Trustee with respect to the taking, suffering or omitting any such action; (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 -64- 74 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 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 -65- 75 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 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 -66- 76 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 Company's obligations under this Section 6.7 shall survive the 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 and a Corporate Trust Office in the Borough of Manhattan, The City of New York. 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. 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 6.11. (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 6.11 shall not have -67- 77 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 Security 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 suc- -68- 78 cessor 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 Security for at least six months may, on behalf of himself and all others similarly situated, or the Trustee 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. -69- 79 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. 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 -70- 80 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 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. -71- 81 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 (a) semiannually, not more than 10 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date; and (b) 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 to that in subsection (a) hereof 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 Hold- -72- 82 ers received by the Trustee in its capacity as Security Registrar, if so acting. (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, 1999, 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. -73- 83 ARTICLE VIII Consolidation, Merger, Conveyance, Transfer or Lease SECTION 8.1. Company or Guarantor May Consolidate, Etc. Only on Certain Terms. (A) Neither the Company nor, except as otherwise provided by Section 13.5, any Guarantor will, 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 as an entirety 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, taken as a whole, to any other Person or Persons, unless, in each of cases (A) and (B), at the time and after giving effect thereto by: (1) either: (x) if the transaction or series of transactions is a merger or consolidation, the Company, the Guarantor 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, such Guarantor or such Restricted Subsidiary, as the case may be, is merged or to which the properties and assets of the Company, such Guarantor or such Restricted Subsidiary, as the case may be, substantially as an entirety, are transferred (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, (i) in the case of the Company, all the obligations of the Company under the Securities, this Indenture and the Registration Rights Agreement and (ii) in the case of a Guarantor, all the ob- -74- 84 ligations of such Guarantor under its Guaranty, this Indenture and the Registration Rights Agreement, and in each case, this Indenture, the Securities, the Guarantees 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 Wholly-Owned 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 (including, without limitation, any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions), 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. SECTION 8.2. Successor Substituted. Except as otherwise provided by Section 13.5, upon any consolidation or merger, or any sale, assignment, conveyance, transfer, lease or disposition of all or substantially all of the properties and assets of the Company or a Guarantor in accordance with Section 8.1, the successor Person formed by such consolidation or into which the Company, such Guarantor or a Restricted Subsidiary, as the case may be, is merged or the -75- 85 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 or Guarantor under the Securities, such Guarantor's Guaranty, this Indenture and/or the Registration Rights Agreement, as applicable, with the same effect as if such successor had been named as the Company or Guarantor in the Securities, such Guaranty, this Indenture and/or in the Registration Rights Agreement, as the case may be, and, except in the case of a lease, the Company, the Guarantor 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, any Guarantor 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 or such Guarantor's Guaranty and to evidence the assumption of obligations under this Indenture and a Guaranty pursuant to Section 10.17; or -76- 86 (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 (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) reduce the principal amount of, change the fixed maturity of 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, -77- 87 (iii) reduce the percentage in principal amount of Outstanding Securities that must consent to an amendment, supplement or waiver or consent to take any action under the Indenture or the Securities or any Guaranty, (iv) impair the right to institute suit for the enforcement of any payment on or with respect to the Securities or any Guaranty, (v) waive a default in payment 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 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) reduce or change the rate or time for payment of interest on the Securities, or (viii) modify or change any provision of this Indenture affecting the subordination or ranking of the Security or any Guarantee 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. In addition, no modification, amendment or supplement to the provisions of Article XIV which is adverse to the interests of the lenders under the Credit Facility shall be made without the consent of the representative of such lenders. 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 In- -78- 88 denture, 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. 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 Guarantee hereunder. If the Company shall so determine, new Securities or Guarantees 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, provided pursuant to Section 9.1(2) and set forth in Sections 10.4 to 10.12 and 10.15 to 10.18, inclusive, if before the time -79- 89 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; provided, however, with respect to an Offer as to which an Offer to Purchase has been mailed, no such waiver may be made or shall be effective against any Holder tendering Securities pursuant to such Offer, and the Company may not omit to comply with the terms of such Offer as to such Holder. SECTION 9.8. No Liability for Certain Persons. No present or future incorporator, director, officer, employee, or stockholder of the Company, nor any present or future incorporator, director, officer or employees of any Guarantor, as such, shall have any liability directly or indirectly for any obligations of the Company or any Guarantor under the Securities, the Guarantees or this Indenture based on or by reason of such obligations or their creation whether by virtue of any constitution, statute, rule or law, or by the enforcement of any assessment or penalty or otherwise, it being expressly agreed and understood that this Indenture, the Securities, Guarantees and obligations are solely corporate obligations. 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 and this Indenture. SECTION 10.2. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be presented or surrendered for payment, where Securities -80- 90 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 (in or outside the Borough of Manhattan, The City of New York) where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. 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. -81- 91 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. 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 fran- -82- 92 chise 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. 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 -83- 93 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 shall not, and shall 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 (i) the Company and any Guarantor will be permitted to incur Indebtedness (including Acquired Indebtedness), and (ii) a Restricted Subsidiary will be permitted to incur Acquired Indebtedness, if in each case, after giving pro forma effect to (1) the incurrence of such Indebtedness 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 full fiscal quarters immediately preceding such incurrence, taken as one period; (2) the incurrence, repayment or retirement of any other Indebtedness or any obligations giving rise to Consolidated Rental Payments by the Company and its Restricted Subsidiaries since the first day of such four-quarter period as if such Indebtedness or obligations were incurred, repaid or retired at the beginning of such 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 such four-quarter period); and (3) any Asset Sale or Asset Acquisition occurring since the first day of such four-quarter period (including to the date of calculation) as if such acquisition or disposition occurred at the beginning of such four-quarter period, the Consolidated Fixed Charge Coverage Ratio of the Company is at least 2:1. SECTION 10.9. Limitation on Restricted Payments. The Company shall not, and shall 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 -84- 94 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 Capital Stock)) (other than the declaration or payment of dividends or other distributions to the extent declared or paid to the Company or any Restricted Subsidiary); (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 outstanding on the Issue Date (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) immediately after giving effect to such Restricted Payment, the Company would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) 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 the Issue Date and ending on the last day of the fiscal quarter of the Company ending immediately prior to the date of such proposed Restricted Payment (or, if such aggregate cumulative Consolidated Net -85- 95 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; (5) the aggregate net cash proceeds received after the Issue Date by the Company from any Person (other than a Subsidiary of the Company) for 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) in connection with such conversion or exchange; (6) 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; and (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 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, minus: -86- 96 the Designation Amount (measured as of the date of Designation) with respect to any Restricted Subsidiary of the Company which has been designated as an Unrestricted Subsidiary after the Issue Date in accordance with Section 10.18 below. 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 shall prohibit, so long, in the case of clauses (ii), (iii), (vi) and (vii) below, as 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 covenant; (iii) any redemption, repurchase or other acquisition or retirement of Subordinated Indebtedness 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 covenant; or (2) Indebtedness of the Company so long as such Indebtedness is Subordinated Indebtedness 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 in the same manner and to the same extent as the Subordinated Indebtedness so purchased, exchanged, redeemed, acquired or retired; (iv) Investments constituting Restricted Payments made as a result of the receipt of non-cash consideration from any Asset Sale or other sale of assets or property made pursuant to and in compliance with this Indenture; (v) 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 -87- 97 clause (v) not to exceed $1,000,000 in any fiscal year of the Company; (vi) the payment of any dividend or distribution by a Restricted Subsidiary to the holders of its Capital Stock on a pro rata basis and (vii) payments to purchase Capital Stock of the Company, in the aggregate amount under this clause (vii) not to exceed $5,000,000 from the Issue Date. Any payments made pursuant to clauses (i) or (v) of this paragraph shall be taken into account in calculating the amount of Restricted Payments made from and after the Issue Date. SECTION 10.10. Limitation on Issuance of Preferred Stock of Restricted Subsidiaries. The Company shall not permit any Restricted Subsidiary to issue any Preferred Stock other than Preferred Stock issued to the Company or a Wholly-Owned Restricted Subsidiary. The Company shall not sell, transfer or otherwise dispose of Preferred Stock issued by a Restricted Subsidiary of the Company or permit a Restricted Subsidiary to sell, transfer or otherwise dispose of Preferred Stock issued by a Restricted Subsidiary, other than to the Company or a Wholly-Owned Restricted Subsidiary. Notwithstanding the foregoing, nothing in this covenant shall prohibit Preferred Stock (other than Redeemable Capital Stock) issued by a Person prior to the time (A) such Person becomes a Restricted Subsidiary of the Company, (B) such Person merges with or into a Restricted Subsidiary of the Company or (C) a Restricted Subsidiary of the Company merges with or into such Person; provided, that such Preferred Stock was not issued or incurred by such Person in anticipation of a transaction contemplated by subclause (A), (B), or (C) above. SECTION 10.11. Limitation on Transactions with Affiliates. The Company shall not, and shall 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 (other than Restricted Subsidiaries), 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 $2,000,000 the Company shall have delivered an Officer's Certificate to the Trustee certifying that such trans- -88- 98 action or transactions comply with the preceding clause (a), and (c) with respect to a transaction or series of related transactions involving aggregate payments or value equal to or greater than $5,000,000, such transaction or transactions shall have been approved by a majority of the disinterested members of the Board of Directors of the Company. Notwithstanding the foregoing, the restrictions set forth in this covenant shall not apply to (i) transactions with or among the Company and the 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, (v) the incurrence of intercompany Indebtedness which constitutes Permitted Indebtedness and (vi) transactions pursuant to agreements in effect on the Issue Date. SECTION 10.12. Limitation on Liens. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, 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 the 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") on a Business Day not more than 60 nor less than -89- 99 30 days following the occurrence of the Change of Control, (the "Change of Control Purchase Date") all of the then Outstanding Securities tendered at a purchase price (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. 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. 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 in the manner, at the times 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. 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. 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 -90- 100 equal to the Fair Market Value of the shares or assets sold or otherwise disposed of and (b) at least 75% of such consideration consists of cash or Cash Equivalents or Replacement Assets; provided, however, that (i) 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 and (ii) any securities, notes or other obligations received by the Company or such Restricted Subsidiary from such transferee that are converted within 30 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; and provided, further, that the 75% limitation referred to in clause (b) shall not apply to any Asset Sale in which the cash or Cash Equivalent portion of the consideration received therefrom determined in accordance with the foregoing provision is equal to or greater than what the after tax proceeds would have been had such Asset Sale complied with the aforementioned 75% limitation. To the extent that the Net Cash Proceeds, or portions thereof, of any Asset Sale are not required to be applied to repay, and permanently reduce the commitments under Senior Indebtedness, Guarantor Senior Indebtedness or Indebtedness of a Foreign Restricted Subsidiary which is not a Guarantor, the Company or such Restricted Subsidiary, as the case may be, may apply the Net Cash Proceeds, or portions 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 or portion thereof from any Asset Sale that are neither used to repay, and permanently reduce the commitments under, Senior Indebtedness, Guarantor Senior Indebtedness or Indebtedness of a Foreign Restricted Subsidiary which is not a Guarantor, nor invested in Replacement Assets within such 360-day period constitute "Excess Proceeds" subject to disposition as provided below. When the aggregate amount of Excess Proceeds equals or exceeds $10,000,000, the Company shall make an offer to purchase (an "Asset Sale Offer"), from all holders of the Securities, an aggregate principal amount of Securities equal to such Excess Proceeds, at a price in cash equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest, if any, thereon to the Purchase Date (the "Asset Sale Offer Price"). To the extent that the aggregate principal -91- 101 amount of Securities tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use such deficiency for general corporate purposes. The Securities shall be purchased by the Company, at the option of the Holder thereof, in whole or in part in integral multiples of $1,000, on a date that is not earlier than 30 days and not later than 60 days from the date the notice is given to Holders, or such later date as may be necessary for the Company to comply with the requirements under the Exchange Act. If Securities purchasable at an aggregate Purchase Price in excess of the Purchase Amount are tendered and not withdrawn pursuant to the Asset Sale Offer to Purchase, the Company shall purchase Securities on a pro rata basis, based on the Purchase Price therefor, or such other method as the Trustee shall deem fair and appropriate (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. Upon completion of such Asset Sale 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 tendered pursuant to the Asset Sale 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 Asset Sale 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 $10,000,000, such Excess Proceeds shall, prior to the purchase of Securities, 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 Asset Sale Offer Price to -92- 102 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. SECTION 10.15. Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company shall not, and shall 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 of the Company to (a) pay dividends, in cash or otherwise, or make any other distributions on or in respect of its Capital Stock or any other interest or participation in, or measured by, its profits, (b) pay any Indebtedness owed to the Company or any other Restricted Subsidiary of the Company, (c) make loans or advances to the Company or any other Restricted Subsidiary of the Company, (d) transfer any of its properties or assets to the Company or any other Restricted Subsidiary of the Company or (e) guarantee any Indebtedness of the Company or any other Restricted Subsidiary of the Company, 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 of the Company, (iii) customary restrictions on transfers of property subject to a Lien permitted under this Indenture, (iv) the New Credit Agreement as in effect on the Issue Date, (v) any agreement or other instrument of a Person acquired by the Company or any Restricted Subsidiary of the Company 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, (vi) 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 encumbrance or restriction, by its terms, terminates on the earlier of the termination of such agreement or -93- 103 the consummation of such agreement and so long as such restriction applies only to the Capital Stock or assets to be sold), (vii) any agreement in effect on the Issue Date, (viii) this Indenture and the Guarantees, and (ix) any agreement that amends, extends, refinances, renews or replaces any agreement described in the foregoing clauses; provided that the terms and conditions of any such agreement are not materially less favorable to the Holders of the Securities with respect to such dividend and payment 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 shall not, and shall not permit any Guarantor to, directly or indirectly, incur any Indebtedness (including Acquired Indebtedness) that is subordinate in right of payment to any Indebtedness of the Company or such Guarantor and senior in right of payment to the Securities or the Guarantee of such Guarantor, as the case may be; provided, however, that the Company and the Guarantors may incur such Acquired Indebtedness in an aggregate amount no to exceed $25,000,000 at any one time outstanding. 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, (i) execute and deliver to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Subsidiary shall unconditionally guarantee all of the Company's obligations under the Securities and this Indenture on the terms set forth in this Indenture and (ii) deliver to the Trustee an opinion of counsel that such supplemental indenture has been duly authorized, executed and delivered by such Subsidiary and constitutes a legal, valid, binding and enforceable obligation of such Subsidiary, subject to normal exceptions, provided that if such Subsidiary (a) is not incorporated or organized in the State of New York or the State of Delaware and (b) is not a Significant Subsidiary of the Company, such opinion of counsel may assume due authorization, execution and delivery of such supplemental indenture. Thereafter, such Subsidiary shall be a Guarantor for all purposes of this Indenture. The Company at its option may also cause any -94- 104 other Restricted Subsidiary of the Company to so become a Guarantor. SECTION 10.18. Limitation on Designations 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, except a Permitted Investment covered by clause (x) of the definition thereof) at the time of Designation (assuming the effectiveness of such Designation) pursuant to the first paragraph of 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 scheduled 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), except any non-recourse guarantee given solely to support the pledge by the Company or any Restricted Subsidiary of the Capital Stock of an Unrestricted Subsidiary. All Sub- -95- 105 sidiaries of Unrestricted Subsidiaries shall automatically be deemed to be 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 for all purposes of this Indenture. (c) All Designations and Revocations must be evidenced by Officer's Certificates 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 event (a) within 15 days after each Required Filing Date (whether or not permitted or required to be filed with the Commission) (i) transmit (or cause to be transmitted) by mail to all Holders of Securities, as their names and addresses appear in the Securities register, without cost to such Holders, and (ii) 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. In addition, for so long as any Securities remain outstanding, the Company will furnish to the Holders of Securities and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act, and, to any beneficial holder of Securities, if not obtainable from the Commission, information of the type that would be filed with -96- 106 the Commission pursuant to the foregoing provisions upon the request of any such Holder. SECTION 10.20. Statement by Officers as to Default; Compliance Certificates. (a) The Company shall deliver to the Trustee, prior to March 31 in each year commencing March 31, 1999, 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 -97- 107 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 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, -98- 108 (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 (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 Qualified Equity Interests 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 accor- -99- 109 dance 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 securities, 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 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. -100- 110 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 shall be released from its obligations under Section 8.1(3), Sections 10.5 through 10.19, inclusive, and any covenant provided pursuant to Section 9.1(2) and the Guarantors shall be released from their obligations under Article XIII and the Guarantees, (ii) the occurrence of any event specified in Sections 5.1(3) and 5.1(4) (with respect to Section 8.1(3) and any of Sections 10.5 through 10.19, inclusive, and any such covenants provided pursuant to Section 9.1(2)), 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"). 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 Section 5.1(3) or -101- 111 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 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 prin- -102- 112 cipal of or interest on any U.S. Government Obligation which is so specified and held, provided U (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 instrument, there has been a change in the 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 -103- 113 the Company or any Subsidiary 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. 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. -104- 114 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. 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 -105- 115 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 -106- 116 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)). 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 -107- 117 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. 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 maximum aggregate amount of the obligations guaranteed hereunder by each Guarantor shall not exceed the maximum amount that can be hereby guaranteed without rendering this Indenture, as it relates to such Guarantor, voidable under applicable federal or state law relating to fraudulent conveyance or fraudulent transfer. SECTION 13.3. Execution and Delivery of Guarantees. The Guarantees to be endorsed on the Securities shall be in the form set forth in Exhibit D. Each of the Guarantors hereby agrees to execute its Guaranty in such form, to be endorsed on each Security authenticated and delivered by the Trustee. Each Guaranty shall be executed on behalf of each respective Guarantor by any one of such Guarantor's Chairman of the Board, Vice Chairman of -108- 118 the Board, President, Chief Financial Officer, or Vice Presidents. The signature of any or all of these officers on the Guaranty may be manual or facsimile. A Guaranty bearing the manual or facsimile signatures of individuals who were at any time the proper officers of a Guarantor shall bind such Guarantor, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of the Security on which such Guaranty is endorsed or did not hold such offices at the date of such Guaranty. Each Guaranty shall be registered, transferred, exchanged and cancelled, and shall be held in definitive or global form, in the same manner and together with, the Security to which it relates, in accordance with Article III. The delivery of any Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Guaranty endorsed thereon on behalf of the Guarantors. Each of the Guarantors hereby jointly and severally agrees that its Guaranty set forth in Section 13.1 shall remain in full force and effect notwithstanding any failure to endorse a Guaranty on any Security. SECTION 13.4. Guarantors May Consolidate, Etc., on Certain Terms. Except as may be provided in Section 13.5 and 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 a 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 a Guarantor. SECTION 13.5. Release of Guarantors. (a) Concurrently with any consolidation or merger of a Guarantor or any sale or conveyance of the assets of a Guarantor as an entirety or substantially as an entirety, in each case as permitted by Section 13.4 hereof in accordance with 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 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 Section 13.4 and the other provisions hereof 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 limita- -109- 119 tions), the Trustee shall execute any documents reasonably required in order to evidence the release of such Guarantor from its obligations under its Guaranty endorsed on the Securities and under this Article XIII. Any Guarantor not released from its obligations under its Guaranty endorsed on the Securities and 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 endorsed on the Securities and under this Article XIII. (b) Except as provided by clause (a) hereof, upon the consummation of any transaction (whether involving a sale or other disposition of securities, a merger, or otherwise, including any Asset Sale) whereby any Guarantor ceases to be a Subsidiary and which transaction is otherwise in compliance with the provisions of this Indenture, such Guarantor shall automatically be released from all obligations under its Guaranty endorsed on the Securities and under this Article XIII without need for any further act or the execution or delivery of any document. 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 Guaran- -110- 120 tor 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. 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 and senior in right of payment to all existing and future Subordinated Indebtedness of the Company. -111- 121 SECTION 14.2. Payment Over of Proceeds Upon Dissolution, Etc. In the event of 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 any liquidation, dissolution or other winding-up of the Company, whether voluntary or involuntary, or any assignment for the benefit of creditors or other marshalling 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 payment (other than payments in the form of Qualified Equity Interests or other securities the payment of which is subordinated, at least to the same extent as the Securities, to the payment of all Senior Indebtedness which may at the time be outstanding and other than payments from a trust created pursuant to Article XII) is made on account of the principal of, premium, if any, or interest on the Securities. 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 Designated Senior Indebtedness, when the same becomes due, and after receipt by the Trustee and the Company from representatives of holders of such Designated 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 (other than Qualified Equity Interests or other securities the payment of which is subordinated, at least to the same extent as the Notes, to the payment of all Senior Indebtedness which may at the time be outstanding) 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 Designated Senior Indebtedness shall have been discharged or paid in full in cash, 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) -112- 122 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 payment (other than payments from trusts previously created pursuant to Article XII) of any kind or character (excluding Qualified Equity Interests or subordinated 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 discharged or paid in full in cash, 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 shall 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 shall a Payment Blockage Period extend beyond 180 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 be a 180 consecutive day period in any 360 day period during which no Payment Blockage Period is in effect. -113- 123 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 Designated 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. -114- 124 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 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 -115- 125 Company or a holder of Designated 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 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. -116- 126 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 instrument 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. -117- 127 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. GROUP MAINTENANCE AMERICA CORP. By: /s/ Darren B. Miller ---------------------------------- Name: Title: STATE STREET BANK AND TRUST COMPANY By: /s/ MICHAEL M. HOPKINS ---------------------------------- Name: MICHAEL M. HOPKINS Title: VICE PRESIDENT Guarantors: A-1 APPLIANCE & AIR CONDITIONING, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: A-1 MECHANICAL OF LANSING, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: AA ADVANCE AIR, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: -118- 128 A-ABC APPLIANCE, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: A-ABC SERVICES, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: AA JARL, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: AIR CONDITIONING ENGINEERS, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: AIR CONDITIONING, PLUMBING & HEATING SERVICE CO., INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: AIRCON ENERGY INCORPORATED By: /s/ Darren B. Miller ---------------------------------- Name: Title: -119- 129 AIRTRON, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: AIRTRON OF CENTRAL FLORIDA, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: ALL SERVICE ELECTRIC, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: ARKANSAS MECHANICAL SERVICES, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: ATLANTIC INDUSTRIAL CONSTRUCTORS, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: BARR ELECTRIC CORP. By: /s/ Darren B. Miller ---------------------------------- Name: Title: -120- 130 CALLAHAN ROACH PRODUCTS & PUBLICATIONS, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: CENTRAL AIR CONDITIONING CONTRACTORS, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: CENTRAL CAROLINA AIR CONDITIONING COMPANY By: /s/ Darren B. Miller ---------------------------------- Name: Title: CHARLIE CRAWFORD, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: CLARK CONVERSE ELECTRIC SERVICE, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: COLONIAL AIR CONDITIONING COMPANY By: /s/ Darren B. Miller ---------------------------------- Name: Title: -121- 131 COMMERCIAL AIR HOLDING COMPANY By: /s/ Darren B. Miller ---------------------------------- Name: Title: COMMERCIAL AIR, POWER & CABLE, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: CONTINENTAL ELECTRICAL CONSTRUCTION CO. By: /s/ Darren B. Miller ---------------------------------- Name: Title: COSTNER BROTHERS, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: DIVCO, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: DYNAMIC SOFTWARE CORPORATION By: /s/ Darren B. Miller ---------------------------------- Name: Title: -122- 132 EVANS SERVICES, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: THE FARFIELD COMPANY By: /s/ Darren B. Miller ---------------------------------- Name: Title: FERGUSON ELECTRIC CORPORATION By: /s/ Darren B. Miller ---------------------------------- Name: Title: GENTZLER ELECTRICAL CONTRACTORS, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: GILBERT MECHANICAL CONTRACTORS, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: GREGORY ELECTRIC, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: -123- 133 GROUPMAC HOLDING CORP. By: /s/ Darren B. Miller ---------------------------------- Name: Title: GROUPMAC MANAGEMENT CO. By: /s/ Darren B. Miller ---------------------------------- Name: Title: HPS PLUMBING SERVICES, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: HALLMARK AIR CONDITIONING, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: HUNGERFORD MECHANICAL CORPORATION By: /s/ Darren B. Miller ---------------------------------- Name: Title: J.D. STEWARD AIR CONDITIONING, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: -124- 134 K & N PLUMBING, HEATING AND AIR CONDITIONING, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: LANEY'S, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: LINFORD SERVICE CO. By: /s/ Darren B. Miller ---------------------------------- Name: Title: MACDONALD-MILLER CO., INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: MACDONALD-MILLER INDUSTRIES, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: MACDONALD-MILLER OF OREGON, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: -125- 135 MACDONALD-MILLER SERVICE, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: MASTERS, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: MECHANICAL INTERIORS, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: MERRITT ISLAND AIR & HEAT, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: NEW CONSTRUCTION AIR CONDITIONING, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: NORON, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: -126- 136 PAUL E. SMITH CO., INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: PHOENIX ELECTRIC COMPANY By: /s/ Darren B. Miller ---------------------------------- Name: Title: RAY AND CLAUDE GOODWIN, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: RELIABLE MECHANICAL, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: ROMANOFF ELECTRIC CORP. By: /s/ Darren B. Miller ---------------------------------- Name: Title: SIBLEY SERVICES, INCORPORATED By: /s/ Darren B. Miller ---------------------------------- Name: Title: -127- 137 SOUTHEAST MECHANICAL SERVICE, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: STEPHEN C. POMEROY, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: STERLING AIR CONDITIONING, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: SUN PLUMBING, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: TEAM MECHANICAL, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: TRINITY CONTRACTORS, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: -128- 138 UNITED ACQUISITION CORP. By: /s/ Darren B. Miller ---------------------------------- Name: Title: VALLEY WIDE PLUMBING AND HEATING, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: VAN'S COMFORTEMP AIR CONDITIONING, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: VANTAGE MECHANICAL CONTRACTORS, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: WADE'S HEATING AND COOLING, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: WIEGOLD & SONS, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: -129- 139 WILLIS REFRIGERATION, AIR CONDITIONING & HEATING, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: YALE INCORPORATED By: /s/ Darren B. Miller ---------------------------------- Name: Title: PACIFIC RIM MECHANICAL CONTRACTORS, INC. By: /s/ Darren B. Miller ---------------------------------- Name: Title: -130- 140 Schedule A GROUP MAINTENANCE AMERICA CORP. Except as otherwise indicated, 100% of the voting stock of each of the Subsidiaries listed below is owned by its parent.
State of Name of Subsidiary Incorporation - ------------------ ------------- A-1 Appliance & Air Conditioning, Inc. Delaware A-1 Mechanical of Lansing, Inc. Michigan AA Advance Air, Inc. Florida A-ABC Appliance, Inc. Texas A-ABC Services, Inc. Delaware AA JARL, Inc. Delaware Air Conditioning Engineers, Inc. Michigan Air Conditioning, Plumbing & Heating Service Co., Inc. Colorado Aircon Energy Incorporated California Airtron, Inc. Delaware Airtron of Central Florida, Inc. Florida All Service Electric, Inc. Florida Arkansas Mechanical Services, Inc. Arkansas Atlantic Industrial Constructors, Inc. Virginia Barr Electric Corp. Illinois Callahan Roach Products & Publications, Inc. Colorado Central Air Conditioning Contractors, Inc. Delaware Central Carolina Air Conditioning Company North Carolina Charlie Crawford, Inc. Delaware Clark Converse Electric Service, Inc. Ohio Colonial Air Conditioning Company Delaware Commercial Air Holding Company Maryland Commercial Air, Power & Cable, Inc. Maryland Continental Electrical Construction Co. Delaware Costner Brothers, Inc. South Carolina Divco, Inc. Washington Dynamic Software Corporation Maryland Evans Services, Inc. Alabama The Farfield Company Delaware Ferguson Electric Corporation Delaware Gentzler Electrical Contractors, Inc. Delaware Gilbert Mechanical Contractors, Inc. Minnesota Gregory Electric, Inc. Illinois GroupMAC Holding Corp. Delaware GroupMAC Management Co. Delaware HPS Plumbing Services, Inc. California
141
State of Name of Subsidiary Incorporation - ------------------ ------------- Hallmark Air Conditioning, Inc. Delaware Hungerford Mechanical Corporation Virginia J.D. Steward Air Conditioning, Inc. Colorado K & N Plumbing, Heating and Air Delaware Conditioning, Inc. Laney's, Inc. Delaware Linford Service Co. California MacDonald-Miller Co., Inc. Washington MacDonald-Miller Industries, Inc. Washington MacDonald-Miller of Oregon, Inc. Delaware MacDonald-Miller Service, Inc. Washington Masters, Inc. Maryland Mechanical Interiors, Inc. Delaware Merritt Island Air & Heat, Inc. Delaware New Construction Air Conditioning, Inc. Michigan Noron, Inc. Ohio Pacific Rim Mechanical Contractors, Inc. California Paul E. Smith Co., Inc. Indiana Phoenix Electric Company Delaware Ray and Claude Goodwin, Inc. Florida Reliable Mechanical, Inc. Delaware Romanoff Electric Corp. Ohio Sibley Services, Incorporated Tennessee Southeast Mechanical Service, Inc. Florida Stephen C. Pomeroy, Inc. Delaware Sterling Air Conditioning, Inc. Delaware Sun Plumbing, Inc. Florida Team Mechanical, Inc. Utah Trinity Contractors, Inc. Delaware United Acquisition Corp. Iowa Valley Wide Plumbing and Heating, Inc. Colorado Van's Comfortemp Air Conditioning, Inc. Florida Vantage Mechanical Contractors, Inc. Maryland Wade's Heating and Cooling, Inc. Florida Wiegold & Sons, Inc. Florida Willis Refrigeration, Air Conditioning & Heating, Inc. Ohio Yale Incorporated Minnesota
-2- 142 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 (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A "U.S. PERSON" AND IS ACQUIRING THIS SECURITY IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 903 or 904 OF REGULATION S, (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS 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 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 AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION DATE"), 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 OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; 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. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION A-1-1 143 TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Group Maintenance America Corp. 9 3/4% Senior Subordinated Note due 2009, Series A No. ___________ $_________ CUSIP NO.__________ Group Maintenance America Corp., 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 ___________ or registered assigns, the principal sum of __________ Dollars on January 15, 2009 and to pay interest thereon from January 22, 1999 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semiannually in arrears on January 15 and July 15 in each year, commencing July 15, 1999 at the rate of 9 3/4% 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 9 3/4% 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 January 1 and July 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. A-1-2 144 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 the Borough of Manhattan, The City of New York, 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. 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-1-3 145 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed and attested. Attest: Group Maintenance America Corp. By: - ------------------------------- ---------------------------- Title: Title: A-1-4 146 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: January 22, 1999 By: -------------------------------------- Authorized Signatory A-1-5 147 Form of Reverse of Security This Security is one of a duly authorized issue of Securities of the Company designated as 9 3/4% Senior Subordinated Notes due 2009, Series A (herein called the "Initial Securities"), limited in aggregate principal amount at Stated Maturity to $130,000,000 issued and to be issued under an Indenture, dated as of January 22, 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, 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. ss.ss. 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 $200,000,000. This Security is redeemable at the option of the Company, in whole or in part, at any time on or after January 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 January 15 of the years indicated below:
Redemption Year Price ---- ---------- 2004...................................................................104.875 2005...................................................................103.250 2006...................................................................101.625 2007 and thereafter....................................................100.000%
A-1-6 148 In addition, at any time, or from time to time, on or prior to January 15, 2002, the Company may, at its option, use the net cash proceeds of one or more 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 109.750%. of the principal amount thereof plus accrued and unpaid interest, if any, thereon to the Redemption Date; provided that 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 Equity Offering, the Company shall send a redemption notice not later than 90 days after the consummation of any such Equity Offering. 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-1-7 149 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 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 A-1-8 150 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 9 3/4% Senior Subordinated Notes due 2009, 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. Such additional interest will constitute liquidated damages and will be the exclusive monetary remedy available to the Holder of this Security in respect of a Registration Default (as defined in the Registration Rights Agreement), but without prejudice to any non-monetary remedies otherwise available to such Holder, whether pursuant to the Registration Rights Agreement or otherwise. A-1-9 151 Interest on this Security shall be computed on the basis of a 360-day year of twelve 30-day months. 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 endorsed hereon 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-1-10 152 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 settlement 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: [Check One] [ ] (a) this Security is being transferred in compliance with the exemption from registration under the Securities Act provided by Rule 144A thereunder. A-1-11 153 [ ] (b) this Security is being transferred other than in accordance with (a) above and documents, and a transferor certificate substantially in the form of Exhibit C to the Indenture in the case of a transfer pursuant to Regulation S, are being furnished which comply with the conditions of transfer set forth in this Security and the Indenture. If none of the foregoing boxes is checked and, in the case of (b) above, if the appropriate document is not attached or otherwise furnished to the Trustee, 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. 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 (a) 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-1-12 154 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-1-13 155 EXHIBIT A-2 Group Maintenance America Corp. 9 3/4% Senior Subordinated Note due 2009, Series B No. ___________ $__________ CUSIP NO.__________ Group Maintenance America Corp., 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 ________________ or registered assigns, the principal sum of ________________ Dollars on January 15, 2009 and to pay interest thereon from January 22, 1999 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semiannually in arrears on January 15 and July 15 in each year, commencing January 22, 1999 at the rate of 9 3/4% 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 9 3/4% 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 January 1 and July 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 the Borough of A-2-1 156 Manhattan, The City of New York, 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. 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-2-2 157 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed and attested. Attest: Group Maintenance America Corp. By: - ---------------------------- -------------------------- Title: Title: A-2-3 158 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: January 22, 1999 By: --------------------------- Authorized Signatory A-2-4 159 Form of Reverse of Security This Security is one of a duly authorized issue of Securities of the Company designated as 9 3/4% Senior Subordinated Notes due 2009, Series B (herein called the "Exchange Securities"), limited in aggregate principal amount at Stated Maturity to $130,000,000 issued and to be issued under an Indenture, dated as of January 22, 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. ss.ss. 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 $200,000,000. This Security is redeemable at the option of the Company, in whole or in part, at any time on or after January 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 January 15 of the years indicated below: A-2-5 160
Redemption Year Price ---- ---------- 2004................................................ 104.875 2005................................................ 103.250 2006................................................ 101.625 2007 and thereafter................................. 100.000%
In addition, at any time, or from time to time, on or prior to January 15, 2002, the Company may, at its option, use the net cash proceeds of one or more 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 109.750% of the principal amount thereof plus accrued and unpaid interest, if any, thereon to the Redemption Date; provided that 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 Equity Offering, the Company shall send the redemption notice not later than 90 days after the consummation of any such Equity Offering. 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 A-2-6 161 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 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, A-2-7 162 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. Interest on this Security shall be computed on the basis of a 360-day year of twelve 30-day months. 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 obligations of the Company under the Indenture and this Security are Guaranteed pursuant to Guarantees endorsed hereon as provided in the Indenture. A-2-8 163 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-2-9 164 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. 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-2-10 165 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-2-11 166 EXHIBIT B FORM OF LEGEND FOR BOOK-ENTRY SECURITIES Any Global Security authenticated and delivered hereunder t 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 ("DTC"), 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 DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), 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-1 167 EXHIBIT C Form of Certificate To Be Delivered in Connection with Transfers Pursuant to Regulation S State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Re: Group Maintenance America Corp. (the "Company") 9 3/4% Senior Subordinated Notes due 2009 (the "Securities") Ladies and Gentlemen: In connection with our proposed sale of $___________ aggregate principal amount of the Securities, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (1) the offer of the Securities was not made to a Person in the United States; (2) either (a) at the time the buy offer was originated, the transferee was outside the United States or we and any Person acting on our behalf reasonably believed that the transferee was outside the United States, or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market described in Rule 902(a) of Regulation S and neither we nor any Person acting on our behalf knows that the transaction has been pre-arranged with a buyer in the United States; (3) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; (5) we have advised the transferee of the transfer restrictions applicable to the Securities; (6) if the circumstances set forth in rule 904(c) under the Securities Act are applicable, we have complied C-1 168 with the additional conditions therein, including (if applicable) sending a confirmation or other notice stating that the Securities may be offered and sold during the distribution compliance period specified in Rule 903(c)(2) or (3), as applicable, only in accordance with the provisions of Regulation S; pursuant to registration of the Securities under the Securities Act; or pursuant to another available exemption from the registration requirements under the Securities Act; and (7) if the sale is made during a distribution compliance period and the provisions of Rule 903(c)(3) are applicable thereto, we confirm that such sale has been made in accordance with such provisions. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By: -------------------------------- Authorized Signature C-2 169 EXHIBIT D [FORM OF NOTATION ON SECURITY RELATING TO GUARANTY] GUARANTY ________________, a _________________ corporation (the "Guarantor," which term includes any successor under the Indenture (the "Indenture") referred to in the Security upon which this notation is endorsed), hereby unconditionally and irrevocably guarantees on a senior subordinated basis, jointly and severally with each other Guarantor of the Securities, 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 the Indenture and the Securities, subject to certain limitations set forth in the Indenture (all the foregoing being hereinafter collectively called the "Guaranty Obligations"). The 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 Article XIII of the Indenture notwithstanding any extension or renewal of any Guaranty Obligation. Capitalized terms used herein have the meanings assigned to them in the Indenture unless otherwise indicated. Subject to the terms of the Indenture, this Guaranty shall be binding upon the 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 herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This Guaranty shall not be valid or obligatory for any purpose until the certificate of authentication on the Security upon which this Guaranty is noted shall have been executed by the Trustee under the Indenture by the signature of one of its authorized officers. The obligations of the Guarantor to the Holders of Securities and to the Trustee pursuant to this Guaranty and the D-1 170 Indenture are expressly subordinated to all Guarantor Senior Indebtedness and senior in right of payment to all Guarantor Subordinated Indebtedness, in each case to the extent set forth in Section 13.9 and Article XIV of the Indenture, and reference is hereby made to such Indenture for the precise terms of such subordination. Notwithstanding any other provision of the Indenture or this Guaranty, under the Indenture and this Guaranty the maximum aggregate amount of the obligations guaranteed by the Guarantor shall not exceed the maximum amount that can be guaranteed without rendering the Indenture or this Guaranty, as it relates to such Guarantor, voidable under applicable federal or state law relating to fraudulent conveyance or fraudulent transfer. This Guaranty shall be governed by the internal laws of the State of New York, without regard to conflict of laws provisions thereof. [Name of Guarantor] By: ------------------------------- Name: Title: D-2 EX-4.2 4 FIRST SUPPLEMENTAL INDENTURE - DATED 3/22/1999 1 EXECUTION COPY EXHIBIT 4.2 =============================================================================== Group Maintenance America Corp., the Companies Named Herein and State Street Bank and Trust Company, Trustee ------------------ First Supplemental Indenture Dated as of March 10, 1999 ------------------- Up to $200,000,000 9 3/4% Senior Subordinated Notes Due January 15, 2009 =============================================================================== 2 FIRST SUPPLEMENTAL INDENTURE, dated as of March 10, 1999, among GROUP MAINTENANCE AMERICA CORP., a corporation duly organized and existing under the laws of the State of Texas (herein called the "Company"), having its principal office at 8 Greenway Plaza, Suite 1500, Houston, Texas 77046, STATE STREET BANK AND TRUST COMPANY, a bank duly organized and existing under the laws of the United States (herein called the "Trustee"), and the various subsidiaries of the Company named herein, as Guarantors. RECITALS OF THE COMPANY WHEREAS, the Company has heretofore executed and delivered to the Trustee its Indenture, dated as of January 22, 1999 (herein called the "Original Indenture"), to provide for the issuance of an aggregate principal amount of up to $200,000,000 of the Company's 9 3/4% Senior Subordinated Notes Due January 15, 2009 (the "Notes"), $130,000,000 aggregate principal amount of which are currently outstanding; and WHEREAS, Section 9.1 of the Original Indenture provides that, subject to certain limitations, without the consent of any holders of the Notes, the Company, when authorized by a resolution of its Board of Directors, and the Trustee may at any time and from time to time enter into an indenture or indentures supplemental to the Original Indenture; and WHEREAS, pursuant to Section 10.17 of the Original Indenture, Statewide Heating & Air Conditioning, Inc., a Delaware corporation ("Statewide"), is to become a Guarantor under the Original Indenture; and WHEREAS, the Company's Board of Directors has duly authorized the substance of the modifications of the Indenture hereinafter set forth (the "First Supplemental Indenture") and the execution and delivery of this First Supplemental Indenture; and WHEREAS, the Board of Directors of Statewide has authorized the execution and delivery of this First Supplemental Indenture; and WHEREAS, the Company, the Initial Guarantors (as defined in the Original Indenture), Statewide and the Trustee desire to execute this First Supplemental Indenture; and WHEREAS, all things necessary to make this First Supplemental Indenture a valid agreement of Statewide, in accordance with its terms, have been done. NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH: 3 For and in consideration of the premises, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Notes, as follows: 1. Statewide hereby unconditionally guarantees all of the Company's obligations under the Securities (as defined in the Original Indenture) and under the Original Indenture on the terms set forth in the Original Indenture. Notwithstanding the foregoing, this guarantee shall be automatically and unconditionally released and discharged (with respect to Statewide) upon the terms and conditions specified in Section 13.5 of the Original Indenture. 2. Capitalized terms used herein but not defined herein shall have the meanings given to them in the Original Indenture. 3. Except as specifically supplemented and amended by this First Supplemental Indenture, the terms and provisions of the Original Indenture shall remain in full force and effect. 4. The Recitals of the Company preceding Section 1 of this First Supplemental Indenture are statements of the Company, and the Trustee has no responsibility for the accuracy or completeness thereof. 5. This First Supplemental Indenture shall be governed by, and construed in accordance with, the law of the State of New York without regard to the conflicts of laws principles thereof. 6. This First Supplemental Indenture may be executed in one or more counterparts, all of which, taken together, shall constitute one and the same First Supplemental Indenture. -2- 4 IN WITNESS WHEREOF, the parties hereto have cause this First Supplemental Indenture to be duly executed, all as of the day and year first above written. GROUP MAINTENANCE AMERICA CORP. By: /s/ Darren B. Miller -------------------------------------- Name: Darren B. Miller Title: Executive Vice President STATE STREET BANK AND TRUST COMPANY By: /s/ E. C. Hammer ------------------------------------- Name: Elizabeth C. Hammer Title: Vice President Guarantors A-1 APPLIANCE & AIR CONDITIONING, INC. A-1 MECHANICAL OF LANSING, INC. AA ADVANCE AIR, INC. A-ABC APPLIANCE, INC. A-ABC SERVICES, INC. AA JARL, INC. AIR CONDITIONING ENGINEERS, INC. AIR CONDITIONING, PLUMBING & HEATING SERVICE CO., INC. AIRCON ENERGY INCORPORATED AIRTRON, INC. AIRTRON OF CENTRAL FLORIDA, INC. ALL SERVICE ELECTRIC, INC. ARKANSAS MECHANICAL SERVICES, INC. ATLANTIC INDUSTRIAL CONSTRUCTORS, INC. BARR ELECTRIC CORP. CALLAHAN ROACH PRODUCTS & PUBLICATIONS, INC. CENTRAL AIR CONDITIONING -3- 5 CONTRACTORS, INC. CENTRAL CAROLINA AIR CONDITIONING COMPANY CHARLIE CRAWFORD, INC. CLARK CONVERSE ELECTRIC SERVICE, INC. COLONIAL AIR CONDITIONING COMPANY COMMERCIAL AIR HOLDING COMPANY COMMERCIAL AIR, POWER & CABLE, INC. CONTINENTAL ELECTRICAL CONSTRUCTION CO. COSTNER BROTHERS, INC. DIVCO, INC. DYNAMIC SOFTWARE CORPORATION EVANS SERVICES, INC. THE FARFIELD COMPANY FERGUSON ELECTRIC CORPORATION GENTZLER ELECTRICAL CONTRACTORS, INC. GILBERT MECHANICAL CONTRACTORS, INC. GREGORY ELECTRIC, INC. GROUPMAC HOLDING CORP. GROUPMAC MANAGEMENT CO. HPS PLUMBING SERVICES, INC. HALLMARK AIR CONDITIONING, INC. HUNGERFORD MECHANICAL CORPORATION J.D. STEWARD AIR CONDITIONING, INC. K & N PLUMBING, HEATING AND AIR CONDITIONING, INC. LANEY'S, INC. LINFORD SERVICE CO. MACDONALD-MILLER CO., INC. MACDONALD-MILLER INDUSTRIES, INC. MACDONALD-MILLER OF OREGON, INC. MACDONALD-MILLER SERVICE, INC. MASTERS, INC. MECHANICAL INTERIORS, INC. MERRITT ISLAND AIR & HEAT, INC. NEW CONSTRUCTION AIR CONDITIONING, INC. NORON, INC. -4- 6 PACIFIC RIM MECHANICAL CONTRACTORS, INC. PAUL E. SMITH CO., INC. PHOENIX ELECTRIC COMPANY RAY AND CLAUDE GOODWIN, INC. RELIABLE MECHANICAL, INC. ROMANOFF ELECTRIC CORP. SIBLEY SERVICES, INCORPORATED SOUTHEAST MECHANICAL SERVICE, INC. STEPHEN C. POMEROY, INC. STERLING AIR CONDITIONING, INC. SUM PLUMBING, INC. TEAM MECHANICAL, INC. TRINITY CONTRACTORS, INC. UNITED ACQUISITION CORP. VALLEY WIDE PLUMBING AND HEATING, INC. VAN'S COMFORTEMP AIR CONDITIONING, INC. VANTAGE MECHANICAL CONTRACTORS, INC. WADE'S HEATING AND COOLING, INC. WIEGOLD & SONS, INC. WILLIS REFRIGERATION, AIR CONDITIONING & HEATING, INC. YALE INCORPORATED By: /s/ Darren B. Miller ------------------------------------- Name: Darren B. Miller Title: Vice President of each of the foregoing Guarantors STATEWIDE HEATING & AIR CONDITIONING INC. By: /s/ Darren B. Miller ------------------------------------- Name: Darren B. Miller Title: Vice President -5- EX-10.3 5 FORM OF EMPLOYMENT AGMT. - JAMES P. NORRIS 1 EXHIBIT 10.3 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement") is effective as of March 1, 1998, between GroupMAC Management Co., a Delaware corporation (the "Company"), Group Maintenance America Corp., a Texas corporation ("GroupMAC"), and James P. Norris, a resident of Denver County, Colorado ("Employee"). W I T N E S S E T H: WHEREAS, Employee and GroupMAC entered into an Employment Agreement dated as of June 1, 1997 (the "Original Employment Agreement"); and WHEREAS, GroupMAC assigned the Original Employment Agreement to the Company, and Employee became an employee of the Company, effective as of February 1, 1998; and WHEREAS, the Company, GroupMAC and Employee desire to amend and restate the Original Employment Agreement to reflect the effects of the foregoing assignment, to modify the provisions of the Original Employment Agreement pertaining to changes of control of GroupMAC, and to make certain other changes; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereby amend and restate the Original Employment Agreement as follows: 1. Employment. The Company hereby agrees to employ Employee and the Employee hereby agrees to work for the Company as its Chairman of the Board. Employee's principal office shall be in Englewood, Colorado. Employee will report to the Board of Directors of the Company. Subject to consultation with the Board of Directors, Employee will have direct supervisory responsibility and authority for the matters set forth in Exhibit A. So long as he is employed by the Company, Employee shall devote his skill, energy and best efforts to the faithful discharge of his duties as an employee of the Company. In providing services hereunder, Employee shall comply with and follow all directives, policies, standards and regulations from time to time established by the Board of Directors of the Company. 2. Term of Employment. Employee's employment by the Company pursuant to this Agreement shall continue in effect for an initial term of three years from the date of this Agreement, unless terminated in accordance with Section 7, and shall be extended from year to year thereafter, unless terminated effective as of the end of the initial term or any one-year extension thereafter by written notice from the Company to Employee, or by written notice of Employee to the Company, delivered not less than 90 days prior to the end of the initial term, or the anniversary of such one-year extension, as applicable. 2 3. Representations and Warranties. Employee represents and warrants that he is under no contractual or other restrictions or obligations that will significantly limit his activities on behalf of the Company or will prohibit or limit the disclosure or use of by Employee of any information which directly or indirectly relates to the nature of the Company or the services to be rendered by Employee under this Agreement. 4. Compensation. Subject to the provisions of Section 10, Employee will be entitled to the compensation and benefits set forth in this Section 4. (a) During 1998, the Company shall pay Employee an Annual Base Salary, payable semi-monthly, in equal semi-monthly installments at a rate equal to $150,000 per year. In each subsequent calendar year during the term of this Agreement, the Company shall pay to Employee an Annual Base Salary equal to the greater of (i) his salary for the immediately preceding year or (ii) if determined otherwise by the Board of Directors, an Annual Base Salary determined by the Board of Directors following its annual salary and performance review. (b) Employee shall be eligible to receive an annual bonus pursuant to the incentive compensation program in effect from time to time for executive employees of GroupMAC. The target bonus of Employee under such program shall not be less than 100% of Employee's annual salary. (c) All payments of salary and other compensation to Employee shall be made after deduction of any taxes required to be withheld with respect thereto under applicable federal and state laws. 5. Fringe Benefits; Expenses. (a) Employee shall participate in all employee benefit plans sponsored by the Company or GroupMAC for its executive employees, including but not limited to stock bonus, stock purchase and stock option plans, sick leave and disability leave, health insurance, dental insurance and pension and/or profit sharing plans; provided, however, that except as provided below, the nature, amount and limitations of such plans shall be determined from time to time by the Board of Directors of the Company. (b) The Company will reimburse Employee for all reasonable business expenses incurred by Employee in the scope of his employment; provided, however, that Employee must file expense reports with respect to such expenses in accordance with the Company's policies as are in effect from time to time. (c) Employee shall be entitled to a minimum of three weeks paid vacation during each calendar year, increasing to four weeks at June 1, 2000, and to paid holidays and other paid leave set forth in the Company's policies in effect from time to time. Any vacation not used during a calendar year may not be used during any subsequent period. 2 3 (d) The Company will pay all license fees, occupation taxes and reasonable educational costs and expenses necessary to maintain Employee's good standing under any professional licenses. (e) The Company shall use reasonable efforts to provide (i) life insurance payable to Employee's designated beneficiary in an amount at least three times Employee's Annual Base Salary and (ii) disability insurance on behalf of Employee which, as a goal, shall provide for salary continuation in the event of permanent disability in an amount not less than 60% of Employee's Annual Base Salary, it being acknowledged by Employee that GroupMAC's present disability insurance provides a limit of $5,000 per month. 6. Indemnification and Insurance. The Company shall indemnify Employee with respect to matters relating to his services as an officer and/or director of the Company or any of its Affiliates to the extent set forth in the Company's By-laws and in accordance with the terms of any other indemnification which is generally applicable to executive officers of the Company or any of its Affiliates that may be provided by the Company or any such Affiliate from time to time. The foregoing indemnity is contractual and will survive any adverse amendment to or repeal of the By-laws. The Company will also cover Employee under a policy of officers' and directors' liability insurance providing coverage that is comparable to that provided now or hereafter to any other executive officer or director of the Company or GroupMAC. The provisions of this Section 6 will survive the termination of Employee's employment for any reason and the term of this Agreement. 7. Change in Control of the Company. (a) If a Change of Control (as defined in Exhibit B attached hereto) occurs and if during the Protected Period (as defined in Exhibit B attached hereto), Employee's employment is terminated, whether by the Company or by Employee, then the Company shall promptly pay or otherwise provide to Employee the benefits set forth below: (i) An amount equal to two times the sum of (A) Employee's Annual Base Salary then in effect and (B) Employee's target bonus for the calendar year in which such termination occurs (assuming the maximum target bonus will be earned for such year), payable in a single lump sum by certified or bank cashier's check within five days of such termination; and (ii) An amount equal to the product of (A) the maximum monthly premium payment that may be charged to continue coverage for Employee and Employee's dependents under the Company's health insurance plan under COBRA, multiplied by (B) 24 months. Notwithstanding the foregoing, Employee shall not be entitled to any benefits under this Section 7 if such termination is (i) due to Employee's death, (ii) by the Company on account of Employee's Disability as provided in Section 10(d) below, (iii) by the Company for Cause as 3 4 provided in Section 10(a) below, or (iv) by Employee for other than Good Reason (as defined in Exhibit B attached hereto) as provided in Section 10 below. 8. Gross-Up of Parachute Payments. (a) To provide Employee with adequate protection in connection with his ongoing employment with the Company, this Agreement provides Employee with various benefits in the event of termination of Employee's employment with the Company during the Protected Period. If Employee's employment is terminated following a "change of control" of GroupMAC or the Company, within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), a portion of those benefits could be characterized as "excess parachute payments" within the meaning of Section 280G of the Code. The parties hereto acknowledge that the protections set forth in this Section 8 are important, and it is agreed that Employee should not have to bear the burden of any excise tax that might be levied under Section 4999 of the Code or any similar provision of state or federal law, in the event that any portion of the benefits payable to Employee pursuant to this Agreement are treated as an excess parachute payment. The parties, therefore, have agreed as set forth in this Section 8. (b) Anything in this Agreement to the contrary notwithstanding, if it shall be determined that any payment or distribution (including income recognized by Employee upon the early vesting of restricted property or upon the exercise of options whose exercise date has been accelerated) by GroupMAC or the Company or any other person to or for the benefit of Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any similar provision of state or federal law or any interest or penalties are incurred by Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Company shall pay an additional payment (a "Gross-Up Payment") in an amount such that after payment by Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed on the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed on the Payments. (c) Subject to the provisions of Section 8(d) below, all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by an independent public accounting firm with a national reputation selected by Employee (the "Accounting Firm") that shall provide detailed supporting calculations both to the Company and to Employee within 15 business days after the receipt of notice from Employee that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the change in control of GroupMAC or the Company, Employee shall appoint another nationally recognized accounting firm to make the determinations required hereunder 4 5 (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. The Company shall indemnify and hold harmless Employee, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed on Employee as a result of such payment of fees and expenses. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to Employee within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by Employee, it shall furnish Employee with a written opinion that failure to report the Excise Tax on Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding on the Company and Employee. As a result of uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments may not have been made by the Company that should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. If the Company exhausts its remedies pursuant to Section 8(d) below and Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Employee. (d) Employee shall notify the Company in writing of any claim (including any threatened tax lien related to or based on any such claims) by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 10 business days after Employee is informed in writing of such claim (or threatened lien) and shall apprize the Company of the nature of such claim and the date on which such claim is requested to be paid. Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which Employee gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due or such tax lien would be imposed). If the Company notifies Employee in writing prior to the expiration of such period that it desires to contest such claim (or threatened lien), Employee shall: (i) give the Company any information reasonably requested by the Company relating to such claims (or threatened lien); (ii) take such action in connection with contesting such claim (or threatened lien) as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim (or threatened lien); and (iv) permit the Company to participate in any proceedings relating to such claims (or threatened lien); 5 6 provided, however, that the Company shall bear and pay directly all costs and expenses (including legal fees and expenses, additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(d), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Employee shall prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as Employee shall determine (but in no event shall the Company permit or direct Employee to allow a tax lien to be imposed on Employee's property); provided, further, that if the Company directs Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Employee, on an interest-free basis, and shall indemnify and hold Employee harmless on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. In addition, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder, and Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (e) If, after the receipt by Employee of an amount advanced by the Company pursuant to Section 8(d), Employee becomes entitled to receive any refund with respect to such claim, Employee shall (subject to the Company's complying with the requirements of Section 8(d) above) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If after the receipt by Employee of an amount advanced by the Company pursuant to Section 8(d) above, a determination is made that Employee shall not be entitled to any refund with respect to such claim and the Company does not notify Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Acceleration of Options. Upon the occurrence of any of the following events at a time while Employee holds outstanding options to purchase GroupMAC Common Stock, all such options shall be immediately exercisable in full: (i) the acquisition described in clause (i) of the definition of Change of Control; 6 7 (ii) the change in the composition of the Board of Directors described in clause (ii) of such definition; (iii) the shareholder approval or adoption described in clauses (iii) or (iv) of such definition; (iv) the commencement date of any tender offer subject to the terms of Section 14(d)(1) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or exchange offer subject to the terms of the Securities Act of 1933, as amended (the "Securities Act"), or any other offer or series of offers to purchase for cash, or to exchange for securities of a person other than the Company or any of its affiliates, GroupMAC Common Stock by any "person" or "group" of persons (as such terms are used in Rule 13d of the Exchange Act) other than an offer or offers by GroupMAC or by employee benefit plan(s) sponsored by GroupMAC ("Tender Offer") if such person or group would hold 30% or more of the then outstanding GroupMAC Common Stock after the consummation of the Tender Offer. 10. Termination. (a) Either the Company or Employee may terminate Employee's employment hereunder at any time by delivery of written notice by the terminating party of its election to terminate this Agreement to the other party. Promptly after such termination of employment, the Company shall pay to Employee an amount equal to the sum of (i) Employee's earned but unpaid Annual Base Salary through the date of termination of employment at the rate in effect at the time of such termination, (ii) vacation pay earned but not taken to the date of such termination, and (iii) all other amounts previously deferred by Employee or earned but not paid as of such date under all Company incentive or deferred compensation plans or programs. (b) If the Company terminates Employee's employment without Cause, then the Company shall promptly pay to Employee the following amounts in addition to those set forth in Section 10(a): (i) If such termination occurred during a Protected Period, the amounts set forth in Section 7; and (ii) If such termination did not occur during a Protected Period, (A) an amount equal to 12 months' compensation at Employee's then current Annual Base Salary, payable semimonthly, and shall continue to provide benefits in the kind and amounts provided up to the date of termination for a 12 month period including, without limitation, continuation of any Company-paid benefits as described in Section 5 for Employee and Employee's family; 7 8 (B) any portion of Employee's bonus for the calendar year prior to the calendar year in which such termination of employment occurs which has not been paid; and (C) an additional amount equal to a prorated portion of Employee's target bonus for the calendar year in which such termination occurs, assuming that Employee would have earned the maximum target bonus for such year (such prorated portion to be determined based upon the number of working days Employee is employed by the Company during the calendar year in which Employee's employment is terminated divided by the total number of working days in such calendar year). The amounts described in clauses (B) and (C) above shall be paid promptly after the determination of such bonuses, but in any event prior to the publication of financial statements of GroupMAC for such year. (c) If Employee terminates Employee's employment for Good Reason during a Protected Period, then the Company shall promptly pay to Employee, in addition to the amounts set forth in Section 10(a), the amounts set forth in Section 7. (d) In the event this Agreement is terminated by the Company without Cause or by Employee with Good Reason, Employee agrees to accept, in full settlement of any and all claims, losses, damages and other demands that Employee may have arising out of such termination, as liquidated damages and not as a penalty, the payments set forth in this Agreement. Employee hereby waives any and all rights Employee may have to bring any cause of action or proceeding contesting any termination without Cause or Good Reason; provided, however, that such waiver shall not be deemed to affect Employee's rights to enforce any other obligations of the Company. Under no circumstances shall Employee be entitled to any compensation or confirmation of any benefits under this Agreement for any period of time following Employee's date of termination if Employee's termination is for Cause. (e) If at any time during the term of this Agreement, Employee is unable due to physical or mental disability, to perform effectively Employee's duties hereunder, the Company shall continue payment of compensation as provided in Section 4 during the first 12 month period of such disability to the extent not covered by the Company's disability insurance policies. Upon the expiration of such 12 month period, the Company, at its sole option, may continue payment of Employee's salary for such additional periods as the Company elects, or may terminate this Agreement without any further obligations hereunder. If Employee should die during the term of this Agreement, Employee's employment and the Company's obligations hereunder shall terminate as of the end of the month in which Employee's death occurs. (f) So long as Employee receives a severance as provided in Section 10(b) above, Employee shall sign any lock-up letters, standstill agreements, or other similar documentation required by an underwriter in connection with a public offering of securities by GroupMAC or 8 9 take other actions reasonably related thereto as requested by the Board of Directors of GroupMAC; provided, however, that the period of any such lock-up or standstill agreements shall not exceed the shorter of (i) 180 days or (ii) the balance of the severance period. Failure to take any such action shall cause Employee to forfeit any further rights to the salary continuation payments in Section 10(b)(ii). In addition, in such event the Company can seek and obtain specific performance of such covenant, including any injunction requiring execution thereof, and Employee hereby appoints the then current president of the Company to sign any such documents on his behalf so long as such documents are prepared on the same basis as other shareholders generally or as all management shareholders. 11. No Mitigation Obligation. The Company acknowledges that it will be difficult and may be impossible (i) for Employee to find reasonably comparable employment following termination of Employee's employment and (ii) to measure the amount of damages which Employee may suffer as a result of the termination of Employee's employment. Accordingly, all amounts paid to Employee under this Agreement following Employee's termination of employment are acknowledged by the Company to be reasonable and to be liquidated damages, and Employee will not be required to mitigate the amount of such payments by seeking other employment or otherwise, nor will any profits, income, earnings or other benefits from any source whatsoever (including from other employment) create any mitigation, offset, reduction or any other obligation on the part of Employee under this Agreement. 12. Covenant Not to Compete. (a) During Employee's employment with the Company or any of its Affiliates (as defined in Exhibit B attached hereto) and thereafter during the Restricted Period (as defined in Exhibit B attached hereto), regardless of the reason for the termination of Employee's employment, Employee will not engage in or carry on, directly or indirectly, either for himself or as a member of a partnership or as a shareholder, investor, owner, officer or director of a company or other entity, or as an employee, agent, associate or consultant of any person, partnership, corporation or other entity, any business in any State of the United States or in any other part of the world that directly competes with any services or products produced, sold, conducted, developed, or in the process of development by the Company or its Affiliates on the date of termination of Employee's employment. (b) Notwithstanding the foregoing, Employee shall be permitted to engage in the following activities which could otherwise be covered by Section 12(a): (i) the ownership of less than one percent of any class of securities of a publicly-held company whose gross assets exceed $100,000,000; and (ii) working in the indoor air quality, heating, ventilation and air conditioning or plumbing maintenance services industry if such activities are not in direct competition with any products or services produced, sold, conducted, developed, or in the process of 9 10 development by the Company or its Affiliates on the date of termination of Employee's employment. (c) Employee acknowledges that the limitations set forth herein on his rights to compete with the Company and its Affiliates are reasonable and necessary for the protection of the Company and its Affiliates. In this regard, Employee specifically agrees that the limitations as to period of time and geographic area, as well as all other restrictions on his activities specified herein, are reasonable and necessary for the protection of the Company and its Affiliates. In particular, Employee acknowledges that the parties anticipate that Employee will be actively seeking markets for the products and services of the Company and its Affiliates throughout the United States during Employee's employment with the Company. (d) In the event that there shall be any violation of the covenant not to compete set forth in this Section 12, then the time limitation thereof shall be extended for a period of time equal to the period of time during which such violation continues; and in the event the Company is required to seek relief from such violation in any court, board of arbitration or other tribunal, then the covenant shall be extended for a period of time equal to the pendency of such proceedings, including all appeals. (e) Employee agrees that the remedy at law for any breach by Employee of this Section 12 will be inadequate and that the Company shall also be entitled to injunctive relief. 13. Confidential Information. During the term of this Agreement, and for five years after Employee's termination of employment, Employee shall not use or disclose, without the prior written consent of the Company, Confidential Information (as defined in Exhibit B attached hereto) relating to the Company or any of its Affiliates, and upon termination of Employee's employment will return to the Company all written materials in Employee's possession embodying such Confidential Information. Employee will promptly disclose to the Company all Confidential Information, as well as any business opportunity which comes to Employee's attention during the term of Employee's employment with the Company. Employee will not take advantage of or divert any business opportunity for the benefit of Employee or any other Person (as defined in Exhibit B attached hereto) without the prior written consent of the Company. Employee agrees that the remedy at law for any breach by him of this Section 13 will be inadequate and that the Company shall also be entitled to injunctive relief. 14. Intellectual Property. (a) To the extent they relate to, or result from, directly or indirectly, the actual or anticipated operations of the Company or any of its Affiliates, Employee hereby agrees that all patents, trademarks, copyrights, trade secrets, and other intellectual property rights, all inventions, whether or not patentable, and any product, drawing, design, recording, writing, literary work or other author's work, in any other tangible form developed in whole or in part by Employee during the term of this Agreement, or otherwise developed, purchased or acquired by 10 11 the Company or any of its Affiliates, shall be the exclusive property of the Company or such Affiliate, as the case may be ("Intellectual Property"). (b) Employee will hold all Intellectual Property in trust for the Company and will deliver all Intellectual Property in his possession or control to the Company upon request and, in any event, at the end of his employment with the Company. (c) Employee shall assign and does hereby assign to the Company all property rights that he may now or hereafter have in the Intellectual Property. Employee shall take such action, including, but not limited to, the execution, acknowledgment, delivery and assistance in preparation of documents, and the giving of testimony, as may be requested by the Company to evidence, transfer, vest or confirm the Company's right, title and interest in the Intellectual Property. (d) Employee will not contest the validity of any invention, any copyright, any trademark or any mask work registration owned by or vesting in the Company or any of its Affiliates under this Agreement. 15. Definitions. As used in this Agreement , the terms defined in Exhibit B have the means assigned to such terms in such exhibit. 16. Notices. All notices, requests, demands and other communications required by or permitted under this Agreement shall be in writing and shall be sufficiently delivered if delivered by hand, by courier service, or sent by registered or certified mail, postage prepaid, to the parties at their respective addresses listed below: (a) If to Employee: 262 Monroe Denver, CO. 80206 (b) If to the Company or GroupMAC: GroupMAC Management Co. 8 Greenway Plaza, Suite 1500 Houston, Texas 77046 Attention: Corporate Secretary Facsimile: 713-626-4788 Any party may change such party's address by such notice to the other parties. 17. No Set-off Rights. The Company's obligations to make the payments and provide the benefits required by this Agreement and otherwise to perform its obligations 11 12 hereunder shall not be affected by any set off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against Employee or others. 18. Assignment. This Agreement is personal to Employee, and Employee shall not assign any of Employee's rights or delegate any of Employee's duties hereunder without the prior written consent of the Company. Neither Employee nor Employee's spouse will have the right to commute, encumber, or otherwise dispose of any payments under this Agreement. The Company shall have the right to assign this Agreement to a successor in interest in connection with a merger, sale of substantially all assets, or the like; provided however, that an assignment of this Agreement to an entity with operations, products or services outside of the industries in which the Company is then active shall not be deemed to expand the scope of Employee's covenant not to compete with such operations, products or services without Employee's written consent. The Company shall require any Person who is the successor (whether direct or indirect, by purchase, merger, consolidation, reorganization, or otherwise) to all or substantially all of the business and/or assets of the Company or GroupMAC to expressly assume and agree to perform, by a written agreement in form and substance reasonably satisfactory to Employee, all of the obligations of the Company and GroupMAC under this Agreement. As used in this Agreement, the term "Company" means the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, written agreement, or otherwise, and the term "GroupMAC" means GroupMAC as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, written agreement or otherwise. 19. Survival. The provisions of this Agreement shall survive the termination of Employee's employment hereunder in accordance with their terms. 20. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of Texas without regard to the choice-of-law principles thereof. 21. Binding Upon Successors. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, legal representatives, successors and permitted assigns. 22. Entire Agreement. This Agreement constitutes the entire agreement between the Company and Employee with respect to the terms of employment of Employee by the Company and supersedes all prior agreements and understandings, whether written or oral, between them concerning such terms of employment. 23. Amendments and Waivers. This Agreement may be amended, modified or supplemented, and any obligation hereunder may be waived, only by a written instrument executed by the parties hereto. The waiver by either party of a breach of any provision of this Agreement shall not operate as a waiver of any subsequent breach. No failure on the part of any 12 13 party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver hereof, nor shall any single or partial exercise of any such right or remedy by such party preclude any other or further exercise thereof or the exercise of any other right or remedy. 24. Cumulative Rights And Remedies. All rights and remedies hereunder are cumulative and are in addition to all other rights and remedies provided by law, agreement or otherwise. Employee's obligations to the Company and the Company's rights and remedies hereunder are in addition to all other obligations of Employee and rights and remedies of the Company created pursuant to any other agreement. 25. Construction. Each party to this Agreement has had the opportunity to review this Agreement with legal counsel. This Agreement shall not be construed or interpreted against any party on the basis that such party drafted or authored a particular provision, parts of or the entirety of this Agreement. 26. Severability. In the event that any provision or provisions of this Agreement is held to be invalid, illegal or unenforceable by any court of law or otherwise, the remaining provisions of this Agreement shall nevertheless continue to be valid, legal and enforceable as though the invalid or unenforceable parts had not been included therein. In addition, in such event the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible with respect to those provisions which were held to be invalid, illegal or unenforceable. 27. Attorneys' Fees and Costs. If any action at law or in equity is brought to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which it may be entitled. 28. GroupMAC Performance Agreement. GroupMAC shall cause the Company to perform each and every obligation to be performed by the Company hereunder. 13 14 IN WITNESS WHEREOF, the Company and Employee have executed this Agreement on the date first above written. GROUPMAC MANAGEMENT CO. By: /s/ J. Patrick Millinor, Jr. ----------------------------------------- J. Patrick Millinor, Jr. President GROUP MAINTENANCE AMERICA CORP. By: /s/ Donald L. Luke ----------------------------------------- Donald L. Luke President EMPLOYEE: /s/ James P. Norris ------------------------------------------- James P. Norris 14 15 EXHIBIT A DUTIES AND FUNCTIONS CHAIRMAN OF THE BOARD GROUPMAC 1. Chair the Board of Directors and support executive management's efforts in managing the Company; perform duties assigned by the Board of Directors. 2. Refine GroupMAC's mission and develop long-range strategic plan and specific initiation; communicate GroupMAC's vision, mission, philosophy, etc. to all GroupMAC companies and affiliates. 3. Develop plan for and chair the "Quality Advisory Board" for the creation of "best practices," company operations standards, training standards and goals, etc. 4. Create GroupMAC MIX groups. 5. Develop model for "Complete Residential Service" program; implement model on pilot project basis; expand model to new GroupMAC locations. 6. Develop (with Callahan/Roach & others) GroupMAC's definition and approach toward "quality" and "employee training" and lead its implementation; establish management training plan for managers and personnel at GroupMAC companies to maintain local management continuity and career development opportunities; establish technician training plan for personnel at GroupMAC companies; maintain positive liaison and communications with local GroupMAC companies. 7. Develop strategies and plans for recruiting management and technical personnel for GroupMAC companies. 8. Lead GroupMAC's effort in developing a "Leadership Warranty" program. 9. Assist in the identification and acquisition of key companies in markets GroupMAC considers priority. 10. Lead GroupMAC involvement in the HVAC industry; develop and spearhead GroupMAC active involvement in plumbing and electrical contractor associations; develop acceptance of GroupMAC as a positive force in maintenance, replacement and construction industries. A-1 16 11. Define GroupMAC's options in relation to major constituencies in the industry (utilities, energy marketers, home warranty issuers, manufacturers, distributors, etc.) and develop strategic plans or alliances to leverage opportunities and/or complete effectively. 12. Monitor regulatory and legislative activities affecting the industry. 13. Plan and develop (with Callahan/Roach) and build an affiliate network of companies. 14. Assist GroupMAC vendor/purchasing programs to assure best possible equipment prices for the Company; identify and implement areas of positive cost savings, shared services, group purchase options, etc. 15. Resolve GroupMAC structure and operations issues to allow for union operations within or among GroupMAC companies. A-2 17 EXHIBIT B DEFINITIONS "Annual Base Salary" means the salary of Employee in effect at the relevant time determined in accordance with Section 4(a) hereof. "Affiliate" means, with respect to any Person, each other Person who controls, is controlled by, or is under common control with the Person specified. "Cause" when used in connection with the termination of employment with the Company, means the termination of Employee's employment by the Company by reason of (i) the conviction of Employee of a crime involving moral turpitude by a court of competent jurisdiction as to which no further appeal can be taken; (ii) the proven commission by Employee of an act of fraud upon the Company; (iii) the willful and proven misappropriation of any funds or property of the Company by Employee; (iv) the willful, continued and unreasonable failure by Employee to perform material duties assigned to Employee and agreed to by Employee after reasonable notice and opportunity to cure such performance; (v) the knowing engagement by Employee in any direct, material conflict of interest with the Company without compliance with the Company's conflict of interest policy, if any, then in effect; (vi) the knowing engagement by Employee, without the written approval of the Board of Directors of the Company, in any activity which competes with the business of the Company or any of its Affiliates or which would result in a material injury to the Company or any of its Affiliates; or (vii) the knowing engagement in any activity which would constitute a material violation of the provisions of the Company's Insider Trading Policy or Business Ethics Policy, if any, then in effect. "Change of Control" means (i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Designated Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended, (the "Exchange Act")) of 30% or more of either (1) the then outstanding shares of Common Stock of GroupMAC (the "Outstanding GroupMAC Common Stock") or (2) the combined voting power of the then outstanding voting securities of GroupMAC entitled to vote generally in the election of directors (the "Outstanding GroupMAC Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change in Control if: (i) any acquisition of Common Stock of GroupMAC or voting securities of GroupMAC directly from GroupMAC (excluding an acquisition by virtue of the exercise of a conversion privilege), (ii) any acquisition of Common Stock of GroupMAC or voting securities of GroupMAC by GroupMAC, (iii) any acquisition of Common Stock of GroupMAC or voting securities of GroupMAC by any employee benefit plan(s) (or related trust(s)) sponsored or maintained by GroupMAC or any corporation controlled by GroupMAC and approved by the B-1 18 Incumbent Board, or (iv) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, immediately following such reorganization, merger or consolidation, the conditions described in clauses (1), (2) and (3) of paragraph (iii) of this definition are satisfied; or (ii) individuals who, as of the date hereof, constitute the entire Board of Directors of GroupMAC (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of GroupMAC (the "Board"); provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by GroupMAC's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either (1) an actual or threatened election contest (as such terms are used in Rule 14a-11 of the Regulation 14A promulgated under the Exchange Act), or an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board or (2) a plan or agreement to replace a majority of the members of the Board then comprising the Incumbent Board; or (iii) approval by the shareholders of GroupMAC of a reorganization, merger or consolidation, in each case unless, immediately following such reorganization, merger or consolidation, (1) more than 60% (or such greater percentage as may be approved by the Incumbent Board) of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation (including, without limitation, a corporation which as a result of such transaction owns GroupMAC through one or more subsidiaries) and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding GroupMAC Common Stock and Outstanding GroupMAC Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership immediately prior to such reorganization, merger or consolidation, of the Outstanding GroupMAC Common Stock or Outstanding GroupMAC Voting Securities, as the case may be, (2) no Designated Person (excluding GroupMAC, any employee benefit plan(s) (or related trust(s)) of GroupMAC and/or its subsidiaries or any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 30% (or such lesser percentage as may be approved by the Incumbent Board) or more of the Outstanding GroupMAC Common Stock or Outstanding GroupMAC Voting Securities, as the case may be) beneficially owns, directly or indirectly, 30% (or such lesser percentage as may be approved by the Incumbent Board) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (3) at least a majority of the B-2 19 members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (iv) approval by the shareholders of GroupMAC of (1) a complete liquidation or dissolution of GroupMAC or (2) the sale or other disposition of all or substantially all of the assets of GroupMAC, other than to a corporation, with respect to which immediately following such sale or other disposition, (A) more than 60% (or such greater percentage as may be approved by the Incumbent Board) of the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were beneficial owners, respectively, of the Outstanding GroupMAC Common Stock and Outstanding GroupMAC Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding GroupMAC Common Stock and Outstanding GroupMAC Voting Securities, as the case may be, (B) no Designated Person (excluding GroupMAC and any employee benefit plan (or related trust) of GroupMAC and/or its subsidiaries or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 30% (or such lesser percentage as may be approved by the Incumbent Board) or more of the Outstanding GroupMAC Stock or Outstanding GroupMAC Voting Securities, as the case may be) beneficially owns, directly or indirectly, 30% (or such lesser percentage as may be approved by the Incumbent Board) or more of, respectively, the then outstanding shares of common stock of such corporation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of GroupMAC. "Confidential Information" includes information conveyed or assigned to the Company or any of its Affiliates by Employee or conceived, compiled, created, developed, discovered or obtained by Employee from and during his employment relationship with the Company, whether solely by Employee or jointly with others, which concerns the affairs of the Company or its Affiliates and which the Company could reasonably be expected to desire be held in confidence, or the disclosure of which would likely be embarrassing, detrimental or disadvantageous to the Company or its Affiliates and without limiting the generality of the foregoing includes information relating to inventions, and the trade secrets, technologies, algorithms, products, services, finances, business plans, marketing plans, legal affairs, supplier lists, client lists, potential clients, business prospects, business opportunities, personnel assignments, contracts and assets of the Company or any of its Affiliates and information made available to the Company or any of its Affiliates by other parties under a confidential relationship. Confidential Information, B-3 20 however, shall not include information (a) which is, at the time in question, in the public domain through no wrongful act of Employee, (b) which is later disclosed to Employee by one not under obligations of confidentiality to the Company or any of its Affiliates or Employee, (c) which is required by court or governmental order, law or regulation to be disclosed, or (d) which the Company has expressly given Employee the right to disclose pursuant to written agreement. "Good Reason" means the occurrence of any of the following events: (a) Employee is assigned any duties materially inconsistent with, or diminished from, Employee's positions, duties, responsibilities and status with the Company or GroupMAC immediately prior to the commencement of the Protected Period, or Employee's status, reporting responsibilities, titles or offices are materially diminished from those in effect immediately prior to the commencement of the Protected Period, or Employee is removed from or is not re-elected or appointed to any of such responsibilities, titles, offices or positions, or Employee's duties and responsibilities are materially increased without a corresponding increase in the Employee's compensation (such increase in compensation to be satisfactory to Employee, in Employee's sole reasonable judgment), except in each case in connection with the termination of Employee's employment by the Company for Cause or on account of disability, or as a result of the Employee's death, or by the Employee for other than Good Reason; provided, however, that Good Reason shall not be triggered under this subsection (a) by an insubstantial action not taken in bad faith and that is remedied by the Company promptly after receipt of written notice from Employee; or (b) Employee's Annual Base Salary is reduced from that in effect immediately prior to the commencement of the Protected Period or as the same may be increased from time to time thereafter; or (c) The Company or GroupMAC fails to continue in effect any benefit or compensation plan, including, but not limited to, the annual bonus plan, qualified retirement plan, executive life insurance plan and/or health and accident plan, in which Employee is participating immediately prior to the commencement of the Protected Period, or plans providing, in the sole reasonable judgment of Employee, Employee with substantially similar benefits, or the Company or GroupMAC takes any action that would adversely affect Employee's participation in or reduce Employee's benefits under any of such plans (excluding any such action by the Company or GroupMAC that is required by law); or (d) The Company's or GroupMAC's principal executive offices are relocated at any time following a Change in Control more than 20 miles from where such offices were located immediately prior to such Change in Control; or (e) The Company requires Employee at any time following a Change in Control to relocate more than 20 miles from where Employee's office was located immediately prior to such Change in Control; or B-4 21 (f) The amendment, modification or repeal of any provision of the Certificate of Incorporation or Bylaws of the Company or GroupMAC that was in effect immediately prior to the commencement of the Protected Period, if such amendment, modification or repeal would materially adversely affect Employee's rights to indemnification by the Company; or (g) The Company or GroupMAC shall violate or breach any obligation of the Company or GroupMAC in effect immediately prior to the commencement of the Protected Period (regardless whether such obligation be set forth in the Bylaws of the Company or GroupMAC and/or in this Agreement or any other separate agreement entered into between the Company or GroupMAC and Employee) to indemnify Employee against any claim, loss, expense or liability sustained or incurred by Employee by reason, in whole or in part, of the fact that Employee is or was an officer or director of the Company; or (h) The Company or GroupMAC shall violate or breach any other material obligation of the Company or GroupMAC owing to Employee in effect immediately prior to the commencement of the Protected Period relating to Employee's employment with the Company, but only if such violation or breach (if capable of being remedied) shall continue unremedied for more than 15 days after written notice thereof is given by Employee to the Company; or (i) The Board (or any nominating committee of the Board) fails to recommend and support Employee's re-election as a director of the Company or GroupMAC if the Employee is a director of the Company or GroupMAC immediately prior to the commencement of the Protected Period; or (j) The Company and GroupMAC shall fail to keep in force, for the benefit of Employee, directors' and officers' insurance policy with coverage amounts and scope equal to the coverage amounts and scope under such policy immediately prior to the commencement of the Protected Period; or (k) The Company or GroupMAC fail to obtain from a successor (including a successor to a material portion of the business or assets of the Company or GroupMAC) a satisfactory assumption in writing of the Company's or GroupMAC's obligations under this Agreement; or (l) The Company fails to provide Employee with office space, related facilities and support personnel (including, but not limited to, administrative and secretarial assistance) that are both commensurate with the Employee's position and Employee's responsibilities to and position with the Company immediately prior to the Change of Control and not materially dissimilar to the office space, related facilities and support personnel provided to other executive officers of the Company; or (m) The Company or GroupMAC notifies Employee of the Company's or GroupMAC's intention not to observe or perform one or more of the obligations of the Company or GroupMAC under this Agreement. B-5 22 "Person" means any individual, corporation, trust, partnership, limited partnership, foundation, association, limited liability company, joint stock association or other legal entity. "Protected Period" means the period of time beginning with a Change of Control and ending 24 months following such Change of Control; provided, however, that if any event has occurred which could reasonably be expected to result in a Change of Control and a Change of Control occurs within six months after such event, then the Protected Period will begin on the date of such event. "Restricted Period" means the period beginning on the date of the termination of Employee's employment with the Company and its Affiliates and ending as follows, as applicable: (i) six months after the termination of Employee's employment; (ii) one year after the termination of Employee's employment, if Employee is entitled to benefits under Section 10(b)(ii); or (iii) two years after the termination of Employee's employment, if Employee is entitled to benefits under Section 10(b)(i). B-6 EX-10.4 6 FORM OF EMPLOYMENT AGMT. - J. PATRICK MILLINOR, JR 1 EXHIBIT 10.4 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement") is effective as of March 1, 1998, between GroupMAC Management Co., a Delaware corporation (the "Company"), Group Maintenance America Corp., a Texas corporation ("GroupMAC"), and J. Patrick Millinor, Jr., a resident of Harris County, Texas ("Employee"). W I T N E S S E T H: WHEREAS, Employee and the predecessor of GroupMAC entered into an Employment Agreement dated as of October 24, 1996,(the "Original Employment Agreement"); and WHEREAS, GroupMAC assigned the Original Employment Agreement to the Company, and Employee became an employee of the Company, effective as of March 1, 1998; and WHEREAS, the Company, GroupMAC and Employee desire to amend and restate the Original Employment Agreement to reflect the effects of the foregoing assignment, to modify the provisions of the Original Employment Agreement pertaining to changes of control of GroupMAC, and to make certain other changes; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereby amend and restate the Original Employment Agreement as follows: 1. Employment. The Company hereby agrees to employ Employee and the Employee hereby agrees to work for the Company as its Chief Executive Officer. Employee's principal office shall be in Houston, Texas. Employee will report to the Board of Directors of the Company. Subject to consultation with the Board of Directors, Employee will have direct supervisory responsibility and authority for the matters set forth on Exhibit A. So long as he is employed by the Company, Employee shall devote his skill, energy and best efforts to the faithful discharge of his duties as an employee of the Company. In providing services hereunder, Employee shall comply with and follow all directives, policies, standards and regulations from time to time established by the Board of Directors of the Company. 2. Term of Employment. Employee's employment by the Company pursuant to this Agreement shall continue in effect for an initial term of three years from the date of this Agreement, unless terminated in accordance with Section 7, and shall be extended from year to year thereafter, unless terminated effective as of the end of the initial term or any one-year extension thereafter by written notice from the Company to Employee, or by written notice of Employee to the Company, delivered not less than 90 days prior to the end of the initial term, or the anniversary of such one-year extension, as applicable. 2 3. Representations and Warranties. Employee represents and warrants that he is under no contractual or other restrictions or obligations that will significantly limit his activities on behalf of the Company or will prohibit or limit the disclosure or use of by Employee of any information which directly or indirectly relates to the nature of the Company or the services to be rendered by Employee under this Agreement. 4. Compensation. Subject to the provisions of Section 10, Employee will be entitled to the compensation and benefits set forth in this Section 4. (a) During 1998, the Company shall pay Employee an Annual Base Salary, payable semi-monthly, in equal semi-monthly installments at a rate equal to $150,000 per year. In each subsequent calendar year during the term of this Agreement, the Company shall pay to Employee an Annual Base Salary equal to the greater of (i) his salary for the immediately preceding year or (ii) if determined otherwise by the Board of Directors, an Annual Base Salary determined by the Board of Directors following its annual salary and performance review. (b) Employee shall be eligible to receive an annual bonus pursuant to the incentive compensation program in effect from time to time for executive employees of GroupMAC. The target bonus of Employee under such program shall not be less than 100% of Employee's annual salary. (c) All payments of salary and other compensation to Employee shall be made after deduction of any taxes required to be withheld with respect thereto under applicable federal and state laws. 5. Fringe Benefits; Expenses. (a) Employee shall participate in all employee benefit plans sponsored by the Company or GroupMAC for its executive employees, including but not limited to stock bonus, stock purchase and stock option plans, sick leave and disability leave, health insurance, dental insurance and pension and/or profit sharing plans; provided, however, that except as provided below, the nature, amount and limitations of such plans shall be determined from time to time by the Board of Directors of the Company. (b) The Company will reimburse Employee for all reasonable business expenses incurred by Employee in the scope of his employment; provided, however, that Employee must file expense reports with respect to such expenses in accordance with the Company's policies as are in effect from time to time. (c) Employee shall be entitled to a minimum of three weeks paid vacation during each calendar year, increasing to four weeks at January 1, 1999, and to paid holidays and other paid leave set forth in the Company's policies in effect from time to time. Any vacation not used during a calendar year may not be used during any subsequent period. 2 3 (d) The Company will pay all license fees, occupation taxes and reasonable educational costs and expenses necessary to maintain Employee's good standing under any professional licenses. (e) The Company shall use reasonable efforts to provide (i) life insurance payable to Employee's designated beneficiary in an amount at least three times Employee's Annual Base Salary and (ii) disability insurance on behalf of Employee which, as a goal, shall provide for salary continuation in the event of permanent disability in an amount not less than 60% of Employee's Annual Base Salary, it being acknowledged by Employee that GroupMAC's present disability insurance provides a limit of $5,000 per month. 6. Indemnification and Insurance. The Company shall indemnify Employee with respect to matters relating to his services as an officer and/or director of the Company or any of its Affiliates to the extent set forth in the Company's By-laws and in accordance with the terms of any other indemnification which is generally applicable to executive officers of the Company or any of its Affiliates that may be provided by the Company or any such Affiliate from time to time. The foregoing indemnity is contractual and will survive any adverse amendment to or repeal of the By-laws. The Company will also cover Employee under a policy of officers' and directors' liability insurance providing coverage that is comparable to that provided now or hereafter to any other executive officer or director of the Company or GroupMAC. The provisions of this Section 6 will survive the termination of Employee's employment for any reason and the term of this Agreement. 7. Change in Control of the Company. (a) If a Change of Control (as defined in Exhibit B attached hereto) occurs and if during the Protected Period (as defined in Exhibit B attached hereto), Employee's employment is terminated, whether by the Company or by Employee, then the Company shall promptly pay or otherwise provide to Employee the benefits set forth below: (i) An amount equal to two times the sum of (A) Employee's Annual Base Salary then in effect and (B) Employee's target bonus for the calendar year in which such termination occurs (assuming the maximum target bonus will be earned for such year), payable in a single lump sum by certified or bank cashier's check within five days of such termination; and (ii) An amount equal to the product of (A) the maximum monthly premium payment that may be charged to continue coverage for Employee and Employee's dependents under the Company's health insurance plan under COBRA, multiplied by (B) 24 months. Notwithstanding the foregoing, Employee shall not be entitled to any benefits under this Section 7 if such termination is (i) due to Employee's death, (ii) by the Company on account of Employee's Disability as provided in Section 10(d) below, (iii) by the Company for Cause as 3 4 provided in Section 10(a) below, or (iv) by Employee for other than Good Reason (as defined in Exhibit B attached hereto) as provided in Section 10 below. 8. Gross-Up of Parachute Payments. (a) To provide Employee with adequate protection in connection with his ongoing employment with the Company, this Agreement provides Employee with various benefits in the event of termination of Employee's employment with the Company during the Protected Period. If Employee's employment is terminated following a "change of control" of GroupMAC or the Company, within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), a portion of those benefits could be characterized as "excess parachute payments" within the meaning of Section 280G of the Code. The parties hereto acknowledge that the protections set forth in this Section 8 are important, and it is agreed that Employee should not have to bear the burden of any excise tax that might be levied under Section 4999 of the Code or any similar provision of state or federal law, in the event that any portion of the benefits payable to Employee pursuant to this Agreement are treated as an excess parachute payment. The parties, therefore, have agreed as set forth in this Section 8. (b) Anything in this Agreement to the contrary notwithstanding, if it shall be determined that any payment or distribution (including income recognized by Employee upon the early vesting of restricted property or upon the exercise of options whose exercise date has been accelerated) by GroupMAC or the Company or any other person to or for the benefit of Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any similar provision of state or federal law or any interest or penalties are incurred by Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Company shall pay an additional payment (a "Gross-Up Payment") in an amount such that after payment by Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed on the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed on the Payments. (c) Subject to the provisions of Section 8(d) below, all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by an independent public accounting firm with a national reputation selected by Employee (the "Accounting Firm") that shall provide detailed supporting calculations both to the Company and to Employee within 15 business days after the receipt of notice from Employee that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the change in control of GroupMAC or the Company, Employee shall appoint another nationally recognized accounting firm to make the determinations required hereunder 4 5 (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. The Company shall indemnify and hold harmless Employee, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed on Employee as a result of such payment of fees and expenses. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to Employee within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by Employee, it shall furnish Employee with a written opinion that failure to report the Excise Tax on Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding on the Company and Employee. As a result of uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments may not have been made by the Company that should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. If the Company exhausts its remedies pursuant to Section 8(d) below and Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Employee. (d) Employee shall notify the Company in writing of any claim (including any threatened tax lien related to or based on any such claims) by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 10 business days after Employee is informed in writing of such claim (or threatened lien) and shall apprize the Company of the nature of such claim and the date on which such claim is requested to be paid. Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which Employee gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due or such tax lien would be imposed). If the Company notifies Employee in writing prior to the expiration of such period that it desires to contest such claim (or threatened lien), Employee shall: (i) give the Company any information reasonably requested by the Company relating to such claims (or threatened lien); (ii) take such action in connection with contesting such claim (or threatened lien) as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim (or threatened lien); and (iv) permit the Company to participate in any proceedings relating to such claims (or threatened lien); 5 6 provided, however, that the Company shall bear and pay directly all costs and expenses (including legal fees and expenses, additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(d), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Employee shall prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as Employee shall determine (but in no event shall the Company permit or direct Employee to allow a tax lien to be imposed on Employee's property); provided, further, that if the Company directs Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Employee, on an interest-free basis, and shall indemnify and hold Employee harmless on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. In addition, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder, and Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (e) If, after the receipt by Employee of an amount advanced by the Company pursuant to Section 8(d), Employee becomes entitled to receive any refund with respect to such claim, Employee shall (subject to the Company's complying with the requirements of Section 8(d) above) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If after the receipt by Employee of an amount advanced by the Company pursuant to Section 8(d) above, a determination is made that Employee shall not be entitled to any refund with respect to such claim and the Company does not notify Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Acceleration of Options. Upon the occurrence of any of the following events at a time while Employee holds outstanding options to purchase GroupMAC Common Stock, all such options shall be immediately exercisable in full: (i) the acquisition described in clause (i) of the definition of Change of Control; 6 7 (ii) the change in the composition of the Board of Directors described in clause (ii) of such definition; (iii) the shareholder approval or adoption described in clauses (iii) or (iv) of such definition; (iv) the commencement date of any tender offer subject to the terms of Section 14(d)(1) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or exchange offer subject to the terms of the Securities Act of 1933, as amended (the "Securities Act"), or any other offer or series of offers to purchase for cash, or to exchange for securities of a person other than the Company or any of its affiliates, GroupMAC Common Stock by any "person" or "group" of persons (as such terms are used in Rule 13d of the Exchange Act) other than an offer or offers by GroupMAC or by employee benefit plan(s) sponsored by GroupMAC ("Tender Offer") if such person or group would hold 30% or more of the then outstanding GroupMAC Common Stock after the consummation of the Tender Offer. 10. Termination. (a) Either the Company or Employee may terminate Employee's employment hereunder at any time by delivery of written notice by the terminating party of its election to terminate this Agreement to the other party. Promptly after such termination of employment, the Company shall pay to Employee an amount equal to the sum of (i) Employee's earned but unpaid Annual Base Salary through the date of termination of employment at the rate in effect at the time of such termination, (ii) vacation pay earned but not taken to the date of such termination, and (iii) all other amounts previously deferred by Employee or earned but not paid as of such date under all Company incentive or deferred compensation plans or programs. (b) If the Company terminates Employee's employment without Cause, then the Company shall promptly pay to Employee the following amounts in addition to those set forth in Section 10(a): (i) If such termination occurred during a Protected Period, the amounts set forth in Section 7; and (ii) If such termination did not occur during a Protected Period, (A) an amount equal to 12 months' compensation at Employee's then current Annual Base Salary, payable semimonthly, and shall continue to provide benefits in the kind and amounts provided up to the date of termination for a 12 month period including, without limitation, continuation of any Company-paid benefits as described in Section 5 for Employee and Employee's family; 7 8 (B) any portion of Employee's bonus for the calendar year prior to the calendar year in which such termination of employment occurs which has not been paid; and (C) an additional amount equal to a prorated portion of Employee's target bonus for the calendar year in which such termination occurs, assuming that Employee would have earned the maximum target bonus for such year (such prorated portion to be determined based upon the number of working days Employee is employed by the Company during the calendar year in which Employee's employment is terminated divided by the total number of working days in such calendar year). The amounts described in clauses (B) and (C) above shall be paid promptly after the determination of such bonuses, but in any event prior to the publication of financial statements of GroupMAC for such year. (c) If Employee terminates Employee's employment for Good Reason during a Protected Period, then the Company shall promptly pay to Employee, in addition to the amounts set forth in Section 10(a), the amounts set forth in Section 7. (d) In the event this Agreement is terminated by the Company without Cause or by Employee with Good Reason, Employee agrees to accept, in full settlement of any and all claims, losses, damages and other demands that Employee may have arising out of such termination, as liquidated damages and not as a penalty, the payments set forth in this Agreement. Employee hereby waives any and all rights Employee may have to bring any cause of action or proceeding contesting any termination without Cause or Good Reason; provided, however, that such waiver shall not be deemed to affect Employee's rights to enforce any other obligations of the Company. Under no circumstances shall Employee be entitled to any compensation or confirmation of any benefits under this Agreement for any period of time following Employee's date of termination if Employee's termination is for Cause. (e) If at any time during the term of this Agreement, Employee is unable due to physical or mental disability, to perform effectively Employee's duties hereunder, the Company shall continue payment of compensation as provided in Section 4 during the first 12 month period of such disability to the extent not covered by the Company's disability insurance policies. Upon the expiration of such 12 month period, the Company, at its sole option, may continue payment of Employee's salary for such additional periods as the Company elects, or may terminate this Agreement without any further obligations hereunder. If Employee should die during the term of this Agreement, Employee's employment and the Company's obligations hereunder shall terminate as of the end of the month in which Employee's death occurs. (f) So long as Employee receives a severance as provided in Section 10(b) above, Employee shall sign any lock-up letters, standstill agreements, or other similar documentation required by an underwriter in connection with a public offering of securities by GroupMAC or 8 9 take other actions reasonably related thereto as requested by the Board of Directors of GroupMAC; provided, however, that the period of any such lock-up or standstill agreements shall not exceed the shorter of (i) 180 days or (ii) the balance of the severance period. Failure to take any such action shall cause Employee to forfeit any further rights to the salary continuation payments in Section 10(b)(ii). In addition, in such event the Company can seek and obtain specific performance of such covenant, including any injunction requiring execution thereof, and Employee hereby appoints the then current president of the Company to sign any such documents on his behalf so long as such documents are prepared on the same basis as other shareholders generally or as all management shareholders. 11. No Mitigation Obligation. The Company acknowledges that it will be difficult and may be impossible (i) for Employee to find reasonably comparable employment following termination of Employee's employment and (ii) to measure the amount of damages which Employee may suffer as a result of the termination of Employee's employment. Accordingly, all amounts paid to Employee under this Agreement following Employee's termination of employment are acknowledged by the Company to be reasonable and to be liquidated damages, and Employee will not be required to mitigate the amount of such payments by seeking other employment or otherwise, nor will any profits, income, earnings or other benefits from any source whatsoever (including from other employment) create any mitigation, offset, reduction or any other obligation on the part of Employee under this Agreement. 12. Covenant Not to Compete. (a) During Employee's employment with the Company or any of its Affiliates (as defined in Exhibit B attached hereto) and thereafter during the Restricted Period (as defined in Exhibit B attached hereto), regardless of the reason for the termination of Employee's employment, Employee will not engage in or carry on, directly or indirectly, either for himself or as a member of a partnership or as a shareholder, investor, owner, officer or director of a company or other entity, or as an employee, agent, associate or consultant of any person, partnership, corporation or other entity, any business in any State of the United States or in any other part of the world that directly competes with any services or products produced, sold, conducted, developed, or in the process of development by the Company or its Affiliates on the date of termination of Employee's employment. (b) Notwithstanding the foregoing, Employee shall be permitted to engage in the following activities which could otherwise be covered by Section 12(a): (i) the ownership of less than one percent of any class of securities of a publicly-held company whose gross assets exceed $100,000,000; and (ii) working in the indoor air quality, heating, ventilation and air conditioning or plumbing maintenance services industry if such activities are not in direct competition with any products or services produced, sold, conducted, developed, or in the process of 9 10 development by the Company or its Affiliates on the date of termination of Employee's employment. (c) Employee acknowledges that the limitations set forth herein on his rights to compete with the Company and its Affiliates are reasonable and necessary for the protection of the Company and its Affiliates. In this regard, Employee specifically agrees that the limitations as to period of time and geographic area, as well as all other restrictions on his activities specified herein, are reasonable and necessary for the protection of the Company and its Affiliates. In particular, Employee acknowledges that the parties anticipate that Employee will be actively seeking markets for the products and services of the Company and its Affiliates throughout the United States during Employee's employment with the Company. (d) In the event that there shall be any violation of the covenant not to compete set forth in this Section 12, then the time limitation thereof shall be extended for a period of time equal to the period of time during which such violation continues; and in the event the Company is required to seek relief from such violation in any court, board of arbitration or other tribunal, then the covenant shall be extended for a period of time equal to the pendency of such proceedings, including all appeals. (e) Employee agrees that the remedy at law for any breach by Employee of this Section 12 will be inadequate and that the Company shall also be entitled to injunctive relief. 13. Confidential Information. During the term of this Agreement, and for five years after Employee's termination of employment, Employee shall not use or disclose, without the prior written consent of the Company, Confidential Information (as defined in Exhibit B attached hereto) relating to the Company or any of its Affiliates, and upon termination of Employee's employment will return to the Company all written materials in Employee's possession embodying such Confidential Information. Employee will promptly disclose to the Company all Confidential Information, as well as any business opportunity which comes to Employee's attention during the term of Employee's employment with the Company. Employee will not take advantage of or divert any business opportunity for the benefit of Employee or any other Person (as defined in Exhibit B attached hereto) without the prior written consent of the Company. Employee agrees that the remedy at law for any breach by him of this Section 13 will be inadequate and that the Company shall also be entitled to injunctive relief. 14. Intellectual Property. (a) To the extent they relate to, or result from, directly or indirectly, the actual or anticipated operations of the Company or any of its Affiliates, Employee hereby agrees that all patents, trademarks, copyrights, trade secrets, and other intellectual property rights, all inventions, whether or not patentable, and any product, drawing, design, recording, writing, literary work or other author's work, in any other tangible form developed in whole or in part by Employee during the term of this Agreement, or otherwise developed, purchased or acquired by 10 11 the Company or any of its Affiliates, shall be the exclusive property of the Company or such Affiliate, as the case may be ("Intellectual Property"). (b) Employee will hold all Intellectual Property in trust for the Company and will deliver all Intellectual Property in his possession or control to the Company upon request and, in any event, at the end of his employment with the Company. (c) Employee shall assign and does hereby assign to the Company all property rights that he may now or hereafter have in the Intellectual Property. Employee shall take such action, including, but not limited to, the execution, acknowledgment, delivery and assistance in preparation of documents, and the giving of testimony, as may be requested by the Company to evidence, transfer, vest or confirm the Company's right, title and interest in the Intellectual Property. (d) Employee will not contest the validity of any invention, any copyright, any trademark or any mask work registration owned by or vesting in the Company or any of its Affiliates under this Agreement. 15. Definitions. As used in this Agreement , the terms defined in Exhibit B have the means assigned to such terms in such exhibit. 16. Notices. All notices, requests, demands and other communications required by or permitted under this Agreement shall be in writing and shall be sufficiently delivered if delivered by hand, by courier service, or sent by registered or certified mail, postage prepaid, to the parties at their respective addresses listed below: (a) If to Employee: 409 Ripple Creek Houston, Texas 77024 (b) If to the Company or GroupMAC: GroupMAC Management Co. 8 Greenway Plaza, Suite 1500 Houston, Texas 77046 Attention: Corporate Secretary Facsimile: 713-626-4788 Any party may change such party's address by such notice to the other parties. 17. No Set-off Rights. The Company's obligations to make the payments and provide the benefits required by this Agreement and otherwise to perform its obligations 11 12 hereunder shall not be affected by any set off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against Employee or others. 18. Assignment. This Agreement is personal to Employee, and Employee shall not assign any of Employee's rights or delegate any of Employee's duties hereunder without the prior written consent of the Company. Neither Employee nor Employee's spouse will have the right to commute, encumber, or otherwise dispose of any payments under this Agreement. The Company shall have the right to assign this Agreement to a successor in interest in connection with a merger, sale of substantially all assets, or the like; provided however, that an assignment of this Agreement to an entity with operations, products or services outside of the industries in which the Company is then active shall not be deemed to expand the scope of Employee's covenant not to compete with such operations, products or services without Employee's written consent. The Company shall require any Person who is the successor (whether direct or indirect, by purchase, merger, consolidation, reorganization, or otherwise) to all or substantially all of the business and/or assets of the Company or GroupMAC to expressly assume and agree to perform, by a written agreement in form and substance reasonably satisfactory to Employee, all of the obligations of the Company and GroupMAC under this Agreement. As used in this Agreement, the term "Company" means the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, written agreement, or otherwise, and the term "GroupMAC" means GroupMAC as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, written agreement or otherwise. 19. Survival. The provisions of this Agreement shall survive the termination of Employee's employment hereunder in accordance with their terms. 20. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of Texas without regard to the choice-of-law principles thereof. 21. Binding Upon Successors. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, legal representatives, successors and permitted assigns. 22. Entire Agreement. This Agreement constitutes the entire agreement between the Company and Employee with respect to the terms of employment of Employee by the Company and supersedes all prior agreements and understandings, whether written or oral, between them concerning such terms of employment. 23. Amendments and Waivers. This Agreement may be amended, modified or supplemented, and any obligation hereunder may be waived, only by a written instrument executed by the parties hereto. The waiver by either party of a breach of any provision of this Agreement shall not operate as a waiver of any subsequent breach. No failure on the part of any 12 13 party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver hereof, nor shall any single or partial exercise of any such right or remedy by such party preclude any other or further exercise thereof or the exercise of any other right or remedy. 24. Cumulative Rights And Remedies. All rights and remedies hereunder are cumulative and are in addition to all other rights and remedies provided by law, agreement or otherwise. Employee's obligations to the Company and the Company's rights and remedies hereunder are in addition to all other obligations of Employee and rights and remedies of the Company created pursuant to any other agreement. 25. Construction. Each party to this Agreement has had the opportunity to review this Agreement with legal counsel. This Agreement shall not be construed or interpreted against any party on the basis that such party drafted or authored a particular provision, parts of or the entirety of this Agreement. 26. Severability. In the event that any provision or provisions of this Agreement is held to be invalid, illegal or unenforceable by any court of law or otherwise, the remaining provisions of this Agreement shall nevertheless continue to be valid, legal and enforceable as though the invalid or unenforceable parts had not been included therein. In addition, in such event the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible with respect to those provisions which were held to be invalid, illegal or unenforceable. 27. Attorneys' Fees and Costs. If any action at law or in equity is brought to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which it may be entitled. 28. GroupMAC Performance Agreement. GroupMAC shall cause the Company to perform each and every obligation to be performed by the Company hereunder. 13 14 IN WITNESS WHEREOF, the Company and Employee have executed this Agreement on the date first above written. GROUPMAC MANAGEMENT CO. By: /s/ Donald L. Luke ------------------------------------- Donald L. Luke President GROUP MAINTENANCE AMERICA CORP. By: /s/ Donald L. Luke ------------------------------------- Donald L. Luke President EMPLOYEE: /s/ J. Patrick Millinor, Jr. ---------------------------------------- J. Patrick Millinor, Jr. 14 15 EXHIBIT A DUTIES OF CHIEF EXECUTIVE OFFICER RESOLVED, that A. It is hereby declared to be the sense of the Board that the duties of the Chief Executive Officer provided for in Section 5.6 of the By-Laws should include particular attention to the following: 1. Develop long range objectives with policies and operating plans to accomplish such goals. 2. Formulate and adopt policies to develop the Company's resources and to provide for successful future management and operation of the business. 3. Assure the soundness and adequacy of the Company's financial structure and financial practices. 4. Define goals, direct the efforts, provide the resources, and appraise the results of the Company's operating managements. 5. Establish and maintain an effective system of communications throughout the Company and with outside financial, business and governmental entities. B. Pursuant to the provisions of Section 5.6 of the By-Laws of the Company, there are hereby imposed upon the Chief Executive Officer the following specific responsibilities, in addition to those provided for in said Section 5.6. 1. To prepare and submit to the Board a plan of operations for the Company for the ensuing year (hereinafter referred to in this resolution as the "Plan"). The term "Company" when used in this resolution shall be deemed to include the Company and its consolidated subsidiaries, unless the context otherwise requires.) The Plan shall consist of the following information concerning the Company for the ensuing year: a statement of estimated profit and loss, a statement of estimated source and application of funds, a capital expenditure budget and an estimated resulting consolidated balance sheet as of the end of such year. The Plan shall be submitted for Board review no later than the first regular Board meeting of the new calendar year. It shall be in sufficient detail to permit the Board to render judgment concerning the propriety of the Plan and the direction that the Company will have taken if the Plan is fully implemented. Upon approval of the Plan by the Board, it shall be the duty of the 1 16 Chief Executive Officer to conduct the business on a basis consistent with the Plan. Any significant deviation from the Plan shall be approved by the Board. 2. To keep the Board currently informed of all occurrences and developments which, in the judgment of the Chief Executive Officer, may have a material effect upon the business or interests of the Company. 3. To submit to the Board on a timely basis monthly financial statements that will permit the Board to monitor the progress of the Plan. 4. To obtain Board authorization of any capital expenditure exceeding $50,000 in amount, and in this connection to submit to the Board such information concerning such expenditures as the Chief Executive Officer considers pertinent; provided, however, the Chief Executive Officer may make, or authorize to be made, a capital expenditure not specifically authorized by the Board whenever in his judgment it is necessary to preserve the property of the Company and the delay incident to obtaining prior approval of the Board of such expenditure would be harmful to the best interests of the Company. Each such emergency expenditure shall thereafter be reported promptly to the Board. As used in this Resolution, the term "capital expenditure" shall include investments and capital leases. 5. To obtain Board authorization of any increase in a specifically authorized capital expenditure when such increase exceeds the lesser of (a) $50,000, or (b) 20% of the amount of such expenditure theretofore specifically authorized. 6. To authorize a capital expenditure not exceeding $50,000 in amount so long as such expenditure is, in the judgment of the Chief Executive Officer, consistent with the approved Plan and the total of all such expenditures during the Plan period is not anticipated to exceed the approved Plan level. 7. To authorize other expenditures and charges relating to the operations of the Company and not involving capital expenditures without further authority from the Board so long as such expenditures are, in the judgment of the Chief Executive Officer, consistent with the approved Plan. 8. To authorize the disposal of fixed assets or investments or other non-current assets of the Company having a depreciated book value, sales price or current market value not in excess of $50,000; provided, that the Chief Executive Officer may sell, exchange or otherwise dispose of such property having such value in excess of $50,000 whenever, in his judgment, the delay incident to obtaining prior approval of the Board or the Executive Committee for such purpose would be harmful to the best interests of the Company. Each such action shall thereafter be reported promptly to the Board. 2 17 9. To approve the sale, exchange or disposition of assets not currently in investment accounts without limitations as to price or value. 10. To engage any person (other than as an officer or employee), firm, association or corporation to perform consulting, professional and related services for the Company, other than the Company's independent accounting firm, when the compensation for each separate service does not exceed $50,000 for any twelve-month period, and to obtain Board approval of any amounts in excess thereof. C. The following additional authority and responsibilities are hereby conferred upon the Chief Executive Officer: 1. He shall vote the stock of each consolidated subsidiary held by the Company so as to require the prior approval of the Company, in its capacity as a shareholder of such subsidiary, (i) of any capital expenditure by such subsidiary or by any of its subsidiaries which, pursuant to the terms of this resolution, would require specific Board authorization if made by the Company, and (ii) of any action by such subsidiary or by any of its subsidiaries that is described in Paragraph B of this resolution and that would require prior approval if taken by the Company. Any approval of the Company provided for in this Paragraph C shall be evidenced by resolution of the Board. 2. Any discretionary authority granted by this resolution to the Chief Executive Officer concerning action affecting the Company may be exercised by the chief executive officer of any consolidated subsidiary concerning action affecting such subsidiary, subject to the control and approval of the Chief Executive Officer. 3. The Chief Executive Officer or any other officer of the Company designated by the Board shall have the authority to (i) appoint agents of the Company to exercise in the name and on behalf of the Company the powers and rights that the Company may have as the holder of stock or other securities in any other company, (ii) vote or consent in respect of such stock or securities, and (iii) execute or cause to be executed in the name and on behalf of the Company and under its corporate seal, or otherwise, such written proxies, powers of attorney or other instruments as he may deem necessary or proper in order that the Company may exercise such powers and rights. Subject to the provisions of this Paragraph C, the Chief Executive Officer or any such designated officer may instruct any officer or any such designated officer may instruct any person as to the manner of exercising such powers and rights. The Chief Executive Officer may designate any officer of a consolidated subsidiary of the Company who shall have comparable authority to act with respect to stock or other securities owned by such subsidiary. 3 18 4. The identities and qualifications of the persons proposed to be nominated as chief executive officers of the Company's principal subsidiaries and divisions shall be reviewed with the Board by the Chief Executive Officer prior to the selection of such persons for nomination to such offices. 4 19 EXHIBIT B DEFINITIONS "Annual Base Salary" means the salary of Employee in effect at the relevant time determined in accordance with Section 4(a) hereof. "Affiliate" means, with respect to any Person, each other Person who controls, is controlled by, or is under common control with the Person specified. "Cause" when used in connection with the termination of employment with the Company, means the termination of Employee's employment by the Company by reason of (i) the conviction of Employee of a crime involving moral turpitude by a court of competent jurisdiction as to which no further appeal can be taken; (ii) the proven commission by Employee of an act of fraud upon the Company; (iii) the willful and proven misappropriation of any funds or property of the Company by Employee; (iv) the willful, continued and unreasonable failure by Employee to perform material duties assigned to Employee and agreed to by Employee after reasonable notice and opportunity to cure such performance; (v) the knowing engagement by Employee in any direct, material conflict of interest with the Company without compliance with the Company's conflict of interest policy, if any, then in effect; (vi) the knowing engagement by Employee, without the written approval of the Board of Directors of the Company, in any activity which competes with the business of the Company or any of its Affiliates or which would result in a material injury to the Company or any of its Affiliates; or (vii) the knowing engagement in any activity which would constitute a material violation of the provisions of the Company's Insider Trading Policy or Business Ethics Policy, if any, then in effect. "Change of Control" means (i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Designated Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended, (the "Exchange Act")) of 30% or more of either (1) the then outstanding shares of Common Stock of GroupMAC (the "Outstanding GroupMAC Common Stock") or (2) the combined voting power of the then outstanding voting securities of GroupMAC entitled to vote generally in the election of directors (the "Outstanding GroupMAC Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change in Control if: (i) any acquisition of Common Stock of GroupMAC or voting securities of GroupMAC directly from GroupMAC 1 20 (excluding an acquisition by virtue of the exercise of a conversion privilege), (ii) any acquisition of Common Stock of GroupMAC or voting securities of GroupMAC by GroupMAC, (iii) any acquisition of Common Stock of GroupMAC or voting securities of GroupMAC by any employee benefit plan(s) (or related trust(s)) sponsored or maintained by GroupMAC or any corporation controlled by GroupMAC and approved by the Incumbent Board, or (iv) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, immediately following such reorganization, merger or consolidation, the conditions described in clauses (1), (2) and (3) of paragraph (iii) of this definition are satisfied; or (ii) individuals who, as of the date hereof, constitute the entire Board of Directors of GroupMAC (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of GroupMAC (the "Board"); provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by GroupMAC's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either (1) an actual or threatened election contest (as such terms are used in Rule 14a-11 of the Regulation 14A promulgated under the Exchange Act), or an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board or (2) a plan or agreement to replace a majority of the members of the Board then comprising the Incumbent Board; or (iii) approval by the shareholders of GroupMAC of a reorganization, merger or consolidation, in each case unless, immediately following such reorganization, merger or consolidation, (1) more than 60% (or such greater percentage as may be approved by the Incumbent Board) of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation (including, without limitation, a corporation which as a result of such transaction owns GroupMAC through one or more subsidiaries) and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding GroupMAC Common Stock and Outstanding GroupMAC Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership immediately prior to such reorganization, merger or consolidation, of the Outstanding GroupMAC Common Stock or Outstanding GroupMAC Voting Securities, as the case may be, (2) no 2 21 Designated Person (excluding GroupMAC, any employee benefit plan(s) (or related trust(s)) of GroupMAC and/or its subsidiaries or any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 30% (or such lesser percentage as may be approved by the Incumbent Board) or more of the Outstanding GroupMAC Common Stock or Outstanding GroupMAC Voting Securities, as the case may be) beneficially owns, directly or indirectly, 30% (or such lesser percentage as may be approved by the Incumbent Board) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (3) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (iv) approval by the shareholders of GroupMAC of (1) a complete liquidation or dissolution of GroupMAC or (2) the sale or other disposition of all or substantially all of the assets of GroupMAC, other than to a corporation, with respect to which immediately following such sale or other disposition, (A) more than 60% (or such greater percentage as may be approved by the Incumbent Board) of the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were beneficial owners, respectively, of the Outstanding GroupMAC Common Stock and Outstanding GroupMAC Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding GroupMAC Common Stock and Outstanding GroupMAC Voting Securities, as the case may be, (B) no Designated Person (excluding GroupMAC and any employee benefit plan (or related trust) of GroupMAC and/or its subsidiaries or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 30% (or such lesser percentage as may be approved by the Incumbent Board) or more of the Outstanding GroupMAC Stock or Outstanding GroupMAC Voting Securities, as the case may be) beneficially owns, directly or indirectly, 30% (or such lesser percentage as may be approved by the Incumbent Board) or more of, respectively, the then outstanding shares of common stock of such corporation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (C) at least a majority of the members of the board of directors of such 3 22 corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of GroupMAC. "Confidential Information" includes information conveyed or assigned to the Company or any of its Affiliates by Employee or conceived, compiled, created, developed, discovered or obtained by Employee from and during his employment relationship with the Company, whether solely by Employee or jointly with others, which concerns the affairs of the Company or its Affiliates and which the Company could reasonably be expected to desire be held in confidence, or the disclosure of which would likely be embarrassing, detrimental or disadvantageous to the Company or its Affiliates and without limiting the generality of the foregoing includes information relating to inventions, and the trade secrets, technologies, algorithms, products, services, finances, business plans, marketing plans, legal affairs, supplier lists, client lists, potential clients, business prospects, business opportunities, personnel assignments, contracts and assets of the Company or any of its Affiliates and information made available to the Company or any of its Affiliates by other parties under a confidential relationship. Confidential Information, however, shall not include information (a) which is, at the time in question, in the public domain through no wrongful act of Employee, (b) which is later disclosed to Employee by one not under obligations of confidentiality to the Company or any of its Affiliates or Employee, (c) which is required by court or governmental order, law or regulation to be disclosed, or (d) which the Company has expressly given Employee the right to disclose pursuant to written agreement. "Good Reason" means the occurrence of any of the following events: (a) Employee is assigned any duties materially inconsistent with, or diminished from, Employee's positions, duties, responsibilities and status with the Company or GroupMAC immediately prior to the commencement of the Protected Period, or Employee's status, reporting responsibilities, titles or offices are materially diminished from those in effect immediately prior to the commencement of the Protected Period, or Employee is removed from or is not re-elected or appointed to any of such responsibilities, titles, offices or positions, or Employee's duties and responsibilities are materially increased without a corresponding increase in the Employee's compensation (such increase in compensation to be satisfactory to Employee, in Employee's sole reasonable judgment), except in each case in connection with the termination of Employee's employment by the Company for Cause or on account of disability, or as a result of the Employee's death, or by the Employee for other than Good Reason; provided, however, that Good Reason shall not be triggered under this subsection (a) by an insubstantial action not taken in bad faith and that is remedied by the Company promptly after receipt of written notice from Employee; or 4 23 (b) Employee's Annual Base Salary is reduced from that in effect immediately prior to the commencement of the Protected Period or as the same may be increased from time to time thereafter; or (c) The Company or GroupMAC fails to continue in effect any benefit or compensation plan, including, but not limited to, the annual bonus plan, qualified retirement plan, executive life insurance plan and/or health and accident plan, in which Employee is participating immediately prior to the commencement of the Protected Period, or plans providing, in the sole reasonable judgment of Employee, Employee with substantially similar benefits, or the Company or GroupMAC takes any action that would adversely affect Employee's participation in or reduce Employee's benefits under any of such plans (excluding any such action by the Company or GroupMAC that is required by law); or (d) The Company's or GroupMAC's principal executive offices are relocated at any time following a Change in Control more than 20 miles from where such offices were located immediately prior to such Change in Control; or (e) The Company requires Employee at any time following a Change in Control to relocate more than 20 miles from where Employee's office was located immediately prior to such Change in Control; or (f) The amendment, modification or repeal of any provision of the Certificate of Incorporation or Bylaws of the Company or GroupMAC that was in effect immediately prior to the commencement of the Protected Period, if such amendment, modification or repeal would materially adversely affect Employee's rights to indemnification by the Company; or (g) The Company or GroupMAC shall violate or breach any obligation of the Company or GroupMAC in effect immediately prior to the commencement of the Protected Period (regardless whether such obligation be set forth in the Bylaws of the Company or GroupMAC and/or in this Agreement or any other separate agreement entered into between the Company or GroupMAC and Employee) to indemnify Employee against any claim, loss, expense or liability sustained or incurred by Employee by reason, in whole or in part, of the fact that Employee is or was an officer or director of the Company; or (h) The Company or GroupMAC shall violate or breach any other material obligation of the Company or GroupMAC owing to Employee in effect immediately prior to the commencement of the Protected Period relating to Employee's employment with the Company, but only if such violation or breach (if capable of being remedied) shall 5 24 continue unremedied for more than 15 days after written notice thereof is given by Employee to the Company; or (i) The Board (or any nominating committee of the Board) fails to recommend and support Employee's re-election as a director of the Company or GroupMAC if the Employee is a director of the Company or GroupMAC immediately prior to the commencement of the Protected Period; or (j) The Company and GroupMAC shall fail to keep in force, for the benefit of Employee, directors' and officers' insurance policy with coverage amounts and scope equal to the coverage amounts and scope under such policy immediately prior to the commencement of the Protected Period; or (k) The Company or GroupMAC fail to obtain from a successor (including a successor to a material portion of the business or assets of the Company or GroupMAC) a satisfactory assumption in writing of the Company's or GroupMAC's obligations under this Agreement; or (l) The Company fails to provide Employee with office space, related facilities and support personnel (including, but not limited to, administrative and secretarial assistance) that are both commensurate with the Employee's position and Employee's responsibilities to and position with the Company immediately prior to the Change of Control and not materially dissimilar to the office space, related facilities and support personnel provided to other executive officers of the Company; or (m) The Company or GroupMAC notifies Employee of the Company's or GroupMAC's intention not to observe or perform one or more of the obligations of the Company or GroupMAC under this Agreement. "Person" means any individual, corporation, trust, partnership, limited partnership, foundation, association, limited liability company, joint stock association or other legal entity. "Protected Period" means the period of time beginning with a Change of Control and ending 24 months following such Change of Control; provided, however, that if any event has occurred which could reasonably be expected to result in a Change of Control and a Change of Control occurs within six months after such event, then the Protected Period will begin on the date of such event. "Restricted Period" means the period beginning on the date of the termination of Employee's employment with the Company and its Affiliates and ending as follows, as applicable: 6 25 (i) six months after the termination of Employee's employment; (ii) one year after the termination of Employee's employment, if Employee is entitled to benefits under Section 10(b)(ii); or (iii) two years after the termination of Employee's employment, if Employee is entitled to benefits under Section 10(b)(i). 7 EX-10.5 7 FORM OF EMPLOYMENT AGMT. - DONALD L. LUKE 1 EXHIBIT 10.5 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement") is effective as of March 1, 1998, between GroupMAC Management Co., a Delaware corporation (the "Company"), Group Maintenance America Corp., a Texas corporation ("GroupMAC"), and Donald L. Luke, a resident of Harris County, Texas ("Employee"). W I T N E S S E T H: WHEREAS, Employee and GroupMAC entered into an Employment Agreement dated as of August 1, 1997 (the "Original Employment Agreement"); and WHEREAS, GroupMAC assigned the Original Employment Agreement to the Company, and Employee became an employee of the Company, effective as of March 1, 1998; and WHEREAS, the Company, GroupMAC and Employee desire to amend and restate the Original Employment Agreement to reflect the effects of the foregoing assignment, to modify the provisions of the Original Employment Agreement pertaining to changes of control of GroupMAC, and to make certain other changes; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereby amend and restate the Original Employment Agreement as follows: 1. Employment. The Company hereby agrees to employ Employee and the Employee hereby agrees to work for the Company as its President. Employee's principal office shall be in Houston, Texas. Employee will report to the Chief Executive Officer of the Company. Subject to consultation with the Chief Executive Officer, Employee will have direct supervisory responsibility and authority for the matters set forth on Exhibit A. So long as he is employed by the Company, Employee shall devote his skill, energy and best efforts to the faithful discharge of his duties as an employee of the Company. In providing services hereunder, Employee shall comply with and follow all directives, policies, standards and regulations from time to time established by the Board of Directors of the Company. 2. Term of Employment. Employee's employment by the Company pursuant to this Agreement shall continue in effect for an initial term of three years from the date of this Agreement, unless terminated in accordance with Section 7, and shall be extended from year to year thereafter, unless terminated effective as of the end of the initial term or any one-year extension thereafter by written notice from the Company to Employee, or by written notice of Employee to the Company, delivered not less than 90 days prior to the end of the initial term, or the anniversary of such one-year extension, as applicable. 2 3. Representations and Warranties. Employee represents and warrants that he is under no contractual or other restrictions or obligations that will significantly limit his activities on behalf of the Company or will prohibit or limit the disclosure or use of by Employee of any information which directly or indirectly relates to the nature of the Company or the services to be rendered by Employee under this Agreement. 4. Compensation. Subject to the provisions of Section 10, Employee will be entitled to the compensation and benefits set forth in this Section 4. (a) During 1998, the Company shall pay Employee an Annual Base Salary, payable semi-monthly, in equal semi-monthly installments at a rate equal to $150,000 per year. In each subsequent calendar year during the term of this Agreement, the Company shall pay to Employee an Annual Base Salary equal to the greater of (i) his salary for the immediately preceding year or (ii) if determined otherwise by the Board of Directors, an Annual Base Salary determined by the Board of Directors following its annual salary and performance review. (b) Employee shall be eligible to receive an annual bonus pursuant to the incentive compensation program in effect from time to time for executive employees of GroupMAC. The target bonus of Employee under such program shall not be less than 100% of Employee's annual salary. (c) All payments of salary and other compensation to Employee shall be made after deduction of any taxes required to be withheld with respect thereto under applicable federal and state laws. 5. Fringe Benefits; Expenses. (a) Employee shall participate in all employee benefit plans sponsored by the Company or GroupMAC for its executive employees, including but not limited to stock bonus, stock purchase and stock option plans, sick leave and disability leave, health insurance, dental insurance and pension and/or profit sharing plans; provided, however, that except as provided below, the nature, amount and limitations of such plans shall be determined from time to time by the Board of Directors of the Company. (b) The Company will reimburse Employee for all reasonable business expenses incurred by Employee in the scope of his employment; provided, however, that Employee must file expense reports with respect to such expenses in accordance with the Company's policies as are in effect from time to time. (c) Employee shall be entitled to a minimum of three weeks paid vacation during each calendar year, increasing to four weeks at August 1, 2000, and to paid holidays and other paid leave set forth in the Company's policies in effect from time to time. Any vacation not used during a calendar year may not be used during any subsequent period. 2 3 (d) The Company will pay all license fees, occupation taxes and reasonable educational costs and expenses necessary to maintain Employee's good standing under any professional licenses. (e) The Company shall use reasonable efforts to provide (i) life insurance payable to Employee's designated beneficiary in an amount at least three times Employee's Annual Base Salary and (ii) disability insurance on behalf of Employee which, as a goal, shall provide for salary continuation in the event of permanent disability in an amount not less than 60% of Employee's Annual Base Salary, it being acknowledged by Employee that GroupMAC's present disability insurance provides a limit of $5,000 per month. 6. Indemnification and Insurance. The Company shall indemnify Employee with respect to matters relating to his services as an officer and/or director of the Company or any of its Affiliates to the extent set forth in the Company's By-laws and in accordance with the terms of any other indemnification which is generally applicable to executive officers of the Company or any of its Affiliates that may be provided by the Company or any such Affiliate from time to time. The foregoing indemnity is contractual and will survive any adverse amendment to or repeal of the By-laws. The Company will also cover Employee under a policy of officers' and directors' liability insurance providing coverage that is comparable to that provided now or hereafter to any other executive officer or director of the Company or GroupMAC. The provisions of this Section 6 will survive the termination of Employee's employment for any reason and the term of this Agreement. 7. Change in Control of the Company. (a) If a Change of Control (as defined in Exhibit B attached hereto) occurs and if during the Protected Period (as defined in Exhibit B attached hereto), Employee's employment is terminated, whether by the Company or by Employee, then the Company shall promptly pay or otherwise provide to Employee the benefits set forth below: (i) An amount equal to two times the sum of (A) Employee's Annual Base Salary then in effect and (B) Employee's target bonus for the calendar year in which such termination occurs (assuming the maximum target bonus will be earned for such year), payable in a single lump sum by certified or bank cashier's check within five days of such termination; and (ii) An amount equal to the product of (A) the maximum monthly premium payment that may be charged to continue coverage for Employee and Employee's dependents under the Company's health insurance plan under COBRA, multiplied by (B) 24 months. Notwithstanding the foregoing, Employee shall not be entitled to any benefits under this Section 7 if such termination is (i) due to Employee's death, (ii) by the Company on account of Employee's Disability as provided in Section 10(d) below, (iii) by the Company for Cause as 3 4 provided in Section 10(a) below, or (iv) by Employee for other than Good Reason (as defined in Exhibit B attached hereto) as provided in Section 10 below. 8. Gross-Up of Parachute Payments. (a) To provide Employee with adequate protection in connection with his ongoing employment with the Company, this Agreement provides Employee with various benefits in the event of termination of Employee's employment with the Company during the Protected Period. If Employee's employment is terminated following a "change of control" of GroupMAC or the Company, within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), a portion of those benefits could be characterized as "excess parachute payments" within the meaning of Section 280G of the Code. The parties hereto acknowledge that the protections set forth in this Section 8 are important, and it is agreed that Employee should not have to bear the burden of any excise tax that might be levied under Section 4999 of the Code or any similar provision of state or federal law, in the event that any portion of the benefits payable to Employee pursuant to this Agreement are treated as an excess parachute payment. The parties, therefore, have agreed as set forth in this Section 8. (b) Anything in this Agreement to the contrary notwithstanding, if it shall be determined that any payment or distribution (including income recognized by Employee upon the early vesting of restricted property or upon the exercise of options whose exercise date has been accelerated) by GroupMAC or the Company or any other person to or for the benefit of Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any similar provision of state or federal law or any interest or penalties are incurred by Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Company shall pay an additional payment (a "Gross-Up Payment") in an amount such that after payment by Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed on the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed on the Payments. (c) Subject to the provisions of Section 8(d) below, all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by an independent public accounting firm with a national reputation selected by Employee (the "Accounting Firm") that shall provide detailed supporting calculations both to the Company and to Employee within 15 business days after the receipt of notice from Employee that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the change in control of GroupMAC or the Company, Employee shall appoint another nationally recognized accounting firm to make the determinations required hereunder 4 5 (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. The Company shall indemnify and hold harmless Employee, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed on Employee as a result of such payment of fees and expenses. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to Employee within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by Employee, it shall furnish Employee with a written opinion that failure to report the Excise Tax on Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding on the Company and Employee. As a result of uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments may not have been made by the Company that should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. If the Company exhausts its remedies pursuant to Section 8(d) below and Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Employee. (d) Employee shall notify the Company in writing of any claim (including any threatened tax lien related to or based on any such claims) by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 10 business days after Employee is informed in writing of such claim (or threatened lien) and shall apprize the Company of the nature of such claim and the date on which such claim is requested to be paid. Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which Employee gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due or such tax lien would be imposed). If the Company notifies Employee in writing prior to the expiration of such period that it desires to contest such claim (or threatened lien), Employee shall: (i) give the Company any information reasonably requested by the Company relating to such claims (or threatened lien); (ii) take such action in connection with contesting such claim (or threatened lien) as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim (or threatened lien); and (iv) permit the Company to participate in any proceedings relating to such claims (or threatened lien); 5 6 provided, however, that the Company shall bear and pay directly all costs and expenses (including legal fees and expenses, additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(d), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Employee shall prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as Employee shall determine (but in no event shall the Company permit or direct Employee to allow a tax lien to be imposed on Employee's property); provided, further, that if the Company directs Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Employee, on an interest-free basis, and shall indemnify and hold Employee harmless on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. In addition, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder, and Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (e) If, after the receipt by Employee of an amount advanced by the Company pursuant to Section 8(d), Employee becomes entitled to receive any refund with respect to such claim, Employee shall (subject to the Company's complying with the requirements of Section 8(d) above) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If after the receipt by Employee of an amount advanced by the Company pursuant to Section 8(d) above, a determination is made that Employee shall not be entitled to any refund with respect to such claim and the Company does not notify Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Acceleration of Options. Upon the occurrence of any of the following events at a time while Employee holds outstanding options to purchase GroupMAC Common Stock, all such options shall be immediately exercisable in full: (i) the acquisition described in clause (i) of the definition of Change of Control; 6 7 (ii) the change in the composition of the Board of Directors described in clause (ii) of such definition; (iii) the shareholder approval or adoption described in clauses (iii) or (iv) of such definition; (iv) the commencement date of any tender offer subject to the terms of Section 14(d)(1) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or exchange offer subject to the terms of the Securities Act of 1933, as amended (the "Securities Act"), or any other offer or series of offers to purchase for cash, or to exchange for securities of a person other than the Company or any of its affiliates, GroupMAC Common Stock by any "person" or "group" of persons (as such terms are used in Rule 13d of the Exchange Act) other than an offer or offers by GroupMAC or by employee benefit plan(s) sponsored by GroupMAC ("Tender Offer") if such person or group would hold 30% or more of the then outstanding GroupMAC Common Stock after the consummation of the Tender Offer. 10. Termination. (a) Either the Company or Employee may terminate Employee's employment hereunder at any time by delivery of written notice by the terminating party of its election to terminate this Agreement to the other party. Promptly after such termination of employment, the Company shall pay to Employee an amount equal to the sum of (i) Employee's earned but unpaid Annual Base Salary through the date of termination of employment at the rate in effect at the time of such termination, (ii) vacation pay earned but not taken to the date of such termination, and (iii) all other amounts previously deferred by Employee or earned but not paid as of such date under all Company incentive or deferred compensation plans or programs. (b) If the Company terminates Employee's employment without Cause, then the Company shall promptly pay to Employee the following amounts in addition to those set forth in Section 10(a): (i) If such termination occurred during a Protected Period, the amounts set forth in Section 7; and (ii) If such termination did not occur during a Protected Period, (A) an amount equal to 12 months' compensation at Employee's then current Annual Base Salary, payable semimonthly, and shall continue to provide benefits in the kind and amounts provided up to the date of termination for a 12 month period including, without limitation, continuation of any Company-paid benefits as described in Section 5 for Employee and Employee's family; 7 8 (B) any portion of Employee's bonus for the calendar year prior to the calendar year in which such termination of employment occurs which has not been paid; and (C) an additional amount equal to a prorated portion of Employee's target bonus for the calendar year in which such termination occurs, assuming that Employee would have earned the maximum target bonus for such year (such prorated portion to be determined based upon the number of working days Employee is employed by the Company during the calendar year in which Employee's employment is terminated divided by the total number of working days in such calendar year). The amounts described in clauses (B) and (C) above shall be paid promptly after the determination of such bonuses, but in any event prior to the publication of financial statements of GroupMAC for such year. (c) If Employee terminates Employee's employment for Good Reason during a Protected Period, then the Company shall promptly pay to Employee, in addition to the amounts set forth in Section 10(a), the amounts set forth in Section 7. (d) In the event this Agreement is terminated by the Company without Cause or by Employee with Good Reason, Employee agrees to accept, in full settlement of any and all claims, losses, damages and other demands that Employee may have arising out of such termination, as liquidated damages and not as a penalty, the payments set forth in this Agreement. Employee hereby waives any and all rights Employee may have to bring any cause of action or proceeding contesting any termination without Cause or Good Reason; provided, however, that such waiver shall not be deemed to affect Employee's rights to enforce any other obligations of the Company. Under no circumstances shall Employee be entitled to any compensation or confirmation of any benefits under this Agreement for any period of time following Employee's date of termination if Employee's termination is for Cause. (e) If at any time during the term of this Agreement, Employee is unable due to physical or mental disability, to perform effectively Employee's duties hereunder, the Company shall continue payment of compensation as provided in Section 4 during the first 12 month period of such disability to the extent not covered by the Company's disability insurance policies. Upon the expiration of such 12 month period, the Company, at its sole option, may continue payment of Employee's salary for such additional periods as the Company elects, or may terminate this Agreement without any further obligations hereunder. If Employee should die during the term of this Agreement, Employee's employment and the Company's obligations hereunder shall terminate as of the end of the month in which Employee's death occurs. (f) So long as Employee receives a severance as provided in Section 10(b) above, Employee shall sign any lock-up letters, standstill agreements, or other similar documentation required by an underwriter in connection with a public offering of securities by GroupMAC or 8 9 take other actions reasonably related thereto as requested by the Board of Directors of GroupMAC; provided, however, that the period of any such lock-up or standstill agreements shall not exceed the shorter of (i) 180 days or (ii) the balance of the severance period. Failure to take any such action shall cause Employee to forfeit any further rights to the salary continuation payments in Section 10(b)(ii). In addition, in such event the Company can seek and obtain specific performance of such covenant, including any injunction requiring execution thereof, and Employee hereby appoints the then current president of the Company to sign any such documents on his behalf so long as such documents are prepared on the same basis as other shareholders generally or as all management shareholders. 11. No Mitigation Obligation. The Company acknowledges that it will be difficult and may be impossible (i) for Employee to find reasonably comparable employment following termination of Employee's employment and (ii) to measure the amount of damages which Employee may suffer as a result of the termination of Employee's employment. Accordingly, all amounts paid to Employee under this Agreement following Employee's termination of employment are acknowledged by the Company to be reasonable and to be liquidated damages, and Employee will not be required to mitigate the amount of such payments by seeking other employment or otherwise, nor will any profits, income, earnings or other benefits from any source whatsoever (including from other employment) create any mitigation, offset, reduction or any other obligation on the part of Employee under this Agreement. 12. Covenant Not to Compete. (a) During Employee's employment with the Company or any of its Affiliates (as defined in Exhibit B attached hereto) and thereafter during the Restricted Period (as defined in Exhibit B attached hereto), regardless of the reason for the termination of Employee's employment, Employee will not engage in or carry on, directly or indirectly, either for himself or as a member of a partnership or as a shareholder, investor, owner, officer or director of a company or other entity, or as an employee, agent, associate or consultant of any person, partnership, corporation or other entity, any business in any State of the United States or in any other part of the world that directly competes with any services or products produced, sold, conducted, developed, or in the process of development by the Company or its Affiliates on the date of termination of Employee's employment. (b) Notwithstanding the foregoing, Employee shall be permitted to engage in the following activities which could otherwise be covered by Section 12(a): (i) the ownership of less than one percent of any class of securities of a publicly-held company whose gross assets exceed $100,000,000; and (ii) working in the indoor air quality, heating, ventilation and air conditioning or plumbing maintenance services industry if such activities are not in direct competition with any products or services produced, sold, conducted, developed, or in the process of 9 10 development by the Company or its Affiliates on the date of termination of Employee's employment. (c) Employee acknowledges that the limitations set forth herein on his rights to compete with the Company and its Affiliates are reasonable and necessary for the protection of the Company and its Affiliates. In this regard, Employee specifically agrees that the limitations as to period of time and geographic area, as well as all other restrictions on his activities specified herein, are reasonable and necessary for the protection of the Company and its Affiliates. In particular, Employee acknowledges that the parties anticipate that Employee will be actively seeking markets for the products and services of the Company and its Affiliates throughout the United States during Employee's employment with the Company. (d) In the event that there shall be any violation of the covenant not to compete set forth in this Section 12, then the time limitation thereof shall be extended for a period of time equal to the period of time during which such violation continues; and in the event the Company is required to seek relief from such violation in any court, board of arbitration or other tribunal, then the covenant shall be extended for a period of time equal to the pendency of such proceedings, including all appeals. (e) Employee agrees that the remedy at law for any breach by Employee of this Section 12 will be inadequate and that the Company shall also be entitled to injunctive relief. 13. Confidential Information. During the term of this Agreement, and for five years after Employee's termination of employment, Employee shall not use or disclose, without the prior written consent of the Company, Confidential Information (as defined in Exhibit B attached hereto) relating to the Company or any of its Affiliates, and upon termination of Employee's employment will return to the Company all written materials in Employee's possession embodying such Confidential Information. Employee will promptly disclose to the Company all Confidential Information, as well as any business opportunity which comes to Employee's attention during the term of Employee's employment with the Company. Employee will not take advantage of or divert any business opportunity for the benefit of Employee or any other Person (as defined in Exhibit B attached hereto) without the prior written consent of the Company. Employee agrees that the remedy at law for any breach by him of this Section 13 will be inadequate and that the Company shall also be entitled to injunctive relief. 14. Intellectual Property. (a) To the extent they relate to, or result from, directly or indirectly, the actual or anticipated operations of the Company or any of its Affiliates, Employee hereby agrees that all patents, trademarks, copyrights, trade secrets, and other intellectual property rights, all inventions, whether or not patentable, and any product, drawing, design, recording, writing, literary work or other author's work, in any other tangible form developed in whole or in part by Employee during the term of this Agreement, or otherwise developed, purchased or acquired by 10 11 the Company or any of its Affiliates, shall be the exclusive property of the Company or such Affiliate, as the case may be ("Intellectual Property"). (b) Employee will hold all Intellectual Property in trust for the Company and will deliver all Intellectual Property in his possession or control to the Company upon request and, in any event, at the end of his employment with the Company. (c) Employee shall assign and does hereby assign to the Company all property rights that he may now or hereafter have in the Intellectual Property. Employee shall take such action, including, but not limited to, the execution, acknowledgment, delivery and assistance in preparation of documents, and the giving of testimony, as may be requested by the Company to evidence, transfer, vest or confirm the Company's right, title and interest in the Intellectual Property. (d) Employee will not contest the validity of any invention, any copyright, any trademark or any mask work registration owned by or vesting in the Company or any of its Affiliates under this Agreement. 15. Definitions. As used in this Agreement, the terms defined in Exhibit B have the means assigned to such terms in such exhibit. 16. Notices. All notices, requests, demands and other communications required by or permitted under this Agreement shall be in writing and shall be sufficiently delivered if delivered by hand, by courier service, or sent by registered or certified mail, postage prepaid, to the parties at their respective addresses listed below: (a) If to Employee: 25 Wynden Oaks Drive Houston, Texas 77056 (b) If to the Company or GroupMAC: GroupMAC Management Co. 8 Greenway Plaza, Suite 1500 Houston, Texas 77046 Attention: Corporate Secretary Facsimile: 713-626-4788 Any party may change such party's address by such notice to the other parties. 17. No Set-off Rights. The Company's obligations to make the payments and provide the benefits required by this Agreement and otherwise to perform its obligations 11 12 hereunder shall not be affected by any set off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against Employee or others. 18. Assignment. This Agreement is personal to Employee, and Employee shall not assign any of Employee's rights or delegate any of Employee's duties hereunder without the prior written consent of the Company. Neither Employee nor Employee's spouse will have the right to commute, encumber, or otherwise dispose of any payments under this Agreement. The Company shall have the right to assign this Agreement to a successor in interest in connection with a merger, sale of substantially all assets, or the like; provided however, that an assignment of this Agreement to an entity with operations, products or services outside of the industries in which the Company is then active shall not be deemed to expand the scope of Employee's covenant not to compete with such operations, products or services without Employee's written consent. The Company shall require any Person who is the successor (whether direct or indirect, by purchase, merger, consolidation, reorganization, or otherwise) to all or substantially all of the business and/or assets of the Company or GroupMAC to expressly assume and agree to perform, by a written agreement in form and substance reasonably satisfactory to Employee, all of the obligations of the Company and GroupMAC under this Agreement. As used in this Agreement, the term "Company" means the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, written agreement, or otherwise, and the term "GroupMAC" means GroupMAC as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, written agreement or otherwise. 19. Survival. The provisions of this Agreement shall survive the termination of Employee's employment hereunder in accordance with their terms. 20. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of Texas without regard to the choice-of-law principles thereof. 21. Binding Upon Successors. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, legal representatives, successors and permitted assigns. 22. Entire Agreement. This Agreement constitutes the entire agreement between the Company and Employee with respect to the terms of employment of Employee by the Company and supersedes all prior agreements and understandings, whether written or oral, between them concerning such terms of employment. 23. Amendments and Waivers. This Agreement may be amended, modified or supplemented, and any obligation hereunder may be waived, only by a written instrument executed by the parties hereto. The waiver by either party of a breach of any provision of this Agreement shall not operate as a waiver of any subsequent breach. No failure on the part of any 12 13 party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver hereof, nor shall any single or partial exercise of any such right or remedy by such party preclude any other or further exercise thereof or the exercise of any other right or remedy. 24. Cumulative Rights And Remedies. All rights and remedies hereunder are cumulative and are in addition to all other rights and remedies provided by law, agreement or otherwise. Employee's obligations to the Company and the Company's rights and remedies hereunder are in addition to all other obligations of Employee and rights and remedies of the Company created pursuant to any other agreement. 25. Construction. Each party to this Agreement has had the opportunity to review this Agreement with legal counsel. This Agreement shall not be construed or interpreted against any party on the basis that such party drafted or authored a particular provision, parts of or the entirety of this Agreement. 26. Severability. In the event that any provision or provisions of this Agreement is held to be invalid, illegal or unenforceable by any court of law or otherwise, the remaining provisions of this Agreement shall nevertheless continue to be valid, legal and enforceable as though the invalid or unenforceable parts had not been included therein. In addition, in such event the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible with respect to those provisions which were held to be invalid, illegal or unenforceable. 27. Attorneys' Fees and Costs. If any action at law or in equity is brought to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which it may be entitled. 28. GroupMAC Performance Agreement. GroupMAC shall cause the Company to perform each and every obligation to be performed by the Company hereunder. 13 14 IN WITNESS WHEREOF, the Company and Employee have executed this Agreement on the date first above written. GROUPMAC MANAGEMENT CO. By: /s/ J. Patrick Millinor, Jr. ----------------------------------------- J. Patrick Millinor, Jr. Chief Executive Officer GROUP MAINTENANCE AMERICA CORP. By: /s/ J. Patrick Millinor, Jr. ----------------------------------------- J. Patrick Millinor, Jr. Chief Executive Officer EMPLOYEE: /s/ Donald L. Luke -------------------------------------------- Donald L. Luke 14 15 EXHIBIT A DUTIES AND FUNCTIONS Employee will report to the Chief Executive Officer and serve as a member of the Board. He will serve as the senior Operations professional, and as a result, all operating companies will report directly to him as displayed in the attached organization chart, as the same may be changed by the Chief Executive Officer and/or Board of Directors of the Company. His principal responsibility will be to begin to build a cohesive operating unit out of the acquired companies, directing them to achieve maximum financial results, while preserving the local identities of each company. He will begin to implement programs that offer synergies in both operating efficiencies and cost savings across a broad range of functions such as finance, insurance and purchasing. Simultaneously, he should develop a "best practices" program that will impact areas such as training, safety and quality. Working with the existing management at the company level, the Chief Operating Officer will, over time, need to put into place a succession management plan at each company. He will also focus on increasing market share through cross-marketing and other initiatives. The Chief Operating Officer will be responsible for working closely with other senior management, including finance, legal and acquisitions. Given the growth strategy of the Company, he will assist in both identifying and conducting due diligence on acquisition targets. Finally, as a member of senior management, he will be a key participant in all strategic and tactical matters affecting the Company. A-1 16 EXHIBIT B DEFINITIONS "Annual Base Salary" means the salary of Employee in effect at the relevant time determined in accordance with Section 4(a) hereof. "Affiliate" means, with respect to any Person, each other Person who controls, is controlled by, or is under common control with the Person specified. "Cause" when used in connection with the termination of employment with the Company, means the termination of Employee's employment by the Company by reason of (i) the conviction of Employee of a crime involving moral turpitude by a court of competent jurisdiction as to which no further appeal can be taken; (ii) the proven commission by Employee of an act of fraud upon the Company; (iii) the willful and proven misappropriation of any funds or property of the Company by Employee; (iv) the willful, continued and unreasonable failure by Employee to perform material duties assigned to Employee and agreed to by Employee after reasonable notice and opportunity to cure such performance; (v) the knowing engagement by Employee in any direct, material conflict of interest with the Company without compliance with the Company's conflict of interest policy, if any, then in effect; (vi) the knowing engagement by Employee, without the written approval of the Board of Directors of the Company, in any activity which competes with the business of the Company or any of its Affiliates or which would result in a material injury to the Company or any of its Affiliates; or (vii) the knowing engagement in any activity which would constitute a material violation of the provisions of the Company's Insider Trading Policy or Business Ethics Policy, if any, then in effect. "Change of Control" means (i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Designated Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended, (the "Exchange Act")) of 30% or more of either (1) the then outstanding shares of Common Stock of GroupMAC (the "Outstanding GroupMAC Common Stock") or (2) the combined voting power of the then outstanding voting securities of GroupMAC entitled to vote generally in the election of directors (the "Outstanding GroupMAC Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change in Control if: (i) any acquisition of Common Stock of GroupMAC or voting securities of GroupMAC directly from GroupMAC (excluding an acquisition by virtue of the exercise of a conversion privilege), (ii) any acquisition of Common Stock of GroupMAC or voting securities of GroupMAC by GroupMAC, (iii) any acquisition of Common Stock of GroupMAC or voting securities of GroupMAC by any employee benefit plan(s) (or related trust(s)) sponsored or maintained by GroupMAC or any corporation controlled by GroupMAC and approved by the B-1 17 Incumbent Board, or (iv) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, immediately following such reorganization, merger or consolidation, the conditions described in clauses (1), (2) and (3) of paragraph (iii) of this definition are satisfied; or (ii) individuals who, as of the date hereof, constitute the entire Board of Directors of GroupMAC (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of GroupMAC (the "Board"); provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by GroupMAC's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either (1) an actual or threatened election contest (as such terms are used in Rule 14a-11 of the Regulation 14A promulgated under the Exchange Act), or an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board or (2) a plan or agreement to replace a majority of the members of the Board then comprising the Incumbent Board; or (iii) approval by the shareholders of GroupMAC of a reorganization, merger or consolidation, in each case unless, immediately following such reorganization, merger or consolidation, (1) more than 60% (or such greater percentage as may be approved by the Incumbent Board) of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation (including, without limitation, a corporation which as a result of such transaction owns GroupMAC through one or more subsidiaries) and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding GroupMAC Common Stock and Outstanding GroupMAC Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership immediately prior to such reorganization, merger or consolidation, of the Outstanding GroupMAC Common Stock or Outstanding GroupMAC Voting Securities, as the case may be, (2) no Designated Person (excluding GroupMAC, any employee benefit plan(s) (or related trust(s)) of GroupMAC and/or its subsidiaries or any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 30% (or such lesser percentage as may be approved by the Incumbent Board) or more of the Outstanding GroupMAC Common Stock or Outstanding GroupMAC Voting Securities, as the case may be) beneficially owns, directly or indirectly, 30% (or such lesser percentage as may be approved by the Incumbent Board) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (3) at least a majority of the B-2 18 members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (iv) approval by the shareholders of GroupMAC of (1) a complete liquidation or dissolution of GroupMAC or (2) the sale or other disposition of all or substantially all of the assets of GroupMAC, other than to a corporation, with respect to which immediately following such sale or other disposition, (A) more than 60% (or such greater percentage as may be approved by the Incumbent Board) of the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were beneficial owners, respectively, of the Outstanding GroupMAC Common Stock and Outstanding GroupMAC Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding GroupMAC Common Stock and Outstanding GroupMAC Voting Securities, as the case may be, (B) no Designated Person (excluding GroupMAC and any employee benefit plan (or related trust) of GroupMAC and/or its subsidiaries or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 30% (or such lesser percentage as may be approved by the Incumbent Board) or more of the Outstanding GroupMAC Stock or Outstanding GroupMAC Voting Securities, as the case may be) beneficially owns, directly or indirectly, 30% (or such lesser percentage as may be approved by the Incumbent Board) or more of, respectively, the then outstanding shares of common stock of such corporation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of GroupMAC. "Confidential Information" includes information conveyed or assigned to the Company or any of its Affiliates by Employee or conceived, compiled, created, developed, discovered or obtained by Employee from and during his employment relationship with the Company, whether solely by Employee or jointly with others, which concerns the affairs of the Company or its Affiliates and which the Company could reasonably be expected to desire be held in confidence, or the disclosure of which would likely be embarrassing, detrimental or disadvantageous to the Company or its Affiliates and without limiting the generality of the foregoing includes information relating to inventions, and the trade secrets, technologies, algorithms, products, services, finances, business plans, marketing plans, legal affairs, supplier lists, client lists, potential clients, business prospects, business opportunities, personnel assignments, contracts and assets of the Company or any of its Affiliates and information made available to the Company or any of its Affiliates by other parties under a confidential relationship. Confidential Information, B-3 19 however, shall not include information (a) which is, at the time in question, in the public domain through no wrongful act of Employee, (b) which is later disclosed to Employee by one not under obligations of confidentiality to the Company or any of its Affiliates or Employee, (c) which is required by court or governmental order, law or regulation to be disclosed, or (d) which the Company has expressly given Employee the right to disclose pursuant to written agreement. "Good Reason" means the occurrence of any of the following events: (a) Employee is assigned any duties materially inconsistent with, or diminished from, Employee's positions, duties, responsibilities and status with the Company or GroupMAC immediately prior to the commencement of the Protected Period, or Employee's status, reporting responsibilities, titles or offices are materially diminished from those in effect immediately prior to the commencement of the Protected Period, or Employee is removed from or is not re-elected or appointed to any of such responsibilities, titles, offices or positions, or Employee's duties and responsibilities are materially increased without a corresponding increase in the Employee's compensation (such increase in compensation to be satisfactory to Employee, in Employee's sole reasonable judgment), except in each case in connection with the termination of Employee's employment by the Company for Cause or on account of disability, or as a result of the Employee's death, or by the Employee for other than Good Reason; provided, however, that Good Reason shall not be triggered under this subsection (a) by an insubstantial action not taken in bad faith and that is remedied by the Company promptly after receipt of written notice from Employee; or (b) Employee's Annual Base Salary is reduced from that in effect immediately prior to the commencement of the Protected Period or as the same may be increased from time to time thereafter; or (c) The Company or GroupMAC fails to continue in effect any benefit or compensation plan, including, but not limited to, the annual bonus plan, qualified retirement plan, executive life insurance plan and/or health and accident plan, in which Employee is participating immediately prior to the commencement of the Protected Period, or plans providing, in the sole reasonable judgment of Employee, Employee with substantially similar benefits, or the Company or GroupMAC takes any action that would adversely affect Employee's participation in or reduce Employee's benefits under any of such plans (excluding any such action by the Company or GroupMAC that is required by law); or (d) The Company's or GroupMAC's principal executive offices are relocated at any time following a Change in Control more than 20 miles from where such offices were located immediately prior to such Change in Control; or (e) The Company requires Employee at any time following a Change in Control to relocate more than 20 miles from where Employee's office was located immediately prior to such Change in Control; or B-4 20 (f) The amendment, modification or repeal of any provision of the Certificate of Incorporation or Bylaws of the Company or GroupMAC that was in effect immediately prior to the commencement of the Protected Period, if such amendment, modification or repeal would materially adversely affect Employee's rights to indemnification by the Company; or (g) The Company or GroupMAC shall violate or breach any obligation of the Company or GroupMAC in effect immediately prior to the commencement of the Protected Period (regardless whether such obligation be set forth in the Bylaws of the Company or GroupMAC and/or in this Agreement or any other separate agreement entered into between the Company or GroupMAC and Employee) to indemnify Employee against any claim, loss, expense or liability sustained or incurred by Employee by reason, in whole or in part, of the fact that Employee is or was an officer or director of the Company; or (h) The Company or GroupMAC shall violate or breach any other material obligation of the Company or GroupMAC owing to Employee in effect immediately prior to the commencement of the Protected Period relating to Employee's employment with the Company, but only if such violation or breach (if capable of being remedied) shall continue unremedied for more than 15 days after written notice thereof is given by Employee to the Company; or (i) The Board (or any nominating committee of the Board) fails to recommend and support Employee's re-election as a director of the Company or GroupMAC if the Employee is a director of the Company or GroupMAC immediately prior to the commencement of the Protected Period; or (j) The Company and GroupMAC shall fail to keep in force, for the benefit of Employee, directors' and officers' insurance policy with coverage amounts and scope equal to the coverage amounts and scope under such policy immediately prior to the commencement of the Protected Period; or (k) The Company or GroupMAC fail to obtain from a successor (including a successor to a material portion of the business or assets of the Company or GroupMAC) a satisfactory assumption in writing of the Company's or GroupMAC's obligations under this Agreement; or (l) The Company fails to provide Employee with office space, related facilities and support personnel (including, but not limited to, administrative and secretarial assistance) that are both commensurate with the Employee's position and Employee's responsibilities to and position with the Company immediately prior to the Change of Control and not materially dissimilar to the office space, related facilities and support personnel provided to other executive officers of the Company; or (m) The Company or GroupMAC notifies Employee of the Company's or GroupMAC's intention not to observe or perform one or more of the obligations of the Company or GroupMAC under this Agreement. B-5 21 "Person" means any individual, corporation, trust, partnership, limited partnership, foundation, association, limited liability company, joint stock association or other legal entity. "Protected Period" means the period of time beginning with a Change of Control and ending 24 months following such Change of Control; provided, however, that if any event has occurred which could reasonably be expected to result in a Change of Control and a Change of Control occurs within six months after such event, then the Protected Period will begin on the date of such event. "Restricted Period" means the period beginning on the date of the termination of Employee's employment with the Company and its Affiliates and ending as follows, as applicable: (i) six months after the termination of Employee's employment; (ii) one year after the termination of Employee's employment, if Employee is entitled to benefits under Section 10(b)(ii); or (iii) two years after the termination of Employee's employment, if Employee is entitled to benefits under Section 10(b)(i). B-6 EX-10.7 8 FORM OF EMPLOYMENT AGMT. - RONALD D. BRYANT 1 EXHIBIT 10.7 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is made as of November 13, 1997 by and between Masters, Inc., (the "Company"), a Maryland corporation and a subsidiary of Group Maintenance America Corp., a Texas corporation ("GroupMAC"), and Ronald D. Bryant, an individual resident of the State of Maryland ("Employee"). 1. Employment. The Company hereby agrees to employ the Employee and the Employee hereby agrees to work for the Company upon the terms and conditions set forth herein. 2. Term of Employment. This Agreement shall continue in effect for an initial term of three (3) years from the date of this Agreement and may continue for additional one year periods upon the mutual written agreement of the Company and the Employee, unless terminated in accordance with Section 6. 3. Scope of Duties; Representations and Warranties. (a) The Employee will have such duties as are assigned or delegated to the Employee by the Board of Directors of the Company and will initially serve as the President of the Company. The Employee will devote his entire business time, attention, skills, and energy exclusively to the business of the Company, and will use his best efforts to promote the success of the Company's business, and will cooperate fully with the Board of Directors in the advancement of the best interests of the Company. If the Employee is elected as a director of the Company or as a director or officer of any of its affiliates, the Employee will fulfill his duties as such director or officer without additional compensation. (b) The Employee represents and warrants that the execution and delivery by the Employee of this Agreement do not, and the performance by the Employee of the Employee's obligations hereunder will not, with or without the giving of notice or the passage of time, or both: (i) violate any judgment, writ, injunction, or order of any court, arbitrator, or governmental agency applicable to the Employee, (ii) conflict with, result in the breach of any provisions of or the termination of, or constitute a default under, any agreement to which the Employee is a party or by which the Employee is or may be bound. 4. Compensation. (a) The Company shall initially pay the Employee an annual base salary of $150,000, subject to adjustment as provided below, which will be payable in equal periodic 2 installments according to the Company's customary payroll practices, but no less frequently than monthly. Employee's base salary will be reviewed by the Board of Directors of the Company not less frequently than annually, and may be adjusted upward or downward in the sole discretion of the Board of Directors of the Company, but in no event will Employee's base salary be less than $150,000 per year. The Company agrees to provide a vehicle comparable to the Employee's present vehicle and all reasonable costs associated therewith for maintenance, gasoline and insurance. (b) All payments of salary and other compensation to the Employee shall be made after deduction of any taxes and other amounts which are required to be withheld with respect thereto under applicable federal and state laws. 5. Fringe Benefits; Expenses. (a) So long as the Employee is employed by the Company, the Employee shall participate in all employee benefit plans sponsored by the Company for its executive employees, including but not limited to vacation policy, sick leave and disability leave, life insurance, health insurance, dental insurance, and stock ownership and/or profit sharing plans; provided, however, that the nature, amount and limitations of such plans shall be determined from time to time by the Board of Directors of the Company. (b) The Company shall pay the Employee for all reasonable business expenses incurred by the Employee in the scope of his employment; provided, however, that the Employee must file expense reports with respect to such expenses in accordance with the Company's policies as are in effect from time to time. (c) The Employee shall be entitled to a minimum of 4 weeks paid vacation in accordance with the vacation policies of the Company in effect from time to time. The Employee will also be entitled to the paid holidays and other paid leave set forth in the Company's policies. Vacation days earned during any calendar year that are not used by the Employee by the end of the following calendar year will be forfeited. 6. Termination. Employee agrees that this Agreement may be terminated by the Company with or without "Cause" at any time, subject to the terms of this Section 6. Such termination shall be effective upon delivery of written notice to Employee of the Company's election to terminate this Agreement under this Section 6. (a) Definition of "Cause". When used in connection with the termination of employment with the Company, "Cause" shall mean: (i) Employee's breach of his obligations under this Agreement; (ii) Employee's failure to adhere to any written Company policy after the Employee has been given a reasonable opportunity to comply with such policy or cure his failure to comply; (iii) the conviction of or the entering of a guilty plea or plea of no contest with respect to, a felony, the equivalent thereof, or any other crime which results in Employee's imprisonment if such imprisonment effects Employee's performance hereunder; (iv) the commission by the Employee of an act of fraud upon the Company or any of its affiliates; (v) the misappropriation (or attempted -2- 3 misappropriation) or any funds or property of the Company or any of its affiliates by the Employee; (vi) the failure by the Employee to perform duties assigned to him after reasonable notice and opportunity to cure such performance; (vii) the engagement by the Employee in any direct, material conflict of interest with the Company without compliance with the Company's conflict of interest policy, if any, then in effect; (viii) the engagement by the Employee, without the written approval of the Board of Directors of the Company, in any activity which competes with the business of the Company or any of its affiliates or which would result in a material injury to the Company or any of its affiliates; (ix) the engagement by the Employee in any activity which would constitute a material violation of the provisions of the Company's or GroupMAC's Insider Trading Policy or Business Ethics Policy, if any, then in effect, or (x) the failure by the Employee to sign any lock-up letters, standstill agreements, or other similar documentation required by an underwriter in connection with a public offering of securities by the Company or GroupMAC or to take other actions reasonably related thereto as requested by the Board of Directors of the Company. (b) Termination for Cause or Resignation. If the Company terminates Employee's employment for Cause or the Employee voluntarily resigns, the Company shall pay the Employee's base salary earned through the date of termination, but all rights to any other compensation or benefits arising hereunder shall be canceled and terminated in all respects concurrently with such termination of employment; provided that Employee may elect to continue to participate, at Employee's own expense, in such health insurance and other benefits as to which the opportunity for continuing participation is mandated by applicable laws. (c) Termination Without Cause. In the event that the Employee's employment is terminated by the Company without Cause, the Company shall, subject to the terms of subsections (d) and (e) of this Section 6 below, and only if and as long as Employee is not in breach of his obligations under this Agreement, (i) pay to the Employee an amount equal to 12 months compensation at his then current base salary payable in a lump sum, (ii) continue to provide benefits in the kind and amounts provided up to the date of termination for such 12 month period, including continuation of any Company-paid benefits as described in Section 5 for Employee and his family. (d) Disability; Death. If at any time during the term of this Agreement, Employee is unable due to physical or mental disability to perform effectively his duties hereunder, the Company shall continue payment of compensation as provided in Section 4 during the first 12 months of such disability to the extent not covered by the Company's disability insurance policies. Upon the expiration of such 12-month period, the Company, at its sole option, may continue payment of Employee's salary for such additional periods as the Company elects, or may terminate this Agreement without further obligations hereunder. If Employee should die during the term of this Agreement, Employee's employment and the Company's obligations hereunder shall terminate as of the end of the month in which Employee's death occurs and there will be no salary and benefit continuation period. (e) Securities Matters. Employee agrees that he will sign any lock-up letters, standstill agreements, or other similar documentation required by an underwriter in connection with a public offering of securities by the Company or GroupMAC, or take other actions reasonably -3- 4 related thereto as requested by the Board of Directors of the Company. Failure to take any such action shall be "Cause" for termination, or if termination has already occurred, shall cause Employee to forfeit any further rights to the salary continuation or other payments that would otherwise be payable to Employee. In addition, Employee agrees that in such event the Company can seek and obtain specific performance of such covenant, including any injunction requiring execution of such documents and the taking of such actions, and the Employee hereby appoints the then current president of the Company to sign any such documents on his behalf so long as such documents are prepared on the same basis as other management shareholders generally. (f) Waiver and Release. In the event that employment is terminated by the Company without Cause, Employee agrees to accept, in full settlement of any and all claims, losses, damages and other demands which Employee may have arising out of such termination, as liquidated damages and not as a penalty, the applicable amounts payable to Employee as set forth in this Section 6. Employee hereby waives any and all rights he may have to bring any cause of action or proceeding contesting any termination without Cause. Under no circumstances shall Employee be entitled to any compensation or confirmation of any benefits under this Agreement for any period of time following his date of termination if his termination is for Cause. 7. Covenant Not to Compete. (a) During the term of this Agreement, Employee will not compete with the Company or its affiliates, directly or indirectly, either for himself or as a member of a partnership or as a stockholder (except as a stockholder of less than one percent (1%) of the issued and outstanding stock of a publicly-held company whose gross assets exceed one hundred million dollars), investor, owner, officer or director of a company or other entity, or as an employee, agent, associate or consultant of any person, partnership, corporation or other entity, in any business in competition with that carried on by the Company or its affiliates. (b) Employee further agrees that, for the period from the date hereof to the later to occur of (i) five (5) years after the date hereof or (ii) two (2) years from and after the date of termination of Employee's employment under this Agreement, regardless of the reason for such termination, he will neither represent any other company nor engage in or carry on (directly or indirectly, either for himself or as a member of a partnership or as a stockholder (other than as a stockholder of less than one percent (1%) of the issued and outstanding stock of a publicly-held company whose gross assets exceed one hundred million dollars), investor, owner, officer or director of a company or other entity, or as an employee, agent, associate or consultant of any person, partnership, corporation or other entity) any business which engages in the installation, construction or maintenance of heating, ventilation, air conditioning systems, fire sprinklers or plumbing within a 100 mile radius of Gaithersburg, Maryland. Notwithstanding the foregoing, nothing herein shall prevent Employee from working in the indoor air quality, heating, ventilation and air conditioning, plumbing or electrical contracting industries, provided that such activities are in areas not in direct competition with any services or products produced, sold, conducted, developed, or in the process of development by the Company or its affiliates on the date of termination of Employee's employment. -4- 5 (c) Employee agrees that the limitations set forth herein on his rights to compete with the Company and its affiliates are reasonable and necessary for the protection of the Company and its affiliates. In this regard, Employee specifically agrees that the limitations as to period of time and geographic area, as well as all other restrictions on his activities specified herein, are reasonable and necessary for the protection of the Company and its affiliates. Employee agrees that, in the event that the provisions of this Agreement should ever be deemed to exceed the scope of business, time or geographic limitations permitted by applicable law, such provisions shall be and are hereby reformed to the maximum scope of business, time or geographic limitations permitted by applicable law. (d) Employee agrees that the remedy at law for any breach by him of this Section 7 will be inadequate and that the Company shall also be entitled to injunctive relief. 8. Confidential Information and Results of Service. Employee agrees that during the term of this Agreement, and for five (5) years after his termination of employment, he will not make use of or disclose, without the prior consent of the Company, Confidential Information (as hereinafter defined) relating to the Company, or any of its affiliates, and further agrees that he will return to the Company at the termination of the Employee's employment or at any other time at the Company's request all written materials in his possession embodying such Confidential Information. For purposes of this Agreement, "Confidential Information" includes information conveyed or assigned to the Company by Employee or conceived, compiled, created, developed, discovered or obtained by Employee from and during his employment relationship with the Company, whether solely by the Employee or jointly with others, which concerns the affairs of the Company or its affiliates and which the Company could reasonably be expected to desire be held in confidence, or the disclosure of which would likely be embarrassing, detrimental or disadvantageous to the Company or its affiliates and without limiting the generality of the foregoing, such information includes information relating to inventions, and the trade secrets, technologies, algorithms, products, services, finances, business plans, marketing plans, legal affairs, supplier lists, client lists, potential clients, business prospects, business opportunities, personnel assignments, contracts and assets of the Company and information made available to the Company by other parties under a confidential relationship. Confidential Information, however, shall not include information (i) which is, at the time in question, in the public domain through no wrongful act of Employee, (ii) which is later disclosed to Employee by one not under obligations of confidentiality to the Company or Employee, (iii) which is required by court or governmental order, law or regulation to be disclosed, or (iv) which the Company has expressly given Employee the right to disclose pursuant to written agreement. Employee agrees that the remedy at law for any breach by him of this Section 8 will be inadequate and that the Company shall also be entitled to injunctive relief. 9. Employee Inventions. Each Employee Invention (as defined below) will belong exclusively to the Company. The Employee acknowledges that all of the Employee's writing, works of authorship, specially commissioned works, and other Employee Inventions are works made for hire and the property of the Company, including any copyrights, patents, or other intellectual property rights pertaining thereto. If it is determined that any such works are not works made for hire, the Employee hereby assigns to the Company all of the Employee's right, title, and interest, -5- 6 including all rights of copyright, patent, and other intellectual property rights, to or in such Employee Inventions. The Employee covenants that he will promptly: (a) disclose to the Company in writing any Employee Invention; (b) assign to the Company or to a party designated by the Company, at the Company's request and without additional compensation, all of the Employee's right to the Employee Invention for the United States and all foreign jurisdictions; (c) execute and deliver to the Company such applications, assignments, and other documents as the Company may request in order to apply for and obtain patents or other registrations with respect to any Employee Invention in the United States and any foreign jurisdictions; (d) sign all other papers necessary to carry out the above obligations; and (e) give testimony and render any other assistance but without expense to the Employee in support of the Company's rights to any Employee Invention. For purposes of this Agreement, "Employee Invention" means any idea, invention, technique, modification, process, or improvement (whether patentable or not), any industrial design (whether registerable or not), any mask work, however fixed or encoded, that is suitable to be fixed or programmed in a semiconductor product (whether recordable or not), and any work of authorship (whether or not copyright protection may be obtained for it) created, conceived, developed, purchased or acquired by Employee, either solely or in conjunction with others, during the term of Employee's employment with the Company that relates in any way to, or is useful in any manner in, the business then being conducted or proposed to be conducted by the Company, and any such item created by the Employee, either solely or in conjunction with others, following termination of the Employee's employment with the Company, that is based upon or uses Confidential Information. 10. Notice. All notices, requests, demands and other communications required by or permitted under this Agreement shall be in writing and shall be sufficiently given if delivered by hand, by courier service, sent by registered mail, postage prepaid, or sent by facsimile (with written confirmation of receipt) to the parties at their respective addresses listed below: (a) If to the Employee: Ronald D. Bryant c/o Masters, Inc. 7891 Beechcraft Avenue Gaithersburg, Maryland 20879 Facsimile No.: (301) 258-7368 -6- 7 (b) If to the Company: Masters, Inc. c/o Group Maintenance America Corp. 1800 West Loop South, Suite 1375 Houston, Texas 77027 Facsimile No. (713) 626-4776 Attn: President Either party may change such party's address by such notice to the other party. 11. Assignment. This Agreement is personal to the Employee, and he shall not assign any of his rights or delegate any of his duties hereunder without the prior written consent of the Company. Neither the Employee nor his spouse will have the right to pledge, encumber, or otherwise dispose of any payments under this Agreement. The Company shall have the right to assign this Agreement to a successor in interest in connection with a merger, sale of substantially all assets, or the like; provided however, that an assignment of this Agreement to an entity with operations, products or services outside of the industries in which the Company or its affiliates is then active shall not be deemed to expand the scope of Employee's covenant not to compete with such operations, products or services without Employee's written consent. 12. Survival. The provisions of this Agreement shall survive the termination of the Employee's employment hereunder in accordance with their terms. 13. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of Maryland. 14. Binding Upon Successors. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, legal representatives, successors and permitted assigns. 15. Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Employee with respect to the terms of employment of the Employee by the Company and supersedes all prior agreements and understandings, whether written or oral, between them concerning such terms of employment. 16. Waiver and Amendments; Cumulative Rights and Remedies. (a) This Agreement may be amended, modified or supplemented, and any obligation hereunder may be waived, only by a written instrument executed by the parties hereto. The waiver by either party of a breach of any provision of this Agreement shall not operate as a waiver of any subsequent breach. -7- 8 (b) No failure on the part of any party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver hereof, nor shall any single or partial exercise of any such right or remedy by such party preclude any other or further exercise thereof or the exercise of any other right or remedy. All rights and remedies hereunder are cumulative and are in addition to all other rights and remedies provided by law, agreement or otherwise. (c) The Employee's obligations to the Company and the Company's rights and remedies hereunder are in addition to all other obligations of the Employee and rights and remedies of the Company created pursuant to any other agreement. 17. Construction. Each party to this Agreement has had the opportunity to review this Agreement with legal counsel. This Agreement shall not be construed or interpreted against any party on the basis that such party drafted or authored a particular provision, parts of or the entirety of this Agreement. 18. Severability. In the event that any provision or provisions of this Agreement is held to be invalid, illegal or unenforceable by any court of law or otherwise, the remaining provisions of this Agreement shall nevertheless continue to be valid, legal and enforceable as though the invalid or unenforceable parts had not been included therein. In addition, in such event the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible with respect to those provisions which were held to be invalid, illegal or unenforceable. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement effective as of the date first above written. COMPANY: MASTERS, INC. By: /s/ J. Patrick Millinor, Jr. ------------------------------------------ Name: J. Patrick Millinor, Jr. Title: Chief Executive Officer EMPLOYEE: /s/ Ronald D. Bryant --------------------------------------------- Ronald D. Bryant -8- EX-10.8 9 CREDIT AGMT. - CHASE BANK, NATIONAL ASSOCIATION 1 EXHIBIT 10.8 SECOND AMENDED AND RESTATED CREDIT AGREEMENT $230,000,000 REVOLVING CREDIT LOAN AMONG GROUP MAINTENANCE AMERICA CORP., AS THE COMPANY, THE SUBSIDIARIES OF THE COMPANY, AS GUARANTORS AND CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, AS THE AGENT BANK OF AMERICA TEXAS, N.A., AS CO-AGENT AND PARIBAS, AS SYNDICATION AGENT AND ABN AMRO BANK, N.V., AS DOCUMENTATION AGENT AND THE BANKS NAMED HEREIN DATED AS OF OCTOBER 15, 1998 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS; ACCOUNTING TERMS; INTERPRETATION ........................ 2 Section 1.01 Definitions .......................................................... 2 Section 1.02 Types of Advances .................................................... 16 Section 1.03 Accounting Terms ..................................................... 16 Section 1.04 Schedules ............................................................ 16 ARTICLE II THE LOANS ............................................................ 16 Section 2.01 The Loans ............................................................ 16 Section 2.02 The Notes ............................................................ 17 Section 2.03 Notice of Advance .................................................... 17 Section 2.04 Disbursement of Funds for Loans ...................................... 17 Section 2.05 Conversions and Continuances ......................................... 18 Section 2.06 Voluntary Prepayments ................................................ 18 Section 2.07 Mandatory Repayments ................................................. 18 Section 2.08 Method and Place of Payment .......................................... 19 Section 2.09 Pro Rata Advances .................................................... 19 Section 2.10 Interest ............................................................. 19 Section 2.11 Interest Periods ..................................................... 20 Section 2.12 Interest Rate Not Ascertainable ...................................... 21 Section 2.13 Legality ............................................................. 21 Section 2.14 Increased Costs, Taxes or Capital Adequacy Requirements .............. 22 Section 2.15 Eurodollar Advance Prepayment and Default Penalties .................. 23 Section 2.16 Additional Costs, Taxes or Similar Requirements ...................... 24 Section 2.17 Tax Forms ............................................................ 24 Section 2.18 Voluntary Reduction of Commitment .................................... 25 Section 2.19 Fees ................................................................. 25 Section 2.20 Extension of Maturity Date ........................................... 25 Section 2.21 Replacement of Banks ................................................. 26 ARTICLE III LETTERS OF CREDIT .................................................... 26 Section 3.01 Letters of Credit .................................................... 26 Section 3.02 Letters of Credit Requests ........................................... 27 Section 3.03 Letter of Credit Participations 28 Section 3.04 Increased Costs ...................................................... 29 Section 3.05 Conflict between Applications and Agreement .......................... 30 ARTICLE IV CONDITIONS PRECEDENT ................................................. 30 Section 4.01 Conditions Precedent to the Initial Advance .......................... 30 Section 4.02 Conditions Precedent to All Credit Events ............................ 32 Section 4.03 Delivery of Documents ................................................ 33
-i- 3 ARTICLE V REPRESENTATIONS AND WARRANTIES ....................................... 33 Section 5.01 Organization and Qualification ....................................... 33 Section 5.02 Authorization and Validity ........................................... 33 Section 5.03 Governmental Consents ................................................ 33 Section 5.04 Conflicting or Adverse Agreements or Restrictions .................... 34 Section 5.05 Title to Assets ...................................................... 34 Section 5.06 Litigation ........................................................... 34 Section 5.07 Financial Statements ................................................. 34 Section 5.08 Default .............................................................. 35 Section 5.09 Investment Company Act ............................................... 35 Section 5.10 Public Utility Holding Company Act ................................... 35 Section 5.11 ERISA ................................................................ 35 Section 5.12 Tax Returns and Payments ............................................. 35 Section 5.13 Environmental Matters ................................................ 35 Section 5.14 Purpose of Loans ..................................................... 36 Section 5.15 Franchises and Other Rights .......................................... 36 Section 5.16 Subsidiaries and Assets .............................................. 36 Section 5.17 Solvency ............................................................. 37 Section 5.18 Year 2000 ............................................................ 37 ARTICLE VI AFFIRMATIVE COVENANTS ................................................ 37 Section 6.01 Information Covenants ................................................ 37 Section 6.02 Books, Records and Inspections ....................................... 39 Section 6.03 Insurance and Maintenance of Properties .............................. 40 Section 6.04 Payment of Taxes ..................................................... 40 Section 6.05 Corporate Existence .................................................. 40 Section 6.06 Compliance with Statutes ............................................. 40 Section 6.07 Material Privileges, Permits, Licenses and Other Rights .............. 41 Section 6.08 ERISA ................................................................ 41 Section 6.09 Additional Subsidiaries .............................................. 41 Section 6.10 Acquisition Agreements ............................................... 41 Section 6.11 Material Contracts ................................................... 42 Section 6.12 Employee Agreements .................................................. 42 ARTICLE VII NEGATIVE COVENANTS ................................................... 42 Section 7.01 Change in Business ................................................... 42 Section 7.02 Consolidation, Merger or Sale of Assets .............................. 42 Section 7.03 Indebtedness ......................................................... 43 Section 7.04 Liens ................................................................ 44 Section 7.05 Investments .......................................................... 45 Section 7.06 Restricted Payments .................................................. 45 Section 7.07 Change in Accounting ................................................. 46 Section 7.08 Certain Indebtedness ................................................. 46
-ii- 4 Section 7.09 Transactions with Affiliates ......................................... 46 Section 7.10 Consolidated Net Worth ............................................... 46 Section 7.11 Funded Debt to EBITDA Ratio .......................................... 46 Section 7.12 Senior Debt to EBITDA Ratio .......................................... 47 Section 7.13 Funded Debt to Capitalization Ratio .................................. 47 Section 7.14 Capital Expenditures ................................................. 47 Section 7.15 Fixed Charge Coverage Ratio .......................................... 47 Section 7.16 Limitations on Acquisitions .......................................... 47 Section 7.17 Subordinated Debt .................................................... 47 ARTICLE VIII GUARANY .............................................................. 48 Section 8.01 Guaranty ............................................................. 48 Section 8.02 Continuing Guaranty .................................................. 48 Section 8.03 Effect of Debtor Relief Laws ......................................... 49 Section 8.04 Waiver of Subrogation ................................................ 50 Section 8.05 Subordination ........................................................ 50 Section 8.06 Waiver ............................................................... 51 Section 8.07 Full Force and Effect ................................................ 51 Section 8.08 Negative Pledge ...................................................... 51 ARTICLE IX EVENTS DEFAULT AND REMEDIES .......................................... 52 Section 9.01 Events of Default .................................................... 52 Section 9.02 Primary Remedies ..................................................... 54 Section 9.03 Other Remedies ....................................................... 54 ARTICLE X THE AGENT ........................................................... 54 Section 10.01 Authorization and Action ............................................ 54 Section 10.02 Agent's Reliance .................................................... 55 Section 10.03 Agent and Affiliates; Chase and Affiliates .......................... 56 Section 10.04 Banks' Credit Decision .............................................. 56 Section 10.05 Agent's Indemnity ................................................... 56 Section 10.06 Successor Agent ..................................................... 57 Section 10.07 Notice of Default ................................................... 58 ARTICLE XI MISCELLANEOUS ....................................................... 58 Section 11.01 Amendments .......................................................... 58 Section 11.02 Notices ............................................................. 58 Section 11.03 No Waiver; Remedies ................................................. 60 Section 11.04 Costs and Expenses .................................................. 60 Section 11.05 Release and Indemnity ............................................... 60 Section 11.06 Right of Setoff ..................................................... 61 Section 11.07 Governing Law ....................................................... 61 Section 11.08 Interest ............................................................ 62
-iii- 5 Section 11.09 Survival of Representations and Warranties .......................... 62 Section 11.10 Successors and Assigns; Participations .............................. 63 Section 11.11 Confidentiality ..................................................... 64 Section 11.12 Pro Rata Treatment .................................................. 65 Section 11.13 Separability ........................................................ 65 Section 11.14 Execution in Counterparts ........................................... 65 Section 11.15 Interpretation ...................................................... 65 Section 11.16 Submission to Jurisdiction .......................................... 66 Section 11.17 Waiver of Jury Trial ................................................ 67 Section 11.18 Final Agreement of The Parties ...................................... 67
-iv- 6
Exhibits and Schedules: - ----------------------- Exhibit 1.01A Administrative Questionnaire Exhibit 1.01B Form of Adoption Agreement Exhibit 2.02 Form of Note Exhibit 2.03 Form of Notice of Advance Exhibit 2.05 Form of Notice of Conversion Exhibit 2.20 Form of Extension Request Exhibit 3.02 Form of Letter of Credit Request Exhibit 4.01(d)(i) Form of Security Agreement Exhibit 4.01(d)(ii) Form of Pledge Agreement Exhibit 4.01(h)(i) Form of Opinion of Borrower's Counsel - Bracewell & Patterson Exhibit 4.01(h)(ii) Form of Opinion of Borrower's Counsel - Randolph W. Bryant Exhibit 11.10(c) Form of Assignment and Acceptance Schedule 5.04 Agreements Schedule 5.06 Litigation Schedule 5.13 Exceptions to Environmental Matters Schedule 5.16 Subsidiaries Schedule 6.03 Existing Insurance Policies Schedule 6.11 Material Contracts Schedule 7.03(b) Existing Indebtedness Schedule 7.04(a) Existing Liens Schedule 7.05(b) Investments
-v- 7 SECOND AMENDED AND RESTATED CREDIT AGREEMENT This SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of October 15, 1998 (this "Agreement") is among GROUP MAINTENANCE AMERICA CORP., a Texas corporation (the "Company"), the Subsidiaries of the Company listed on the signature pages hereto as Guarantors (together with each other Person who subsequently becomes a Guarantor, collectively the "Guarantors"), the banks and other financial institutions listed on the signature pages hereto under the caption "Banks" (together with each other person who becomes a Bank, collectively the "Banks"), BANK OF AMERICA TEXAS, N.A., individually as a Bank and as co-agent, PARIBAS, individually as a Bank and as syndication agent, ABN AMRO BANK, N.V., as a Bank and as documentation agent, and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, individually as a Bank ("Chase") and as agent for the other Banks (in such capacity together with any other Person who becomes the agent, the "Agent"). The Company, the Agent (then known as Texas Commerce Bank National Association) and the banks listed on the signature pages thereto entered into that one certain Credit Agreement dated December 11, 1997 (as amended, the "First Credit Agreement"), relating to the extension of a series of loans with a commitment totaling $75,000,000.00 by said banks to the Company. In 1998, the Company and certain of its subsidiaries, as guarantors, the Agent, the banks and financial institutions listed on the signature pages thereto, ABN Amro Bank, N.V. and Paribas, as co-agents agreed to amend and restate the First Credit Agreement pursuant to the terms and conditions of the Amended and Restated Credit Agreement dated June 12, 1998 (the "Amended and Restated Credit Agreement" and, together with the First Credit Agreement, the "Prior Credit Agreement"), relating to the extension of a series of loans with a commitment totaling $125,000,000.00 by said banks to the Company. The Company has now requested the Agent and the Banks to amend and restate the prior Credit Agreement to increase the amount of credit that may be extended to Borrower to $230,000,000.00. The Agent and the Banks have agreed to do so, subject to the terms and conditions hereof and wish to execute this document for the purpose of setting forth their amended and restated agreement in regard thereto. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants set forth herein, the Company, the Agent, the Guarantors, and the Banks agree to amend and restate the Prior Credit Agreement as follows: 8 ARTICLE I DEFINITIONS; ACCOUNTING TERMS; INTERPRETATION SECTION 1.01 Definitions . As used in this Agreement, the following terms have the following meanings: "Accounts" means all accounts, accounts receivable or other indebtedness owing to the Company or any Guarantor as consideration for goods sold or services rendered and billed within thirty (30) days of the providing of such goods or services. "Acquisition Agreements" has the meaning set forth in Section 6.10. "Add-Back Adjustments" means, with respect to any Qualified Company and for any specified period, those pro forma adjustments for such period referred to in 17 CFR 210.11-02(b)(6). "Administrative Questionnaire" means the questionnaire attached hereto as Exhibit 1.01A to be completed by each Bank and returned to the Agent. "Adoption Agreement" means an agreement in the form of Exhibit 1.01B pursuant to which one or more Subsidiaries may become a party hereto and to the relevant Security Documents from time to time. "Advance" means an advance, pursuant to a Notice of Advance, comprised of a single Type of Loan from all the Banks (or resulting from a conversion or conversions on the same date having, in the case of Eurodollar Rate Advances, the same Interest Period (except as otherwise provided in this Agreement)), made by all of the Banks concurrently to the Company. "Advance Date" means, with respect to each Advance, the Business Day upon which the proceeds of such Advance are to be made available to the Company. "Affiliate" means any other Person directly or indirectly controlling (including all directors and officers of such Person), controlled by, or under direct or indirect common control with such Person, and any other Person in which such Person's direct or indirect equity interest is 20% or more of the total outstanding equity interests of such Person and any immediate family member (parent, spouse or child) and all spouses of said Persons. "Agent" has the meaning specified in the introduction to this Agreement. "Agreement" has the meaning specified in the introduction to this Agreement. -2- 9 "Alternate Base Rate" means, for any day, a rate per annum (adjusted, to the nearest 1/16 of 1%) equal to the greater of (a) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1% and (b) the Prime Rate in effect on such day. For purposes hereof, the term "Prime Rate" means, as of a particular date, the prime rate of Chase most recently announced by Chase and in effect on such date, automatically fluctuating upward or downward, as the case may be, with and at the time of each change therein without notice to the Company or any other Person, which prime rate may not necessarily represent the lowest or best rate actually charged to a customer. "Federal Funds Effective Rate" means, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three federal funds brokers of recognized standing selected by it. If, for any reason, the Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate, including the inability or failure of the Agent to obtain sufficient quotations in accordance with the terms hereof, the Alternate Base Rate shall be determined without regard to clause (a) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Alternate Base Rate Advance" means any Advance bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II. "Alternative Facility" means, as of any day, the short term, uncommitted working capital loan facility of the Company with any Bank or Affiliate thereof other than those, if any, provided for in the Loan Documents. "Alternative Facilities Advances" means, on any day, the aggregate advances made by any of the Banks under an Alternative Facility which are outstanding as of such day. "Applicable Lending Office" means, with respect to each Bank, such Bank's Domestic Lending Office in the case of an Alternate Base Rate Advance and such Bank's Eurodollar Lending Office in the case of a Eurodollar Rate Advance. "Assignment and Acceptance" has the meaning specified in Section 11.10 (c). "Bank" has the meaning provided in the introduction to this Agreement. "Bankruptcy Code" has the meaning specified in Section 9.01(e). -3- 10 "Board" means the Board of Governors of the Federal Reserve System of the United States (or any successor). "Business Day" means any day (other than a day which is a Saturday, Sunday or legal holiday in the State of Texas) on which most banks are open for business in Houston, Texas. "Capital Expenditures" means, with respect to any Person for any period, the sum of all expenditures (whether paid in cash, capitalized as an asset or accrued as a liability) by such Person and its consolidated Subsidiaries during such period which, in accordance with GAAP, are or should be included in capital expenditures or similar items reflected in the consolidated statement of cash flows of such Person; provided, however, that Capital Expenditures shall not include any such amounts incurred in connection with the Investment in a Qualified Company permitted by Section 7.05. "Capitalization Ratio" means, at any date of determination, the ratio of (i) Funded Debt of the Company and its consolidated Subsidiaries determined on a consolidated basis, to (ii) the sum of Funded Debt of the Company and its consolidated Subsidiaries determined on a consolidated basis plus Consolidated Net Worth. "Capitalized Lease Obligations" means all lease or rental obligations which, pursuant to GAAP, are capitalized for balance sheet purposes. "Change of Control" means either (i) any Unrelated Person, or two or more Unrelated Persons acting in concert, acquire after the date hereof beneficial ownership of 50% or more of the shares of voting stock of the Company outstanding at the time of such acquisition, or (ii) all or substantially all of the assets of the Company are sold after the date hereof in a single transaction or series of related transactions to any Persons, if the effect of such transaction or transactions is to change the Persons controlling the Company. The term "Unrelated Person" shall mean any Person other than a Related Person. A "Related Person" means (i) any Plan or trust for any Plan, and (ii) any wholly-owned Subsidiary of the Company. Any Person who is a party to any stockholders' agreement shall not be considered to be acting in concert with any other party thereto merely because such Person is a party thereto. "Chase" means Chase Bank of Texas, National Association, a national banking association. "Code" means the Internal Revenue Code of 1986 and the regulations promulgated thereunder. -4- 11 "Collateral" means all, or substantially all, of the accounts and inventory of the Company and its domestic Subsidiaries, all as more fully described in the Security Documents. "Commitment" and "Commitments"means the obligation of each of the Banks to enter into and perform this Agreement, to make available the Loans to the Company in the amounts shown on the signature page of each Bank hereto and all other duties and obligations of the Banks hereunder. "Commitment Fee" has the meaning specified in Section 2.19. "Company" has the meaning specified in the introduction to this Agreement. "Consolidated Net Worth" means, as at any date of determination, all items which in conformity with GAAP would be included in the calculation of shareholders' equity on a consolidated balance sheet of the Company as at such date, plus any amounts included on such consolidated balance sheet in respect of the Company's preferred stock, provided the terms of such preferred stock have been approved by the Majority Banks in their sole discretion. "Conversion" or "Convert" (in each case whether or not capitalized) means the changing of a Eurodollar Rate Advance to an Alternate Base Rate Advance or vice versa in accordance with the provisions hereof. "Credit Event" means the making of any Advance or the conversion of any Advance into a Eurodollar Rate Advance. "Default" means the occurrence of any event which with or without the giving of notice or the passage of time or both would become an Event of Default. "Default Rate" means the lesser of (i) the Highest Lawful Rate and (ii) the Alternate Base Rate plus two percent (2%). "Designated Payment Date" means February 28, May 31, August 31 and November 30 of each year; provided, however, if a Designated Payment Date shall be a day which is not a Business Day, such Designated Payment Date shall be the next succeeding Business Day, and such extension of time shall be included in determining the amount to be paid on such date. "Domestic Lending Office" means, with respect to any Bank, the office of such Bank designated from time to time as its "Domestic Lending Office" hereunder. -5- 12 "EBITDA" means, for any period, and determined in accordance with GAAP, the sum of: (a) the consolidated pre tax income of the Company, plus the aggregate amount which was deducted for such period in determining such consolidated pre tax income for (i) interest expense, (ii) depreciation expense, (iii) amortization expense, and (iv) compensation expense relating to the issuance of stock and stock options to employees (to the extent same do not constitute a use of cash); and (b) for each acquisition of a Qualified Company acquired by the Company during the twelve (12) months preceding the date as of which EBITDA is calculated and with respect to the period beginning twelve (12) months prior to the calculation of EBITDA through the date of said acquisition by the Company, the sum of the consolidated pre-tax income of such Qualified Company, plus: (A) the aggregate amount which was deducted for such period in determining such consolidated pre-tax income for (i) interest expense, (ii) depreciation expense, and (iii) amortization expense, and (B) Add-Back Adjustments of such Qualified Company; provided, said pre-acquisition EBITDA shall be included in EBITDA only to the extent any such amount is not included in subparagraph (a) above. "Effective Date" means the date on which all conditions to make an Advance set forth in Section 4.01 are first met or waived in accordance with Section 11.01 hereof. "Eligible Assignee" means (a) any Bank; (b) a commercial bank organized under the laws of the United States, or any state thereof, and having total assets in excess of $1,000,000,000.00; (c) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development or any successor organization, or a political subdivision of any such country, and having total assets in excess of $1,000,000,000.00; provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the Organization for Economic Cooperation and Development or any successor organization; (d) the central bank of any country which is a member of the Organization for Economic Cooperation and Development or any successor organization; and (e) any other bank or similar financial institution approved by the Agent. "Employee Agreements" has the meaning set forth in Section 6.12. "Environmental Laws" means federal, state or local laws, rules or regulations, and any judicial, arbitral or administrative interpretations thereof, including any judicial, arbitral or administrative order, judgment, permit, approval, decision or determination pertaining to conservation or protection of the environment as in effect and enforceable against the Company or any of its Subsidiaries at the time in question, including the Clean Air Act, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), the Federal Water Pollution Control Act, the Occupational Safety and Health Act, the -6- 13 Resource Conservation and Recovery Act, the Safe Drinking Water Act, the Toxic Substances Control Act, the Superfund Amendment and Reauthorization Act of 1986, the Hazardous Materials Transportation Act, and comparable state and local laws, and other environmental conservation and protection laws. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated thereunder. "ERISA Affiliate" means any trade or business (whether or not incorporated) which is either a member of the same "controlled group" or under "common control," within the meaning of Section 414 of the Code and the regulations thereunder, with the Company. "Eurocurrency Liabilities" has the meaning specified in Regulation D as in effect from time to time. "Eurodollar Lending Office" means, with respect to each Bank, the branches or affiliates of such Bank designated as its "Eurodollar Lending Office" from time to time hereunder. "Eurodollar Rate" means, with respect to any Eurodollar Rate Advance, the rate (rounded to the nearest whole multiple of 1/16 of 1%) at which dollar deposits approximately equal in principal amount to the entire portion of such Advance and for a maturity equal to the applicable Interest Period are offered in immediately available funds to the Agent by prime banks in whatever Eurodollar interbank market may be selected by the Agent in its sole and absolute discretion at the time of determination and in accordance with the then usual practice in such market at approximately 10:00 a.m. (Houston, Texas time) two Business Days prior to the commencement of such Interest Period. "Eurodollar Rate Advance" means any Advance bearing interest at a rate determined by reference to the Eurodollar Rate in accordance with the provisions of Article II. "Events of Default" has the meaning specified in Section 9.01. "Execution Date" means October 13, 1998. "Existing Letters of Credit" means all letters of credit issued by Chase, outstanding on the Effective Date and described in Section 3.01(c). "Extension Request" means each request by the Company made pursuant to Section 2.20 for the Banks to extend the Maturity Date. "Federal Funds Effective Rate" has the meaning specified in the definition of the term "Alternate Base Rate." -7- 14 "Fees" has the meaning specified in Section 2.19. "Financials" has the meaning specified in Section 5.07. "Funded Debt" means all indebtedness for borrowed money (including Capitalized Lease Obligations) evidenced by a written document and subject to periodic, required payments of interest and/or principal. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States as set forth in the opinions, statements and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, the Financial Accounting Standards Board and such other Persons who shall be approved by a significant segment of the accounting profession and concurred in by the independent certified public accountants certifying any audited financial statements of the Company. "Guaranteed Obligations" has the meaning specified in Section 8.01. "Guarantors" has the meaning provided in the introduction to this Agreement and, except as otherwise agreed by the Majority Banks and the Company, shall include all of the Subsidiaries of the Company. "Guaranty" means the obligations contained in Article VIII hereof. "Hazardous Materials" means (a) hazardous waste as defined in the Resource Conservation and Recovery Act of 1976, or in any applicable federal, state or local law or regulation, (b) hazardous substances, as defined in CERCLA, or in any applicable state or local law or regulation, (c) gasoline, or any other petroleum product or by-product, (d) toxic substances, as defined in the Toxic Substances Control Act of 1976, or in any applicable federal, state or local law or regulation or (e) insecticides, fungicides, or rodenticides, as defined in the Federal Insecticide, Fungicide, and Rodenticide Act of 1975, or in any applicable federal, state or local law or regulation, as each such Act, statute or regulation may be amended from time to time. "Highest Lawful Rate" means, as to any Bank, the maximum nonusurious rate of interest that, under applicable law, may be contracted for, taken, reserved, charged or received by such Bank on the Loans or under the Loan Documents at any time or from time to time. If the maximum rate of interest which, under applicable law, any of the Banks are permitted to charge the Company on the Loans shall change after the date hereof, to the extent permitted by applicable law, the Highest Lawful Rate shall be automatically increased or decreased, as the case may be, as of the effective time of such change without notice to the Company or any other Person. -8- 15 "Indebtedness" means, without duplication, (a) all indebtedness for borrowed money (whether by loan or the issuance and sale of debt securities) or for the deferred purchase price of property or services, (b) all indebtedness evidenced by bonds, debentures, notes or other similar instruments, (c) all Capitalized Lease Obligations, (d) all obligations to reimburse the issuer of any Letter of Credit for amounts drawn or drawable, and (e) all other items that would be classified as a liability on the Company's balance sheet pursuant to GAAP. "Interest Period" has the meaning specified in Section 2.11. "Issuing Bank" means Chase, in its capacity as a Bank, or such other Bank to which the Company and the Majority Banks subsequently agree. "Investment" means, as applied to any Person, any direct or indirect purchase or other acquisition by such Person of the assets, stock or other securities of any other Person, or any direct or indirect loan, advance or capital contribution by such Person to any other Person, and any other item which would be classified as an "investment" on a balance sheet of such Person, including any direct or indirect contribution by such Person of property or assets to a joint venture, partnership or other business entity in which such Person retains an interest but shall not include demand deposits. "Letter of Credit Fee" has the meaning specified in Section 2.19(c). "Letter of Credit Request" has the meaning specified in Section 3.02(a). "Letters of Credit" has the meaning specified in Section 3.01(a). "Lien" means, when used with respect to any Person, any mortgage, lien, charge, pledge, security interest or encumbrance of any kind (whether voluntary or involuntary and whether imposed or created by operation of law or otherwise) upon, or pledge of, any of its property or assets, whether now owned or hereafter acquired, any capital lease in the nature of the foregoing, any conditional sale agreement or other title retention agreement, in each case, for the purpose, or having the effect, of protecting a creditor against loss or securing the payment or performance of an obligation. "Loan" and "Loans" has the meaning set forth in Section 2.01. "Loan Documents" means this Agreement, the Notes, the Security Documents, the Notice of Advance, and the corporate resolutions authorizing the Loan Documents. "Majority Banks" means Banks holding at least 66b % of the Advances outstanding under the Loans, or, if no Advances are outstanding, Banks holding such percentage of the Total Commitment. -9- 16 "Margin" means, (a) at any time of determination prior to a Public Debt Issuance Event, with respect to Alternate Base Rate Advances, Eurodollar Rate Advances, or Commitment Fees, as applicable, the percentage determined in accordance with the following table:
- ------------------------------------------------------------------------------------------------- Equal to Equal to Equal to Equal to or less than or less than or less than or less than 2.75 to 1.00 2.25 to 1.00 2.00 to 1.00 1.50 to 1.00 and and and and Equal to Funded Debt/ greater than greater than greater than greater than or less than EBITDA Ratio 2.25 to 1.00 2.00 to 1.00 1.50 to 1.00 1.00 to 1.00 1.00 to 1.00 ================================================================================================= Alternate Base Rate Margin .50% .25% 0% 0% 0% - ------------------------------------------------------------------------------------------------- Eurodollar Margin 2.00% 1.75% 1.50% 1.25% 1.00% ================================================================================================= Commitment Fee .375% .375% .375% .25% .25% - -------------------------------------------------------------------------------------------------
and (b) at any time of determination on or after a Public Debt Issuance Event, with respect to Alternate Base Rate Advances, Eurodollar Rate Advances, or Commitment Fees, as applicable, the percentage determined in accordance with the following table:
- --------------------------------------------------------------------------------------------------- Equal to Equal to Equal to Equal to Equal to or or less than or less than or less than or less than Less than 4.00 to 1.00 3.50 to 1.00 2.75 to 1.00 2.00 to 1.00 1.50 to 1.00 and and and and Funded Debt/ greater than greater than greater than greater than EBITDA Ratio 3.50 to 1.00 2.75 to 1.00 2.00 to 1.00 1.50 to 1.00 =================================================================================================== Alternate Base Rate Margin .50% .25% 0% 0% 0% Eurodollar Margin 2.00% 1.75% 1.50% 1.25% 1.00% - --------------------------------------------------------------------------------------------------- Commitment Fee .375% .375% .375% .25% .25% ===================================================================================================
If sufficient information does not exist to calculate the applicable Margin, Eurodollar Rate Advances shall not be available to the Company and the applicable Margin for Alternate Base Rate Advances shall be deemed to be .50%. "Margin Period" means a period commencing three (3) days after the date on which the quarterly or annual financial statements of the Company are required to be delivered pursuant to Section 6.01(a) or Section 6.01(b), as the case may be, and ending three (3) days after the next date a financial statement is required to be so delivered. -10- 17 Material Adverse Effect" means, relative to any occurrence of whatever nature (including any adverse determination in any litigation, arbitration or governmental investigation or proceeding), (a) a material adverse effect on the financial condition, business or operations of the Company and its Subsidiaries taken as a whole or (b) a material impairment of the collective ability of the Company and its Subsidiaries taken as a whole to make payment hereunder or under any Note or the right of any Bank to enforce any of its remedies to collect any amounts owing under the Loan Documents. "Material Contract" means the Contracts listed on Schedule 6.11, as amended from time to time. "Maturity Date" means October 13, 2001, unless accelerated pursuant to Article IX hereof. "Maximum Guaranteed Amount" means for each Guarantor the maximum amount which any Guarantor could pay under the Guaranty without having such payment set aside as a fraudulent transfer or conveyance or similar action under the Bankruptcy Code or any applicable state or foreign law. "Multiemployer Plan" means any plan that is a "multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA). "Note" and "Notes" have the meanings specified in Section 2.02. "Notice of Advance" has the meaning provided in Section 2.03(a). "Notice of Conversion" has the meaning provided in Section 2.05. "Notice of Default" has the meaning specified in Section 9.02. "Obligations" means all the obligations of the Company now or hereafter existing under the Loan Documents, whether for principal, interest, Fees, expenses, indemnification or otherwise. "Other Activities" has the meaning specified in Section 10.03. "Other Financings" has the meaning specified in Section 10.03. "Payment Office" means the office of the Agent located at 1111 Fannin Street, Houston, Texas 77002, or such other office as the Agent may hereafter designate in writing as such to the other parties hereto. -11- 18 "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to all or a substantial portion of its functions under ERISA. "Permitted Investments" means, as to any Person: (a) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than twelve months from the date of acquisition thereof, (b) time deposits and certificates of deposit with maturities of not more than twelve months from the date of acquisition by such Person which deposits or certificates are either: (a) fully insured by the Federal Deposit Insurance Corporation or (b) in any Bank or other commercial bank incorporated in the United States or any U.S. branch of any other commercial bank, in each case having capital, surplus and undivided profits aggregating $100,000,000.00 or more with a long-term unsecured debt rating of at least A- from Standard & Poor's Ratings Group or A3 from Moody's Investors Service, (c) commercial paper issued by any Person incorporated in the United States rated at least A2 or the equivalent thereof by Standard & Poor's Ratings Group or at least P2 or the equivalent thereof by Moody's Investors Service and, in each case, maturing not more than 270 days after the date of issuance, (d) investments in money market mutual funds having assets in excess of $2,000,000,000.00 substantially all of whose assets are comprised of securities of the types described in clauses (a) through (c) above, and (e) repurchase or reverse purchase agreements respecting 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 listed in or meeting the qualifications specified in clause (b) above. "Permitted Liens" means, as to any Person: (a) Liens for taxes, assessments, levies or other governmental charges not yet due or which are being contested in good faith by appropriate proceedings and for which adequate reserves are maintained in accordance with GAAP; (b) Liens in connection with worker's compensation, unemployment insurance or other social security, old age pension or public liability obligations not yet due or which are being contested in good faith by appropriate proceedings and for which adequate reserves are maintained in accordance with GAAP; -12- 19 (c) operator's, vendors', carriers', warehousemen's, repairmen's, mechanics', workers', materialmen's or other like Liens arising by operation of law in the ordinary course of business (or deposits to obtain the release of any such Lien) and securing amounts of $100,000.00 or less or amounts not yet due or which are being contested in good faith by appropriate proceedings and for which adequate reserves are maintained in accordance with GAAP; (d) deposits to secure insurance or adequate self insurance arrangements in the ordinary course of business; (e) deposits and other Liens to secure the performance of bids, tenders, contracts (other than contracts for the payment of indebtedness for borrowed money or the deferred purchase price of goods or services), leases, licenses, franchises, trade contracts, statutory obligations, surety and appeal bonds and performance bonds and other obligations of a like nature incurred in the ordinary course of business; (f) easements, rights of way, covenants, restrictions, reservations, exceptions, encroachments, zoning and similar restrictions and other similar encumbrances (other than to secure the payment of indebtedness for borrowed money or the deferred purchase price of goods or services) or title defects, in each case incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, and which do not in any case singly or in the aggregate materially detract from the value or usefulness of the Property subject thereto for the business conducted by the Company and its Subsidiaries or materially interfere with the ordinary conduct of the business of the Company and its Subsidiaries; (g) bankers' liens arising by operation of law; (h) inchoate Liens arising under ERISA to secure contingent liabilities of the Company and its Subsidiaries; (i) landlord's liens that are subordinated to the Liens in favor of the Agent, unless waived by the Agent; (j) Liens on assets of Subsidiaries to secure indebtedness to the Company provided same are collaterally assigned to the Agent, provided, such Liens may be incurred only to the extent the underlying Indebtedness is otherwise permitted under the terms of this Agreement; (k) Liens on the right to rebates of prepaid insurance premiums financed by third parties on behalf of the Company or any of its Subsidiaries to secure up to $1,000,000.00 outstanding at any time; -13- 20 (l) judgment Liens that do not constitute an Event of Default; and (m) Liens permitted under Section 7.04 (excluding subsection (c) thereof). "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a foreign or domestic state or political subdivision thereof or any agency of such state or subdivision. "Plan" means any employee pension benefit plan (as defined in Section 3(2) of ERISA), subject to Title IV of ERISA or Section 412 of the Code, other than a Multiemployer Plan, with respect to which the Company or an ERISA Affiliate contributes or has an obligation or liability to contribute, including any such plan that may have been terminated. "Pledge Agreement" has the meaning specified in Section 4.01(d)(ii). "Prescribed Forms" shall mean such duly executed form(s) or statement(s), and in such number of copies, which may, from time to time, be prescribed by law and which, pursuant to applicable provisions of the Code or an income tax treaty between the United States and the country of residence of the party providing the form(s) or statement(s), permit each of the Company and the Agent to make payments hereunder for the account of such party free of deduction or withholding of income and other taxes. "Prior Credit Agreement" has the meaning specified in the Introduction hereto on page one. "Property" or "assets" (whether or not capitalized) means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Public Debt Issuance Event" means, the issuance by the Company of Subordinated Debentures, which event shall be deemed to have occurred on the date of such issuance. "Qualified Company" means any Person in the residential or commercial/industrial service industry whose primary business is to provide residential or commercial/industrial services, consisting of heating, ventilation and air conditioning, mechanical, indoor air quality, plumbing, process piping, appliance, electrical, installation, reinstallation and maintenance services. "Regulations A, D, T, U and X" means Regulations A, D, T, U and X of the Board as the same are from time to time in effect, and all official rulings and interpretations thereunder or thereof. -14- 21 "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment (including the abandonment or discarding of barrels, containers and other closed receptacles). "Reportable Event" means an event described in Section 4043(b) of ERISA with respect to a Plan as to which the 30-day notice requirement has not been waived by the PBGC. "Requirements of Environmental Laws" means, as to any Person, the requirements of any applicable Environmental Law relating to or affecting such Person or the condition or operation of such Person's business or its properties, both real and personal. "Reserve Percentage" means, for any Interest Period and for any Bank, the reserve percentage applicable during such Interest Period under regulations issued from time to time by the Board (or if more than one such percentage is so applicable, the daily average for such percentages for those days in such Interest Period during which any such percentage shall be so applicable) for determining the maximum reserve requirement (including any marginal, supplemental or emergency reserves) for such Bank in respect of liabilities or assets consisting of or including Eurocurrency Liabilities. "Responsible Officer" means, with respect to the Company, the president, chief executive officer, chief operating officer, treasurer or chief financial officer of the Company. "Security Agreement" has the meaning specified in Section 4.01(d)(i). "Security Documents" means the documents described in Section 4.01(d) of this Agreement executed by the Company and its Subsidiaries in favor of Chase, as Agent, for the benefit of the Banks, pursuant to the terms hereof. "Senior Debt" means Funded Debt other than Subordinated Debentures and Subordinated Shareholder Debt. "Subordinated Debentures" means subordinated debentures issued by the Company, with a scheduled final maturity of such principal of no sooner than the Maturity Date and containing terms and provisions satisfactory to the Majority Banks in their sole discretion. "Subordinated Shareholder Debt" means any Indebtedness of the Company and its Subsidiaries, subordinated in each instance to the satisfaction of the Agent, owing to any seller of any Qualified Company and incurred in connection with the acquisition of such Qualified Company. "Subsidiary" means, with respect to any Person, (a) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to -15- 22 elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person, directly or indirectly, and (b) any partnership, association, joint venture or other entity in which such Person, directly or indirectly, has greater than 50% of the equity interest. Unless otherwise provided or the context otherwise requires, the term "Subsidiary" or "Subsidiaries" shall mean a Subsidiary or Subsidiaries of the Company. "Total Commitment" means the aggregate Commitments of all Banks totaling a maximum of $230,000,000.00 for all Banks. "Unrelated Person" means any Person who is not a Related Person. "Unutilized Commitment" means the Total Commitment less the sum of outstanding Advances and all issued and outstanding Letters of Credit. SECTION 1.02 Types of Advances. Advances and Loans hereunder are distinguished by "Type". The Type of an Advance refers to the determination whether such Advance is a Eurodollar Rate Advance or an Alternate Base Rate Advance. SECTION 1.03 Accounting Terms. All accounting terms not defined herein shall be construed in accordance with GAAP, as applicable, and all calculations required to be made hereunder and all financial information required to be provided hereunder shall be done or prepared in accordance with GAAP. SECTION 1.04 Schedules. Schedules hereto may be updated by the Company from time to time to reflect transactions and other matters not prohibited by the Loan Documents. ARTICLE II THE LOANS SECTION 2.01 The Loans. Subject to the terms and conditions hereof, each Bank severally agrees at any time and from time to time on and after the Execution Date and prior to the Maturity Date, to make and maintain a revolving credit loan or loans (each a "Loan" and collectively, the "Loans") to the Company not to exceed at any time outstanding the maximum amount of its Commitment, which Loans (i) shall, at the option of the Company, be made and maintained pursuant to one or more Advances comprised of Alternate Base Rate Advances or Eurodollar Rate Advances, provided that, except as otherwise specifically provided herein, all Advances made pursuant to a single Notice of Advance shall be of the same Type, (ii) in the case of Eurodollar Rate Advances, shall be made in the minimum amount of $1,000,000.00 and integral multiples of $100,000.00 and, in the case of Alternate Base Rate Advances, in the minimum amount of $300,000.00 and integral multiples of $100,000.00, or, in either case, the amount of the Unutilized -16- 23 Commitment, (iii) may be repaid and, so long as no Default or Event of Default exists hereunder, reborrowed, at the option of the Company in accordance with the provisions hereof, and (iv) shall, in the aggregate at any time outstanding, not exceed the maximum total amount of the Commitments. There shall be no further Advances after the Maturity Date. SECTION 2.02 The Notes. The Loans shall be evidenced by Notes in favor of each Bank (individually a "Note" and collectively, the "Notes"), substantially in the form of: Exhibit 2.02 hereto. SECTION 2.03 Notice of Advance. Whenever the Company desires an Advance, it shall give written notice thereof (a "Notice of Advance") (or telephonic notice promptly confirmed in writing) to the Agent in the case of an Alternate Base Rate Advance, not later than 10:00 a.m. (Houston, Texas time) on the date of such Advance and in the case of a Eurodollar Rate Advance, not later than 11:00 a.m. (Houston, Texas time) three Business Days prior to the date of such Advance. Each Notice of Advance shall be irrevocable and shall be in the form of Exhibit 2.03 hereto, specifying (i) the aggregate principal amount of the Advance to be made, (ii) the date of such Advance (which shall be a Business Day), (iii) the Type of Advance, and (iv) if the proposed Advance is to be a Eurodollar Rate Advance, the initial Interest Period to be applicable thereto. The Agent shall promptly give the Banks written notice or telephonic notice (promptly confirmed in writing) of each proposed Advance, of each Bank's proportionate share thereof and of the other matters covered by each Notice of Advance. SECTION 2.04 Disbursement of Funds for Loans. No later than 1:00 p.m. (Houston, Texas time) on any Advance Date for Loans, each Bank shall make available its pro rata portion of the amount of such Advance in U.S. dollars and in immediately available funds at the Payment Office. At such time, the Agent shall credit the amounts so received to the general deposit account of the Company maintained with the Agent in immediately available funds. Unless the Agent shall have been notified by any Bank prior to disbursement of the Advance by the Agent that such Bank does not intend to make available to the Agent such Bank's portion of the Advance to be made on such date, the Agent may assume that such Bank has made such amount available to the Agent on such Advance Date and the Agent may, in reliance upon such assumption, make available to the Company a corresponding amount. If such corresponding amount is not in fact made available to the Agent by such Bank and the Agent has made available same to the Company, the Agent shall be entitled to recover such corresponding amount on demand from such Bank. If such Bank does not pay such corresponding amount forthwith upon the Agent's demand therefor, the Agent shall promptly notify the Company, and the Company shall pay such corresponding amount to the Agent within two (2) Business Days after demand therefor. The Agent shall also be entitled to recover from such Bank or the Company, as the case may be, interest on such corresponding amount from the date such corresponding amount was made available by the Agent to the Company to the date such corresponding amount is recovered by the Agent, at a rate per annum equal to the Alternate Base Rate or the Eurodollar Rate plus the applicable Margin, as -17- 24 appropriate. Nothing herein shall be deemed to relieve any Bank from its obligation to fulfill its Commitments hereunder or to prejudice any rights which the Company may have against any Bank as a result of any default by such Bank hereunder. No failure of any Bank hereunder shall relieve any other Bank of its obligations. SECTION 2.05 Conversions and Continuances. The Company shall have the option to convert or continue on any Business Day all or a portion of the outstanding principal amount of one Type of Advance into another Type of Advance, provided, no Advances may be converted into or continued as Eurodollar Rate Advances if a Default or Event of Default is in existence on the date of the conversion. Any continuation of an Advance as the same Type of Advance in the same amount shall be effected by the Company giving notice to the Agent, in writing, or by telephone promptly confirmed in writing, of its intention to continue such Advance as an Advance of the same Type. Each such conversion shall be effected by the Company giving the Agent written notice (each a "Notice of Conversion"), substantially in the form of Exhibit 2.05 hereto, prior to 11:00 a.m. (Houston, Texas time) at least (a) three (3) Business Days prior to the date of such conversion in the case of conversion into or continuance as Eurodollar Rate Advances and (b) prior to 10:00 a.m. (Houston, Texas time) one Business Day prior to the date of conversion in the case of a conversion into Alternate Base Rate Advances, specifying each Advance (or portions thereof) to be so converted and, if to be converted into or continued as Eurodollar Rate Advances, the Interest Period to be initially applicable thereto. The Agent shall thereafter promptly notify each Bank of such Notice of Conversion. SECTION 2.06 Voluntary Prepayments. The Company shall have the right to voluntarily prepay the Loans in whole or in part at any time on the following terms and conditions: no Eurodollar Rate Advance may be prepaid prior to the last day of its Interest Period unless, simultaneously therewith, the Company pays to the Agent for the benefit of the Banks all sums necessary to compensate the Banks for all reasonable costs and expenses actually incurred by the Banks as a result of such prepayment (excluding loss of anticipated profits), as reasonably determined by the Banks, including but not limited to those costs described in Section 2.15 hereof; and each prepayment pursuant to this section shall be applied first, to the payment of accrued and unpaid interest, and then, to the outstanding principal, pro-rata. SECTION 2.07 Mandatory Repayments. The Company shall repay Loans on any day on which the aggregate outstanding principal amount of the Loans plus the amount of all outstanding Alternative Facilities Advances exceeds the Total Commitment in the amount of such excess. The aggregate amount under the Notes (and all accrued, unpaid interest) shall be due and payable, and the Total Commitment shall terminate, on the Maturity Date. SECTION 2.08 Method and Place of Payment. Except as otherwise specifically provided herein, all payments under this Agreement due from the Company shall be made to the Agent for the benefit of the Banks not later than 1:00 p.m. (Houston, Texas time) on the date when due and shall be made in lawful money of the United States in immediately available funds at the Payment Office. -18- 25 SECTION 2.09 Pro Rata Advances. All Advances under this Agreement shall be incurred from the Banks pro rata, on the basis of their respective Commitments. It is understood that no Bank shall be responsible for any default by any other Bank in its obligation to make Loans hereunder and that each Bank shall be obligated to make the Loans provided to be made by it hereunder, regardless of the failure of any other Bank to fulfill its commitments hereunder. SECTION 2.10 Interest. (a) Subject to Section 11.08, the Company shall pay interest on the total outstanding principal balance of all Alternate Base Rate Advances from the date of each respective Advance to maturity of said Loan (whether by acceleration or otherwise) at a rate per annum which shall at all times be equal to the lesser of (i) the Highest Lawful Rate and (ii) the Alternate Base Rate in effect from time to time plus the applicable Margin for Alternate Base Rate Advances, which applicable Margin shall be adjusted on the first day of each Margin Period. If the Alternate Base Rate is based on the Prime Rate, interest shall be computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be. If the Alternate Base Rate is based on the Federal Funds Effective Rate, interest shall be computed on the basis of the actual number of days elapsed over a year of 360 days. (b) Subject to Section 11.08, the Company shall pay interest on the total outstanding principal balance of all Eurodollar Rate Advances under all of the Loans from the date of each respective Advance to maturity of said Loan (whether by acceleration or otherwise) at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) which shall, during each Interest Period applicable thereto, be equal to the lesser of (i) the Highest Lawful Rate and (ii) the applicable Eurodollar Rate for such Interest Period plus the applicable Margin for Eurodollar Rate Advances. The applicable Eurodollar Rate shall be fixed for each Interest Period and shall not change during said Interest Period nor shall the applicable Margin, which is added to said Eurodollar Rate to determine the total interest payable to the Banks, be adjusted until the first day of each Interest Period that begins after the effective date of the new Margin Period. (c) Subject to Section 11.08, overdue principal and, to the extent permitted by law, overdue interest in respect of any Advance and all other overdue amounts owing hereunder shall bear interest for each day that such amounts are overdue at a rate per annum equal to the Default Rate. (d) Interest on each Advance shall accrue from and including the date of such Advance to but excluding the date of any repayment thereof and shall be payable in arrears (i) in respect of Eurodollar Rate Advances (A) on the last day of the Interest Period (as defined below) applicable thereto and on each Designated Payment Date during any Interest Period in excess of three (3) months and (B) on the date of any voluntary or mandatory repayment or any conversion or continuance, (ii) in respect of Alternate Base Rate Advances (A) on each Designated Payment Date commencing November 30, 1997, and (B) on the date of any voluntary or mandatory repayment of such Advances on the principal amount repaid and (iii) in respect of each Advance, at maturity (whether by acceleration or otherwise) and, after maturity, on demand. -19- 26 (e) The Agent, upon determining the Eurodollar Rate for any Interest Period, shall notify the Company thereof. Each such determination shall, absent manifest error, be final and conclusive and binding on all parties hereto. In addition, prior to the due date for the payment of interest on any Advances set forth in the immediately preceding paragraph, the Agent shall notify the Company of the amount of interest due by the Company on all outstanding Advances on the applicable due date, but any failure of the Agent to so notify the Company shall not reduce the Company's liability for the amount owed. (f) So long as any Bank shall be required under regulations of the Board to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities and, as a result, the cost to such Bank is increased above the level it would be but for such requirement, then such Bank may require the Company to pay to the Agent, for the account of such Bank, additional interest on the unpaid principal amount of each such Eurodollar Rate Advance, from the date of such Advance until such principal amount is paid in full, at an interest rate per annum equal at all times during the Interest Period for such Advance to the lesser of (i) the Highest Lawful Rate and (ii) the remainder obtained by subtracting (A) the Eurodollar Rate for such Interest Period from (B) the rate obtained by dividing such Eurodollar Rate referred to in clause (A) above by that percentage equal to 100% minus the Reserve Percentage of such Bank for such Interest Period. Such additional interest shall be determined by such Bank as incurred and shall be payable upon demand therefor by the Bank to the Company. Each determination by such Bank of additional interest due under this Section shall be conclusive and binding for all purposes in the absence of manifest error if such determination is made on a reasonable basis. SECTION 2.11 Interest Periods. (a) At the time the Company gives any Notice of Advance or Notice of Conversion or provides notice of its intent to continue a loan as the same Type in respect of the making of, or conversion into, a Eurodollar Rate Advance, the Company shall have the right to elect, by giving the Agent on the dates and at the times specified in Section 2.03 or Section 2.05, as the case may be, notice of the interest period (each an "Interest Period") applicable to such Eurodollar Rate Advance, which Interest Period shall be either a one, two, three or six month period; provided, that: (i) the initial Interest Period for any Eurodollar Rate Advance shall commence on the date of such Eurodollar Rate Advance (including the date of any conversion thereto or continuance thereof pursuant to Section 2.05); each Interest Period occurring thereafter in respect of such Eurodollar Rate Advance shall commence on the expiration date of the immediately preceding Interest Period; (ii) if any Interest Period relating to a Eurodollar Rate Advance begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; -20- 27 (iii) if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, provided, that if there are no more Business Days in that month, the Interest Period shall expire on the preceding Business Day; (iv) no Interest Period for Advances shall extend beyond the applicable Maturity Date; and (v) the Company shall be entitled to have a maximum of nine (9) separate Eurodollar Rate Advances hereunder for all Loans outstanding at any one time. (b) If, upon the expiration of any Interest Period applicable to a Eurodollar Rate Advance, the Company has failed to elect a new Interest Period to be applicable to such Advance as provided above, the Company shall be deemed to have elected to convert such Advance into an Alternate Base Rate Advance effective as of the expiration date of such current Interest Period. SECTION 2.12 Interest Rate Not Ascertainable. In the event that the Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) that on any date for determining the Eurodollar Rate for any Interest Period, by reason of any changes arising after the date of this Agreement affecting the Eurodollar interbank market adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Eurodollar Rate, then, and in any such event, the Agent shall forthwith give notice to the Company and to the Banks of such determination. Until the Agent notifies the Company that the circumstances giving rise to the suspension described herein no longer exist, the obligations of the Banks to make Eurodollar Rate Advances shall be suspended. SECTION 2.13 Legality. (a) Notwithstanding anything to the contrary herein contained, if any law or regulation or the interpretation thereof by any governmental authority charged with the administration or interpretation thereof makes it unlawful for any Bank or its Eurodollar Lending Office to make or maintain any Eurodollar Rate Advance or to give effect to its obligations as contemplated hereby, then, by prompt written notice to the Company, such Bank may: (i) declare that Eurodollar Rate Advances will not thereafter be made by such Bank hereunder, whereupon the right of the Company to receive Eurodollar Rate Advances from such Bank hereunder shall be suspended until such declaration is subsequently withdrawn, provided, such request for a Eurodollar Rate Advance shall be automatically converted (as to such Bank) into a request for an Alternate Base Rate Advance and the affected Bank or Banks shall respond thereto as provided herein; and (ii) require that all outstanding Eurodollar Rate Advances made by such Bank be converted to Alternate Base Rate Advances, in which event (A) all such Eurodollar Rate Advances shall be automatically converted to Alternate Base Rate Advances as of the effective date of such notice as provided in paragraph (b) below if required by applicable law -21- 28 or regulation, or if not so required, at the end of the current Interest Period and (B) all payments and prepayments of principal which would otherwise have been applied to repay the converted Eurodollar Rate Advances shall instead be applied to repay the Alternate Base Rate Advances resulting from the conversion of such Eurodollar Rate Advances. (b) For purposes of this Section, a notice to the Company by the Agent pursuant to paragraph (a) above shall be effective on the date of receipt thereof by the Company. SECTION 2.14 Increased Costs, Taxes or Capital Adequacy Requirements. (a) If any applicable law or regulation or compliance by any Bank with any applicable guideline or request by any central bank or governmental authority having jurisdiction over such Bank (whether or not having the force of law) (i) shall change the basis of taxation of payments to such Bank of the principal of or interest on any Eurodollar Rate Advance made by such Bank or any other fees or amounts payable hereunder with respect to Eurodollar Rate Advances (other than taxes imposed on the overall net income of such Bank or its Applicable Lending Office or franchise taxes imposed upon it by the jurisdiction in which such Bank or its Applicable Lending Office has an office), (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement with respect to Eurodollar Rate Advances against assets of, deposits with or for the account of, or credit extended by, such Bank (without duplication of any amounts paid pursuant to Section 2.10(f)) or (iii) shall impose on such Bank any other condition affecting this Agreement with respect to Eurodollar Rate Advances or any Eurodollar Rate Advance made by such Bank, and the result of any of the foregoing shall be to increase the cost to such Bank of maintaining its Commitment or of making or maintaining any Eurodollar Rate Advance or to reduce the amount of any sum received or receivable by such Bank hereunder (whether of principal, interest or otherwise) in respect thereof by an amount deemed in good faith by such Bank to be material, then the Company shall pay to such Bank such additional amount as will compensate it for such increase or reduction within ten (10) days after notice thereof pursuant to Section 2.14(c). (b) If any Bank shall have determined in good faith that any law, rule, regulation or guideline regarding capital adequacy, or any interpretation or administration thereof of any such authority, central bank or comparable agency has or would have the effect of reducing the rate of return on the capital of such Bank as a consequence of, or with reference to, such Bank's obligations to lend hereunder to a level below that which it could have achieved but for such adoption, change or compliance by an amount deemed by such Bank to be material, then, from time to time, the Company shall pay to the Agent for the benefit of such Bank such additional amount as will -22- 29 reasonably compensate it for such reduction within ten (10) days after notice thereof pursuant to Section 2.14(c). (c) Each Bank will notify the Company through the Agent of any event occurring after the date of this Agreement which will entitle it to compensation pursuant to this Section, as promptly as practicable after it becomes aware thereof and determines to request compensation and in any case, within 180 days after becoming aware thereof. A certificate setting forth in reasonable detail the amount necessary to compensate the Bank in question as specified in paragraph (a) or (b) above, as the case may be, and the calculation of such amount shall be delivered to the Company and shall be conclusive absent manifest error if such determination is made on a reasonable basis. The Company shall pay to the Agent for the account of such Bank the amount shown as due on any such certificate within ten (10) days after its receipt of the same. The failure on the part of any Bank to demand increased compensation with respect to any Interest Period shall not constitute a waiver of the right to demand compensation thereafter within the 180 day time limit set forth above. Each Bank agrees, to the extent it may lawfully do so without incurring additional costs, to use its best efforts to minimize costs arising under this section by designating another lending office for the Loans affected, provided no Bank shall be required to do so. (d) Any notice given pursuant to this Section 2.14 shall be deemed to contain a representation by the Bank issuing such notice that the increased costs and charges are common to substantially all of the loan customers of such Bank and are not unique to the Company. SECTION 2.15 Eurodollar Advance Prepayment and Default Penalties. Subject to Section 11.08, the Company shall indemnify each Bank against any loss or expense (excluding loss of anticipated profits) which it may sustain or incur as a consequence of (a) an Advance of, or a conversion from or into, Eurodollar Rate Advances that does not occur on the date specified therefor in a Notice of Advance or Notice of Conversion, (b) any payment, prepayment or conversion of a Eurodollar Rate Advance required by any other provision of this Agreement or otherwise made on a date other than the last day of the applicable Interest Period or (c) any default in the payment or prepayment of the principal amount of any Eurodollar Rate Advance or any part thereof or interest accrued thereon, as and when due and payable (at the due date thereof, by notice of prepayment or otherwise). Such loss or expense shall include an amount equal to the excess determined by each Bank of (i) its cost of obtaining the funds for the Advance being paid, prepaid or converted or not borrowed (based on the Eurodollar Rate) for the period from the date of such payment, prepayment or conversion or failure to borrow to the last day of the Interest Period for such Advance (or, in the case of a failure to borrow, the Interest Period for the Advance which would have commenced on the date of such failure to borrow) over (ii) the amount of interest (as determined by each Bank) that would be realized in reemploying the funds so paid, prepaid or converted or not borrowed for such period or Interest Period, as the case may be. The Agent, on behalf of the Banks, will notify the Company of any loss or expense which will entitle the Banks to compensation pursuant to this Section, as promptly as possible after it becomes aware thereof, but failure to so notify shall not affect the Company's liability therefor. A certificate of any Bank setting forth any amount which it is entitled to receive pursuant to this Section shall be delivered to the Company and -23- 30 shall be conclusive absent manifest error if such determination is made on a reasonable basis. The Company shall pay to the Agent for the account of the Banks the amount shown as due on any certificate within ten (10) days after its receipt of the same. Without prejudice to the survival of any other obligations of the Company hereunder, the obligations of the Company under this Section shall survive the termination of this Agreement and the assignment of any of the Notes. SECTION 2.16 Additional Costs, Taxes or Similar Requirements. Subject to the terms of Section 11.08, all payments by the Company to any Bank shall be payable in full by the Company without any reduction or set off of any kind for any purpose and all costs and expenses incurred by any Bank in connection herewith, direct or indirect, shall be reimbursed by the Company. To the extent that any additional payments of any kind are required, any reductions to payments made to any Bank occur or may reasonably be expected to occur, any costs are incurred, any taxes (or the withholding thereof) are due to, or required by, any governmental or regulatory agency, foreign or domestic, state, federal, local, regional or national, based on any law, rule, regulation, guideline or similar provision, (other than taxes payable on the taxable income of any Bank to the United States of America or any state or local entity), or any similar items, all such payments and costs or reduced income shall be the responsibility of the Company. This provision shall be interpreted in the broadest possible terms to include any increased costs, payments or reduced income for any reason, including, but specifically not by way of limitation, due to taxes, capital adequacy provisions, reserve requirements, withholding obligations, costs due to the payment of any sums on a date other than the regularly scheduled date or for any other reason and the Company does hereby indemnify and hold harmless each Bank, for all such costs and does agree to pay same or cover any Bank's expenses or losses in regard to same. The Company shall immediately pay such sums to any Bank as are necessary to mitigate all such items. This obligation is in addition to all other obligations of the Company contained herein. SECTION 2.17 Tax Forms. If any Bank or any entity that is or hereafter becomes a borrower is organized under the laws of a jurisdiction outside the United States, such Person shall provide the Agent and the other parties hereto with the Prescribed Forms on the date of the initial Advance hereunder or on the date it becomes a party hereto, as the case may be, and from time to time thereafter if requested by the affected party hereto or the Agent. Unless the party requesting them and the Agent have received such Prescribed Forms, the Agent, if required by applicable law or regulation, may withhold taxes from payments under the Loan Documents at the applicable rate in the case of payments to or for any Bank organized under the laws of a jurisdiction outside the United States, provided the Company shall, unless otherwise directed in writing by the Agent, make all payments in full to the Agent without deducting any withholding or similar taxes. SECTION 2.18 Voluntary Reduction of Commitment. Upon at least five (5) Business Days' prior written notice, the Company shall have the right, without premium or penalty, to reduce ratably in part or terminate in whole the unused portions of the respective Commitments of the Banks provided that each partial reduction shall be in the aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess thereof. -24- 31 SECTION 2.19 Fees. Subject to Section 11.08 hereof, the Company agrees to pay the following fees (the "Fees"): (a) The Company shall pay to the Agent for the ratable account of the Banks a commitment fee (the "Commitment Fee") for the period from and including the Execution Date to the Maturity Date calculated on the basis of a 360-day year and computed on the daily average of the Unutilized Commitment of each Bank at the rate for Commitment Fees set forth in the definition of Margin. Commitment Fees shall be due and payable in arrears on each Designated Payment Date commencing on the first such date following the Execution Date and on the Maturity Date. (b) The Company shall pay to the Agent for the benefit of the Banks (and, in the case of clause (z) below, for the benefit of the Issuing Bank) an annual fee (the "Letter of Credit Fee") in respect of each Letter of Credit issued hereunder equal to (y) the greater of (i) the then effective Eurodollar Margin multiplied by the face amount of such Letter of Credit (computed on the basis of the actual number of days elapsed over a year of 360 days) or (ii) $500.00, plus (z) 0.125% multiplied by the face amount of such Letter of Credit, to be paid to the Issuing Bank. Such fees shall be payable quarterly in arrears on each Designated Payment Date commencing on the first such date following the Execution Date and on the Maturity Date. SECTION 2.20 Extension of Maturity Date. Not less than 60 days and no more than 90 days prior to the Maturity Date then in effect, provided that no Event of Default shall have occurred and be continuing, the Company may request an extension of such Maturity Date by submitting to the Agent an Extension Request containing the information in respect of such extension specified in Exhibit 2.20, which the Agent shall promptly furnish to each Bank. Each Bank shall, not less than 30 days and not more than 60 days prior to the Maturity Date then in effect, notify the Company and the Agent of its election (in its sole and absolute discretion) to extend or not extend the Maturity Date as requested in such Extension Request. Notwithstanding any provision of this Agreement to the contrary, any notice by any Bank of its willingness to extend the Maturity Date shall be revocable by such Bank in its sole and absolute discretion at any time prior to the date that is 30 days prior to the Maturity Date then in effect. If all Banks shall approve in writing the extension of the Maturity Date requested in such Extension Request, the Maturity Date shall automatically and without any further action by any Person be extended for the period specified in such Extension Request; provided that (i) each extension pursuant to this Section 2.20 shall be for a maximum of 364 days and (ii) the Maturity Date shall not be extended beyond the second anniversary of the original Maturity Date. If, not less than 30 days and not more than 60 days prior to the Maturity Date then in effect, all Banks shall not approve in writing the extension of the Maturity Date requested in an Extension Request, the Maturity Date shall not be extended pursuant to such Extension Request. The Agent shall promptly notify the Banks and the Company of any extension of the Maturity Date pursuant to this Section 2.20. -25- 32 SECTION 2.21 Replacement of Banks. If any Bank requests compensation under Section 2.10(f), 2.14 or 2.16 or if any Bank notifies the Company that it cannot fund certain Loans or is unable to deliver the Prescribed Forms, or if any Bank defaults in its obligation to fund Advances hereunder, then the Company may, at its sole expense and effort, upon notice to such Bank and the Agent, require such Bank to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 11.10), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Bank, if a Bank accepts such assignment); provided that (i) the Company shall have received the prior written consent of the Agent, which consent shall not unreasonably be withheld, (ii) such Bank shall have received payment of an amount equal to the outstanding principal of its Advances, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Company (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.10(f), 2.14 or 2.16, such assignment will result in a reduction in such compensation. A Bank shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Bank or otherwise, the circumstances entitling the Company to require such assignment and delegation cease to apply. ARTICLE III LETTERS OF CREDIT SECTION 3.01 Letters of Credit. (a) Subject to and upon the terms and conditions herein set forth, the Issuing Bank will, at any time and from time to time on or after the Execution Date and prior to the Maturity Date, promptly following its receipt of a Letter of Credit Request and application for Letter of Credit, issue for the account of the Company or any of the Guarantors and in support of the obligations of the Company or any of its Subsidiaries, one or more irrevocable letters of credit (all such letters of credit together with the Existing Letters of Credit collectively, the "Letters of Credit"), up to a maximum amount outstanding at any one time for all Letters of Credit and Existing Letters of Credit equal to $20,000,000.00, provided that the Issuing Bank shall not issue any Letter of Credit if at the time of such issuance: (i) the stated amount of such Letter of Credit is greater than an amount which, when added to all other Letters of Credit outstanding and all other Advances under the Notes then outstanding, would exceed the Total Commitment; or (ii) the expiry date or, in the case of any Letter of Credit containing an expiry date that is extendible at the option of the Issuing Bank, the initial expiry date of such Letter of Credit is a date that is later than the Maturity Date, unless such Letter of Credit is secured by cash. (b) The Issuing Bank shall neither renew nor permit the renewal of any Letter of Credit if any of the conditions precedent to such renewal set forth in Section 4.02 are not satisfied or, after giving effect to such renewal, the expiry date of such Letter of Credit would be a date that is later than the Maturity Date. -26- 33 (c) The Company, the Agent and the Banks acknowledge that Chase has issued, for the account of the Company, the Existing Letters of Credit. Upon the Execution Date, the Letters of Credit outstanding shall be that amount equal to the aggregate stated amount of the Existing Letters of Credit, and the amount available for Loans and Letters of Credit under the Commitments shall be reduced by such amount so long as said Letters of Credit are outstanding and the amount available under each Bank's Commitment shall be reduced by such Bank's percentage participation of such amount. If the Company or any of the Guarantors desires to extend the existing expiry date of any Existing Letter of Credit, or request a substitute letter of credit be issued for any reason in respect of any Existing Letter of Credit, the Company or any of the Guarantors shall submit to the Issuing Bank a Letter of Credit Request as provided in Section 3.02(a). SECTION 3.02 Letters of Credit Requests. (a) Whenever the Company desires that a Letter of Credit be issued for its account or that the existing expiry date shall be extended, it shall deliver to the Issuing Bank (with copies to be sent to the Agent) in the case of a Letter of Credit to be issued, at least three (3) Business Days' prior written request therefor and in the case of the extension of the existing expiry date of any Letter of Credit, at least five days prior to the date on which the Issuing Bank must notify the beneficiary thereof that the Issuing Bank does not intend to extend such existing expiry date. Each such request shall be executed by the Company and shall be in the form of Exhibit 3.02 attached hereto (each a "Letter of Credit Request") and shall be accompanied by an application for Letter of Credit therefor, completed to the reasonable satisfaction of the Issuing Bank, and such other certificates, documents and other papers and information as the Issuing Bank or any Bank (through the Agent) may reasonably request. Each Letter of Credit shall be denominated in U.S. dollars, shall expire no later than the date specified in Section 3.01, shall not be in an amount greater than is permitted under clauses (i) or (ii) of Section 3.01(a) and shall be in such form as may be reasonably approved from time to time by the Issuing Bank and the Company. (b) The delivery of each Letter of Credit Request shall be deemed to be a representation and warranty by the Company that such Letter of Credit may be issued in accordance with, and will not violate the requirements of, this Agreement. Unless the Issuing Bank has received notice from any Bank before it issues the respective Letter of Credit or extends the existing expiry date of a Letter of Credit that one or more of the conditions specified in Article IV are not then satisfied, or that the issuance of such Letter of Credit would violate this Agreement, then the Issuing Bank may issue the requested Letter of Credit in accordance with the Issuing Bank's usual and customary practices. Upon its issuance of any Letter of Credit or the extension of the existing expiry date of any Letter of Credit, as the case may be, the Issuing Bank shall promptly notify the Company, the Agent and each Bank of such issuance or extension, which notice shall be accompanied by a copy of the Letter of Credit actually issued or a copy of any amendment extending the existing expiry date of any Letter of Credit, as the case may be. -27- 34 SECTION 3.03 Letter of Credit Participations. (a) All Obligations of the Company and the Guarantors with respect to all Existing Letters of Credit and all Letters of Credit issued subsequent hereto shall be deemed to have been sold and transferred by the Issuing Bank to each Bank, and each Bank shall be deemed irrevocably and unconditionally to have purchased and received from the Issuing Bank, without recourse or warranty, an undivided interest and participation, (to the extent of such Bank's percentage participation in the Commitments) in each such Obligation, each substitute letter of credit, each drawing made thereunder and the obligations of the Company under this Agreement and the other Loan Documents with respect thereto, and any security therefor or guaranty pertaining thereto including the Guaranty. (b) The Issuing Bank shall have no obligation relative to the Banks other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to comply on their face with the requirements of such Letter of Credit. (c) In the event that the Issuing Bank makes any payment under any Letter of Credit, the same shall be considered an Alternate Base Rate Advance without further action by any Person. The Issuing Bank shall promptly notify the Agent, which shall promptly notify each Bank thereof. Each Bank shall immediately pay to the Agent for the account of the Issuing Bank the amount of such Bank's percentage participation of such Advance. If any Bank shall not have so made its percentage participation available to the Agent, such Bank agrees to pay interest thereon, for each day from such date until the date such amount is paid at the lesser of the Federal Funds Effective Rate and the Highest Lawful Rate. (d) The Issuing Bank shall not be liable for, and the obligations of the Company and the Banks to make payments to the Agent for the account of the Issuing Bank with respect to Letters of Credit shall not be subject to, any qualification or exception whatsoever, including any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (ii) the existence of any claim, setoff, defense or other right which the Company may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit, the Agent, the Issuing Bank, any Bank, or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the Company and the beneficiary named in any such Letter of Credit); (iii) any draft, certificate or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; -28- 35 (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; or (v) the occurrence of any Default or Event of Default. (e) THE ISSUING BANK SHALL NOT BE LIABLE FOR ANY ERROR, OMISSION, INTERRUPTION OR DELAY IN TRANSMISSION, DISPATCH OR DELIVERY OF ANY MESSAGE OR ADVICE, HOWEVER TRANSMITTED, IN CONNECTION WITH ANY LETTER OF CREDIT, EXCEPT FOR ERRORS OR OMISSIONS CAUSED BY THE ISSUING BANK'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT THE ISSUING BANK, ITS OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS SHALL BE INDEMNIFIED AND HELD HARMLESS FROM ANY ACTION TAKEN OR OMITTED BY SUCH PERSON UNDER OR IN CONNECTION WITH ANY LETTER OF CREDIT OR ANY RELATED DRAFT OR DOCUMENT ARISING OUT OF OR RESULTING FROM SUCH PERSON'S SOLE OR CONTRIBUTORY NEGLIGENCE. The Company agrees that any action taken or omitted by the Issuing Bank under or in connection with any Letter of Credit or the related drafts or documents, if done in accordance with the standards of care specified in the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce, Publication No. 500 (and any subsequent revisions thereof approved by a Congress of the International Chamber of Commerce and adhered to by the Issuing Bank) and, to the extent not inconsistent therewith, the Uniform Commercial Code of the State of Texas, shall not result in any liability of the Issuing Bank to the Company. SECTION 3.04 Increased Costs. (a) Notwithstanding any other provision herein, but subject to Section 11.08, if any Bank shall have determined in good faith that any law, rule, regulation or guideline or the application or effectiveness of any applicable law or regulation or any change in applicable law or regulation or any change after the Execution Date in the interpretation or administration thereof, or compliance by any Bank (or any lending office of such Bank) with any applicable guideline or request from any central bank or governmental authority (whether or not having the force of law) either shall impose, modify or make applicable any reserve, deposit, capital adequacy or similar requirement against letters of credit issued, or participated in, by any Bank or shall impose on any Bank any other conditions affecting this Agreement or any Letter of Credit, and the result of any of the foregoing is to increase the cost to any Bank of issuing, maintaining or participating in any Letter of Credit, or reduce the amount received or receivable by any Bank hereunder with respect to Letters of Credit, by an amount deemed by such Bank to be material, then, from time to time, the Company shall pay to the Agent for the account of such Bank such additional amount or amounts as will reasonably compensate such Bank for such increased cost or reduction by such Bank. (b) Each Bank will notify the Company through the Agent of any event occurring after the date of this Agreement which will entitle such Bank to compensation pursuant to subsection (a) above, as promptly as practicable. A certificate of a Bank setting forth in reasonable detail such amount or amounts as shall be necessary to compensate such Bank as specified in subsection (a) above may be delivered to the Company (with a copy to the Agent) and shall be conclusive absent manifest error. The Company shall pay to the Agent for the account of such Bank the amount shown -29- 36 as due on any such certificate within 30 days after its receipt of the same. No Bank shall be entitled to recover any costs pursuant to this Section 3.04(b) incurred more than 180 days prior to such Bank's giving notice to the Company for reimbursement thereof. SECTION 3.05 Conflict between Applications and Agreement. To the extent that any provision of any application for Letter of Credit is inconsistent with the provisions of this Agreement, the provisions of this Agreement shall control. ARTICLE IV CONDITIONS PRECEDENT SECTION 4.01 Conditions Precedent to the Initial Advance. The obligation of each Bank to make its initial Advance hereunder to the Company is subject to the occurrence of or receipt by the Agent of the following, all in form and substance satisfactory to the Agent, and, where relevant, executed by all appropriate parties: (a) this Agreement (which includes the Guaranty); (b) one Note for each Bank; (c) Landlord's lien waivers as required by the Agent in respect of all leased property; (d) each of the following Security Documents granting a first and prior (except for Liens permitted under Section 7.04) Lien or security interest on the Collateral to the Agent for the benefit of itself and the Banks as security for the Obligations, substantially in the form of Exhibits 4.01(d)(i) and (ii) hereto: (i) the Security Agreement (the "Security Agreement") covering substantially all of the accounts and inventory of the Company and each of its domestic Subsidiaries existent as of the date hereof (except as set forth in such Security Agreement or other Security Documents which exclusions have been agreed to by the Majority Banks), accompanied by all documents, instruments and other items necessary to obtain and perfect a Lien thereon; (ii) the Pledge Agreement (the "Pledge Agreement") pledging to the Agent all stock owned by the Company or any Subsidiary in all domestic Subsidiaries accompanied by original stock certificates evidencing such shares and executed stock powers for such certificates; and (iii) UCC-1 and UCC-3 Financing Statements and other documents or instruments necessary to perfect the Liens granted in the Security Documents. -30- 37 (e) A Notice of Advance with respect to the initial Advance meeting the requirements of Section 2.03(a); (f) a certificate of the secretary or an assistant secretary of the Company and each Guarantor certifying, inter alia, (i) true and complete copies of each of the articles or certificate of incorporation, as amended and in effect of the Company, the bylaws, as amended and in effect, of the Company and the resolutions adopted by the Board of Directors of the Company and each of the Guarantors (A) authorizing the execution, delivery and performance by the Company and each of its Subsidiaries of this Agreement and the other Loan Documents to which it is or will be a party and, in the case of the Company, the Advances to be made hereunder, (B) approving the forms of the Loan Documents to which it is or will be a party and which will be delivered at or prior to the date of the initial Advance hereunder and (C) authorizing officers of the Company and each of its Subsidiaries to execute and deliver the Loan Documents to which it is or will be a party and any related documents, including, any agreement contemplated by this Agreement, and (ii) the incumbency and specimen signatures of the officers of the Company and each of its Subsidiaries executing any documents on its behalf; (g) a certificate of the President, Chief Financial Officer or Treasurer of the Company certifying that there has been no change in the businesses or financial condition of the Company which could reasonably be expected to have a Material Adverse Effect since December 31, 1997; (h) opinions addressed to the Agent and the Banks from (i) Bracewell & Patterson, L.L.P., counsel to the Company and the Guarantors, substantially in the form set forth as Exhibit 4.01(h)(i), and (ii) from Randolph W. Bryant, General Counsel to the Company, substantially in the form of Exhibit 4.01(h)(ii); (i) the payment to the Agent and the Banks of all reasonable fees and expenses agreed upon by such parties to be paid on the Execution Date including, without limitation, any accrued unpaid portions of Commitment Fees due under the Prior Credit Agreement; (j) certificates of appropriate public officials as to the existence, good standing and qualification to do business as a foreign corporation, as applicable, of the Company and its Subsidiaries in each jurisdiction in which the ownership of its properties or the conduct of its business requires such qualifications and where the failure to so qualify would have a Material Adverse Effect; (k) certificates of insurance as contemplated by Section 6.03(a); and (l) UCC searches and other title information reasonably requested by the Agent on the Company and each of its Subsidiaries. -31- 38 The acceptance of the benefits of the initial Credit Event hereunder shall constitute a representation and warranty by the Company to the Agent and each of the Banks that, to the best of its knowledge, all of the conditions specified in this Section above shall have been satisfied or waived as of that time. SECTION 4.02 Conditions Precedent to All Credit Events. The obligation of the Banks to make any Advance, including, without limitation, the initial Advance hereunder, is subject to the further conditions precedent that on the date of such Credit Event: (a) The representations and warranties set forth in Article V shall be true and correct in all material respects as of, and as if such representations and warranties were made on, the date of the proposed Advance (unless such representation and warranty expressly relates to an earlier date or is no longer true and correct solely as a result of transactions permitted by the Loan Documents), and the Company shall be deemed to have certified to the Agent and the Banks that such representations and warranties are true and correct in all material respects by submitting a Notice of Advance. (b) The Company shall have complied with the provisions of Section 2.03 hereof. (c) No Default or Event of Default shall have occurred and be continuing or would result from such Credit Event. (d) No Material Adverse Effect shall have occurred in the consolidated financial condition of the Company and its consolidated Subsidiaries since the delivery of the most recent financial statements delivered pursuant to Section 6.01(b). (e) the Agent shall have received the most recent unqualified report and opinion on the Company's financial statements issued by KPMG Peat Marwick LLP, or other independent certified public accountant of recognized national standing. (f) Except for any foreign Subsidiaries, all Persons that have become Subsidiaries subsequent to the Execution Date shall have executed and delivered to the Agent an Adoption Agreement to the extent required at the time of such Credit Event pursuant to Section 6.09. (g) The Agent shall have received such other approvals, opinions and documents as the Agent or the Banks may reasonably request. The acceptance of the benefits of each such Credit Event shall constitute a representation and warranty by the Company to the Agent and each of the Banks that all of the conditions specified in this Section above exist as of that time. -32- 39 SECTION 4.03 Delivery of Documents. All of the Notes, certificates, legal opinions and other documents and papers referred to in this Article IV, unless otherwise specified, shall be delivered to the Agent for the account of each of the Banks and, except for the Notes, in sufficient counterparts for each of the Banks and shall be reasonably satisfactory in form and substance to the Banks. ARTICLE V REPRESENTATIONS AND WARRANTIES In order to induce the Banks to enter into this Agreement and to make the Advances provided for herein, the Company, as to itself and each of its Subsidiaries, makes, on or as of the occurrence of each Credit Event (except to the extent such representations or warranties relate to an earlier date or are no longer true and correct in all material respects solely as a result of transactions not prohibited by the Loan Documents), the following representations and warranties to the Agent and the Banks: SECTION 5.01 Organization and Qualification. Each of the Company and its Subsidiaries (a) is duly formed or organized, validly existing and in good standing under the laws of the state of its organization, (b) has the power to own its property and to carry on its business as now conducted, except where the failure to do so would not have a Material Adverse Effect and (c) is duly qualified to do business and is in good standing in every jurisdiction in which the failure to be so qualified would have a Material Adverse Effect. SECTION 5.02 Authorization and Validity. Each of the Company and its Subsidiaries has the corporate power and authority to execute, deliver and perform its obligations hereunder and under the other Loan Documents to which it is a party and all such action has been duly authorized by all necessary corporate proceedings on its part. Each Loan Document to which the Company or any of its Subsidiaries is a party have been duly and validly executed and delivered by such Person and constitute a valid and legally binding agreement of such Person enforceable in accordance with the respective terms thereof, except, in each case, as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws relating to or affecting the enforcement of creditors' rights generally, and by general principles of equity regardless of whether such enforceability is sought in a proceeding in equity or at law. SECTION 5.03 Governmental Consents. No authorization, consent, approval, license or exemption of or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is necessary for the valid execution or delivery by the Company or any Subsidiary of any Loan Document. -33- 40 SECTION 5.04 Conflicting or Adverse Agreements or Restrictions. Neither the Company nor any Subsidiary is a party to any contract or agreement or subject to any restriction which would reasonably be expected to have a Material Adverse Effect. As of the Execution Date, all agreements of the Company relating to the lending of money or the issuance of letters of credit by any party are described hereto on Schedule 5.04. Neither the execution nor delivery of the Loan Documents nor compliance with the terms and provisions hereof or thereof will be contrary to the provisions of, or constitute a default under, (a) the charter or bylaws of the Company or any Subsidiary or (b) any law, regulation, order, writ, injunction or decree of any court or governmental instrumentality that is applicable to the Company or any Subsidiary or (c) any material agreement to which the Company or any of its Subsidiaries is a party or by which it is bound or to which any of them is subject. SECTION 5.05 Title to Assets. Each of the Company and its Subsidiaries has good title to all material personal property and good and indefeasible title to all material real property as reflected on the books and records of the Company or any of its Subsidiaries as being owned by them, except for properties disposed of in the ordinary course of business, subject to no Liens, except those permitted hereunder, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. All of such assets have been and are being maintained by the appropriate Person in good working condition in accordance with industry standards, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. SECTION 5.06 Litigation. No proceedings against the Company or any Subsidiary are pending or, to the knowledge of the Company, threatened before any court or governmental agency or department which involve a reasonable material risk of having a Material Adverse Effect except those listed on Schedule 5.06 hereof. SECTION 5.07 Financial Statements. Prior to the Execution Date, the Company has furnished to the Banks its audited consolidated balance sheet as of December 31, 1997 and audited consolidated income statement and statement of cash flows for the period ended December 31, 1997, and the unaudited balance sheet and consolidated income statement and statements of cash flow for the period from January 1, 1998 through June 30, 1998 (such financials, the "Financials"). The Financials have been prepared in conformity with GAAP consistently applied (except as otherwise disclosed in such financial statements) throughout the periods involved and present fairly, in all material respects, the consolidated financial condition of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations for the periods then ended. As of the Execution Date, no Material Adverse Effect has occurred in the consolidated financial condition of the Company and its consolidated Subsidiaries since the date of said Financials. -34- 41 SECTION 5.08 Default. Neither the Company nor any Subsidiary is in default under any material provisions of any instrument evidencing any Indebtedness or of any agreement relating thereto, or in default in any respect under any order, writ, injunction or decree of any court, or in default in any respect under or in violation of any order, injunction or decree of any governmental instrumentality, in each case in such manner as to cause a Material Adverse Effect. SECTION 5.09 Investment Company Act. Neither the Company nor any Subsidiary is, or is directly or indirectly controlled by or acting on behalf of any Person which is, an "investment company," as such term is defined in the Investment Company Act of 1940, as amended. SECTION 5.10 Public Utility Holding Company Act. Neither the Company nor any Subsidiary is a non-exempt "holding company," or subject to regulation as such, or, to the knowledge of the Company's or such Subsidiary's officers, an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 5.11 ERISA. No accumulated funding deficiency (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived, exists or is expected to be incurred with respect to any Plan. No liability to the PBGC (other than required premium payments) has been or is expected by the Company to be incurred with respect to any Plan by the Company or any ERISA Affiliate. Neither the Company nor any ERISA Affiliate has incurred any withdrawal liability under Title IV of ERISA with respect to any Multi-Employer Plans. SECTION 5.12 Tax Returns and Payments. Each of the Company and its Subsidiaries has filed all federal income tax returns and other tax returns, statements and reports (or obtained extensions with respect thereto) which are required to be filed and has paid or deposited or made adequate provision, in accordance with GAAP for the payment of all taxes (including estimated taxes shown on such returns, statements and reports) which are shown to be due pursuant to such returns, except for such taxes as are being contested in good faith and by appropriate proceedings, except, in each such case, where such failure could not reasonably be expected to have a Material Adverse Effect. SECTION 5.13 Environmental Matters. Each of the Company and its Subsidiaries (a) possesses all environmental, health and safety licenses, permits, authorizations, registrations, approvals and similar rights necessary under law or otherwise for the Company or such Subsidiary to conduct its operations as now being conducted (other than those with respect to which the failure to possess or maintain would not, individually or in the aggregate for the Company and such Subsidiaries, reasonably be expected to have a Material Adverse Effect) and (b) each of such licenses, permits, authorizations, registrations, approvals and similar rights is valid and subsisting, in full force and effect and enforceable by the Company or such Subsidiary, and each of the Company and its Subsidiaries is in compliance with all effective terms, conditions or other provisions of such permits, authorizations, registrations, approvals and similar rights except for such -35- 42 failure or noncompliance that, individually or in the aggregate for the Company and such Subsidiaries, would not reasonably be expected to have a Material Adverse Effect. Except as disclosed on Schedule 5.13, neither the Company nor any of its Subsidiaries has received any notices of any violation of, noncompliance with, or remedial obligation under, Requirements of Environmental Laws (which violation or non-compliance has not been cured), and there are no writs, injunctions, decrees, orders or judgments outstanding, or lawsuits, claims, proceedings, investigations or inquiries pending or, to the knowledge of the Company or any Subsidiary, threatened, relating to the ownership, use, condition, maintenance or operation of, or conduct of business related to, any property owned, leased or operated by the Company or such Subsidiary or other assets of the Company or such Subsidiary, other than those violations, instances of noncompliance, obligations, writs, injunctions, decrees, orders, judgments, lawsuits, claims, proceedings, investigations or inquiries that, individually or in the aggregate for the Company and such Subsidiaries, would not have a Material Adverse Effect. Except as disclosed on Schedule 5.13, there are no material obligations, undertakings or liabilities arising out of or relating to Environmental Laws to which the Company or any of its Subsidiaries has agreed, assumed or retained, or, to the knowledge of the Company, by which the Company or any of its Subsidiaries is adversely affected, by contract or otherwise and, further, except as disclosed on Schedule 5.13, neither the Company nor any of its Subsidiaries has received a written notice or claim to the effect that the Company or any of its Subsidiaries is or may be liable to any other Person as the result of a Release or threatened Release of a Hazardous Material which, in either case, could reasonably be expected to have a Material Adverse Effect. SECTION 5.14 Purpose of Loans. (a) The proceeds of the Loan will be used for general corporate purposes and no proceeds of any Loan will be used for any purpose which would violate any applicable law, rule or regulation. (b) None of the proceeds of any Advance will be used directly or indirectly for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin stock. SECTION 5.15 Franchises and Other Rights. The Company and each of its Subsidiaries has all franchises, permits, licenses, patents, trademarks and other intangible assets or authority as are necessary to enable them to carry on their respective businesses as now being conducted and is not in default in respect thereof where the absence of such or any such default could reasonably be expected to have a Material Adverse Effect. SECTION 5.16 Subsidiaries and Assets. The Subsidiaries which are parties to this Agreement and listed on Schedule 5.16 are all of the Subsidiaries of the Company as of the Execution Date and the address given for such Subsidiaries is the correct mailing address as of the Execution Date. -36- 43 SECTION 5.17 Solvency. After giving effect to the initial Advance hereunder and all other Indebtedness of the Company existing at the time of such Advance, the Company and its Subsidiaries, viewed as a consolidated entity, will have at such time (a) capital sufficient to carry on their businesses and transactions and (b) assets, the fair market value of which exceeds their consolidated liabilities (as reflected on the Financials or on the financial statements most recently delivered to the Banks). SECTION 5.18 Year 2000. Any reprogramming required to permit the proper functioning, in and following the year 2000, of (a) the Company's or any Subsidiary's computer systems and (b) equipment containing embedded microchips (including systems and equipment supplied by others or with which the Company's systems interface) and the testing of all such systems and equipment, as so reprogrammed, will be completed by September 30, 1999, except where the failure to do such reprogramming and testing would not reasonably be expected to have a Material Adverse Effect. The cost to the Company and its Subsidiaries of such reprogramming and testing and of the reasonably foreseeable consequences of year 2000 to the Company and its Subsidiaries (including, without limitation, reprogramming errors and the failure of others' systems or equipment) will not result in a Default or would not reasonably be expected to have a Material Adverse Effect. Except for such of the reprogramming referred to in the preceding sentence as may be necessary, the computer and management information systems of the Company and its Subsidiaries are and, with ordinary course upgrading and maintenance, will continue for the term of this Agreement to be sufficient to permit the Company to conduct its business in all material respects and such upgrading and maintenance would not reasonably be expected to have a Material Adverse Effect. ARTICLE VI AFFIRMATIVE COVENANTS The Company, as to itself and each of its Subsidiaries, covenants and agrees that on and after the date hereof until the Notes have been paid in full and the Commitments have terminated: SECTION 6.01 Information Covenants. The Company will furnish to each Bank: (a) As soon as available, and in any event within fifty (50) days of the end of each fiscal quarter, the consolidated and, if requested by the Agent, the consolidating balance sheet of the Company and its Subsidiaries as of the end of such period and the related consolidated and, if requested by the Agent, consolidating statements of income for such period and, in each case, also for the portion of the fiscal year ended at the end of such period, setting forth comparative consolidated figures for the related periods in the prior fiscal year, all of which shall be certified by the chief financial officer or chief executive officer of the Company as fairly presenting in all material respects, the financial position of the Company and its Subsidiaries as of the end of such -37- 44 period and the results of their operations for the period then ended in accordance with GAAP, subject to changes resulting from normal year-end audit adjustments. (b) As soon as available, and in any event within ninety-five (95) days after the close of each fiscal year of the Company, the audited consolidated and, if requested by the Agent, the unaudited consolidating balance sheets of the Company and its Subsidiaries as at the end of such fiscal year and the related consolidated and, if requested by the Agent, consolidating statements of income, stockholders' equity and cash flows for such fiscal year, setting forth comparative figures for the preceding fiscal year and certified by KPMG Peat Marwick LLP or other independent certified public accountants of recognized national standing, whose report shall be without limitation as to the scope of the audit and reasonably satisfactory in substance to the Banks. (c) Immediately after any Responsible Officer of the Company obtains verified knowledge thereof, notice of: (i) any material violation of, noncompliance with, or remedial obligations under, Requirements of Environmental Laws; (ii) any material Release or threatened material Release of Hazardous Materials affecting any property owned, leased or operated by the Company or any of its Subsidiaries; (iii) any event or condition which constitutes a Default or an Event of Default (including any default under the Subordinated Debentures); (iv) any condition or event which, in the opinion of management of the Company, would reasonably be expected to have a Material Adverse Effect; (v) any Person having given any written notice to the Company or taken any other action with respect to a claimed material default or event under any material instrument or material agreement; (vi) the institution of any litigation which could reasonably be expected in the good faith judgment of the Company either to have a Material Adverse Effect or result in a final, non-appealable judgment or award in excess of $5,000,000.00 with respect to any single cause of action; (vii) all ERISA notices required by Section 6.08; and (viii) any sale of assets other than as permitted hereby; Such notice shall specify the nature and period of existence thereof and the action taken by such Person and the nature of any such claimed default, event or condition and, in the case of an Event -38- 45 of Default or Default, what action has been taken, is being taken or is proposed to be taken with respect thereto. (d) At the time of the delivery of the quarterly and annual financial statements provided for in Sections 6.01(a) and 6.01(b), a certificate of a Responsible Officer to the effect that, to his knowledge, no Default or Event of Default exists or, if any Default or Event of Default does exist, specifying the nature and extent thereof and the action that is being taken or that is proposed to be taken with respect thereto, which certificate shall set forth the calculations required to establish whether the Company was in compliance with the provisions of Sections 7.10 through 7.17 as at the end of such fiscal period or year, as the case may be. (e) Upon request by the Agent, a summary report (by Subsidiary) of all Accounts of the Company and its Subsidiaries. (f) Promptly following request by the Agent such environmental reports, studies and audits of the Company's procedures and policies, assets and operations in respect of Environmental Laws as the Agent may reasonably request. (g) Promptly upon receipt thereof, a copy of any report or letter submitted to the Company by its independent accountants in connection with any regular or special audit of the Company's records and simultaneously with the sending or filing thereof, copies of all proxy statements, financial statements and reports which the Company sends to its stockholders, and copies of all regular, periodic or special reports, and all registration statements, in each case, which the Company or any of its Subsidiaries files with the Securities and Exchange Commission or any other securities exchange or securities market. (h) Promptly following request by the Agent such financial projections, budgets and unaudited consolidating financial statements of the Company and its Subsidiaries as the Agent may reasonably request. (i) From time to time and with reasonable promptness, such other information or documents as the Agent or any Bank through the Agent may reasonably request. SECTION 6.02 Books, Records and Inspections. The Company will maintain, and will cause its Subsidiaries to maintain, the corporate books and financial records of the Company and its Subsidiaries and will permit, or cause to be permitted, any Person designated by any Bank or the Banks to visit and inspect any of the properties of the Company and its Subsidiaries, to examine such books and records and make copies thereof or extracts therefrom, audit its accounts, inventory and finances of any such corporations with the officers, employees and agents of the Company and its Subsidiaries and with their independent public accountants, all at such reasonable times and as often as the Agent or such Bank may request. Such inspections shall be at the expense of the Company if made annually and shall be at the expense of the Bank or Banks requiring same if made more often than annually. -39- 46 SECTION 6.03 Insurance and Maintenance of Properties. (a) Each of the Company and its Subsidiaries will keep reasonably adequately insured by financially sound and reputable insurers all of its material property, and against the interruption of its business, which is of a character, and in amounts and against such risks, usually and reasonably insured by similar Persons engaged in the same or similar businesses, including, without limitation, insurance against fire, casualty and any other hazards normally insured against, which policies shall name the Agent for the benefit of the Banks, as a loss payee. Each of the Company and its Subsidiaries will at all times maintain insurance against its liability for injury to Persons or property, which insurance shall be by financially sound and reputable insurers and in such amounts and form as are customary for corporations of established reputation engaged in the same or a similar business and owning and operating similar properties and which shall name the Agent, for the benefit of the Banks, as an additional insured. The Company shall provide the Agent a listing of all such insurance and such other certificates and other evidence thereof, on or prior to the Execution Date hereof and annually thereafter. A listing of all policies of the Company and its Subsidiaries as of the Execution Date is attached hereto as Schedule 6.03. (b) Each of the Company and its Subsidiaries will cause all of its material properties used or useful in the conduct of its business to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all reasonably necessary repairs, renewals and replacements thereof, all as in the reasonable judgment of such Person may be reasonably necessary so that the business carried on in connection therewith may be properly conducted at all times, except where such failure could not reasonably be expected to have a Material Adverse Effect. SECTION 6.04 Payment of Taxes. Each of the Company and its Subsidiaries will pay and discharge all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the date on which penalties attach thereto, except for such amounts that are being contested in good faith and by appropriate proceedings, except where such failure could not reasonably be expected to have a Material Adverse Effect. SECTION 6.05 Corporate Existence. Each of the Company and its Subsidiaries will do all things necessary to preserve and keep in full force and effect (a) the existence of the Company, and (b) unless the failure to do so would not reasonably be expected to have a Material Adverse Effect, the rights and franchises of each of the Company and its Subsidiaries. SECTION 6.06 Compliance with Statutes. Each of the Company and its Subsidiaries will comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property, except to the extent the failure to do so would not reasonably be expected to have a Material Adverse Effect. -40- 47 SECTION 6.07 Material Privileges, Permits, Licenses and Other Rights. Each of the Company and its Subsidiaries will do all things necessary to preserve and keep in full force and effect all material privileges, permits, licenses and other rights necessary to conduct business as such business is currently conducted as of the Effective Date, except to the extent the failure to do so would not reasonably be expected to have a Material Adverse Effect. SECTION 6.08 ERISA. Immediately after any Responsible Officer of the Company or any of its Subsidiaries knows or has reason to know any of the following items are true the Company will deliver or cause to be delivered to the Banks a certificate of the chief financial officer of the Company setting forth details as to such occurrence and such action, if any, the Company or its ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by the Company or its ERISA Affiliate with respect thereto: (i) that a Reportable Event has occurred or that an application may be or has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard; (ii) that a Multiemployer Plan has been or may be terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA; (iii) that any required contribution to a Plan or Multiemployer Plan has not been or may not be timely made; (iv) that proceedings may be or have been instituted under Section 4069(a) of ERISA to impose liability on the Company or an ERISA Affiliate or under Section 4042 of ERISA to terminate a Plan or appoint a trustee to administer a Plan; (v) that the Company or any ERISA Affiliate has incurred or may incur any liability (including any contingent or secondary liability) on account of the termination of or withdrawal from a Plan or a Multiemployer Plan; and (vi) that the Company or an ERISA Affiliate may be required to provide security to a Plan under Section 401(a)(29) of the Code. SECTION 6.09 Additional Subsidiaries. The Company will cause any Person that becomes a Subsidiary subsequent to the Execution Date to (i) within forty-five (45) days after becoming a Subsidiary, execute and deliver to the Agent an Adoption Agreement and (ii) within forty-five (45) days after becoming a Subsidiary, deliver to the Agent evidence, satisfactory to the Agent, that all Indebtedness owing by such Subsidiary to any other Person has been paid in full and said Indebtedness has been canceled and all Liens securing such Indebtedness have been released or have terminated, (except for Indebtedness and Liens permitted hereby) provided, if said Subsidiary is not incorporated under the laws of the United States or one of its states or territories, no such guaranty will be required if the Company makes arrangements, satisfactory to the Agent, in its sole discretion, regarding restrictions on transfer of funds or other assets by the Company or any Subsidiary to said new foreign Subsidiary. Further, the Company, or its Subsidiary that owns the stock of said new Subsidiary, as the case may be, will execute the Adoption Agreement referred to above. SECTION 6.10 Acquisition Agreements. Upon request of the Agent, the Company shall provide the Agent with: (a) copies of all acquisition agreements relating to the acquisitions of Qualified Companies, (b) a specimen form of such acquisition agreement (the "Acquisition Agreements") and (c) listing of each then existing Acquisition Agreement. -41- 48 SECTION 6.11 Material Contracts. (a) The Company and its Subsidiaries shall provide the Agent with copies of all material contracts (the "Material Contracts") as of the Effective Date. A listing of each such Material Contract is attached hereto as Schedule 6.11. (b) The Company and its Subsidiaries shall provide the Agent with an executed copy of each additional Material Contract entered into after the Effective Date, within ten (10) Business Days after request therefor by the Agent. SECTION 6.12 Employee Agreements. The Company and its Subsidiaries shall provide the Agent with copies of all agreements relating to the employees of the Company and its Subsidiaries, upon request by the Agent, including, but not limited to, all collective bargaining agreements, employment contracts, non-compete agreements, employee savings, employee retirement and employee benefit plans. Upon request by the Agent, the Company will provide the Agent with a list of (i) each employment agreement between the Company and each of its officers, (ii) each employment agreement between a Subsidiary and the key employees of such Subsidiary (or its predecessor), (iii) each union with which a Subsidiary of the Company has entered into a collective bargaining agreement, and (iv) each employee pension benefit plan (as defined in ERISA) sponsored by the Company or any of its subsidiaries. ARTICLE VII NEGATIVE COVENANTS The Company covenants and agrees, as to itself and, except as otherwise provided herein, each of its Subsidiaries, that on and after the date hereof until the Notes have been paid in full and the Commitments have terminated: SECTION 7.01 Change in Business. The Company will not, and will not permit any of its Subsidiaries to, engage in any businesses not of the same general type as those conducted by the Company on the Execution Date, those conducted by a Qualified Company when acquired and businesses reasonably related thereto. SECTION 7.02 Consolidation, Merger or Sale of Assets. Except as previously disclosed to the Agent, the Company will not, and will not permit any of its Subsidiaries to, wind up, liquidate or dissolve their affairs, or agree to be acquired by any third party in any transaction of merger or consolidation in which the Company or such Subsidiary is not the sole surviving entity, or sell or otherwise dispose of all or any substantial part of their property or assets (including the capital stock of any Subsidiary) other than: (a) sales of inventory and surplus or obsolete assets in the ordinary course of business that do not prejudice the Banks in any material way, (b) dispositions of the stock of Subsidiaries to, or mergers with, other wholly-owned Subsidiaries of the Company that have complied with Section 6.09, and (c) any sale of assets with a value equal to or less than five percent (5%) of the Company's Consolidated Net Worth, provided the proceeds of such sale are used -42- 49 to acquire assets for use in the Company's business, or, at the option of the Company, to reduce the Obligations. SECTION 7.03 Indebtedness. Neither the Company nor any Subsidiary of the Company will create, incur, assume or permit to exist any Indebtedness of the Company or any Subsidiary except: (a) Indebtedness existing hereunder; (b) Indebtedness existing on the Execution Date and described in the Financials or, if not shown, listed on Schedule 7.03(b); (c) Indebtedness arising as a result of the endorsement in the ordinary course of business of negotiable instruments in the course of collection; (d) accounts payable and unsecured, current and long-term, liabilities (including accrued insurance related liabilities), not the result of indebtedness for borrowed money, to vendors, suppliers and other Persons for goods and services in the ordinary course of business; (e) agreements (including agreements of intent) to acquire any Person or assets issued by the Company or any of its Subsidiaries in anticipation of acquiring such Person or assets if such acquisition is not prohibited by this Agreement, including any ongoing, contingent payment obligations contained in such agreements; (f) Intercompany Indebtedness of any Subsidiary of the Company to the Company or any other Subsidiary and Indebtedness of the Company to any Subsidiary of the Company assuming same is subordinate to the Obligations in the manner provided in Section 8.05 hereof; (g) guarantees by the Company or any of its Subsidiaries of Indebtedness of any Subsidiary of the Company permitted to be incurred, created or existing pursuant to this Agreement, provided, that such guarantees are not directly secured by any Liens; (h) current and deferred taxes; (i) contingent liabilities under surety bonds or otherwise incurred in the ordinary course of business; (j) earn-out agreements that are a part of Investments allowed under Section 7.05(d); (k) Other Indebtedness not in excess of five percent (5%) of Consolidated Net Worth in the aggregate at any time outstanding; -43- 50 (l) Indebtedness not to exceed two percent (2%) of Consolidated Net Worth at any time outstanding secured in accordance with clause (j) of the definition herein of Permitted Liens; (m) Subordinated Shareholder Debt not to exceed $30,000,000.00; (n) liabilities incurred in connection with interest rate hedging and swap agreements, provided, same are entered into in connection with the day to day business operations of the Company and not for speculative purposes; (o) Alternative Facilities Advances, provided, the Alternative Facilities Advances do not exceed at any time the lesser of the Aggregate Unused Commitment as of such time or $20,000,000.00; (p) Subordinated Debentures issued and outstanding at any time in an amount not in excess of $150,000,000.00 in principal amount; and (q) renewals and extensions with the same lenders (in the same or lesser principal amount on similar terms and conditions) of any Indebtedness listed in subparagraphs (a) through (p) above. SECTION 7.04 Liens. Neither the Company nor any Subsidiary of the Company will create, incur, assume or suffer to exist any Lien upon or with respect to any of its property or assets of any kind whether now owned or hereafter acquired (nor will they covenant with any other Person not to grant such a Lien to the Agent on Collateral, except property secured or to be secured by a Lien permitted by this Agreement), except: (a) Liens existing on the Execution Date and listed on Schedule 7.04(a); (b) Liens securing currently secured Indebtedness permitted under Section 7.03(b) or (m) above; (c) Permitted Liens; (d) Liens created by the Loan Documents; (e) Other Liens securing obligations allowed pursuant to Section 7.03(k) or (l) not exceeding $1,500,000.00 in the aggregate at any one time; (f) deposits under real property leases and deposits with utilities, provided that such deposits do not exceed amounts customarily deposited by other Persons similarly situated; and -44- 51 (g) any renewal, extension or replacement of any Lien referred to above with the same lenders; provided, that no Lien arising or existing as a result of such extension, renewal or replacement shall be extended to cover any property not theretofore subject to the Lien being extended, renewed or replaced and provided further that the principal amount of the Indebtedness secured thereby shall not exceed the principal amount of the Indebtedness so secured at the time of such extension, renewal or replacement. SECTION 7.05 Investments. Neither the Company nor any Subsidiary will, directly or indirectly, make or own any Investment in any Person, except: (a) Permitted Investments; (b) Investments owned on the Effective Date as set forth on Schedule 7.05(b), including Investments in the Subsidiaries, direct and indirect; (c) Investments arising out of loans and advances for expenses, travel per diem and similar items in the ordinary course of business to officers, directors and employees and intercompany Indebtedness permitted by Section 7.03(f); (d) Subject to the limitations contained in Section 7.17, investments in the stock, warrants, stock appreciation rights, other securities and/or other assets of Qualified Companies; (e) other Investments not exceeding two and one-half percent (2.5%) of Consolidated Net Worth in the aggregate at any one time outstanding; (f) Investments in the form of stock buy backs allowed under Section 7.06; and (g) Investments in the Company or in wholly-owned Subsidiaries of the Company. SECTION 7.06 Restricted Payments. The Company will not pay any dividends or redeem, retire, purchase or guaranty the value of or make any other acquisition, direct or indirect, of any shares of any class of stock of the Company, or of any warrants, rights or options to acquire any such shares, now or hereafter outstanding, except to the extent that the consideration therefor consists solely of shares of stock (including warrants, rights or options relating thereto) of the Company or is approved by the Majority Banks; provided, the Company may (i) purchase its stock in a maximum, aggregate amount not to exceed $1,000,000.00 in the aggregate; and (ii) purchase its stock in an additional aggregate amount not to exceed $5,000,000.00 provided the stock is purchased only from former owners of acquired businesses and provided further, that the purchased stock is reissued or the same number of shares of the same class of stock is issued, for value, within one hundred fifty (150) days of purchase and the Company receives the full net proceeds therefor. -45- 52 SECTION 7.07 Change in Accounting. The Company will not and will not permit any Subsidiary to, change its method of accounting except for (a) changes permitted by GAAP in which the Company's auditors concur, (b) changes with respect to any Person or assets acquired by the Company to conform with the Company's policies and procedures and which are permitted by GAAP or (c) changes required by GAAP. The Company shall advise the Agent in writing promptly upon making any material change to the extent same is not disclosed in the financial statements required under Section 6.01 hereof. In the event of any such change, the Company, the Banks and the Agent agree to negotiate amendments to Sections 7.10 through 7.18 hereof (and related definitions, if relevant) so as to equitably reflect such changes thereon with the intended result that the criteria for evaluating the financial condition of the Company and its Subsidiaries shall be substantially the same after such changes as before. SECTION 7.08 Certain Indebtedness. The Company will not make, and will not permit any of its Subsidiaries to make, after the occurrence and during the continuance of any Event of Default, any prepayments of principal or interest on any other of the Company's Indebtedness, except as may be required thereby. SECTION 7.09 Transactions with Affiliates. The Company will not, directly or indirectly, engage in any transaction with any Affiliate, including the purchase, sale or exchange of assets or the rendering of any service, except in the ordinary course of business or pursuant to the reasonable requirements of its business and, in each case, upon terms that are no less favorable than those which might be obtained in an arm's-length transaction at the time from non-Affiliates. SECTION 7.10 Consolidated Net Worth. The Company will not permit its Consolidated Net Worth to be less than $180,000,000.00, plus, in all cases: (a) 100% of the net cash proceeds received from the issuance of any capital stock by the Company or any Subsidiary subsequent to the Execution Date at any time during the term hereof and (b) 75% of the consolidated after tax income (if positive) of the Company and its Subsidiaries since July 1, 1998 for each fiscal year during the term hereof (including any Subsidiaries acquired subsequent hereto). SECTION 7.11 Funded Debt to EBITDA Ratio. (a) Prior to the occurrence of a Public Debt Issuance Event, the Company will not permit the ratio of its Funded Debt to EBITDA calculated for the preceding four (4) quarters on a rolling four (4) quarter basis to be greater than 2.75 to 1.0 at any time during the term hereof. (b) After the occurrence of a Public Debt Issuance Event, the Company will not permit the ratio of its Funded Debt to EBITDA calculated for the preceding four (4) quarters on a rolling four (4) quarter basis to be greater than 4.00 to 1.0 at any time during the term hereof. -46- 53 SECTION 7.12 Senior Debt to EBITDA Ratio. After the occurrence of a Public Debt Issuance Event, the Company will not permit the ratio of Senior Debt to EBITDA calculated for the preceding four (4) quarters on a rolling four (4) quarters basis to be greater than 2.50 to 1.00 at any time during the term hereof. SECTION 7.13 Funded Debt to Capitalization Ratio. The Company will not permit its Capitalization Ratio to be greater than fifty-five percent (55%) at any time during the term hereof. SECTION 7.14 Capital Expenditures. During any fiscal year during the term hereof, the Company will not permit non-acquisition related consolidated Capital Expenditures (including Capitalized Lease Obligations) to be greater than eight percent (8%) of Consolidated Net Worth as of the end of such fiscal year. SECTION 7.15 Fixed Charge Coverage Ratio. The Company will not permit the ratio of (a) EBITDA calculated for the preceding four (4) quarters on a rolling four (4) quarter basis, less cash taxes and Capital Expenditures actually paid during such four (4) quarters to (b) the sum of (without duplication): cash interest expense, scheduled amortization of principal and payments in respect of Capitalized Lease Obligations calculated for the preceding four (4) quarters on a rolling four quarter basis, plus twenty percent (20%) of Advances outstanding under this Agreement to be less than 1.20 to 1.0, as of the end of any fiscal quarter. SECTION 7.16 Limitations on Acquisitions. The Company will not and will not permit any Subsidiary to acquire any Qualified Company by funding such acquisition with consideration other than common stock, without first obtaining prior approval of such acquisition from the Majority Banks, except for such funding that is less than $15,000,000.00 in non-equity consideration for each such acquisition. SECTION 7.17 Subordinated Debt. (a) The Company will not make any optional payment, prepayment or redemption of any Indebtedness permitted under (i) Section 7.03(m) without the consent of the Majority Banks and (ii) Section 7.03(p) without the consent of all of the Banks. (b) The Company will not amend or obtain or grant a waiver of any provision of (i) the Subordinated Debentures or the debenture indenture in respect thereof or (ii) any Subordinated Shareholder Debt or any agreement or arrangement in respect thereof, except for amendments and waivers that are not material and are not to the detriment of the Banks. -47- 54 ARTICLE VIII GUARANTY SECTION 8.01 Guaranty. In consideration of, and in order to induce the Banks to make the Loans hereunder, the Guarantors hereby absolutely, unconditionally and irrevocably, jointly and severally guarantee the punctual payment and performance when due, whether at stated maturity, by acceleration or otherwise, of the Obligations, and all other obligations and covenants of the Company now or hereafter existing under this Agreement, the Notes and the other Loan Documents whether for principal, interest (including interest accruing or becoming owing both prior to and subsequent to the commencement of any proceeding against or with respect to the Company under any chapter of the Bankruptcy Code), Fees, commissions, expenses (including reasonable attorneys' fees and expenses) or otherwise, and all reasonable costs and expenses, if any, incurred by the Agent or any Bank in connection with enforcing any rights under this Guaranty (all such obligations being the "Guaranteed Obligations"), and agree to pay any and all reasonable expenses incurred by each Bank and the Agent in enforcing this Guaranty; provided that notwithstanding anything contained herein or in any of the Loan Documents to the contrary, the maximum liability of each Guarantor hereunder and under the other Loan Documents shall in no event exceed such Guarantor's Maximum Guaranteed Amount, and provided further, each Guarantor shall be unconditionally required to pay all amounts demanded of it hereunder prior to any determination of such Maximum Guaranteed Amount and the recipient of such payment, if so required by a final non-appealable order of a court of competent jurisdiction, shall then be liable for the refund of any excess amounts. If any such rebate or refund is ever required, all other Guarantors (and the Company) shall be fully liable for the repayment thereof to the maximum extent allowed by applicable law. This Guaranty is an absolute, unconditional, present and continuing guaranty of payment and not of collectibility and is in no way conditioned upon any attempt to collect from the Company or any other action, occurrence or circumstance whatsoever. Each Guarantor agrees that the Guaranteed Obligations may at any time and from time to time exceed the Maximum Guaranteed Amount of such Guarantor without impairing this Guaranty or affecting the rights and remedies of the Banks hereunder. SECTION 8.02 Continuing Guaranty. Each Guarantor guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms of this Agreement, the Notes and the other Loan Documents. Each Guarantor agrees that the Guaranteed Obligations and Loan Documents may be extended or renewed, and Loans repaid and reborrowed in whole or in part, without notice to or assent by such Guarantor, and that it will remain bound upon this Guaranty notwithstanding any extension, renewal or other alteration of any Guaranteed Obligations or Loan Documents, or any repayment and reborrowing of Loans. To the maximum extent permitted by applicable law, the obligations of each Guarantor under this Guaranty shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms hereof under any circumstances whatsoever, including: (a) any extension, renewal, modification, settlement, compromise, waiver or release in respect of any Guaranteed Obligations; -48- 55 (b) any extension, renewal, amendment, modification, rescission, waiver or release in respect of any Loan Documents; (c) any release, exchange, substitution, non-perfection or invalidity of, or failure to exercise rights or remedies with respect to, any direct or indirect security for any Guaranteed Obligations, including the release of any Guarantor or other Person liable on any Guaranteed Obligations; (d) any change in the corporate existence, structure or ownership of the Company, any Guarantor, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Company, such Guarantor, any other Guarantor or any of their respective assets; (e) the existence of any claim, defense, set-off or other rights or remedies which such Guarantor at any time may have against the Company, or the Company or such Guarantor may have at any time against the Agent, any Bank, any other Guarantor or any other Person, whether in connection with this Guaranty, the Loan Documents, the transactions contemplated thereby or any other transaction other than by the payment in full by the Company of the Guaranteed Obligations after the termination of the Commitments of the Banks; (f) any invalidity or unenforceability for any reason of this Agreement or other Loan Documents, or any provision of law purporting to prohibit the payment or performance by the Company, such Guarantor or any other Guarantor of the Guaranteed Obligations or Loan Documents, or of any other obligation to the Agent or any Bank; or (g) any other circumstances or happening whatsoever, whether or not similar to any of the foregoing. SECTION 8.03 Effect of Debtor Relief Laws. If after receipt of any payment of, or proceeds of any security applied (or intended to be applied) to the payment of all or any part of the Guaranteed Obligations, the Agent or any Bank is for any reason compelled to surrender or voluntarily surrenders (under circumstances in which it believes it could reasonably be expected to be so compelled if it did not voluntarily surrender), such payment or proceeds to any Person (a) because such payment or application of proceeds is or may be avoided, invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference, fraudulent conveyance, fraudulent transfer, impermissible set-off or a diversion of trust funds or (b) for any other similar reason, including (i) any judgment, decree or order of any court or administrative body having jurisdiction over the Agent, any Bank or any of their respective properties or (ii) any settlement or compromise of any such claim effected by the Agent or any Bank with any such claimant (including the Company), then the Guaranteed Obligations or part thereof intended to be satisfied shall be reinstated and continue, and this Guaranty shall continue in full force as if such payment or proceeds have not been received, notwithstanding any revocation thereof or the cancellation of any Note or any other instrument evidencing any Guaranteed Obligations or otherwise; and the Guarantors, jointly and severally, shall be liable to pay the Agent and the Banks, and hereby do indemnify the -49- 56 Agent and the Banks and hold them harmless for the amount of such payment or proceeds so surrendered and all expenses (including reasonable attorneys' fees, court costs and expenses attributable thereto) incurred by the Agent or any Bank in the defense of any claim made against it that any payment or proceeds received by the Agent or any Bank in respect of all or part of the Guaranteed Obligations must be surrendered. The provisions of this paragraph shall survive the termination of this Guaranty, and any satisfaction and discharge of the Company by virtue of any payment, court order or any federal or state law. SECTION 8.04 Waiver of Subrogation. Notwithstanding any payment or payments made by any Guarantor hereunder, or any set-off or application by the Agent or any Bank of any security or of any credits or claims, no Guarantor will assert or exercise any rights of the Agent or any Bank or of such Guarantor against the Company to recover the amount of any payment made by such Guarantor to the Agent or any Bank hereunder by way of any claim, remedy or subrogation, reimbursement, exoneration, contribution, indemnity, participation or otherwise arising by contract, by statute, under common law or otherwise, and such Guarantor shall not have any right of recourse to or any claim against assets or property of the Company, in each case unless and until the Obligations of the Company guaranteed hereby have been fully and finally satisfied. Until such time, each Guarantor hereby expressly waives any right to exercise any claim, right or remedy which such Guarantor may now have or hereafter acquire against the Company that arises under this Agreement or any other Loan Document or from the performance by any Guarantor of the Guaranty hereunder including any claim, remedy or right of subrogation, reimbursement, exoneration, contribution, indemnification or participation in any claim, right or remedy of the Agent or any Bank against the Company or any Guarantor, or any security that the Agent or any Bank now has or hereafter acquires, whether or not such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise. If any amount shall be paid to a Guarantor by the Company or another Guarantor after payment in full of the Obligations, and the Obligations shall thereafter be reinstated in whole or in part and the Agent or any Bank forced to repay any sums received by any of them in payment of the Obligations, this Guaranty shall be automatically reinstated and such amount shall be held in trust for the benefit of the Agent and the Banks and shall forthwith be paid to the Agent to be credited and applied to the Guaranteed Obligations, whether matured or unmatured. The provisions of this paragraph shall survive the termination of this Guaranty, and any satisfaction and discharge of the Company by virtue of any payment, court order or any federal or state law. SECTION 8.05 Subordination. If any Guarantor becomes the holder of any indebtedness payable by the Company or another Guarantor, each Guarantor hereby subordinates all indebtedness owing to it from the Company or such other Guarantor to all indebtedness of the Company to the Agent and the Banks, and agrees that during the continuance of any Event of Default it shall not accept any payment on the same until payment in full of the Obligations of the Company under this Agreement and the other Loan Documents after the termination of the Commitments of the Banks and shall in no circumstance whatsoever attempt to set-off or reduce any obligations hereunder because of such indebtedness. If any amount shall nevertheless be paid in violation of the foregoing to a Guarantor by the Company or another Guarantor prior to payment in -50- 57 full of the Guaranteed Obligations, such amount shall be held in trust for the benefit of the Agent and the Banks and shall forthwith be paid to the Agent to be credited and applied to the Guaranteed Obligations, whether matured or unmatured. SECTION 8.06 Waiver. Each Guarantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Guaranteed Obligations and this Guaranty and waives presentment, demand of payment, notice of intent to accelerate, notice of dishonor or nonpayment and any requirement that the Agent or any Bank institute suit, collection proceedings or take any other action to collect the Guaranteed Obligations, including any requirement that the Agent or any Bank protect, secure, perfect or insure any Lien against any property subject thereto or exhaust any right or take any action against the Company or any other Person or any collateral (it being the intention of the Agent, the Banks and each Guarantor that this Guaranty is to be a guaranty of payment and not of collection). It shall not be necessary for the Agent or any Bank, in order to enforce any payment by any Guarantor hereunder, to institute suit or exhaust its rights and remedies against the Company, any other Guarantor or any other Person, including others liable to pay any Guaranteed Obligations, or to enforce its rights against any security ever given to secure payment thereof. Each Guarantor hereby expressly waives to the maximum extent permitted by applicable law each and every right to which it may be entitled by virtue of the suretyship laws of the State of Texas, including any and all rights it may have pursuant to Rule 31, Texas Rules of Civil Procedure, Section 17.001 of the Texas Civil Practice and Remedies Code and Chapter 34 of the Texas Business and Commerce Code. Each Guarantor hereby waives marshaling of assets and liabilities, notice by the Agent or any Bank of any indebtedness or liability to which such Bank applies or may apply any amounts received by such Bank, and of the creation, advancement, increase, existence, extension, renewal, rearrangement or modification of the Guaranteed Obligations. Each Guarantor expressly waives, to the extent permitted by applicable law, the benefit of any and all laws providing for exemption of property from execution or for valuation and appraisal upon foreclosure. SECTION 8.07 Full Force and Effect. This Guaranty is a continuing guaranty and shall remain in full force and effect until all of the Obligations of the Company under this Agreement and the other Loan Documents and all other amounts payable under this Guaranty have been paid in full (after the termination of the Commitments of the Banks). All rights, remedies and powers provided in this Guaranty may be exercised, and all waivers contained in this Guaranty may be enforced, only to the extent that the exercise or enforcement thereof does not violate any provisions of applicable law which may not be waived. SECTION 8.08 Negative Pledge. No Guarantor will create any lien on its assets to any other Person during the pendency of this Agreement except for liens that would be permitted by Section 7.04 nor will any of them enter any agreement with any Person not to grant liens on or pledge assets to the Agent. -51- 58 ARTICLE IX EVENTS OF DEFAULT AND REMEDIES SECTION 9.01 Events of Default. The following events shall constitute Events of Default ("Events of Default") hereunder: (a) any installment of principal is not paid when due or any payment of interest or Fees is not paid on the date on which such payment is due and such failure continues for a period of five (5) days; or (b) any representation or warranty made or deemed made by the Company or any Subsidiary herein or in any of the Loan Documents or other document, certificate or financial statement delivered in connection with this Agreement or any other Loan Document shall prove to have been incorrect in any material respect when made or deemed made or reaffirmed, as the case may be; or (c) the Company or any Subsidiary shall fail to perform or observe any duty or covenant contained in Article VI of this Agreement or in any of the Security Documents and such failure continues for a period of fifteen (15) days or shall fail to perform or observe any other covenant or duty contained in this Agreement or in any of the Loan Documents; or (d) (i) the Company shall (A) fail to make any principal payment of or interest or premium, if any, on the Subordinated Debentures or (B) shall fail to duly observe, perform or comply with any agreement with any Person or any term or condition with respect to the Subordinated Debentures, if the effect of such failure is to cause or to permit the holder or holders of any of the Subordinated Debentures to cause, such obligations to become due prior to any stated maturity or (ii) the Company or any Subsidiary shall (A) fail to make (whether as primary obligor or as guarantor or other surety) any principal payment of or interest or premium, if any, on any instrument of Indebtedness in excess of $5,000,000.00 allowed hereunder outstanding beyond any period of grace provided with respect thereto or (B) shall fail to duly observe, perform or comply with any agreement with any Person or any term or condition of any instrument of Indebtedness in excess of $5,000,000.00, if the effect of such failure is to cause, or to permit the holder or holders to cause, such obligations to become due prior to any stated maturity; or (e) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Company or any Subsidiary, or of a substantial part of the property or assets of the Company or any Subsidiary, under Title 11 of the United States Code, as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"), or any other federal or state bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or any Subsidiary or for a substantial part of the property or assets of the Company or any Subsidiary or (iii) the winding-up or liquidation of the Company or any Subsidiary; and such -52- 59 proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; or (f) the Company or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking relief under the Bankruptcy Code or any other federal or state bankruptcy, insolvency, receivership or similar law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in clause (e) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or any Subsidiary or for a substantial part of the property or assets of the Company or any Subsidiary, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, or admit in writing its inability or fail generally, to pay its debts as they become due or (vii) take any action for the purpose of effecting any of the foregoing; or (g) any Loan Document shall become or be deemed to be unenforceable in any material respect in the sole judgment of the Majority Banks; or (h) a judgment or order, which with other outstanding judgments and orders against the Company and its Subsidiaries equal or exceed $5,000,000.00 in the aggregate (to the extent not covered by insurance as to which the respective insurer has acknowledged coverage), shall be entered against the Company or any Subsidiary and (i) within 30 days after entry thereof such judgment shall not have been paid or discharged or execution thereof stayed pending appeal or, within 30 days after the expiration of any such stay, such judgment shall not have been paid or discharged or (ii) any enforcement proceeding shall have been commenced (and not stayed) by any creditor or upon such judgment; or (i) any Plan shall incur an accumulated funding deficiency (as defined in Section 412 of the Code or Section 302 of ERISA) which (individually or collectively) exceeds $5,000,000.00, whether or not waived, or a waiver in excess of $5,000,000.00 of the minimum funding standard or material extension of any amortization period is sought or granted under Section 412 of the Code with respect to a Plan; any proceeding shall have occurred or is reasonably likely to occur by the PBGC under Section 4069(a) of ERISA to impose liability on the Company, any Subsidiary or an ERISA Affiliate which (individually or collectively) exceeds $5,000,000.00; any required contribution to a Plan or Multiemployer Plan in excess of $5,000,000.00 shall not have been made within 15 days of the date such contribution is due; or the Company, any Subsidiary or any ERISA Affiliate has incurred or is reasonably likely to incur a liability to or on account of a Plan or Multiemployer Plan under Section 515, 4062, 4063, 4201 or 4204 of ERISA, and there shall result (individually or collectively) from any such event or events a material risk of either (i) the imposition of a Lien(s) upon, or the granting of a security interest(s) in, the assets of the Company, any Subsidiary and/or an ERISA Affiliate securing an amount(s) equal to or exceed $5,000,000.00, or (ii) the Company, any Subsidiary and/or an ERISA Affiliate incurring a liability(ies) or obligation(s) with respect thereto equal to or exceeding $5,000,000.00; or (j) a Change of Control shall occur. -53- 60 SECTION 9.02 Primary Remedies. In any such event, and at any time after the occurrence of any of the above described events, the Agent, if directed by the Majority Banks, shall by written notice to the Company (a "Notice of Default") take any or all of the following actions (without prejudice to the rights of any Bank to enforce any other rights it may have against the Company, provided that, if an Event of Default specified in Section 9.01(e) or Section 9.01(f) shall occur, the following shall occur automatically without the giving of any Notice of Default): (a) declare the Commitments terminated, whereupon the Commitments shall forthwith terminate immediately and any Commitment Fee and any other owing and unpaid Fee shall forthwith become due and payable without any other notice of any kind; (b) declare the principal of and any accrued and unpaid interest in respect of all Advances, and all obligations owing hereunder, to be, whereupon the same shall become, forthwith due and payable without presentment, demand, notice of demand or of dishonor and non-payment, protest, notice of protest, notice of intent to accelerate, declaration or notice of acceleration or any other notice of any kind (except as herein provided), all of which are hereby waived by the Company; (c) set off any assets or money of the Company or any Guarantor in its or any Bank's possession against the Obligations (and thereafter in accordance with Section 11.06); and (d) exercise any rights or remedies under any of the Loan Documents or under any applicable state or federal law. SECTION 9.03 Other Remedies. Upon the occurrence and during the continuance of any Event of Default, the Agent may proceed to protect and enforce its and the Banks' rights, either by suit in equity or by action at law or both, whether for the specific performance of any covenant or agreement contained in this Agreement or in any other Loan Document or in aid of the exercise of any power granted in this Agreement or in any other Loan Document; or may proceed to enforce the payment of all amounts owing to the Banks under the Loan Documents and any accrued and unpaid interest thereon in the manner set forth herein or therein; it being intended that no remedy conferred herein or in any of the other Loan Documents is to be exclusive of any other remedy, and each and every remedy contained herein or in any other Loan Document shall be cumulative and shall be in addition to every other remedy given hereunder and under the other Loan Documents or now or hereafter existing at law or in equity or by statute or otherwise. ARTICLE X THE AGENT SECTION 10.01 Authorization and Action. Each Bank hereby irrevocably appoints and authorizes the Agent to act on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are specifically delegated to or required of the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through its agents and employees. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of this Agreement or any other Loan Documents a fiduciary relationship in respect of any Bank; and nothing in this Agreement or any other Loan Document, expressed or implied, is intended to, or shall be so construed as to, impose upon the Agent any obligations in respect of this Agreement or -54- 61 any other Loan Document except as expressly set forth herein or therein. As to any matters not expressly provided for by this Agreement, the Notes or the other Loan Documents (including enforcement or collection of the Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Banks, and such instructions shall be binding upon the Banks and all holders of Notes and the Obligations; provided, that the Agent shall not be required to take any action which exposes the Agent to personal liability and shall not be required or entitled to take any action which is contrary to any of the Loan Documents or applicable law. SECTION 10.02 Agent's Reliance. (a) Neither the Agent nor any of its directors, officers, agents or employees shall be liable to the Banks for any action taken or omitted to be taken by it or them under or in connection with this Agreement, the Notes or any of the other Loan Documents (i) with the consent or at the request of the Majority Banks or (ii) in the absence of its or their own gross negligence or willful misconduct, it being the express intention of the parties hereto that the Agent and its directors, officers, agents and employees shall have no liability to the Banks for actions and omissions under this Section resulting from their sole ordinary or contributory negligence. (b) Without limitation of the generality of the foregoing, the Agent: (i) may treat the payee of each Note and the Obligations as the holder thereof until the Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Agent; (ii) may consult with legal counsel (including counsel for the Company), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Bank and shall not be responsible to any Bank for any statements, warranties or representations made in or in connection with this Agreement, any Note or any other Loan Document; (iv) except as otherwise expressly provided herein, shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement, any Note or any other Loan Document or to inspect the property (including the books and records) of the Company; (v) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, collectibility, genuineness, sufficiency or value of this Agreement, any Note, any other Loan Document or any other instrument or document furnished pursuant hereto or thereto; (vi) shall not be responsible to any Bank for the perfection or priority of any Lien securing the Obligations; and (vii) shall incur no liability to the Banks under or in respect of this Agreement, any Note or any other Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, telecopier or cable) reasonably believed by it to be genuine and signed or sent by the proper party or parties. -55- 62 SECTION 10.03 Agent and Affiliates; Chase and Affiliates. Without limiting the right of any other Bank to engage in any business transactions with the Company or any of its Affiliates, with respect to their Commitments, the Loans made by them and the Notes issued to them, Chase and each other Bank who may become the Agent shall have the same rights and powers under this Agreement and its Notes as any other Bank and may exercise the same as though it was not the Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly indicated, include Chase and any such other Bank, in their individual capacities. Chase, each other Person who becomes the Agent and their respective Affiliates may be engaged in, or may hereafter engage in, one or more loan, letter of credit, leasing or other financing activity not the subject of this Agreement (collectively, the "Other Financings") with the Company, any Subsidiary or any of its Affiliates, or may act as trustee on behalf of, or depositary for, or otherwise engage in other business transactions with the Company, any Subsidiary or any of its Affiliates (all Other Financings and other such business transactions being collectively, the "Other Activities") with no responsibility to account therefor to the Banks. Without limiting the rights and remedies of the Banks specifically set forth herein, no other Bank by virtue of being a Bank hereunder shall have any interest in (a) any Other Activities, (b) any present or future guaranty by or for the account of the Company not contemplated or included herein, (c) any present or future offset exercised by the Agent in respect of any such Other Activities, (d) any present or future property taken as security for any such Other Activities or(e) any property now or hereafter in the possession or control of the Agent which may be or become security for the Obligations of the Company hereunder and under the Notes by reason of the general description of indebtedness secured, or of property contained in any other agreements, documents or instruments related to such Other Activities; provided, however, that if any payment in respect of such guaranties or such property or the proceeds thereof shall be applied to reduction of the Obligations evidenced hereunder and by the Notes, then each Bank shall be entitled to share in such application according to its pro rata portion of such Obligations. SECTION 10.04 Banks' Credit Decision. Each Bank acknowledges and agrees that it has, independently and without reliance upon the Agent or any other Bank and based on the financial statements referred to in Section 6.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges and agrees that it will, independently and without reliance upon the Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. SECTION 10.05 Agent's Indemnity. (a) The Agent shall not be required to take any action hereunder or to prosecute or defend any suit in respect of this Agreement, the Notes or any other Loan Document unless indemnified to the Agent's satisfaction by the Banks against loss, cost, liability and expense. If any indemnity furnished to the Agent shall become impaired, it may call for additional indemnity and cease to do the acts indemnified against until such additional indemnity is given. In addition, the Banks agree to indemnify the Agent (to the extent not reimbursed by the Company), ratably according to the respective aggregate principal amounts of the Notes then held by each of them (or if no Notes are at the time outstanding, ratably according to the -56- 63 respective amounts of the Commitments), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Agent under this Agreement, the Notes and the other Loan Documents. Without limitation of the foregoing, each Bank agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including reasonable counsel fees) incurred by the Agent in connection with the preparation, execution, administration, or enforcement of, or legal advice in respect of rights or responsibilities under, this Agreement, the Notes and the other Loan Documents to the extent that the Agent is not reimbursed for such expenses by the Company. The provisions of this Section shall survive the termination of this Agreement, the payment of the Obligations and/or the assignment of any of the Notes. (b) Notwithstanding the foregoing, no Bank shall be liable under this Section to the Agent for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements due to the Agent resulting from the Agent's gross negligence or willful misconduct. Each Bank agrees, however, that it expressly intends, under this Section, to indemnify the Agent ratably as aforesaid for all such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements arising out of or resulting from the Agent's sole ordinary or contributory negligence. SECTION 10.06 Successor Agent. The Agent may resign at any time by giving written notice thereof to the Banks and the Company and may be removed as Agent under this Agreement, the Notes and the other Loan Documents at any time with or without cause by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint a successor Agent with the approval of the Company, which shall not be unreasonably withheld. If no successor Agent shall have been so appointed by the Majority Banks, and shall have accepted such appointment, within 30 calendar days after the retiring Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent with the approval of the Company, which shall not be unreasonably withheld, which shall be a commercial bank organized under the laws of the United States of America or of any state thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of any appointment as Agent hereunder and under the Notes and the other Loan Documents by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement, the Notes and the other Loan Documents. After any retiring Agent's resignation or removal as Agent hereunder and under the Notes and the other Loan Documents, the provisions of this Article X shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement, the Notes and the other Loan Documents. -57- 64 SECTION 10.07 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Agent shall have received notice from a Bank or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default." If the Agent receives such notice, the Agent shall give notice thereof to the Banks; provided, however, if such notice is received from a Bank, the Agent also shall give notice thereof to the Company. The Agent shall be entitled to take action or refrain from taking action with respect to such Default or Event of Default as provided in Section 10.01 and Section 10.02. ARTICLE XI MISCELLANEOUS SECTION 11.01 Amendments. No amendment or waiver of any provision of this Agreement, any Note or any other Loan Document, nor consent to any departure by the Company herefrom or therefrom, shall in any event be effective unless the same shall be in writing and signed by the Company, as to amendments, and by the Majority Banks in all cases, and then, in any case, such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, no such amendment, waiver or consent shall be effective unless signed by all of the Banks if it attempts to: (a) change the definition of "Commitment", "Designated Payment Date", "Majority Banks", "Margin" or "Maturity Date"; (b) modify this Section or Sections 2.19 or 11.05 or any definition related to said sections; (c) release any Guarantor or Collateral; (d) waive any Default under Section 9.01(a), (e) release any Liens on any of the Collateral, or in any other manner change the repayment terms of the Loans, including required principal payments or the rate, amount or time of interest payments or (f) modify Section 7.17(a)(ii). Further, no provisions of Article III or Article X or other terms affecting the Agent or the Issuing Bank may be changed without the consent of said Agent or the Issuing Bank as appropriate. SECTION 11.02 Notices. Except with respect to telephone notifications specifically permitted pursuant to Article II, all notices, consents, requests, approvals, demands and other communications provided for herein shall be in writing (including telecopy communications) and mailed, telecopied, sent by overnight courier or delivered: (a) If to the Company and the Guarantors: Group Maintenance America Corp. 8 Greenway Plaza Suite 1500 Houston, Texas 77046 Telephone No.: (713) 860-0100 Telecopy No: (713) 626-4766 Attention: Chief Financial Officer -58- 65 (b) If to the Agent: Chase Bank of Texas 545 West 19th Street Houston, Texas 77008 Telephone No.: (713) 868-6737 Telecopy No: (713) 868-8663 Attention: Mr. Mark Walshak Senior Vice President with copies to: Agency Services 1 Chase Manhattan Plaza 8th Floor New York, New York 10081 Attention: Muniram Appanna Telephone No.: (212) 552-7943 Telecopy No.: (212) 552-5777 and to: Andrews & Kurth L.L.P. 4200 Chase Tower Houston, Texas 77002 Telephone No.: (713) 220-4268 Telecopy No.: (713) 220-4285 Attention: Mr. Thomas J. Perich or, in the case of any party hereto, such other address or telecopy number as such party may hereafter specify for such purpose by notice to the other parties. (c) If to any Bank, to the address shown on the signature page hereof or specified by such Bank (or the Agent on behalf of any Bank) to the Company. All communications shall, when mailed, telecopied or delivered, be effective when mailed by certified mail, return receipt requested to any party at its address specified above, or telecopied to any party to the telecopy number set forth above, or delivered personally to any party at its address specified above; provided, that communications to the Agent pursuant to Article II shall not be effective until actually received by the Agent, and provided further that communications sent by telecopy after 5:00 p.m., Houston, Texas time, shall be effective on the next succeeding business day. -59- 66 SECTION 11.03 No Waiver; Remedies. No failure on the part of any Bank or the Agent to exercise, and no delay in exercising, any right hereunder, under any Note or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, or any abandonment or discontinuance of any steps to enforce such right, preclude any other or further exercise thereof or the exercise of any other right. No notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances. The remedies herein are cumulative and not exclusive of any other remedies provided by law, at equity or in any other agreement. SECTION 11.04 Costs and Expenses. The Company agrees to pay on demand: (a) all reasonable out-of-pocket costs and expenses of the Agent in connection with the preparation, delivery, sale and syndication of this Agreement, the Notes, the other Loan Documents and the other documents to be delivered hereunder, including the reasonable fees and out-of-pocket expenses of counsel for the Agent with respect thereto and with respect to advising the Agent as to its rights and responsibilities under this Agreement, the Notes and the other Loan Documents, and any modification, supplement or waiver of any of the terms of this Agreement or any other Loan Document, (b) all reasonable out-of-pocket costs and expenses of any Bank including reasonable legal fees and expenses, in connection with the enforcement of this Agreement, the Notes and the other Loan Documents and (c) reasonable costs and expenses incurred in connection with third party professional services reasonably required by the Agent such as appraisers, environmental consultants, accountants or similar Persons, provided that, prior to any Event of Default hereunder, the Agent will first obtain the consent of the Company to such expense, which consent shall not be unreasonably withheld. Without prejudice to the survival of any other obligations of the Company hereunder and under the Notes, the obligations of the Company under this Section shall survive the termination of this Agreement or the replacement of the Agent and each assignment of the Notes. SECTION 11.05 Release and Indemnity. (a) The Company shall and hereby does indemnify the Agent and each Bank and each Affiliate thereof and their respective directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims or damages (including reasonable legal fees and expenses) to which any of them may become subject, insofar as such losses, liabilities, claims or damages arise out of or result from any actual or proposed use by the Company of the proceeds of any extension of credit hereunder or any investigation, litigation or other proceeding (including any threatened investigation or proceeding) relating to the foregoing or any of the other Loan Documents, and the Company shall reimburse each Bank and each Affiliate thereof and their respective directors, officers, employees and agents, upon demand for any expenses (including legal fees) reasonably incurred in connection with any such investigation or proceeding; but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified (the "Indemnified Obligations"). (b) WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED HEREUNDER SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST ANY AND ALL INDEMNIFIED OBLIGATIONS ARISING OUT OF OR -60- 67 RESULTING FROM THE ORDINARY SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON OR IMPOSED UPON SAID PARTY UNDER ANY THEORY OF STRICT LIABILITY. Without prejudice to the survival of any other obligations of the Company hereunder and under the other Loan Documents, the obligations of the Company under this Section shall survive the termination of this Agreement and the other Loan Documents and the payment of the Obligations or the assignment of the Notes. SECTION 11.06 Right of Setoff. Without limiting the remedies provided for in Article IX, each Bank is hereby authorized at any time and from time to time, after acceleration of the Obligations after the occurrence of an Event of Default to the fullest extent permitted by law, to set off and apply any and all deposits held and other indebtedness owing by such Bank, or any branch, subsidiary or Affiliate, to or for the credit or the account of the Company against any and all the Obligations of the Company now or hereafter existing under this Agreement and the other Loan Documents and other obligations of the Company held by such Bank, irrespective of whether or not such Bank shall have made any demand under this Agreement, its Note or the Obligations and although the Obligations may be unmatured. Each Bank agrees promptly to notify the Company after any such set-off and application made by such Bank, provided, that failure to give such notice shall not affect the validity of such set-off and application. The rights of each Bank under this Section are in addition to other rights and remedies (including other rights of setoff) which such Bank may have. SECTION 11.07 GOVERNING LAW. THIS AGREEMENT, ALL NOTES, THE OTHER LOAN DOCUMENTS AND ALL OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH SHALL BE DEEMED TO BE CONTRACTS AND AGREEMENTS EXECUTED BY THE COMPANY AND EACH BANK UNDER THE LAWS OF THE STATE OF TEXAS AND OF THE UNITED STATES OF AMERICA AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF SAID STATE AND OF THE UNITED STATES OF AMERICA. Without limitation of the foregoing, nothing in this Agreement, or in the Notes or in any other Loan Document shall be deemed to constitute a waiver of any rights which any Bank may have under applicable federal legislation relating to the amount of interest which such Bank may contract for, take, receive or charge in respect of the Loan and the Loan Documents, including any right to take, receive, reserve and charge interest at the rate allowed by the law of the state where any Bank is located. The Agent, each Bank and the Company further agree that insofar as the provisions of Texas Finance Code, Chapter 303, as amended, are applicable to the determination of the Highest Lawful Rate with respect to the Notes and the Obligations hereunder and under the other Loan Documents, the weekly rate ceiling of such Article, as described in Article 1D.003 of the Texas Credit Title, shall be applicable; provided, however, that to the extent permitted by such Article, the Agent may from time to time by notice to the Company revise the election of such interest rate ceiling as such ceiling affects the then current or future balances of the Loans. The provisions of the Texas Finance Code, Chapter 346 do not apply to this Agreement, any Note issued hereunder or the other Loan Documents. -61- 68 SECTION 11.08 Interest. Each provision in this Agreement and each other Loan Document is expressly limited so that in no event whatsoever shall the amount paid, or otherwise agreed to be paid, to the Agent or any Bank, or charged, contracted for, reserved, taken or received by the Agent or any Bank, for the use, forbearance or detention of the money to be loaned under this Agreement or any Loan Document or otherwise (including any sums paid as required by any covenant or obligation contained herein or in any other Loan Document which is for the use, forbearance or detention of such money), exceed that amount of money which would cause the effective rate of interest to exceed the Highest Lawful Rate, and all amounts owed under this Agreement and each other Loan Document shall be held to be subject to reduction to the effect that such amounts so paid or agreed to be paid, charged, contracted for, reserved, taken or received which are for the use, forbearance or detention of money under this Agreement or such Loan Document shall in no event exceed that amount of money which would cause the effective rate of interest to exceed the Highest Lawful Rate. Anything in any Note or any other Loan Document to the contrary notwithstanding, the Company shall not be required to pay unearned interest on any Note and the Company shall not be required to pay interest on the Obligations at a rate in excess of the Highest Lawful Rate, and if the effective rate of interest which would otherwise be payable under such Note and such Loan Documents would exceed the Highest Lawful Rate, or if the holder of such Note shall receive any unearned interest or shall receive monies that are deemed to constitute interest which would increase the effective rate of interest payable by the Company under such Note and the other Loan Documents to a rate in excess of the Highest Lawful Rate, then (a) the amount of interest which would otherwise be payable by the Company shall be reduced to the amount allowed under applicable law and (b) any unearned interest paid by the Company or any interest paid by the Company in excess of the Highest Lawful Rate shall in the first instance be credited on the principal of the Obligations of the Company (or if all such Obligations shall have been paid in full, refunded to the Company). It is further agreed that, without limitation of the foregoing, all calculations of the rate of interest contracted for, reserved, taken, charged or received by any Bank under the Notes and the Obligations and under the other Loan Documents are made for the purpose of determining whether such rate exceeds the Highest Lawful Rate, and shall be made, to the extent permitted by usury laws applicable to such Bank, by amortizing, prorating and spreading in equal parts during the period of the full stated term of the Notes and this Agreement all interest at any time contracted for, charged or received by such Bank in connection therewith. Furthermore, in the event that the maturity of any Note or other obligation is accelerated or in the event of any required or permitted prepayment, then such consideration that constitutes interest under applicable law may never include more than the maximum amount allowed by applicable law and excess interest, if any, provided for in this Agreement, any Note or otherwise shall be canceled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall be refunded to the Company. SECTION 11.09 Survival of Representations and Warranties. All representations, warranties and covenants contained herein or made in writing by the Company in connection herewith and the other Loan Documents shall survive the execution and delivery of this Agreement, the Notes and the other Loan Documents and the termination of the Commitments of the Banks and will bind and inure to the benefit of the respective successors and assigns of the parties hereto, -62- 69 whether so expressed or not, provided, that the Commitments of the Banks shall not inure to the benefit of any successor or assign of the Company. SECTION 11.10 Successors and Assigns; Participations. (a) All covenants, promises and agreements by or on behalf of the Company or the Banks that are contained in this Agreement shall bind and inure to the benefit of their respective permitted successors and assigns. The Company may not assign or transfer any of its rights or obligations hereunder. (b) Any of the Banks may assign to or sell participations to one or more banks of all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including all or a portion of its Commitment, the Advances and the Obligations of the Company owing to it and the Notes); provided, that the Company shall continue to deal solely and directly with the Agent and such assigning or selling Bank in connection with such Bank's rights and obligations under this Agreement and the other Loan Documents. Except with respect to cost protections provided to a participant pursuant to this paragraph and the items listed in Section 11.01 hereof, no participant shall be a third party beneficiary of this Agreement nor shall it be entitled to enforce any rights provided to the Banks against the Company under this Agreement. In the case of participations (but not assignments) (i) the original Bank's obligations under this Agreement (including without limitation, its Commitment to the Company hereunder) shall remain unchanged, (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Bank shall remain the holder of such Loan Documents for all purposes of this Agreement, (iv) the Company, the Agent and the other Banks shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement, (v) such Bank shall continue to be able to agree to any modification or amendment of this Agreement or any waiver hereunder without the consent, approval or vote of any such participant or group of participants, other than modifications, amendments and waivers described in the proviso to Section 11.01, and (vi) except as contemplated by the immediately preceding clause (v), no participant shall be deemed to be or to have any of the rights of obligations of a "Bank" hereunder. (c) A Bank may assign to any other Bank or Banks or to any Affiliate of a Bank and, with the prior written consent of the Company and the Agent (which consent shall not be unreasonably withheld), a Bank may assign to one or more other Eligible Assignees all or a portion of its interests, rights, and obligations under this Agreement and the other Loan Documents (including all or a portion of its Commitment and the same portion of the Loans and other Obligations of the Company at the time owing to it and the Note held by it); provided, however, that (i) each such assignment shall be in a minimum principal amount of not less than $5,000,000.00 and shall be of a constant, and not a varying, percentage of the assigning Bank's Commitment, its rights and obligations under this Agreement, and its share of the outstanding balance of each of the Notes, (ii) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance, an Assignment and Acceptance, substantially in the form of Exhibit 11.10(c) hereto, in form and substance satisfactory to the Agent (an "Assignment and Acceptance") and any Note subject to such assignment, (iii) no assignment shall be effective until receipt by the Agent of a reasonable service fee from the Assignee Bank in respect of said assignment equal to $2,000.00, and (iv) the Assigning -63- 70 Bank, provided it does not assign all of its rights and obligations under this Agreement and the other Loan Documents, shall retain a minimum amount of $5,000,000.00 of the Commitment following the Assignment. Upon such execution, delivery and acceptance, from and after the effective date specified in each Assignment and Acceptance, which effective date (unless otherwise agreed to by the assigning Bank, the Eligible Assignee thereunder and the Agent) shall be at least five Business Days after the execution thereof, (x) the Eligible Assignee thereunder shall be a party hereto as a "Bank" and to the other Loan Documents and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Bank hereunder and under the other Loan Documents and (y) the assignor Bank thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement and the other Loan Documents (and, in the case of an Assignment and Acceptance covering all of the remaining portion of an assigning Bank's rights and obligations under this Agreement and the other Loan Documents, such Bank shall cease to be a party hereto). (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) Notwithstanding any other provision herein, any Bank may, in connection with any assignment or participation or proposed assignment or participation pursuant to this section, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Company furnished to such Bank by or on behalf of the Company; provided, however, that prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree in writing for the benefit of the Company to preserve the confidentiality of any confidential information relating to the Company or any of its Subsidiaries received by it from such Bank in a manner consistent with Section 11.11. SECTION 11.11 Confidentiality. Each Bank and the Agent agrees to keep any information delivered or made available to it by the Company or any of its Subsidiaries, confidential from anyone other than Persons employed or retained by its who are or are expected to become engaged in evaluating, approving, structuring or administering the Loans and who are bound hereby; provided that nothing herein shall prevent any Bank or the Agent from disclosing such information (a) to any other Bank, (b) pursuant to subpoena or upon the order of any court or administrative agency, (c) upon the request or demand of any regulatory agency or authority having jurisdiction over such Bank, (d) which has been publicly disclosed, (e) to the extent reasonably required in connection with any litigation to which the Agent, any Bank, the Company or its respective Affiliates may be a party, (f) to the extent reasonably required in connection with the exercise of any remedy hereunder, (g) to such Bank's legal counsel and independent auditors and who are bound hereby and (h) to any actual or proposed participant or assignee of all or part of its rights hereunder which has agreed in writing to be bound by the provisions of this Section. Each Bank or the Agent will promptly notify the Company of any information that it is required or requested to deliver pursuant to clause (b) or (c) of this Section and, if the Company is a party to any such litigation, clause (e) of this Section. -64- 71 SECTION 11.12 Pro Rata Treatment. (a) Except as otherwise specifically permitted hereunder, each payment or prepayment of principal, if permitted under this Agreement, and each payment of interest with respect to an Advance shall be made pro rata among the Banks. (b) Each Bank agrees that if, through the exercise of a right of banker's Lien, setoff or claim of any kind against the Company as a result of which the unpaid principal portion of the Notes and the Obligations held by it shall be proportionately less than the unpaid principal portion of the Notes and Obligations held by any other Bank, it shall be deemed to have simultaneously purchased from such other Bank a participation in the Notes and Obligations held by such other Bank, in the amount required to render such amounts proportional; provided, however, that if any such purchase or purchases or adjustments shall be made pursuant to this Section and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustments restored without interest. SECTION 11.13 Separability. Should any clause, sentence, paragraph or Section of this Agreement be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Agreement, and the parties hereto agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom and the remainder will have the same force and effectiveness as if such part or parts had never been included herein. SECTION 11.14 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different 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. Any Subsidiary of the Company that executes an Adoption Agreement after the date of this Agreement shall, upon such execution, become a party hereto as a Guarantor. SECTION 11.15 Interpretation. (a) In this Agreement, unless a clear contrary intention appears: (i) the singular number includes the plural number and vice versa; (ii) reference to any gender includes each other gender; (iii) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision; (iv) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or -65- 72 individually, provided that nothing in this clause is intended to authorize any assignment not otherwise permitted by this Agreement; (v) except as expressly provided to the contrary herein, reference to any agreement, document or instrument (including this Agreement) means such agreement, document or instrument as amended, supplemented or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof, and reference to any Note or other note includes any Note issued pursuant hereto in extension or renewal thereof and in substitution or replacement therefor; (vi) unless the context indicates otherwise, reference to any Article, Section, Schedule or Exhibit means such Article or Section hereof or such Schedule or Exhibit hereto; (vii) the words "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term; (viii) with respect to the determination of any period of time, except as expressly provided to the contrary, the word "from" means "from and including" and the word "to" means "to but excluding"; and (ix) reference to any law, rule or regulation means such as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time. (b) The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. (c) No provision of this Agreement shall be interpreted or construed against any Person solely because that Person or its legal representative drafted such provision. (d) In the event of any conflict between the specific provisions of this Agreement and the provisions of any application pertaining to any letter of credit secured by a Loan Document, the terms of this Agreement shall control. SECTION 11.16 SUBMISSION TO JURISDICTION. (a) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS, IN HARRIS COUNTY OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF TEXAS AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY AND EACH GUARANTOR HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING. THE COMPANY AND EACH GUARANTOR FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY -66- 73 SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS PROVIDED IN SECTION 11.02 AND WITH RESPECT TO ANY GUARANTOR, AT THE ADDRESS PROVIDED ON SCHEDULE 5.16 HERETO, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. (b) EACH OF THE COMPANY AND THE GUARANTORS HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. SECTION 11.17 WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND EACH GUARANTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM OR RELATING TO ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. SECTION 11.18 FINAL AGREEMENT OF THE PARTIES. THIS AGREEMENT (INCLUDING THE SCHEDULES AND EXHIBITS HERETO), THE NOTES AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. -67- 74 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. COMPANY: GROUP MAINTENANCE AMERICA CORP. By: /s/ DARREN B. MILLER -------------------------- Name: Darren B. Miller Title: Executive Vice President 75 GUARANTORS/DOMESTIC SUBSIDIARIES: AA Advance Air, Inc., a Florida corporation AA JARL, Inc. (dba Jarrell Plumbing), a Texas corporation A-ABC Appliance, Inc., a Texas corporation A-1 Appliance & Air Conditioning, Inc., a Texas corporation A-1 Mechanical of Lansing, Inc., a Michigan corporation Air Conditioning Engineers, Inc., a Michigan corporation Air Conditioning, Plumbing & Heating Service Co., Inc., a Colorado corporation Aircon Energy Incorporated, a California corporation Airtron, Inc., a Delaware corporation Airtron of Central Florida, Inc., a Florida corporation All Service Electric, Inc., a Florida corporation Arkansas Mechanical Services, Inc., an Arkansas corporation Atlantic Industrial Constructors, Inc., a Virginia corporation Barr Electric Corp., an Illinois corporation Callahan Roach Products & Publications, Inc., a Colorado corporation Central Air Conditioning Contractors, Inc., a Delaware corporation Central Carolina Air Conditioning Company, a North Carolina corporation Charlie Crawford, Inc., a Texas corporation Clark Converse Electric Service, Inc., an Ohio corporation Colonial Air Conditioning Company, a Connecticut corporation Commercial Air Holding Company, a Maryland corporation Commercial Air, Power & Cable, Inc., a Maryland corporation Costner Brothers, Inc., a South Carolina corporation Divco, Inc., a Washington corporation Dynamic Software Corporation, a Maryland corporation Evans Services, Inc., an Alabama corporation The Farfield Company, a Delaware corporation Ferguson Electric Corporation, a Delaware corporation Gentzler Electrical Contractors, Inc., a Texas corporation Gilbert Mechanical Contractors, Inc., a Minnesota corporation GroupMAC Holding Corp., a Delaware corporation HPS Plumbing Services, Inc., a California corporation Hallmark Air Conditioning, Inc., a Texas corporation Hungerford Mechanical Corporation, a Virginia corporation J. D. Steward Air Conditioning, Inc., a Colorado corporation Jerry Albert Air Conditioning, Inc., a Texas corporation K & N Plumbing, Heating and Air Conditioning, Inc., a Texas corporation Laney's Inc., a Delaware corporation Linford Service Co., a California corporation MacDonald-Miller Co., Inc., a Washington corporation MacDonald-Miller Industries, Inc., a Washington corporation MacDonald-Miller Service, Inc., a Washington corporation Masters, Inc., a Maryland corporation 76 Mechanical Interiors, Inc., a Texas corporation Merritt Island Air & Heat, Inc., a Delaware corporation New Construction Air Conditioning, Inc., a Michigan corporation Noron, Inc., an Ohio corporation Paul E. Smith Co., Inc., an Indiana corporation Phoenix Electric Company, a Delaware corporation Ray and Claude Goodwin, Inc., a Florida corporation Reliable Mechanical, Inc., a Delaware corporation Romanoff Electric Corp., an Ohio corporation Sibley Services, Incorporated, a Tennessee corporation Southeast Mechanical Service, Inc., a Florida corporation Sterling Air Conditioning, Inc., a Texas corporation Sun Plumbing, Inc., a Florida corporation Team Mechanical, Inc., a Utah corporation United Acquisition Corp. (dba United Service Alliance), an Iowa corporation Valley Wide Plumbing and Heating, Inc., a Colorado corporation Van's Comfortemp Air Conditioning, Inc., a Florida corporation Vantage Mechanical Contractors, Inc., a Maryland corporation Wade's Heating and Cooling, Inc., a Florida corporation Wiegold & Sons, Inc., a Florida corporation Willis Refrigeration, Air Conditioning & Heating, Inc., an Ohio corporation Yale Incorporated, a Minnesota corporation By: /s/ DARREN B. MILLER ------------------------- Name: Darren B. Miller Title: Vice President GroupMAC Management Co., a Delaware corporation By: /s/ DARREN B. MILLER ------------------------- Name: Darren B. Miller Title: Vice President 77 AGENT/BANK: Amount of Commitment: CHASE BANK OF TEXAS, $27,500,000.00 NATIONAL ASSOCIATION, as Agent and Individually, as a Bank By: /s/ J. M. WALSHAK --------------------------- J. M. Walshak Vice President 78 CO-AGENT/BANK: Amount of Commitment: BANK OF AMERICA TEXAS, N.A., $25,000,000.00 as Co-Agent and Individually, as a Bank By: /s/ GEORGE M. SMITH ------------------------ Name: George M. Smith ------------------------ Title: Vice President ------------------------ Address for Notice: 333 Clay Street, Suite 3600 Houston, Texas 77002 Telephone No.: (713) 652-3615 Telecopy No.: (713) 652-3619 Attention: George Smith 79 DOCUMENTATION AGENT/BANK: Amount of Commitment: ABN AMRO BANK, N.V., $25,000,000.00 as Documentation Agent and Individually, as a Bank By: /s/ LAURIE C. TUZO ---------------------------- Name: Laurie C. Tuzo ---------------------------- Title: Senior Vice President ---------------------------- By: /s/ ERIC R. HOLLINGSWORTH ---------------------------- Name: Eric R. Hollingsworth ---------------------------- Title: Assistant Vice President ---------------------------- Address for Notice: Three Riverway, Suite 1700 Houston, Texas 77056 Telephone No.: (713) 964-3360 Telecopy No.: (713) 629-7533 Attn: Laurie Tuzo 80 BANKS: Amount of Commitment: BANK OF MONTREAL $20,000,000.00 By: /s/ LYNN A. DURNING ---------------------------- Name: Lynn A. Durning ---------------------------- Title: Portfolio Manager ---------------------------- Address for Notice: 115 South LaSalle Street, 12th Floor Chicago, Illinois 60603 Telephone No.: (312) 750-3474 Telecopy No.: (312) 750-3808 Attn: Amy Dumser 81 BANKS: Amount of Commitment: THE BANK OF NOVA SCOTIA $20,000,000.00 By: /s/ F.C.H. ASHBY ------------------------------- Name: F.C.H. Ashby ------------------------------- Title: Senior Manager, Loan Operations ------------------------------- Address for Notice: 600 Peachtree Street N.E. Atlanta, Georgia 30308 Telephone No.: (404) 877-1500 Telecopy No.: (404) 888-8998 Attn: F.C.H. Ashby 82 BANKS: Amount of Commitment: BANKBOSTON, N.A. $15,000,000.00 By: /s/ RAVI KACKER -------------------------------- Name: Ravi Kacker -------------------------------- Title: Vice President -------------------------------- Address for Notice: 100 Federal Street, Mail Stop 01-10-01 Boston, Massachusetts 02110 Telephone No.: (617) 434-4708 Telecopy No.: (617) 434-1574 Attn: Ravi Kacker E-mail: rkacker@bkb.com 83 BANKS: Amount of Commitment: CREDIT LYONNAIS NEW YORK BRANCH $20,000,000.00 By: /s/ PASCAL POUPELLE -------------------------------- Name: Pascal Poupelle -------------------------------- Title: Executive Vice President -------------------------------- Address for Notice: 2200 Ross Avenue, Suite 4400W Dallas, Texas 75201 Telephone No.: (214) 220-2303 Telecopy No.: (214) 220-2323 Attn: Blake Wright 84 BANKS: Amount of Commitment: KEY CORPORATE CAPITAL INC. $15,000,000.00 By: /s/ DAVID WOOD ------------------------------ Name: David Wood Title: Vice President Address for Notice: 127 Public Square, 6th Floor Cleveland, Ohio 44114 Telephone No.: (216) 689-0439 Telecopy No.: (216) 689-4077 Attn: David Wood 85 BANKS: Amount of Commitment: NATIONAL CITY BANK OF KENTUCKY $17,500,000.00 By: /s/ DONALD R. PULLEN ---------------------------- Donald R. Pullen ---------------------------- Vice President ---------------------------- Address for Notice: 101 South 5th Street, 31-T08J Louisville, Kentucky 40202 Telephone No.: (502) 581-6352 Telecopy No.: (502) 581-5122 Attn: Donald R. Pullen 86 SYNDICATION AGENT/BANK: Amount of Commitment: PARIBAS, $25,000,000.00 as Syndication Agent and Individually, as a Bank By: /s/ SCOTT CLINGEN -------------------------------- Name: Scott Clingen -------------------------------- Title: Vice President -------------------------------- By: /s/ LARRY ROBINSON -------------------------------- Name: Larry Robinson -------------------------------- Title: Vice President -------------------------------- Address for Notice: 1200 Smith Street, Suite 3100 Houston, Texas 77002 Telephone No.: (713) 659-4811 Telecopy No.: (713) 659-5234 Attn: Scott Clingan 87 BANKS: Amount of Commitment: UNION BANK OF CALIFORNIA, N.A. $20,000,000.00 By: /s/ J. SCOTT JESSUP --------------------------- Name: J. Scott Jessup --------------------------- Title: Vice President --------------------------- Address for Notice: 550 S. Hope Street, 3rd Floor Los Angeles, California 90071 Telephone No.: (213) 243-3559 Telecopy No.: (213) 243-3552 Attn: Scott Jessup 88 EXHIBIT 1.01A ADMINISTRATIVE QUESTIONNAIRE PLEASE COMPLETE THE FOLLOWING INFORMATION AND RETURN VIA FAX TO THE ATTENTION OF: Muniram Appanna: FAX (212) 552-7490 Agent: Chase Manhattan Bank One Chase Manhattan Plaza 8th Floor New York, New York 10051 Legal Name of Your Institution To Appear in Documentation: -------------------------------------------- Number of Signature Lines Required: -------------------------------------------- GENERAL INFORMATION - DOMESTIC LENDING OFFICE Institution Name: Street Address: City, State, Zip Code: GENERAL INFORMATION - EURODOLLAR LENDING OFFICE Institution Name: -------------------------------------------- Street Address: -------------------------------------------- City, State, Zip Code: -------------------------------------------- CONTACTS/NOTIFICATION METHODS Primary Contact: -------------------------------------------- Street Address: -------------------------------------------- City, State, Zip Code: -------------------------------------------- Phone Number: -------------------------------------------- FAX Number: -------------------------------------------- Back-up Contact: -------------------------------------------- Street Address: -------------------------------------------- City, State, Zip Code: -------------------------------------------- Phone Number: -------------------------------------------- FAX Number: -------------------------------------------- 89 TAX WITHHOLDING [FOR US LOANS ONLY] Non Resident Alien _____ Y _____ N *Please attach Form 4224 or 1001 Tax ID Number ______________ ADMINISTRATIVE CONTACTS - BORROWINGS, PAYDOWNS, INTEREST, FEES, ETC. Contact: -------------------------------------------- Street Address: -------------------------------------------- City, State, Zip Code: -------------------------------------------- Phone Number: -------------------------------------------- FAX Number: -------------------------------------------- PAYMENT INSTRUCTIONS: Name of Bank where funds are to be transferred: -------------------------------------------- Name of Account, if applicable: -------------------------------------------- Account Number: -------------------------------------------- Additional Information: -------------------------------------------- MAILINGS: Please specify who should receive financial information: Name: -------------------------------------------- Street Address: -------------------------------------------- City, State, Zip Code: -------------------------------------------- IT IS VERY IMPORTANT THAT ALL OF THE ABOVE INFORMATION IS ACCURATELY FILLED IN AND RETURNED PROMPTLY. IF THERE IS SOMEONE OTHER THAN YOURSELF WHO SHOULD RECEIVE THIS QUESTIONNAIRE, PLEASE NOTIFY ME OF THEIR NAME AND FAX NUMBER AND WE WILL FAX THEM A COPY OF THE QUESTIONNAIRE. IF YOU HAVE ANY QUESTIONS, PLEASE CALL MUNIRAM APPANNA ON 212-552-7943. 90 EXHIBIT 1.01B FORM OF ADOPTION AGREEMENT [Date] Chase Bank of Texas, National Association, as Agent for the Banks that are parties to the Credit Agreement referred to below 545 W. 19th Street Houston, Texas 77008 Attention:_________________ Dear Sirs: Reference is made to the Second Amended and Restated Credit Agreement dated as of October 15, 1998 (the "Credit Agreement"), among Group Maintenance America Corp., a Texas corporation (the "Company"), the subsidiaries of the Company party thereto, as guarantors, the banks party thereto, Chase Bank of Texas, National Association, as agent for the banks, and Bank of America Texas, N.A., as co-agent, Paribas, as syndication agent, and ABN AMRO Bank, N.V., as documentation agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. This agreement (this "Adoption Agreement") is executed and delivered pursuant to Section 6.09 of the Credit Agreement which provides that any Person that becomes a Subsidiary subsequent to the Execution Date will execute and deliver to the Agent an Adoption Agreement acknowledging such Person's agreement to be bound by the terms of the Credit Agreement and the applicable Security Documents. In addition, Section 6.09 provides that the Company or its Subsidiary that owns or holds the stock of said new Subsidiary, as the case may be, will execute and deliver to the Agent the Adoption Agreement acknowledging its agreement to be bound by the terms of the Pledge Agreement with respect to pledging shares of said new Subsidiary and delivering to the Agent the certificates evidencing its ownership of said new Subsidiary. Therefore, for and in consideration of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged: (a) the undersigned party (i) signing as Guarantor hereby executes this Adoption Agreement to acknowledge it is a Subsidiary and a Guarantor and agrees to be bound and is hereby bound by all of the terms and conditions of the Credit Agreement and the Guaranty 91 contained therein applicable to a Subsidiary or a Guarantor, (ii) signing as Debtor hereby executes this Adoption Agreement to acknowledge it is a Debtor as such term is defined in the Security Agreement and, as such, agrees to be bound and hereby is bound by all of the terms and conditions of the Security Agreement and in connection therewith does hereby grant to the Agent for the benefit of the Banks a first and prior lien or security interest in all of Debtor's right, title and interest in and to the Collateral (as such term is defined in the Security Agreement) of such Debtor, and (iii) hereby delivers to the Agent a UCC-1 Financing Statement signed by the Debtor and describing the Collateral of such Debtor subject to the Security Agreement, and (b) the undersigned party (i) signing as Pledgor hereby executes this Adoption Agreement to acknowledge it is a Pledgor as such term is defined in the Pledge Agreement and, as such, agrees to be bound and hereby is bound by all of the terms and conditions of the Pledge Agreement and in connection therewith does hereby pledge to the Agent for the benefit of the Banks, and grant to the Agent for the benefit of the Banks, a Lien and security interest in Pledgor's right, title and interest in and to, the Pledged Collateral (as such term is defined in the Pledge Agreement), (ii) hereby delivers to the Agent the certificate evidencing shares of stock of the new Subsidiary owned by the Pledgor, together with a stock power [SIGNED IN BLANK] and (iii) hereby delivers to the Agent a UCC-1 Financing Statement signed by the Pledgor. Executed effective this ____ day of _____________, ____. GUARANTOR/DEBTOR -------------------------------- By: ----------------------------- Name: --------------------------- Title: -------------------------- PLEDGOR -------------------------------- By: ----------------------------- Name: --------------------------- Title: -------------------------- 92 EXHIBIT 2.02 FORM OF NOTE Dated: _________________, 1998 FOR VALUE RECEIVED, the undersigned, GROUP MAINTENANCE AMERICA CORP., a Texas corporation (the "Company"), HEREBY PROMISES TO PAY to the order of _______________________________ (the "Bank") the lesser of (i) the amount of the Bank's Commitment and (ii) the aggregate unpaid principal amount of the Loans made by the Bank to the Company pursuant to the Credit Agreement (as defined below). The Company promises to pay interest on the unpaid principal amount of each Loan from the date of such Loan until such principal amount is paid in full, at such interest rates, and payable at such dates and times, as are specified in the Second Amended and Restated Credit Agreement dated as of October 15, 1998 (as the same may from time to time be amended, modified or supplemented, the "Credit Agreement," the terms defined therein and not otherwise defined herein being used herein as therein defined), among the Company, the Subsidiaries of the Company party thereto, the Bank and certain other banks that are parties thereto, Chase Bank of Texas, National Association, as Agent for the Bank and such other banks, Bank of America Texas, N.A., as a co- agent, Paribas, as syndication agent, and ABN AMRO Bank, N.V., as documentation agent. Both principal and interest are payable in same day funds in lawful money of the United States of America to Chase Bank of Texas, National Association, as Agent, at 1111 Fannin Street, Houston, Texas 77002, or at such other place as the Agent shall designate in writing to the Company. This Note may be held by the Bank for the account of its Domestic Lending Office or its Eurodollar Lending Office and may be transferred from one to the other from time to time as the Bank may determine. This Note is one of the Notes referred to in, and is entitled to the benefits of, the Credit Agreement. The obligations of the Company hereunder are guaranteed by the Guarantors pursuant to Article VIII of the Credit Agreement. The Credit Agreement, among other things, (i) provides for the making of the Loans by the Bank to the Company from time to time, the indebtedness of the Company resulting from each such Loan being evidenced by this Note and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events, also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified, and to the effect that no provision of the Credit Agreement 93 or this Note shall require the payment or permit the collection of interest in excess of the Highest Lawful Rate. Except as provided in the Credit Agreement, the Company and any and all endorsers, guarantors and sureties severally waive grace, demand, presentment for payment, notice of dishonor or default or intent to accelerate, protest and notice of protest and diligence in collecting and bringing of suit against any party hereto, and agree to all renewals, extensions or partial payments hereon and to any release or substitution of security herefor, in whole or in part, with or without notice, before or after maturity. This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of Texas and any applicable laws of the United States of America. GROUP MAINTENANCE AMERICA CORP. By: ----------------------------------- Name: Darren B. Miller Title: Executive Vice President 94 EXHIBIT 2.03 FORM OF NOTICE OF ADVANCE [Date] Chase Bank of Texas, National Association, as Agent for the Banks that are parties to the Credit Agreement referred to below 712 Main Street Houston, Texas 77002 Attention: _____________________________ Dear Sirs: Reference is made to the Second Amended and Restated Credit Agreement dated as of October 15, 1998 (the "Credit Agreement"), among the Company, the Subsidiaries of the Company party thereto, the Banks party thereto and Chase Bank of Texas, National Association, as Agent for such Banks. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Company hereby requests an Advance under the Credit Agreement and in that connection sets forth below the information relating to such Advance (the "Proposed Advance") as required by Section 2.03 of the Credit Agreement: (a) Aggregate Principal Amount of Proposed Advance(1) $ ------------ (b) Borrowing Date of Proposed Advance(2) - -------------------------------------------------------------------------------- (c) Type of Advances(3) ------------ - -------- (1) Except with respect to any Proposed Eurodollar Rate Advance, not less than $1,000,000.00 and in integral multiples of $100,000.00, and with respect to any Proposed Alternate Base Rate Advance, not less than $300,000.00 and $100,000.00 multiples thereof. (2) Must be a Business Day. (3) Alternate Base Rate Advance or Eurodollar Rate Advance. 95 (d) Interest Period and last day thereof(4) - -------------------------------------------------------------------------------- By each of the delivery of this Notice of Advance and the acceptance of any or all of the Advances made by the Banks in response to this Notice of Advance, the Company shall be deemed to have represented and warranted that the conditions to lending specified in Article IV of the Credit Agreement have been satisfied with respect to the Proposed Advance. Very truly yours, GROUP MAINTENANCE AMERICA CORP. By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ - -------- (4) Applicable only to a Eurodollar Rate Advance, which shall have a duration of one, two, three or six months, and which shall end not later than the Maturity Date; subject, however, to the limitations contained in the Credit Agreement. 96 EXHIBIT 2.05 FORM OF NOTICE OF CONVERSION [Date] Chase Bank of Texas, National Association, as Agent for the Banks that are parties to the Credit Agreement referred to below 712 Main Street Houston, Texas 77002 Attention: __________________________ Dear Sirs: Reference is made to the Second Amended and Restated Credit Agreement dated as of October 15, 1998 (the "Credit Agreement"), among the Company, the Subsidiaries of the Company party thereto, the Banks party thereto and Chase Bank of Texas, National Association, as Agent for such Banks. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Company hereby requests that a prior Advance under the Credit Agreement be converted into another Type of Advance and in that connection sets forth the following information: (a) Aggregate Principal Amount of Proposed Conversion(5) $ -------------- (b) Date of Proposed Conversion(6) (c) Type of Conversion (i.e., from Eurodollar Rate to Alternate Base Rate or vice versa) - -------- (5) All conversions of the Loan shall be not less than $300,000.00. (6) Must be a Business Day not less than three (3) Business Days subsequent in the case of an Eurodollar Rate Advance and one (1) Business Day subsequent in the case of a Base Rate Advance. 97 (d) Interest Period and last day thereof (if converting to Eurodollar Rate Advance) ------------------------------ The Company GROUP MAINTENANCE AMERICA CORP. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- 98 EXHIBIT 2.20 FORM OF EXTENSION REQUEST [Date] Chase Bank of Texas National Association, as Agent for the Banks that are parties to the Credit Agreement referred to below 545 W. 19th Street Houston, Texas 77008 Attention: Dear Sirs: Reference is made to the Second Amended and Restated Credit Agreement dated as of October 15, 1998 (the "Credit Agreement"), among Group Maintenance America Corp., a Texas Corporation (the "Company"), the subsidiaries of the Company party thereto, as guarantors, the banks party thereto, Chase Bank of Texas, National Association, as agent for the banks, and Bank of America Texas, N.A., as co-agent, Paribas, as syndication agent, and ABN AMRO Bank, N.V., as documentation agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Company hereby requests an Extension of the Maturity Date set forth in the Credit Agreement, and in that connection certifies that this request complies with the terms of the Credit Agreement, the provisions of Section 2.20, and that no Default or Event of Default is continuing as of the date of this request. GROUP MAINTENACE AMERICA CORP. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- 99 EXHIBIT 3.02 FORM OF LETTER OF CREDIT REQUEST Chase Bank of Texas, National Association Date: ________________ 712 Main Street Houston, Texas Attention: ________________ Reference is made to the Second Amended and Restated Credit Agreement dated effective as of October 15, 1998 (as amended or modified from time to time, the "Credit Agreement") among Group Maintenance America Corp., certain of its Subsidiaries and Chase Bank of Texas, National Association, as Agent for itself and the other Banks named therein. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. The undersigned hereby gives you notice pursuant to Section 3.02 of the Credit Agreement that it requests that the Issuing Bank issue a Letter of Credit under the Credit Agreement and in that connection sets forth below the terms of such Letter of Credit: 1. Name of beneficiary: __________________________ 2. Name of account party: __________________________ 3. Amount: $ __________________________ 4. Expiration date of the Letter of Credit to be issued: __________________________ 5. Description of the goods, if any: __________________________ 6. Advising bank, if any: __________________________ 7. Options: partial drawings __________________________ permitted are/are not 8. Terms and required documents, if any: _______________ _____________________________________________________ By delivery of this request for the issuance of a Letter of Credit, the undersigned represents and warrants that the conditions to the issuance thereof specified in the Credit 100 Agreement have been satisfied and that, following the issuance requested herein, the total Letters of Credit outstanding does not exceed $20,000,000.00. Very truly yours, GROUP MAINTENANCE AMERICA CORP. By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ 101 EXHIBIT 4.01(d)(I) SECOND AMENDED AND RESTATED SECURITY AGREEMENT This SECOND AMENDED AND RESTATED SECURITY AGREEMENT (as the same may be amended, amended and restated, modified or supplemented from time to time, this "Agreement") dated as of October 15, 1998 is executed by GROUP MAINTENANCE AMERICA CORP., a Texas corporation with an office at 8 Greenway Plaza, Suite 1500, Houston, TX 77046 (the "Company"), the Subsidiaries (as defined in the Credit Agreement below) of the Company signatory hereto now or in the future (collectively with any future Subsidiaries party to the Credit Agreement and the Company, the "Debtors" and each individually, a "Debtor"), for the benefit of CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association, as collateral agent for itself and for the banks under the Credit Agreement, as hereinafter defined (in such capacity, the "Secured Party"). PRELIMINARY STATEMENT WHEREAS, the Company, the Secured Party, as agent (then known as Texas Commerce Bank National Association) and the banks party thereto entered into that one certain Credit Agreement dated December 11, 1997 (as amended, the "First Credit Agreement" ), relating to the extension of a series of loans with a commitment totaling $75,000,000.00 by said banks to the Company; and WHEREAS, the Company and certain of its subsidiaries, as guarantors, the Secured Party, as agent, the banks and financial institutions listed on the signature pages thereto, ABN AMRO Bank, N.V. and Paribas, as co-agents agreed to amend and restate the First Credit Agreement pursuant to the terms and conditions of the Amended and Restated Credit Agreement dated June 12, 1998 (the "Amended and Restated Credit Agreement" and together with the First Credit Agreement, the "Prior Credit Agreement"), relating to the extension of a series of loans with a commitment totaling $125,000,000.00 by said banks to the Company; and WHEREAS, the Secured Party, as agent, the banks party thereto (the "Banks"), Bank of America Texas, N.A. as co-agent, Paribas, as syndication agent, ABN AMRO Bank, N.V., as documentation agent, and the Debtors desire to amend and restate the Prior Credit Agreement and have entered into that certain Second Amended and Restated Credit Agreement dated as of October 15, 1998 (as amended, amended and restated, modified or supplemented from time to time, the "Credit Agreement"), under the terms of which the Banks agreed to make available to the Company, a loan of up to $230,000,000.00; and WHEREAS, in connection with the Prior Credit Agreement and as partial security therefor, the Secured Party, the Company and certain of its subsidiaries entered into that one certain Security Agreement dated December 11, 1997 which was amended and restated pursuant to the Amended and Restated Security Agreement dated June 12, 1998 among the 102 Secured Party, the Company and certain of its subsidiaries (collectively, the "Prior Security Agreement"), granting liens on certain property owned by said parties to the Secured Party; and WHEREAS, in connection with the Credit Agreement, and because certain additional Persons have become Subsidiaries under the Credit Agreement which were not parties to the Prior Credit Agreement, the parties wish to amend and restate the Prior Security Agreement to include said Persons and their assets thereunder; and WHEREAS, it is a condition precedent to the obligation of the Secured Party to make the Loans to the Company under the Credit Agreement that the Company and the Debtors shall execute and deliver this Agreement to the Secured Party; and WHEREAS, the Debtors will each benefit from the execution of the Credit Agreement and wish to execute this Agreement in order to help satisfy such condition precedent and to secure the obligations under the Credit Agreement and letters of credit from time to time issued; NOW THEREFORE, in consideration of the premises and in order to induce the Secured Party to extend the loans and issue letters of credit pursuant to the terms of the Credit Agreement, the Debtors hereby agree to amend and restate the Prior Security Agreement as follows: SECTION 1. Defined Terms. (a) Each capitalized term used herein and not otherwise defined shall have the meaning for such term as defined in the Credit Agreement and/or a Loan Document. (b) The term "UCC" means the Uniform Commercial Code as in effect on the date hereof in the State of Texas; provided that if by mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interests granted pursuant to Section 2 hereof, as well as all other security interests created or assigned as additional security for the Secured Obligations pursuant to the provisions of this Agreement, in any Collateral is governed by the UCC as in effect in a jurisdiction other than Texas, "UCC" means the UCC as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection. (c) "Secured Obligations" means obligations, contingent or otherwise, of the Company or any Debtor pursuant to any of the Loan Documents, including, without limitation, all sums owing by the Company or any Debtor to the Secured Party under any of the Loan Documents, any obligations outstanding now or in the future, including, but not limited to, any letters of credit issued by the Secured Party or any other Bank and any interest rate swaps, hedges or similar agreements between any Debtor or any of its Subsidiaries and any of the Banks all on a pari passu basis. 103 (d) All rights and interests granted to the Secured Party under the Prior Security Agreement are hereby ratified and renewed and brought forward herein to the extent same are not inconsistent herewith. This Agreement shall be a restatement of the Prior Security Agreement but shall not invalidate or adversely affect any rights or interests granted to the Secured Party thereunder or affect the priority thereof except as expressly set forth herein. SECTION 2. Grant of Security. Each Debtor hereby grants to the Secured Party a first and prior lien or security interest in, all of such Debtor's right, title and interest in and to the following assets of such Debtor, now owned or hereafter acquired, except as otherwise excluded on Schedule I hereto (the "Collateral"): (a) (i) All accounts (as defined in the UCC) and (whether or not included in such definition), and (ii) all receivables, accounts receivable, lease receivables, contract rights, chattel paper, drafts, acceptances, instruments, writings evidencing a monetary obligation or a security interest or a lease of goods, general intangibles and other obligations of any kind, now or hereafter existing, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services, and all rights now or hereafter existing in and to all agreements, leases, and other contracts securing or otherwise relating to any such accounts, lease receivables, chattel paper, drafts, acceptances, instruments, writings evidencing a monetary obligation or a security interest or a lease of goods, general intangibles or obligations (any and all of the foregoing in sub-clause (i) and (ii) being the "Receivables"); and (b) All inventory (as defined in the UCC) in all of its forms, wherever located, now or hereafter existing and whether acquired by purchase, merger or otherwise, and all raw materials, stores, tools, and work in process therefor, all finished goods, spare parts, service parts, and all materials used or consumed in the manufacture, packing, shipping, advertising, selling, leasing or production thereof, including (whether or not included in such UCC definition) goods in which the Debtors have an interest in mass or joint or other interest or right of any kind and goods which are returned to or repossessed by the Debtors, and all accessions thereto and products thereof and documents therefor (any and all of the foregoing being the "Inventory"); and (c) All instruments, chattel paper or letters of credit (each as defined in the UCC) and any other items including all promissory notes held by the Debtors evidencing indebtedness owed to any of them by any Person (any and all of the foregoing being the "Instruments"); and (d) All documents (as defined in the UCC) or other receipts covering, evidencing or presenting goods; and (e) All products and proceeds of any and all of the foregoing Collateral and, to the extent not otherwise included, all payments received in connection with any excluded assets 104 described on Schedule I(B), all payments under insurance or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral. SECTION 3. Security for Obligations. This Agreement secures, on a first and prior basis except for the Permitted Liens, and other Liens permitted under the Credit Agreement the prompt and complete payment of the Secured Obligations. SECTION 4. Debtors Remains Liable. Anything herein to the contrary notwithstanding, (a) the Debtors shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein (and subject to any defenses thereto) to perform all of their duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Secured Party of any of the rights hereunder shall not release the Debtors from any of their duties or obligations under the contracts and agreements included in the Collateral, and (c) the Secured Party shall have no obligations or liability under the contracts and agreements included in the Collateral solely by reason of this Agreement, and the Secured Party shall not be obligated to perform any of the obligations or duties of the Debtors thereunder or to take any action to collect or enforce any claim for payment assigned hereunder in each case, solely by reason of this Agreement. SECTION 5. Representations and Warranties. The Debtors each represent and warrant as follows: (a) Those locations specified on Schedule II-A hereto or such other locations disclosed to the Secured Party after the date hereof constitute all of the locations at which there is located any Inventory of any Debtors (other than rolling stock or Inventory in transit). The principal place of business and chief executive office of the Company and the office where it keeps its records concerning the Receivables, are located at the address specified in the introductory paragraph to this Agreement or at such other locations disclosed to the Secured Party after the date hereof. Each other Debtor has its chief executive office at the location shown on Schedule II-B hereto or at such other locations disclosed to the Secured Party after the date hereof. (b) Each Debtor owns the Collateral free and clear of any Lien, except for Permitted Liens and other Liens permitted under the Credit Agreement. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office, except for protective filings under true leases, filings made in connection with Permitted Liens and other Liens permitted under the Credit Agreement. (c) This Agreement has been duly executed and delivered by each Debtor. Upon the filing of financing statements in the locations listed on Schedule III hereto, the security 105 interests granted herein shall constitute valid and perfected security interests in substantially all the Collateral, subject only to Permitted Liens and other Liens permitted under the Credit Agreement, to the extent such security interests can be perfected by such filings pursuant to the UCC. (d) No consent of, or notice to, any other Persons and no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either (i) for the grant by the Debtors of the Liens granted hereby or for the execution, delivery or performance of this Agreement by the Debtors or (ii) for the perfection of the rights and remedies hereunder, other than the filing of financing statements as provided in (c) above. (e) All information with respect to the Collateral and the obligors under the Receivables set forth in any schedule hereto, certificate or other writing at any time heretofore or hereafter furnished by each Debtor to the Secured Party, taken as a whole, is, to each Debtor's knowledge, true, correct and complete in all material respects as of the date specified therein. (f) The Subsidiaries listed on Schedule 5.16 of the Credit Agreement are all of the Subsidiaries of the Company as of the Execution Date and the address given for such Subsidiaries is the correct mailing address as of the Execution Date. SECTION 6. Further Assurances. (a) Each Debtor agrees that from time to time, at the expense of the Debtor, each Debtor will promptly execute and deliver all further instruments and documents, and take all further action, that the Secured Party may reasonably request as being necessary or desirable, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, each Debtor will: (i) if any Receivable shall be evidenced by a promissory note or other Instrument, deliver and pledge to the Secured Party such note or Instrument duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance reasonably satisfactory to the Secured Party; and (ii) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices as the Secured Party may reasonably request as being necessary or desirable in order to perfect and preserve the security interests granted or purported to be granted hereby. (b) Each Debtor hereby authorizes the Secured Party to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of such Debtor, in each case where permitted by law. A carbon, photographic or other reproduction of any financing statement executed by each Debtor covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. 106 (c) Each Debtor will furnish to the Secured Party from time to time statements and schedules further identifying and describing the Collateral as the Secured Party may reasonably request, all in reasonable detail. (d) Each Debtor will promptly notify the Secured Party of any change of its name, corporate structure, federal employer identification number or the address of its principal place of business or chief executive office where its books and records are maintained. (e) Each Debtor shall keep its principal place of business and chief executive office and the office where it keeps its records concerning the Collateral, at the location or locations therefor specified in Section 5(a) or, upon 20 days' prior written notice (or such other notice acceptable to the Secured Party) to the Secured Party, at such other locations in a jurisdiction where all action required by this Section 6(a) shall have been or shall be taken with respect to the Collateral. (f) Except as otherwise provided in this subsection (f), each Debtor shall continue to collect, at its own reasonable expense, all amounts due or to become due such Debtor under the Receivables. In connection with such collections, each Debtor may take (and, upon the occurrence and continuance of an Event of Default and so long as it is continuing and has not been waived at the Secured Party's direction, shall take) such action as such Debtor or the Secured Party may deem necessary or advisable to enforce collection of the Receivables; provided, that the Secured Party shall have the right at any time during the existence of an Event of Default, upon written notice to each Debtor of its intention to do so, to notify the account debtors or obligors under any Receivables of the assignment of such Receivables to the Secured Party and to direct such account debtors or obligors to make payment of all amounts due or to become due to such Debtor thereunder directly to the Secured Party and, upon such notification and at the expense of such Debtor, to enforce collection of any such Receivables, and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Debtor might have done. After receipt by the Debtors of the notice from the Secured Party referred to in the proviso to the preceding sentence, (i) all amounts and proceeds (including instruments) received by the Debtors in respect of the Receivables shall be received in trust by the Secured Party under the Credit Agreement, shall be segregated from other funds of the Debtors and shall be forthwith paid over to the Secured Party in the same form as so received (with any necessary endorsement) to be held as cash collateral and either (A) released to the Debtors so long as no default shall be continuing or (B) if any default shall be continuing, applied as provided in Section 12(b), and (ii) the Debtors shall not adjust, settle or compromise the amount or payment of any Receivable, or release wholly or partly any account debtor or obligor thereof, or allow any credit or discount thereon, except with the prior written consent of the Secured Party. 107 (g) The Debtors shall keep substantially all the Inventory (other than such Inventory sold in the ordinary course of business or Inventory in transit) at the places therefor specified in Section 5(a) or, upon at least 20 days' prior written notice (or such other notice acceptable to the Secured Party) to the Secured Party, at such other places in jurisdictions where all action required by this Section 6(a) shall have been or shall be taken with respect to such Inventory. (h) The Debtors shall promptly upon request furnish to the Secured Party a statement respecting any material loss or damage to any of the Inventory or any other of the Collateral and will permit the Secured Party or any other Party to inspect the Collateral upon reasonable notice during normal business hours. SECTION 7. Insurance. The Debtors shall, at their own expense, maintain insurance as required by the Loan Documents. SECTION 8. Transfers and Other Liens. The Debtors shall not: (a) sell, assign (by agreement, operation of law or otherwise) or otherwise dispose of any of the Collateral (other than in the ordinary course of business or not prohibited by the Credit Agreement) or (b) create or suffer to exist any Lien upon or with respect to any of the Collateral, except for Permitted Liens and other Liens permitted by the Credit Agreement. SECTION 9. Secured Party Appointed Attorney-in-Fact. Each Debtor hereby irrevocably appoints the Secured Party as the Debtors' attorney-in-fact, with full authority in the place and stead of the Debtors and in the name of the Debtors, from time to time in the Secured Party's sole reasonable discretion after the occurrence of an Event of Default and during the continuance thereof, to take any action and to execute any instrument which the Secured Party may deem reasonably necessary or advisable to accomplish the purposes of this Agreement, including: (a) to obtain insurance required to be paid pursuant to Section 7 herein, (b) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral, (c) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above, (d) to file any claims or take any action or institute any proceedings which the Secured Party may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Secured Party with respect to any of the Collateral, and 108 (e) to sell, transfer, assign, or otherwise deal in or with the Collateral or the proceeds thereof, as provided herein and subject to applicable law, as fully and effectually as if the Secured Party were the absolute owner thereof; provided, that the Secured Party shall give the Debtors not less than ten (10) days' prior written notice of the time and place of any sale or other intended disposition of any of the Collateral, except any Collateral which is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market. The Debtors agree that such notice constitutes "reasonable notification" within the meaning of ss. 9.504(c) of the UCC. SECTION 10. Secured Party May Perform. If any Debtor fails to perform any agreement contained herein, the Secured Party may itself perform, or cause performance of, such agreement, and the expenses of the Secured Party incurred in connection therewith shall be payable upon demand by such Debtor and if not paid shall bear interest at the Default Rate set forth in the Credit Agreement. SECTION 11. The Secured Party's Duties. The powers conferred on the Secured Party hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it or any other Party to exercise any such powers. In regard to any Debtor, except for reasonable care in the custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, neither the Secured Party nor any other party shall have any duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. The Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its possession if such Collateral is accorded treatment substantially equal to that which the Secured Party accords its own property, it being understood that the Secured Party shall not have any responsibility for taking any necessary steps to preserve rights against any Secured Party with respect to any Collateral. SECTION 12. Remedies. If any Event of Default shall have occurred and be continuing: (a) The Secured Party may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the UCC (whether or not the UCC applies to the affected Collateral) and the Secured Party may also (i) require any Debtor to, and each Debtor hereby agrees that it will at its reasonable expense and upon request of the Secured Party forthwith, assemble all or part of the Collateral as directed by the Secured Party and make it available to the Secured Party at a place to be designated by the Secured Party, and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Secured Party's offices or elsewhere, for cash or on credit, and upon such other terms as may be commercially reasonable. Each Debtor agrees that, to the 109 extent notice of sale shall be required by law, at least ten (10) days' prior notice to the Debtors of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification thereof. The Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) Any cash received by the Secured Party shall be applied to repay the Secured Obligations. Any surplus of such cash or cash proceeds held by the Secured Party and remaining after payment in full of all the Secured Obligations shall be paid over to the Debtors or to whomsoever may be lawfully entitled to receive such surplus. SECTION 13. Amendments. No amendment or waiver of any provision of this Agreement, nor consent to any departure by the Debtors herefrom, shall in any event be effective unless the same shall be in writing and signed by the Secured Party with the requisite consent of the Debtors, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 14. Addresses for Notices. All notices and other communications provided for hereunder shall be given in the manner and at the addresses and telecopy numbers as set forth in the Credit Agreement, and shall become effective, as specified in the Credit Agreement and/or the Loan Documents. SECTION 15. Termination; Reinstatement. (a) Each Debtor agrees that this Agreement and the Liens granted hereunder shall terminate when, but only when, all Secured Obligations have been fully paid and performed and all Banks' commitments under the Loan Documents have expired or been terminated. At any time thereafter upon the Debtor's request, the Secured Party shall promptly reassign and redeliver, including the termination of any financing statements (or cause to be reassigned and redelivered) to the Debtors, or to such Person or Persons as the Debtors shall designate in writing, against receipt, such of the Collateral (if any) as shall not have been sold or otherwise applied by the Secured Party pursuant to the terms hereof and shall still be held by it hereunder. Any such reassignment shall be without recourse upon, or representation or warranty by, the Secured Party (other than that the Secured Party has not sold, encumbered or otherwise transferred any interest in the Collateral except as provided in this Agreement) and shall be at the sole reasonable cost and expense of the Debtors. (b) This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any amount received by the Secured Party in respect of the Secured Obligations is rescinded or must otherwise be restored or returned by the Secured Party upon the filing of any bankruptcy proceeding by or of the Debtors or upon the appointment of any 110 intervenor or conservator of, or trustee or similar official for, the Debtors or any substantial part of their assets, or otherwise, all as though such payments had not been made. SECTION 16. Waiver of Marshaling. All rights of marshaling of assets of the Debtors, including any such right with respect to the Collateral, are hereby waived by the Debtors. SECTION 17. Limitation by Law. All rights, remedies and powers provided in this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Agreement are intended to be subject to all applicable mandatory provisions of law which may be controlling and to be limited to the extent necessary so that they will not render this Agreement invalid, unenforceable, in whole or in part, or not entitled to be recorded, registered or filed under the provisions of any applicable law. SECTION 18. Separability. Should any clause, sentence, paragraph, subsection or Section of this Agreement be judicially declared to be invalid, unenforceable or void, such declaration will not have the effect of invalidating or voiding the remainder of this Agreement, and the parties hereto agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom by the Secured Party hereto, and the remainder will have the same force and effectiveness as if such stricken part or parts had never been included herein. SECTION 19. No Waiver; Remedies. No failure on the part of the Secured Party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 20. Partial Release of Security Interest. Upon the request of the Debtors in connection with any sale, transfer or other disposition of property or assets permitted hereunder or under any Loan Document, so long as no Event of Default under any of the Loan Documents has occurred and is continuing, the Secured Party shall execute and deliver to the Debtors duly executed releases or partial releases, as applicable, of any security interest it may have in such property or assets, in form and substance reasonably satisfactory to the Secured Party and the applicable Debtor; provided, for any such sale other than Inventory that provides net proceeds to any Debtor in excess of $100,000.00, such proceeds shall be delivered to the Secured Party as collateral for all of the Secured Obligations. SECTION 21. Continuing Security Interest. This Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until 111 payment in full of the Secured Obligations, (b) be binding upon each Debtor, its successors and assigns, and (c) inure to the benefit of the Secured Party and its respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), the Secured Party may assign or otherwise transfer all or a portion of its interests, rights and obligations under any Note held by it pursuant to the Credit Agreement or pursuant to any Loan Document. Upon the payment in full of the Secured Obligations, the Liens granted hereby shall terminate and all rights to the Collateral shall revert to the Debtors. Upon any such termination, the Secured Party will, at the Debtors' reasonable expense, promptly execute and deliver to the Debtors such documents as the Debtors shall reasonably request to evidence such termination. Any Material Subsidiary of the Company that executes a counterpart of this Agreement after the date of this Agreement shall, upon such execution, become a party hereto as a Debtor. SECTION 22. Survival of Representations and Warranties. All representations and warranties contained in this Agreement or made in writing by or on behalf of the Debtors in connection herewith are true and correct in all material respects when made or deemed made and shall survive the execution and delivery of this Agreement until repayment of the Secured Obligations. Any investigation by the Secured Party shall not diminish in any respect whatsoever its rights to rely on such representations and warranties. SECTION 23. Governing Law; Terms. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. SECTION 24. Inconsistencies. In the event of any irreconcilable inconsistences between any provision of this Agreement and any provision of the Credit Agreement and/or the Loan Documents, the provisions of this Agreement shall control. SECTION 25. Counterparts. This Agreement may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute but one and the same agreement. SECTION 26. Interpretation. (a) In this Agreement, unless a clear contrary intention appears: (i) the singular number includes the plural number and vice versa; 112 (ii) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision; (iii) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually, provided that nothing in this clause (iii) is intended to authorize any assignment not otherwise permitted by this Agreement; (iv) reference to any agreement, document or instrument means such agreement, document or instrument as amended, supplemented or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof, and reference to any Note includes any Note issued pursuant hereto in extension or renewal thereof and in substitution or replacement therefor; (v) unless the context indicates otherwise, reference to any Section or Schedule means such Section hereof or such Schedule hereto; (vi) the words "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term; (vii) with respect to the determination of any period of time, the word "from" means "from and including" and the word "to" means "to but excluding;" and (viii) reference to any law means such as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time. (b) The Section headings herein are for convenience only and shall not affect the construction hereof. (c) No provision of this Agreement shall be interpreted or construed against any Person solely because that Person or its legal representative drafted such provision. SECTION 27. Submission to Jurisdiction. (a) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS, IN HARRIS COUNTY OR THE UNITED STATES FOR THE SOUTHERN DISTRICT OF 113 TEXAS AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH DEBTOR HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING. EACH DEBTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS PROVIDED IN SECTION 14, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE SECURED PARTY OR ANY OF THE PARTIES TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE DEBTORS IN ANY OTHER JURISDICTION. (b) EACH DEBTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (A) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. SECTION 28. Waiver of Jury Trial. EACH PARTY HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, LOAN DOCUMENTS, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM OR RELATING TO ANY BANKING OR FINANCIAL RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY LOAN DOCUMENT, AND AGREES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. SECTION 29. Final Agreement of the Parties. THIS AGREEMENT (INCLUDING THE SCHEDULES HERETO) AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER 114 HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 115 IN WITNESS WHEREOF, the Debtors have caused this Agreement to be duly executed and delivered by its officer duly authorized as of the date first above written. COMPANY/DEBTOR: GROUP MAINTENANCE AMERICA CORP., a Texas corporation By: ------------------------------------------ Name: Darren B. Miller Title: Executive Vice President 116 SUBSIDIARIES/DEBTORS: AA ADVANCE AIR, INC. AA JARL, INC. (d/b/a Jarrell Plumbing) A-ABC APPLIANCE, INC. A-1 APPLIANCE & AIR CONDITIONING, INC. A-1 MECHANICAL OF LANSING, INC. AIR CONDITIONING ENGINEERS, INC. AIR CONDITIONING, PLUMBING & HEATING SERVICE CO., INC. AIRCON ENERGY INCORPORATED AIRTRON, INC. AIRTRON OF CENTRAL FLORIDA, INC. ALL SERVICE ELECTRIC, INC. ARKANSAS MECHANICAL SERVICES, INC. (f/k/a AMS Acquisition Corp.) ATLANTIC INDUSTRIAL CONSTRUCTORS, INC. BARR ELECTRIC CORP. CALLAHAN ROACH PRODUCTS & PUBLICATIONS, INC. CENTRAL AIR CONDITIONING CONTRACTORS, INC. CENTRAL CAROLINA AIR CONDITIONING COMPANY (f/k/a Central Carolina Acquisition Corp.) CHARLIE CRAWFORD, INC. CLARK CONVERSE ELECTRIC SERVICE, INC. COLONIAL AIR CONDITIONING COMPANY COMMERCIAL AIR HOLDING COMPANY COMMERCIAL AIR, POWER & CABLE, INC. COSTNER BROTHERS, INC. DIVCO, INC. DYNAMIC SOFTWARE CORPORATION EVANS SERVICES, INC. THE FARFIELD COMPANY FERGUSON ELECTRIC CORPORATION GENTZLER ELECTRICAL CONTRACTORS, INC. GILBERT MECHANICAL CONTRACTORS, INC. GROUPMAC HOLDING CORP. HPS PLUMBING SERVICES, INC. HALLMARK AIR CONDITIONING, INC. HUNGERFORD MECHANICAL CORPORATION 117 J.D. STEWARD AIR CONDITIONING, INC. JERRY ALBERT AIR CONDITIONING, INC. K&N PLUMBING, HEATING AND AIR CONDITIONING, INC. LANEY'S, INC. LINFORD SERVICE CO. (f/k/a LSC Acquisition Corp.) MACDONALD-MILLER CO., INC. MACDONALD-MILLER INDUSTRIES, INC. (f/k/a MacDonald-Miller Acquisition Corp.) MACDONALD-MILLER SERVICE, INC. MASTERS, INC. (f/k/a Masters Acquisition Corp.) MECHANICAL INTERIORS, INC. MERRITT ISLAND AIR & HEAT, INC. NEW CONSTRUCTION AIR CONDITIONING, INC. NORON, INC. PAUL E. SMITH CO., INC. PHOENIX ELECTRIC COMPANY RAY AND CLAUDE GOODWIN, INC. RELIABLE MECHANICAL, INC. ROMANOFF ELECTRIC CORP. SIBLEY SERVICES, INCORPORATED SOUTHEAST MECHANICAL SERVICE, INC. (f/k/a SEMS Acquisition Corp.) STERLING AIR CONDITIONING, INC. SUN PLUMBING, INC. TEAM MECHANICAL, INC. UNITED ACQUISITION CORP. (d/b/a/ United Service Alliance) VALLEY WIDE PLUMBING AND HEATING, INC. VAN'S COMFORTEMP AIR CONDITIONING, INC. (f/k/a Van's Acquisition Corp.) VANTAGE MATERIAL CONTRACTORS, INC. WADE'S HEATING AND COOLING, INC. WIEGOLD & SONS, INC. 118 WILLIS REFRIGERATION, AIR CONDITIONING & HEATING, INC., (f/k/a Willis Acquisition Corp.) YALE INCORPORATED (f/k/a Yale Acquisition Corp.) By: --------------------------------------------- Name: Darren B. Miller Title: Vice President GROUPMAC MANAGEMENT CO. By: --------------------------------------------- Name: Darren B. Miller Title: Executive Vice President 119 AGENT/SECURED PARTY: CHASE BANK OF TEXAS NATIONAL ASSOCIATION, as Agent for the Banks By: --------------------------------------- Name: J. M. Walshak Title: Vice President 120 SCHEDULE I EXCLUDED ASSETS Excluded Assets means and refers to (A) that portion of the Debtor's personal property which, if included in the Collateral, would violate, be prohibited by, or constitute a default under any agreement, contract, document, or law or would require any consent which has not yet been obtained and (B) Receivables due from any residential customer of any Debtor incurred in connection with the installation of any heating, ventilation or air conditioning equipment not in excess of $2,000,000.00 at any time and including any note receivable in connection therewith; provided any and all proceeds from such excluded assets shall not be excluded assets and shall be Collateral and subject to all of the terms and conditions of this Agreement. 121 SCHEDULE II-A LOCATIONS OF INVENTORY
LOCATION OF INVENTORY AND DEBTOR ACCOUNTS RECEIVABLE ------ ------------------------- A-ABC Appliance, Inc. Dallas, Texas A-1 Appliance & Air Conditioning, Inc. Dallas, Texas A-1 Mechanical of Lansing, Inc. Lansing, Michigan AA Advance Air, Inc. Pompano Beach, Florida AA JARL, Inc. (dba Jarrell Plumbing) Houston, Texas Air Conditioning Engineers, Inc. Utica, Michigan Air Conditioning, Plumbing & Heating Denver, Colorado Service Co., Inc. Longmont, Colorado Aircon Energy Incorporated Sacramento, California Arkansas Mechanical Services, Inc. North Little Rock, Arkansas Fayetteville, Arkansas Airtron of Central Florida, Inc. East Oldsmar, Florida Airtron, Inc. East Oldsmar, Florida Indianapolis, Indiana Wichita, Kansas Louisville, Kentucky Erlanger, Kentucky Fairfiled, Ohio Cleveland, Ohio Columbus, Ohio Dayton, Ohio Austin, Texas Garland, Texas Houston, Texas San Antonio, Texas All Service Electric, Inc. Jacksonville, Florida
122
LOCATION OF INVENTORY AND DEBTOR ACCOUNTS RECEIVABLE ------ -------------------------- Atlantic Industrial Constructors, Inc. Richmond, Virginia Barr Electric Corp. Wheeling, Illinois Callahan Roach Products & Publications, Inc. Englewood, Colorado Central Air Conditioning Contractors, Inc. Columbia, Maryland Central Carolina Air Conditioning Company Greensboro, North Carolina Winston Salem, North Carolina Charlie Crawford, Inc. South Houston, Texas Clark Converse Electric Service, Inc. Grove City, Ohio Colonial Air Conditioning Company Bloomfield, Connecticut Commercial Air, Power & Cable, Inc. Beltsville, Maryland Commercial Air Holding Company Beltsville, Maryland Costner Brothers, Inc. Rock Hill, South Carolina Divco, Inc. Spokane, Washington Dynamic Software Corporation Gaithersburg, Maryland Evans Services, Inc. Birmingham, Alabama The Farfield Company Lititz, Pennsylvania Lancaster County, Pennsylvania Ferguson Electric Corporation Colorado Springs, Colorado Gentzler Electrical Contractors, Inc. Dallas, Texas Gilbert Mechanical Contractors, Inc. Minneapolis, Minnesota GroupMAC Holding Corp. Houston, Texas GroupMAC Management Co. Houston, Texas HPS Plumbing Services, Inc. Bakersfield, California Hallmark Air Conditioning, Inc. Houston, Texas Hungerford Mechanical Corporation Richmond, Virginia
123
LOCATION OF INVENTORY AND DEBTOR ACCOUNTS RECEIVABLE ------ ------------------------- J.D. Steward Air Conditioning, Inc. Colorado Springs, Colorado Jerry Albert Air Conditioning, Inc. San Antonio, Texas K&N Plumbing, Heating and Air Arlington, Texas Conditioning, Inc. Las Vegas, Nevada Laney's, Inc. Fargo, North Dakota Linford Service Co. Oakland, California San Jose, California Ontario, California San Diego, California Sacramento, California MacDonald-Miller Industries, Inc. Seattle, Washington Portland, Oregon MacDonald-Miller Co., Inc. Seattle, Washington Portland, Oregon MacDonald-Miller Service, Inc. Seattle, Washington Portland, Oregon Masters, Inc. Gaithersburg, Maryland Chantilly, Virginia Mechanical Interiors, Inc. Dallas, Texas Austin, Texas Merritt Island Air & Heat, Inc. Merritt Island, Florida New Construction Air Conditioning, Inc. Holt, Michigan Noron, Inc. Toledo, Ohio Paul E. Smith Co., Inc. Indianapolis, Indiana Phoenix Electric Company Tigard, Oregon Ray and Claude Goodwin, Inc. Jacksonville, Florida Reliable Mechanical, Inc. Louisville, Kentucky Romanoff Electric Corp. Toledo, Ohio
124
LOCATION OF INVENTORY AND DEBTOR ACCOUNTS RECEIVABLE ------ ------------------------- Sibley Services, Incorporated Memphis, Tennessee Southeast Mechanical Service, Inc. Hollywood, Florida Sterling Air Conditioning, Inc. Pearland, Texas Sun Plumbing, Inc. Melbourne, Florida Team Mechanical, Inc. Kaysville, Utah United Acquisition Corp. Englewood, Colorado Valley Wide Plumbing and Heating, Inc. Avon, Colorado Van's Comfortemp Air Conditioning, Inc. Delray Beach, Florida Vantage Material Contractors, Inc. Glen Burnie, Maryland Wade's Heating and Cooling, Inc. Ft. Myers, Florida Wiegold & Sons, Inc. Naples, Florida Willis Refrigeration, Air Conditioning & Cincinnati, Ohio Heating, Inc. Yale Incorporated Minneapolis, Minnesota
125 SCHEDULE II-B CHIEF EXECUTIVE OFFICE LOCATIONS OF DEBTORS
DEBTORS LOCATION OF CHIEF EXECUTIVE OFFICE ------- ---------------------------------- AA Advance Air, Inc. 1920 N.W. 32nd Street Pompano Beach, Florida 33064 AA JARL, Inc. (dba Jarrell Plumbing) 6920 Winton Houston, Texas 77021 A-ABC Appliance, Inc. 14001 Distribution Way Dallas, Texas 75234 A-1 Appliance & Air Conditioning, Inc. 14001 Distribution Way Dallas, Texas 75234 A-1 Mechanical of Lansing, Inc. 615 S. Waverly Road Lansing, Michigan 48917 Air Conditioning Engineers, Inc. 5250 Auburn Road Utica, Michigan 48317 Air Conditioning, Plumbing & Heating 4350 Race Street Service, Co. Denver, Colorado 80216 Aircon Energy Incorporated 4234 N. Freeway Blvd., Suite 100 Sacramento, California 95834 Airtron, Inc. 7813 North Dixie Drive Dayton, Ohio 45414 Airtron of Central Florida, Inc. 7813 North Dixie Drive Dayton, Ohio 45414 All Service Electric, Inc. 1556 Whitlock Jacksonville, Florida 32211 Arkansas Mechanical Services, Inc. 2201 Lincoln Road N. Little Rock, Arkansas 72115 Atlantic Industrial Constructors, Inc. 4500 Oakley's Lane Richmond, Virginia 23231
126
DEBTORS LOCATION OF CHIEF EXECUTIVE OFFICE ------- ---------------------------------- Barr Electric Corp. 222 East Marquardt Drive Wheeling, Illinois 60090 Callahan Roach Products & Publications, Inc. 8955 E. Nichols Ave. #200 Englewood, Colorado 80112 Central Air Conditioning Contractors, Inc. 9195 Red Branch Road Columbia, Maryland 21045-2000 Central Carolina Air Conditioning Company 1800 Fairfax Road Greensboro, North Carolina 27407 Charlie Crawford, Inc. 1309 Pennsylvania South Houston, Texas 77587 Clark Converse Electric Service, Inc. 3783 Gantz Road Grove City, Ohio 43123 Colonial Air Conditioning Company 4 Northwood Drive Bloomfield, Connecticut 06002 Commercial Air Holding Company 12100 Baltimore Avenue Beltsville, Maryland 20705 Commercial Air, Power & Cable, Inc. 12100 Baltimore Avenue Beltsville, Maryland 20705 Costner Brothers, Inc. 3175 Lesslie Hwy. Rock Hill, South Carolina 29730 Divco, Inc. 715 Madelia Street Spokane, Washington 99220 Dynamic Software Corporation 7891 Beechcraft Avenue Gaithersburg, Maryland 20879-1580 Evans Services, Inc. 2406 Valleydale Road Birmingham, Alabama 35244 The Farfield Company 312 Meadow Valley Road Lititz, Pennsylvania 17543 Ferguson Electric Corporation 1410 Ford Street Colorado Springs, Colorado 80915
127
DEBTORS LOCATION OF CHIEF EXECUTIVE OFFICE ------- ---------------------------------- Gentzler Electrical Contractors, Inc. 10510 Markison Dallas, Texas 75238 Gilbert Mechanical Contractors, Inc. 4451 West 76th Street Minneapolis, Minnesota 55435 GroupMAC Holding Corp. 8 Greenway Plaza, Suite 1500 Houston, Texas 77046 GroupMAC Management Co. 8 Greenway Plaza, Suite 1500 Houston, Texas 77046 HPS Plumbing Services, Inc. 401 34th Street Bakersfield, California 43301 Hallmark Air Conditioning, Inc. 4517 Southerland Road Houston, Texas 77092 Hungerford Mechanical Corporation 3800 Deepwater Terminal Road Richmond, Virginia 23234 J. D. Steward Air Conditioning, Inc. 655 Elkton Drive Colorado Springs, Colorado 80907 Jerry Albert Air Conditioning, Inc. 13718 Lookout Road San Antonio, Texas 78233 K & N Plumbing, Heating and Air 2706 W. Pioneer Highway Conditioning, Inc. Arlington, Texas 76013 Laney's, Inc. 55 S. 27th Street Fargo, North Dakota 58103 Linford Service Co. 2850 Poplar Street Oakland, California 94608 MacDonald-Miller Industries, Inc. 7717 Detroit S.W. Seattle, Washington 98106-1903 MacDonald-Miller Co., Inc. 7717 Detroit S.W. Seattle, Washington 98106-1903 MacDonald-Miller Service, Inc. 7717 Detroit S.W. Seattle, Washington 98106-1903
128
DEBTORS LOCATION OF CHIEF EXECUTIVE OFFICE ------- ---------------------------------- Masters, Inc. 7891 Beechcraft Gaithersburg, Maryland 20879 Mechanical Interiors, Inc. 256 Regal Row Dallas, Texas 75247-5202 Merritt Island Air & Heat, Inc. 625 Cypress Street Merritt Island, Florida 32952 New Construction Air Conditioning, Inc. 1900 Cedar Street Holt, Michigan 48842 Noron, Inc. 5465 Enterprise Toledo, Ohio 43612 Paul E. Smith Co., Inc. 8171 West 10th Street Indianapolis, Indiana 46214 Phoenix Electric Company 7379 S.W. Tech Center Drive Tigard, Oregon 97223 Ray and Claude Goodwin, Inc. 1033 S. Edgewood Avenue Jacksonville, Florida 32205 Reliable Mechanical, Inc. 13035 Middletown Industrial Blvd. Louisville, Kentucky 40223 Romanoff Electric Corp. 5055 Enterprise Blvd. Toledo, Ohio 43612 Sibley Services, Incorporated 1892 Lynnbrook Place Memphis, Tennessee 38116 Southeast Mechanical Service, Inc. 2100 SW 57th Terrace Hollywood, Florida 33023 Sterling Air Conditioning, Inc. 1331 East Broadway Pearland, Texas 77581 Sun Plumbing, Inc. 6935 Vicki Circle Melbourne, Florida 32902 Team Mechanical, Inc. 151 N. 600 West Kaysville, Utah 84037
129
DEBTORS LOCATION OF CHIEF EXECUTIVE OFFICE ------- ---------------------------------- United Acquisition Corp. (dba United Service 8955 E. Nichols Ave., #200 Alliance) Englewood, Colorado 80112 Valley Wide Plumbing and Heating, Inc. 431 Metcalf Road Avon, Colorado 81620 Van's Comfortemp Air Conditioning, Inc. 135 S. Congress Delray Beach, Florida 33445 Vantage Mechanical Contractors, Inc. 970 North Langley Road Glen Burnie, Maryland 21061 Wade's Heating and Cooling, Inc. 12901-1 Metro Parkway Ft. Myers, Florida 33912 Wiegold & Sons, Inc. 2255 J&C Blvd.; Pine Ridge Industrial Park Naples, Florida 34109 Willis Refrigeration, Air Conditioning & 885 Ohio Pike Heating, Inc. Cincinnati, Ohio 45245 Yale Incorporated 9649 Girard Avenue South, Minneapolis, Minnesota 55431
130 SCHEDULE III UCC FILINGS
LOCATION OF UCC-1 FILINGS (SECRETARY OF STATE, UNLESS DEBTORS OTHERWISE INDICATED) ------- -------------------------- Group Maintenance America Corp. Florida; Indiana; Marion County, Indiana; Kansas; Kentucky; Ohio; and Texas A-ABC Appliance, Inc. Texas A-1 Appliance & Air Conditioning, Inc. Texas A-1 Mechanical of Lansing, Inc. Michigan AA Advance Air, Inc. Florida AA JARL, Inc. Texas Air Conditioning Engineers, Inc. Michigan Air Conditioning, Plumbing & Heating Service Co., Colorado Inc. Aircon Energy Incorporated California Airtron, Inc. Delaware; Florida; Indiana; Marion County, Indiana; Kansas; Kentucky; Ohio; and Texas Airtron of Central Florida, Inc. Florida and Ohio All Service Electric, Inc. Florida Arkansas Mechanical Services, Inc. Arkansas Atlantic Industrial Constructors, Inc. Virginia Barr Electric Corp. Illinois Callahan Roach Products & Publications, Inc. Colorado Central Air Conditioning Contractors, Inc. Maryland Central Carolina Air Conditioning Company North Carolina Charlie Crawford, Inc. Texas Clark Converse Electric Service, Inc. Ohio Colonial Air Conditioning Company Connecticut Commercial Air, Power & Cable, Inc. Maryland Commercial Air Holding Company Maryland
131
LOCATION OF UCC-1 FILINGS (SECRETARY OF STATE, UNLESS DEBTORS OTHERWISE INDICATED) ------- -------------------------- Costner Brothers, Inc. South Carolina Divco, Inc. Washington Dynamic Software Corporation Maryland Evans Services, Inc. Alabama The Farfield Company Pennsylvania Ferguson Electric Corporation Colorado Gentzler Electrical Contractors, Inc. Texas Gilbert Mechanical Contractors, Inc. Minnesota GroupMAC Holding Corp. Texas GroupMAC Management Co. Texas HPS Plumbing Services, Inc. California Hallmark Air Conditioning, Inc. Texas Hungerford Mechanical Corporation Virginia J.D. Steward Air Conditioning, Inc. Colorado Jerry Albert Air Conditioning, Inc. Texas K&N Plumbing, Heating and Air Conditioning, Inc. Texas and Nevada Laney's, Inc. North Dakota Linford Service Co. California MacDonald-Miller Industries, Inc. Oregon and Washington MacDonald-Miller Co., Inc. Oregon and Washington MacDonald-Miller Service, Inc. Oregon and Washington Masters, Inc. Maryland and Virginia Mechanical Interiors, Inc. Texas Merritt Island Air & Heat, Inc. Florida New Construction Air Conditioning, Inc. Michigan Noron, Inc. Ohio
132
LOCATION OF UCC-1 FILINGS (SECRETARY OF STATE, UNLESS DEBTORS OTHERWISE INDICATED) ------- --------------------------- Paul E. Smith Co., Inc. Indiana and Marion County, Indiana Phoenix Electric Company Oregon Ray and Claude Goodwin, Inc. Florida Reliable Mechanical, Inc. Kentucky Romanoff Electric Corp. Ohio Sibley Services, Incorporated Tennessee Southeast Mechanical Service, Inc. Florida Sterling Air Conditioning, Inc. Texas Sun Plumbing, Inc. Florida Team Mechanical, Inc. Utah United Acquisition Corp. Colorado Valley Wide Plumbing and Heating, Inc. Colorado Van's Comfortemp Air Conditioning, Inc. Florida Vantage Material Contractors, Inc. Maryland Wade's Heating and Cooling, Inc. Florida Wiegold & Sons, Inc. Florida Willis Refrigeration, Air Conditioning & Heating, Inc. Ohio Yale Incorporated Minnesota
133 EXHIBIT 4.01(d)(ii) SECOND AMENDED AND RESTATED PLEDGE AGREEMENT This SECOND AMENDED AND RESTATED PLEDGE AGREEMENT (as the same may be amended, amended and restated, modified, or supplemented from time to time, this "Agreement") dated as of October 15, 1998 is executed by GROUP MAINTENANCE AMERICA CORP., a Texas corporation with an office at 8 Greenway Plaza, Suite 1500, Houston, TX 77046 (the "Company"), the subsidiaries of the Company signatory hereto now or in the future (such subsidiaries with the Company, collectively the "Pledgors" and individually, a "Pledgor") in favor of CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association with its principal offices in Houston, Harris County, Texas, as agent for itself and for the banks under the Second Amended and Restated Credit Agreement, as hereinafter defined (in such capacity, the "Secured Party"). PRELIMINARY STATEMENTS WHEREAS, the Pledgors own the shares (the "Pledged Shares") of stock described in Schedule I attached hereto and issued by the corporations named therein; and WHEREAS, the Company, the Secured Party, as agent (then known as Texas Commerce Bank National Association) and the banks party thereto entered into that one certain Credit Agreement dated December 11, 1997 (as amended, the "First Credit Agreement" ), relating to the extension of a series of loans with a commitment totaling $75,000,000.00 by said banks to the Company; and WHEREAS, the Company and certain of its subsidiaries, as guarantors, the Secured Party, as agent, the banks and financial institutions listed on the signature pages thereto, ABN Amro Bank, N.V. and Paribas, as co-agents agreed to amend and restate the First Credit Agreement pursuant to the terms and conditions of the Amended and Restated Credit Agreement dated June 12, 1998 (the "Amended and Restated Credit Agreement" and together with the First Credit Agreement, the "Prior Credit Agreement"), relating to the extension of a series of loans with a commitment totaling $125,000,000.00 by said banks to the Company; and WHEREAS, the Secured Party, as agent, the banks party thereto (the "Banks"), Bank of America Texas, N.A., as co-agent, Paribas, as syndication agent, ABN AMRO Bank, N.V., as documentation agent, and the Pledgors desire to amend and restate the Prior Credit Agreement and have entered into that certain Second Amended and Restated Credit Agreement dated as of October 15, 1998 (as amended, amended and restated, modified or supplemented from time to time, the "Credit Agreement"), under the terms of which the Banks agreed to make available to the Company, a loan of up to $230,000,000.00; and 134 WHEREAS, in connection with the Prior Credit Agreement and as partial security thereof, the Secured Party, the Company and certain of its subsidiaries entered into that one certain Pledge Agreement dated December 11, 1997, which was amended and restated pursuant to the Amended and Restated Pledge Agreement dated June 12, 1998 among the Secured Party, the Company and certain of its subsidiaries (collectively, the "Prior Pledge Agreement") pledging certain shares of stock held by each of them to the Secured Party; and WHEREAS, each of the Pledgors will benefit, directly or indirectly, from the execution of this Pledge Agreement and the granting of a security interest in the "Pledged Collateral" (hereinafter defined) in which each Pledgor, respectively, has any right, title, or interest as security for all of the "Secured Obligations" (hereinafter defined); and WHEREAS, it is a condition precedent to the obligation of the Banks to make Loans to the Company under the Credit Agreement that the Pledgors shall execute and deliver this Agreement to the Secured Party; and WHEREAS, the Pledgors desire to execute this Agreement in order to satisfy such condition precedent and to secure the obligations under the Credit Agreement and letters of credit from time to time issued. NOW THEREFORE, in consideration of the foregoing premises and in order to induce the Banks to extend the loans and issue letters of credit pursuant to the terms of the Credit Agreement, the Pledgors hereby agree to amend and restate the Prior Pledge Agreement as follows: SECTION 1. Defined Terms and Related Matters. (a) Each capitalized term used herein (including, without limitation, in the introductory paragraph and recitals hereof) and not defined herein shall have the meaning assigned to such term in the Credit Agreement and/or a Loan Document. (b) "Pledged Shares" means one hundred percent (100%) of the shares of all stock of any Pledgor in any domestic Subsidiaries whether certificated or uncertificated, as set forth on Schedule I hereto. (c) "UCC" means the Uniform Commercial Code as in effect on the date hereof in the State of Texas; provided that if by mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interests granted pursuant to Section 2 hereof, as well as all other security interests created or assigned as additional security for the Secured Obligations pursuant to the provisions of this Agreement, in any Collateral is governed by the UCC as in effect in a jurisdiction other than Texas, "UCC" means the UCC as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection. 135 (d) "Secured Obligations" means all obligations, contingent or otherwise, of the Company or any Pledgor pursuant to any of the Loan Documents, including, without limitation, all sums owing by the Company or any Pledgor to the Secured Party under any of the Loan Documents, and any obligations outstanding now or in the future, including, but not limited to, any letters of credit issued by the Agent or any other Bank and any interest rate swaps, hedges or similar agreements between any Pledgor or any of its Subsidiaries and any of the Banks all on a pari passu basis. (e) All rights and interests granted to the Secured Party under the Prior Pledge Agreement are hereby ratified and renewed and brought forward herein to the extent same are not inconsistent herewith. This Agreement shall be a restatement of the Prior Pledge Agreement but shall not invalidate or adversely affect any rights or interests granted to the Secured Party thereunder or affect the priority thereof except as expressly set forth herein. SECTION 2. Pledges. The Pledgors hereby pledge to the Secured Party and grant to the Secured Party, a Lien and security interest in the following collateral (collectively, the "Pledged Collateral") as set forth below: (i) The Pledged Shares and the certificates, if any, representing the Pledged Shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of, or in exchange for, any or all of the Pledged Shares; (ii) All additional shares of stock of any issuer of any Pledged Shares of such stock from time to time acquired by any Pledgor, and the certificates representing such additional shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; and (iii) All proceeds of any of the foregoing. The inclusion of proceeds in this Agreement does not authorize the Pledgors to sell, dispose of or otherwise use the Pledged Collateral in any manner not specifically authorized hereby. SECTION 3. Security for Obligations. This Agreement secures on a first and prior basis, except for the Permitted Liens and other Liens permitted under the Credit Agreement, the prompt and complete payment and performance of the Secured Obligations. SECTION 4. Delivery of Pledged Collateral. All certificates, if any, representing or evidencing the Pledged Collateral shall be delivered to and held by the Secured Party and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed 136 instruments of transfer or assignment in blank, all in form and substance satisfactory to the Secured Party. SECTION 5. Representations and Warranties. Each of the Pledgors represents and warrants as follows: (a) The principal place of business and chief executive office of the Company and the office where it keeps its records concerning the Pledged Collateral are located at the address specified in the introductory paragraph to this Agreement or at such other locations disclosed to the Secured Party after the date hereof. Each other Pledgor has its chief executive office at the location shown on Schedule II hereto or at such other locations as disclosed to the Secured Party after the date hereof. (b) The Pledged Shares have been duly authorized and validly issued and are fully paid and non-assessable. (c) The Pledgors are the legal and beneficial owners of the Pledged Shares free and clear of any Lien, security interest, option or other charge or encumbrance except for the Permitted Liens and other Liens permitted under the Credit Agreement. (d) The delivery of the Pledged Shares to the Secured Party pursuant to this Agreement and the filing of financing statements, if applicable, creates a valid and perfected first priority security interest in the Pledged Shares (subject only to Permitted Liens and other Liens permitted under the Credit Agreement), securing the payment of the Secured Obligations. (e) No authorization, approval, or other action by, and no notice to or filing with, any governmental authority is required either (i) for the pledge by the Pledgors of the Pledged Shares pursuant to this Agreement or for the execution, delivery or performance of this Agreement by the Pledgors or (ii) for the exercise by the Secured Party of the voting or other rights provided for in this Agreement (except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally). (f) All shares of stock in any domestic Subsidiary are pledged to the Secured Party hereunder. (g) The Subsidiaries listed on Schedule 5.16 of the Credit Agreement are all of the Subsidiaries of the Company as of the Execution Date and the address given for such Subsidiaries is the correct mailing address as of the Execution Date. SECTION 6. Further Assurances. (a) Each Pledgor agrees that from time to time, at the reasonable expense of the Pledgor, each Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that the Secured Party may reasonably request as being necessary or desirable, in order to perfect and protect any security 137 interest granted or purported to be granted hereby or to enable the Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. Without limiting the generality of the foregoing, each Pledgor will execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices as the Secured Party may reasonably request as being necessary or desirable in order to perfect and preserve the security interests granted or purported to be granted hereby. (b) Each Pledgor hereby authorizes the Secured Party for the benefit of itself and the Banks to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Pledged Collateral without the signature of such Pledgor, in each case where permitted by law. A carbon, photographic or other reproduction of any financing statement executed by each Pledgor covering the Pledged Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. (c) Each Pledgor will furnish to the Secured Party from time to time statements and schedules further identifying and describing the Pledged Collateral as the Secured Party may reasonably request, all in reasonable detail. (d) Each Pledgor will promptly notify the Secured Party of any change of its name, corporate structure, federal employer identification number or the address of its principal place of business or chief executive office where its books and records are maintained. (e) Each Pledgor shall keep its principal place of business and chief executive office and the office where it keeps its records concerning the Pledged Collateral at the location or locations therefor specified in Section 5(a) or, upon 30 days' prior written notice to the Secured Party, at such other locations in a jurisdiction where all action required by this Section 6(a) shall have been taken with respect to the Pledged Collateral. Each Pledgor will hold and preserve such records and will upon reasonable notice permit representatives of the Secured Party at any time during normal business hours to inspect and make abstracts from such records. SECTION 7. Voting Rights. (a) So long as no Event of Default shall have occurred and be continuing, the Pledgors shall be entitled to exercise any and all voting and other rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement, the Credit Agreement, or any Loan Documents. (b) Upon the occurrence and during the continuance of an Event of Default, all rights of the Pledgors to exercise the voting rights which they would otherwise be entitled to exercise pursuant to Section 7(a) hereof shall cease for so long as such Event of Default shall continue, and the Secured Party shall thereupon have the sole right to exercise such voting rights. SECTION 8. Dividends. If dividends with respect to the Pledged Collateral are received by the Pledgors in violation of the terms of the Loan Documents, such dividends shall 138 be received in trust for the benefit of the Secured Party for itself and for the benefit of the Banks, shall be segregated from other funds of the Pledgors and shall be forthwith paid over to the Secured Party as Pledged Collateral in the same form as so received. SECTION 9. Transfers and Other Liens; Additional Shares. (a) The Pledgors shall not: (i) sell, assign (by agreement, operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral except for transfers to other Pledgors or other wholly owned Subsidiaries of Pledgors which agree to be bound by the terms hereof or (ii) create or permit to exist any Lien upon or with respect to any of the Pledged Collateral, except for the Permitted Liens and other liens permitted under the Credit Agreement. (b) The Pledgors agree that they will (i) cause the companies that issued the shares that constitute the Pledged Collateral not to issue any stock or other securities in addition to, or in substitution for, the Pledged Collateral, except to the Pledgor and (ii) pledge to the Secured Party hereunder, immediately upon such acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities of such companies. (c) Notwithstanding the foregoing or any other provision hereof, any Subsidiary may be merged with any other Subsidiary whose shares have been pledged pursuant hereto or pursuant to any Adoption Agreement or other Security Document or with the Company. SECTION 10. Secured Party Appointed Attorney-in-Fact. The Pledgors hereby irrevocably appoint the Secured Party for the benefit of itself and for the benefit of the Banks as the Pledgors' attorney-in-fact, with full authority in the place and stead of the Pledgors and in the name of the Pledgors, from time to time in the Secured Party's sole reasonable discretion after the occurrence of an Event of Default and during the continuance thereof, to take any action and to execute any instrument which the Secured Party may reasonably deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, endorse and collect all certificates made payable to the Pledgors representing any dividend or other distribution in respect of the Pledged Collateral or any part thereof. Upon the occurrence and during the continuance of an Event of Default, the Secured Party shall have the right, in its sole discretion and without notice to the Pledgors, to transfer to or to register in the name of the Secured Party or any of its nominees, for the benefit of itself and the Banks, any or all of the Pledged Collateral. SECTION 11. Secured Party May Perform. If any Pledgor fails to perform any agreement contained herein, the Secured Party may itself perform, or cause performance of, such agreement, and the reasonable expenses of the Secured Party incurred in connection therewith shall be payable upon demand by such Pledgor and if not paid shall bear interest at the Default Rate set forth in the Credit Agreement. SECTION 12. The Secured Party's Duties. The powers conferred on the Secured Party hereunder are solely to protect its interest and the interests of Banks in the Pledged Collateral and shall not impose any duty upon it to exercise any such powers. In regard to any 139 Pledgor, except for reasonable care in the custody of any Pledged Collateral in its possession and the accounting for moneys actually received by it hereunder, neither the Secured Party nor any other party shall have any duty as to any Pledged Collateral or as to the taking of any reasonably necessary steps to preserve rights against prior parties or any other rights pertaining to any Pledged Collateral. The Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which the Secured Party accords its own property, it being understood that the Secured Party shall not have any responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not the Secured Party has or is deemed to have knowledge of such matters or (b) taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral. SECTION 13. Remedies upon Default. If any Event of Default shall have occurred and be continuing: (a) The Secured Party for itself and for the benefit of the Banks may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party under the UCC (whether or not the UCC applies to the affected Collateral), and the Secured Party may also, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of the Secured Party's offices or elsewhere, for cash, or for future delivery, and upon such other terms as are commercially reasonable. Each Pledgor agrees that, to the extent notice of sale shall be required by applicable law, at least ten (10) days' notice to the Pledgors of the time and place of any public sale or of the time after which any private sale is to be made shall constitute reasonable notification thereof. The Secured Party shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) Any cash received by the Secured Party shall be applied to repay the Secured Obligations. Any surplus of such cash or cash proceeds held by the Secured Party and remaining after payment in full of all the Secured Obligations shall be paid over to the Pledgors or to whomsoever may be lawfully entitled to receive such surplus. (c) In connection with the sale of any Pledged Collateral, the Secured Party is authorized, but not obligated, to limit prospective purchasers to the extent deemed necessary or desirable by the Secured Party to render such sale exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), and any applicable state laws and regulations, and no sale so made in good faith by the Secured Party shall be deemed not to be "commercially reasonable" because so made. 140 (d) All rights and remedies of the Secured Party expressed herein are in addition to all other rights and remedies possessed by the Secured Party under the Credit Agreement and any other agreement or instrument relating to the Obligations. SECTION 14. Additional Provisions Concerning Sales of Pledged Collateral. (a) The Pledgors recognize that the Secured Party may be unable to effect a public sale of any or all of the Pledged Collateral by reason of certain prohibitions contained in the laws of any jurisdiction outside the United States or in the Securities Act and applicable state securities laws, but may instead be compelled to resort to one or more private sales thereof to a restricted group of purchasers who shall be obligated to agree, among other things, to acquire such Pledged Collateral for their own account for investment and not with a view to the distribution or resale thereof. The Pledgors acknowledge and agree that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agree that any such private sale shall, to the extent permitted by law, be deemed to have been made in a commercially reasonable manner. The Secured Party shall not be under any obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit the Pledgors to register such securities under the laws of any jurisdiction outside the United States, under the Securities Act or under any applicable state securities laws, even if the Pledgors would agree to do so. (b) The Pledgors further agree to do or cause or be done, to the extent that the Pledgors may legally do so, all such other acts and things as may be necessary to make such sales or resales of any portion or all of the Pledged Collateral valid and binding and in compliance with any and all applicable laws, regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental authorities, domestic or foreign, having jurisdiction over any such sale or sales, all at the Pledgors' expense; provided, however, that the Pledgors shall not be obligated to register such securities under the laws of any jurisdiction including, without limitation, under the Securities Act. The Pledgors further agree that a breach of any of the covenants contained in this Section shall cause irreparable injury to the Secured Party, and that the Secured Party has no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this Section shall be specifically enforceable against the Pledgors, and, to the fullest extent permitted by law, the Pledgors hereby waive and agree not to assert as a defense against an action for specific performance of such covenants that (i) the Pledgors' failure to perform such covenants shall not cause irreparable injury to the Secured Party or the Banks or (ii) the Secured Party for itself and on behalf of the Banks has an adequate remedy at law in respect of such breach. SECTION 15. Indemnity and Expenses. (a) The Pledgors hereby agree to indemnify the Secured Party from and against any and all claims, losses and liabilities growing out of or resulting from enforcement of this Agreement, except claims, losses or liabilities, if any, resulting from the Secured Party's gross negligence or willful misconduct. SUBJECT TO THE FOREGOING, IT IS THE EXPRESS INTENTION OF THE PLEDGORS THAT THE SECURED PARTY SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DEFICIENCIES, JUDGMENTS OR 141 EXPENSES ARISING OUT OF OR RESULTING FROM THE ORDINARY CONTRIBUTORY OR ORDINARY CONCURRENT NEGLIGENCE OF ANY SUCH PERSON. (b) The Pledgors shall, upon demand, but subject to the terms of the Credit Agreement, pay to the Secured Party the amount of any and all reasonable expenses, including the reasonable fees and expenses of the such party's counsel and of its experts, that the Secured Party may incur in connection with (i) administration of this Agreement, (ii) the evaluation, appraisal, custody or preservation of, or sale of, collection from, or other realization upon any of the Pledged Collateral, (iii) the exercise or enforcement of any of the rights of the Secured Party for itself and for the benefit of the Banks hereunder or (iv) the failure by the Pledgors to perform or observe any of the provisions of this Agreement. Each Pledgor agrees to pay interest on any sums payable to the Secured Party hereunder that are not paid when due at a rate per annum equal to the Default Rate set forth in the Credit Agreement. SECTION 16. Amendments, Etc. No amendment or waiver of any provision of this Agreement, nor consent to any departure by the Pledgors herefrom, shall in any event be effective unless the same shall be in writing and signed by the Secured Party with the requisite consent of all other Banks, if applicable, and the Pledgors, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose of which given. SECTION 17. Addresses for Notices. All notices and other communications to any Pledgor provided for hereunder shall be given in the manner and at the addresses and telecopy numbers as set forth for the Company in the Credit Agreement, and shall become effective as specified in the Credit Agreement and/or Loan Documents. SECTION 18. Waiver of Marshaling. All rights of marshaling of assets of the Pledgors, including any such right with respect to the Pledged Collateral, are hereby waived by the Pledgors. SECTION 19. Limitation by Law. All rights, remedies and powers provided in this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Agreement are intended to be subject to all applicable mandatory provisions of law which may be controlling and to be limited to the extent necessary so that they shall not render this Agreement invalid, unenforceable, in whole or in part, or not entitled to be recorded, registered or filed under the provisions of any applicable law. SECTION 20. Severability. Should any clause, sentence, paragraph, subsection or Section of this Agreement be judicially declared to be invalid, unenforceable or void, such decision shall not have the effect of invalidating or voiding the remainder of this Agreement, and the parties hereto agree that the part or parts of this Agreement so held to be invalid or unenforceable shall be deemed to have been stricken herefrom by the parties hereto, and the 142 remainder of this Agreement shall have the same force and effectiveness as if such stricken part or parts had never been included herein. SECTION 21. Termination; Reinstatement. (a) Each Pledgor agrees that this Agreement and the Liens granted hereunder shall terminate when, but only when, all Secured Obligations have been fully and finally paid and performed and all Banks' Commitments under the Credit Agreement and/or Loan Documents have expired or been terminated. At any time thereafter upon the Pledgor's request, the Secured Party shall promptly reassign and redeliver, including the termination of any financing statements (or cause to be reassigned and redelivered) to the Pledgors, or to such Person or Persons as the Pledgors shall designate in writing, against receipt, such of the Pledged Collateral (if any) as shall not have been sold or otherwise applied by the Secured Party for the benefit of itself or the Banks pursuant to the terms hereof and shall still be held by it hereunder. Any such reassignment shall be without recourse upon, or representation or warranty by, the Secured Party (other than that the Secured Party for the benefit of itself and the Banks has not sold, encumbered or otherwise transferred any interest in the Collateral except as provided in this Agreement) and shall be at the sole reasonable cost and expense of the Pledgors. (b) This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any amount received by the Secured Party or any other of the Banks in respect of the Secured Obligations is rescinded or must otherwise be restored or returned by the Secured Party or such other Banks upon the filing of any bankruptcy proceeding by or of the Pledgors or upon the appointment of any intervenor or conservator of, or trustee or similar official for, the Pledgors or any substantial part of their assets, or otherwise, all as though such payments had not been made. SECTION 22. No Waiver; Remedies. No failure on the part of the Secured Party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by applicable law. SECTION 23. Continuing Security Interest; Transfer of the Notes. This Agreement creates a continuing security interest in the Pledged Collateral and shall (a) remain in full force and effect until the full and final payment and performance of the Secured Obligations after the Pledgors shall have no further obligation under the Loan Documents, (b) be binding upon each Pledgor, its successors and assigns and (c) inure to the benefit of the Secured Party for the benefit of itself and the Banks and their respective permitted successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), any of the Banks may assign or otherwise transfer all or a portion of its interests, rights and obligations in the Pledged Collateral held by it pursuant to the Credit Agreement, or pursuant to any Loan Document, to any other Person in accordance with the terms of the Credit Agreement, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to the Secured Party for itself and for the benefit of the Banks herein or otherwise. Upon the termination of the Secured Obligations, the Liens granted hereby in 143 accordance with the foregoing shall revert to Pledgors, and the Secured Party will, at the Pledgors' sole cost and expense, promptly execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence such termination. Any Subsidiary of the Company that executes a counterpart of this Agreement after the date of this Agreement shall, upon such execution, become a party hereto as a Pledgor. SECTION 24. Security Interest Absolute. All rights of the Secured Party for itself and for the benefit of Banks and security interests hereunder, and all obligations of the Pledgors hereunder, shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of the Credit Agreement, any of the Notes, or any other Loan Document; (b) any change in the time, manner or place or payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, any of the Notes, or any other Loan Documents; (c) any exchange, release or non-perfection of any other collateral, or any release or amendment or waiver of or consent to departure from any guaranty for all or any of the Secured Obligations; or (d) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Pledgors or any other third party. SECTION 25. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. SECTION 26. Inconsistencies. In the event of any irreconcilable inconsistences between any provision of this Security Agreement and any provision of the Credit Agreement and/or the Loan Documents, the provisions of this Agreement shall control. SECTION 27. Counterparts. This Agreement may be executed in any number of counterparts, and by different parties hereto in separate counterparts either in original form or by telecopy, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute but one and the same agreement. SECTION 28. Interpretation. 144 (a) In this Security Agreement, unless a clear contrary intention appears: (i) the singular number includes the plural number and vice versa; (ii) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Security Agreement as a whole and not to any particular Article, Section or other subdivision; (iii) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Security Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually, provided that nothing in this clause (iii) is intended to authorize any assignment not otherwise permitted by this Security Agreement; (iv) reference to any agreement, document or instrument means such agreement, document or instrument as amended, supplemented or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof, and reference to any Note includes any Note issued pursuant hereto in extension or renewal thereof and in substitution or replacement therefor; (v) unless the context indicates otherwise, reference to any Article, Section, Schedule or Exhibit means such Article or Section hereof or such Schedule or Exhibit hereto; (vi) the words "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term; (vii) with respect to the determination of any period of time, the word "from" means "from and including" and the word "to" means "to but excluding"; and (viii) reference to any law means such as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time. (b) The Section headings herein are for convenience only and shall not affect the construction hereof. (c) No provision of this Security Agreement shall be interpreted or construed against any Person solely because that Person or its legal representative drafted such provision. 145 SECTION 29. Submission to Jurisdiction. (a) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS, IN HARRIS COUNTY OR THE UNITED STATES FOR THE SOUTHERN DISTRICT OF TEXAS AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PLEDGOR HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING. EACH PLEDGOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS PROVIDED IN TRANSACTION DOCUMENTS, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE SECURED PARTY OR ANY OF THE PARTIES TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE PLEDGORS IN ANY OTHER JURISDICTION. (b) EACH PLEDGOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (A) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. SECTION 30. Waiver of Jury Trial. EACH PARTY HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, LOAN DOCUMENTS, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM OR RELATING TO ANY BANKING OR FINANCIAL RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY LOAN DOCUMENT, AND AGREES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. SECTION 31. Final Agreement of the Parties. THIS AGREEMENT (INCLUDING THE SCHEDULES HERETO), AND THE OTHER LOAN DOCUMENTS, CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE 146 TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 147 IN WITNESS WHEREOF, the Pledgors have caused this Agreement to be duly executed and delivered as of the date first above written. COMPANY/PLEDGOR: GROUP MAINTENANCE AMERICA CORP., a Texas corporation By: ------------------------------------------ Name: Darren B. Miller Title: Executive Vice President 148 SUBSIDIARIES/PLEDGORS: AIRTRON, INC. COMMERCIAL AIR HOLDING COMPANY GROUPMAC HOLDING CORP. HALLMARK AIR CONDITIONING, INC. MACDONALD-MILLER INDUSTRIES, INC. By: ---------------------------------- Name: Darren B. Miller Title: Vice President 149 AGENT/SECURED PARTY: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, Agent for the Banks By: ----------------------------------------- Name: J. M. Walshak Title: Vice President 150 SCHEDULE I PLEDGED SHARES
PERCENTAGE OF STOCK NUMBER ISSUING COMPANY AND SHARES CERTIFICATE OF OWNER/PLEDGOR OF STOCK STATE OF INCORPORATION PLEDGED NO. SHARES ----------------------- ---------------------- ------------- ----------- ------ Group Maintenance America Corp., GroupMAC Holding Corp. 100% 1 1,000 a Texas corporation (Delaware) Group Maintenance America Corp., GroupMAC Management Co. 100% 1 1,000 a Texas corporation (Delaware) GroupMAC Holding Corp., a A-ABC Appliance, Inc. 100% 8 and 50 and 50 Delaware corporation (Texas) NV 8 GroupMAC Holding Corp., a A-1 Appliance & Air Conditioning, 100% 6 300,000 Delaware corporation Inc. (Texas) Group Maintenance America Corp., AA JARL, Inc. 100% 2 1,000 a Texas corporation (Texas) Group Maintenance America Corp., Air Conditioning Engineers, Inc. 100% A001 1,000 a Texas corporation (Michigan) Group Maintenance America Corp., Air Conditioning, Plumbing & 100% A001 1,000 a Texas corporation Heating Service Co., Inc. (Colorado) Group Maintenance America Corp., Aircon Energy Incorporated 100% A001 1,000 a Texas corporation (California) Group Maintenance America Corp., Airtron, Inc. 100% 235 329,513.104 a Texas corporation (Delaware) Airtron, Inc., a Delaware corporation Airtron of Central Florida, Inc. 100% 1 100 (Florida) Hallmark Air Conditioning, Inc., a Jerry Albert Air Conditioning, Inc. 100% 8 8,875 Texas corporation (Texas) Group Maintenance America Corp., All Service Electric, Inc. 100% A001 1,000 a Texas corporation (Florida) Group Maintenance America Corp., Arkansas Mechanical Services, Inc. 100% A001 1,000 a Texas corporation (Arkansas) Group Maintenance America Corp., Barr Electric Corp 100% A001 1,000 a Texas corporation (Illinois) Group Maintenance America Corp., Callahan Roach Products & 100% A001 1,000 a Texas corporation Publications, Inc. (Colorado)
151
PERCENTAGE OF STOCK NUMBER ISSUING COMPANY AND SHARES CERTIFICATE OF OWNER/PLEDGOR OF STOCK STATE OF INCORPORATION PLEDGED NO. SHARES ----------------------- ---------------------- ------------- ------------ ------ Group Maintenance America Corp., Central Carolina Air Conditioning 100% A001 1,000 a Texas corporation Company (North Carolina) GroupMAC Holding Corp., a Charlie Crawford, Inc. 100% 4 1,000 Delaware corporation (Texas) Group Maintenance America Corp., Commercial Air Holding Company 100% A001 1,000 a Texas corporation (Maryland) Commercial Air Holding Company, Commercial Air, Power & Cable, 100% A001 100,000 a Maryland corporation Inc. (Maryland) Group Maintenance America Corp., Costner Brothers, Inc. 100% 3 2,000 a Texas corporation (South Carolina) Group Maintenance America Corp., Evans Services, Inc. 100% A001 1,000 a Texas corporation (Alabama) Group Maintenance America Corp., Gilbert Mechanical Contractors, Inc. 100% A001 1,000 a Texas corporation (Minnesota) Group Maintenance America Corp., HPS Plumbing Services, Inc., 100% A001 1,000 a Texas corporation (California) GroupMAC Holding Corp., a Texas Hallmark Air Conditioning, Inc. 100% 30 180 corporation (Texas) Group Maintenance America Corp., Hungerford Mechanical Corporation 100% A001 1,000 a Texas corporation (Virginia) Group Maintenance America Corp., J. D. Steward Air Conditioning, Inc. 100% A001 1,000 a Texas corporation (Colorado) GroupMAC Holding Corp., a Texas K & N Plumbing, Heating and Air 100% 8 5,000 corporation Conditioning, Inc. (Texas) Group Maintenance America Corp., Linford Service Co. 100% A001 1,000 a Texas corporation (California) Group Maintenance America Corp., MacDonald-Miller Industries, Inc. 100% A001 1,000 a Texas corporation (Washington) MacDonald-Miller Industries, Inc., MacDonald-Miller Co., Inc. 100% 1 30,070 a Washington corporation (Washington) MacDonald-Miller Industries, Inc., MacDonald-Miller Co., Inc. 100% 2 36,764 a Washington corporation (Washington) MacDonald-Miller Industries, Inc., MacDonald-Miller Co., Inc. 100% 3 36,764 a Washington corporation (Washington)
152
PERCENTAGE OF STOCK NUMBER ISSUING COMPANY AND SHARES CERTIFICATE OF OWNER/PLEDGOR OF STOCK STATE OF INCORPORATION PLEDGED NO. SHARES ----------------------- --------------------- ------------- ----------- ------ MacDonald-Miller Industries, Inc., MacDonald-Miller Service, Inc. 100% 1 500 a Washington corporation (Washington) Group Maintenance America Corp., Masters, Inc. 100% A001 1,000 a Texas corporation (Maryland) Group Maintenance America Corp., Mechanical Interiors, Inc. (Texas) 100% A001 1,000 a Texas corporation Group Maintenance America Corp., Paul E. Smith Co. Inc. 100% 6 550 a Texas corporation (Indiana) Group Maintenance America Corp., Ray and Claude Goodwin, Inc. 100% A001 1,000 a Texas corporation (Florida) Group Maintenance America Corp., Sibley Services, Incorporated 100% 49 396 a Texas corporation (Tennessee) Group Maintenance America Corp., Southeast Mechanical Service, Inc. 100% A001 1,000 a Texas corporation (Florida) Group Maintenance America Corp., Sterling Air Conditioning, Inc. 100% A001 1,000 a Texas corporation (Texas) Group Maintenance America Corp., United Acquisition Corp. 100% 1 1,000 a Texas corporation (Iowa) Group Maintenance America Corp., Valley Wide Plumbing and Heating, 100% A001 1,000 a Texas corporation Inc. (Colorado) Group Maintenance America Corp., Van's Comfortemp Air Conditioning, 100% A001 1,000 a Texas corporation Inc. (Florida) Group Maintenance America Corp., Vantage Mechanical Contractors, 100% A001 1,000 a Texas corporation Inc. (Maryland) Group Maintenance America Corp., Wade's Heating and Cooling, Inc. 100% A001 1,000 a Texas corporation (Florida) Group Maintenance America Corp., Willis Refrigeration, Air 100% 1 1,000 a Texas corporation Conditioning & Heating, Inc. (Ohio) Group Maintenance America Corp., Yale Incorporated 100% A001 1,000 a Texas corporation (Minnesota) Group Maintenance America Corp., A-1 Mechanical of Lansing, Inc. 100% A001 1,000 a Texas corporation (Michigan)
153
PERCENTAGE OF STOCK NUMBER ISSUING COMPANY AND SHARES CERTIFICATE OF OWNER/PLEDGOR OF STOCK STATE OF INCORPORATION PLEDGED NO. SHARES ----------------------- ---------------------- ------------- ----------- ------ Group Maintenance America Corp., AA Advance Air, Inc. 100% A001 1,000 a Texas corporation (Florida) Group Maintenance America Corp., Atlantic Industrial Constructors, Inc. 100% A001 1,000 a Texas corporation (Virginia) Group Maintenance America Corp., Central Air Conditioning 100% A001 1,000 a Texas corporation Contractors, Inc. (Delaware) Group Maintenance America Corp., Clark Converse Electric Service, Inc. 100% A001 100 a Texas corporation (Ohio) Group Maintenance America Corp., Colonial Air Conditioning Company 100% A001 1,000 a Texas corporation (Delaware) Group Maintenance America Corp., Divco, Inc. 100% A-001 1,000 a Texas corporation (Washington) Group Maintenance America Corp., Dynamic Software Corporation 100% 7 30 a Texas corporation (Maryland) Group Maintenance America Corp., The Farfield Company 100% A001 1,000 a Texas corporation (Delaware) Group Maintenance America Corp., Ferguson Electric Corporation 100% A001 1,000 a Texas corporation (Delaware) Group Maintenance America Corp, Gentzler Electrical Contractors, Inc. 100% A001 1,000 a Texas corporation (Texas) Group Maintenance America Corp., Laney's, Inc. 100% A001 1,000 a Texas corporation (Delaware) Group Maintenance America Corp., Merritt Island Air & Heat, Inc. 100% A001 1,000 a Texas corporation (Delaware) Group Maintenance America Corp., New Construction Air Conditioning, 100% A001 1,000 a Texas corporation Inc. (Michigan) Group Maintenance America Corp., Noron, Inc. 100% A001 850 a Texas corporation (Ohio) Group Maintenance America Corp., Phoenix Electric Company 100% A001 1,000 a Texas corporation (Delaware) Group Maintenance America Corp., Reliable Mechanical, Inc. 100% A001 1,000 a Texas corporation (Delaware)
154
PERCENTAGE OF STOCK NUMBER ISSUING COMPANY AND SHARES CERTIFICATE OF OWNER/PLEDGOR OF STOCK STATE OF INCORPORATION PLEDGED NO. SHARES ----------------------- ---------------------- ------------- ----------- ------ Group Maintenance America Corp., Romanoff Electric Corp. 100% A001 100 a Texas corporation (Ohio) Group Maintenance America Corp., Sun Plumbing, Inc. 100% A001 1,000 a Texas corporation (Florida) Group Maintenance America Corp., Team Mechanical, Inc. 100% A001 1,000 a Texas corporation (Utah) Group Maintenance America Corp., Wiegold & Sons, Inc. 100% A001 1,000 a Texas corporation (Florida)
155 SCHEDULE II CHIEF EXECUTIVE OFFICE LOCATIONS OF OTHER PLEDGORS Airtron, Inc. 7813 North Dixie Drive Dayton, Ohio 45414 Commercial Air Holding Company 12100 Baltimore Avenue Beltsville, Maryland Hallmark Air Conditioning, Inc. 4517 Southerland Road Houston, Texas 77092 MacDonald-Miller Industries, Inc. 7717 Detroit SW Seattle, Washington 98106 Group MAC Holding Corp. 8 Greenway Plaza, Suite 1500 Houston, Texas 77046 156 EXHIBIT 4.01(h)(i) [BRACEWELL & PATTERSON, L.L.P. LETTERHEAD] October 15, 1998 To each of the Banks party to the Second Amended and Restated Credit Agreement dated as of October 15, 1998 among Group Maintenance America Corp., its Subsidiaries listed on the signature pages thereto as guarantors ("Guarantors"), such Banks and Chase Bank of Texas, National Association, as Agent ("Credit Agreement") and to such Agent Ladies and Gentlemen: We have acted as counsel to Group Maintenance America Corp., a Texas corporation ("Borrower") and each of the Guarantors in connection with the Credit Agreement. As used herein, the term "Texas Collateral Subsidiary" refers to each of A-ABC Appliance, Inc., a Texas corporation, Group Maintenance America Corp., a Texas corporation, Hallmark Air Conditioning, Inc., a Texas corporation, K&N Plumbing, Heating, and Air Conditioning, Inc., a Texas corporation, AA JARL, Inc., a Texas corporation, Charlie Crawford, Inc., a Texas corporation, Mechanical Interiors, Inc., a Texas corporation, and Sterling Air Conditioning, Inc., a Texas corporation. This opinion is the opinion referred to in Section 4.01(h)(i) of the Credit Agreement. Capitalized terms used herein and defined in the Credit Agreement but not defined herein are used herein as therein defined. In connection with this opinion, we have examined copies of the following documents (the "Documents"): (i) a counterpart of the Credit Agreement executed by the Borrower; 157 [BRACEWELL & PATTERSON, L.L.P. LETTERHEAD] To the Banks and the Agent October 15, 1998 Page 2 (ii) the 11 Notes dated October 15, 1998, one executed by the Borrower for each Bank (the "Notes"); (iii) the Second Amended and Restated Security Agreement dated as of October 15, 1998, executed by the Borrower and each Guarantor in favor of the Agent (the "Security Agreement"); and (iv) the Second Amended and Restated Pledge Agreement dated as of October 15, 1998, executed by the Borrower and those Guarantors signatory thereto ("Pledgors") favor of the Agent (the "Pledge"). We have also examined originals or copies of such records and documents as we have deemed necessary and relevant for purposes of this opinion. In addition, we have relied on certificates or comparable documents of an officer of the Borrower and each Guarantor as to certain matters of fact relating to this opinion and have made such investigations of law as we have deemed necessary and relevant as a basis for this opinion. We have assumed (a) the genuineness of all signatures (including, without limitation, those of the Borrower, each Pledgor and each Guarantor), (b) the authenticity of all documents and records submitted to us as originals, (c) the conformity to original documents and records of all documents and records submitted to us as copies and (d) the truthfulness of all statements of fact contained therein. The Credit Agreement, the Notes, and the Security Agreement are collectively referred to as the "Borrower Loan Documents". The Credit Agreement and the Security Agreement are collectively referred to as the "Guarantor Loan Documents". Based on the foregoing and subject to the limitations and assumptions set forth in this opinion, and having due regard for such legal considerations as we deem relevant, we are of the opinion that: 1. Each of the Borrower Loan Documents constitutes the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms. 2. Each of the Guarantor Loan Documents constitutes the legal, valid and binding obligation of each Guarantor enforceable against each Guarantor in accordance with its terms. 3. The Pledge constitutes the legal, valid and binding obligation of each of the Pledgors enforceable against each of the Pledgors in accordance with its terms. 158 [BRACEWELL & PATTERSON, L.L.P. LETTERHEAD] To the Banks and the Agent October 15, 1998 Page 3 4. The Security Agreement creates a security interest in the Borrower's and each Texas Collateral Subsidiary's respective right, title and interest in the Collateral (as defined in the Security Agreement) to the extent that a security interest in such Collateral can be created under the Texas Business and Commerce Code ("UCC"). The forms of the financing statements attached as Exhibit A hereto ("Financing Statements") are in proper form, for filing with the Office of the Secretary of State of Texas. To the extent the UCC is applicable to the creation and perfection of a security interest in such Collateral and except for any such Collateral the perfection of a security interest in which cannot be obtained by the filing pursuant to the UCC of a financing statement with the Office of the Secretary of State of Texas, upon the filing of the Financing Statements in such forms pursuant to the provisions of the UCC, the security interests referred to in the first sentence of this paragraph 4 in the Borrower's and each Texas Collateral Subsidiary's respective right, title and interest in such Collateral will be perfected. To the extent the UCC is applicable to the perfection of a security interest created by the Pledge in certificated securities in registered form described in the Pledge, perfection of such security interest in such securities may be accomplished by delivery to the secured party, and the secured party taking possession, in the State of Texas of the security certificates representing such securities pursuant to the Pledge. The foregoing opinion is, with your concurrence, predicated on and qualified in its entirety by the following: (a) We are members of the Bar of the State of Texas. The foregoing opinion is based on and is limited to the law of the State of Texas. We render no opinion with respect to the law of any other jurisdiction. (b) No opinion is expressed as to the creation, existence, perfection or priority of any Lien except as expressly stated in paragraph 4 above. Furthermore, we express no opinion as to (i) goods not located in Texas, (ii) goods which are installed in or affixed to, or become a part of a product or mass with, goods which are not items of collateral; (iii) any collateral which consists of fixtures, crops, timber, minerals and the like or accounts or general intangibles resulting from the sale thereof or letters of credit; (iv) any collateral that is not reasonably identified in the description of collateral set forth in the relevant Documents; or (v) any collateral in which the Person purporting to grant a security interest does not have "rights" within the meaning of Section 9.203(a)(3) of the UCC. (c) Our opinion is subject to the effect of applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, preference, liquidation, conservatorship or other similar laws affecting creditor's rights generally. 159 [BRACEWELL & PATTERSON, L.L.P. LETTERHEAD] To the Banks and the Agent October 15, 1998 Page 4 (d) The enforceability of the Documents is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), and we express no opinion as to the availability of specific performance or any other equitable remedy. (e) We express no opinion as to the legality, validity, binding effect or enforceability of any provision in the Documents (i) purporting to restrict access to courts or to legal or equitable remedies; (ii) purporting to establish evidentiary standards; (iii) purporting to grant a right of set-off of moneys, securities and other properties of Persons other than the Person granting such right; (iv) providing for enforceability of any assignment of leases or rents prior to the time that the lienholder obtains possession of the property covered by any real property security document through foreclosure or appointment of a receiver for the property covered thereby, or takes some action which is judicially deemed to be the equivalent thereof; (v) purporting to irrevocably appoint any Person as attorney-in-fact; (vi) purporting to permit the Agent or any other Person to sell or otherwise dispose of any collateral except in compliance with applicable law, (vii) purporting to establish standards for the care of collateral in a secured party's possession other than as provided in Section 9.207 of the UCC; (viii) purporting to indemnify, defend or hold harmless any Person; (ix) purporting to affect any right to trial by jury, venue or jurisdiction; or (x) pertaining to subrogation rights, delay or omission of enforcement of rights or remedies, severability or marshaling of assets. (f) We express no opinion as to any provision of the Documents insofar as it provides that any Person purchasing a participation from a Bank pursuant thereto may exercise set-off or similar rights with respect to such participation. (g) We express no opinion as to the adequacy or accuracy of any description of real or personal property, and we have assumed that such descriptions are adequate and accurate. We express no opinion as to title or ownership of any property. (h) We express no opinion as to the legality, validity, binding effect or enforceability of any waiver under the Documents, or any consent thereunder, relating to the rights of any party, or duties owing to them, which exist as a matter of law except to the extent such party may legally so waive or consent and has so waived and consented. (i) We have assumed, as to each Person (including, without limitation, the Borrower, each Pledgor and each Guarantor) shown as being a party to any of the Documents, (i) that such Person is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized, (ii) that each of the Documents to which such Person is shown as a party has been duly authorized, executed and delivered by such Person, (iii) that such Person has the requisite 160 [BRACEWELL & PATTERSON, L.L.P. LETTERHEAD] To the Banks and the Agent October 15, 1998 Page 5 power and authority to execute, deliver and perform its obligations under the Documents and will perform such obligations in compliance with all laws and regulations applicable to it, (iv) that there are neither suits, actions or proceedings pending against such Person nor judicial or administrative orders, judgments, or decrees binding on such Person that affect the legality, validity, binding effect or enforceability of the Documents to which such Person is a party, (v) that no consent, license, approval or authorization of, or filing or registration with, any governmental authority is required for the valid execution, delivery and performance of the Documents, and (vi) that the execution, delivery and performance of the Documents by such Person do not violate (1) any provision of any law or regulation, (2) any order, judgment, writ, injunction, award or decree of any court, arbitrator, or governmental authority, (3) the charter of bylaws of such Person, or (4) any indenture, lease or other agreement to which such Person is a party or by which such Person or any of its assets is bound. Furthermore, we have assumed, as to each Person (other than the Borrower, each Pledgor and each Guarantor) that each of the Documents to which such Person is shown as a party constitutes the legal, valid and binding obligation of such Person enforceable against such Person in accordance with its terms, subject to the type of qualifications regarding enforceability as are set forth in this opinion. We have also assumed that each Bank will make each Loan for its own account in the ordinary course of its commercial lending business and not with a view to, or for sale in connection with, any distribution of the Notes and that no Bank is participating in any such distribution. (j) We have assumed that the Agent and the Banks will comply with each usury savings clause in the Documents and that neither the Agent nor any of the Banks has taken, reserved, charged or received interest, or will take, reserve, charge or receive interest, except as provided in the Loan Documents. We express no opinion as to the effect of the law of any jurisdiction other than the State of Texas wherein any Bank may be located or wherein enforcement of the Documents may be sought which limits the rates of interest legally chargeable or collectible. (k) Our opinion is subject to the qualification that certain remedial provisions of the Documents are or may be unenforceable in whole or in part, but such possible unenforceability of such remedial provisions will not render any Document inadequate for enforcing payment of the indebtedness that is evidenced by such Document and for the practical realization of the principal rights and benefits afforded by such Document. (l) In the case of property which becomes collateral after the date hereof, Section 552 of the Bankruptcy Code limits the extent to which property acquired by a debtor after the commencement of a case under the Bankruptcy Code may be subject to a security interest arising from a security agreement entered into by the debtor before the commencement of such case. 161 [BRACEWELL & PATTERSON, L.L.P. LETTERHEAD] To the Banks and the Agent October 15, 1998 Page 6 (m) We express no opinion as to any choice of law provision insofar as it may relate to any matter referred to in Section 8.110 or Section 9.103 of the UCC or any financing statement. Furthermore, our opinion is subject to the effect of 12 U.S.C. Section 85. (n) Insofar as any Document covers personal property, we call your attention to Section 9.311 of the UCC which states that a debtor's rights in collateral may be voluntarily or involuntarily transferred (by way of sale, creation of a security interest, attachment, levy, garnishment or other judicial process) notwithstanding a provision in the security agreement prohibiting any transfer or making the transfer constitute a default. Our opinion is subject to the operation of Section 9.311 of the UCC. (o) This opinion is given only as of the date hereof, and we have no obligation to report to you or any other Person any fact or circumstance that may hereafter come to our attention or any change in law. Without limiting the generality of the foregoing, you are advised that filing of continuation statements may be required to maintain perfection of security interests, and perfection of security interests may terminate if the debtor changes its name, identity, corporate structure or the jurisdiction of its chief executive office or the collateral is moved to a new jurisdiction. As to any collateral as to which possession is required for the perfection of a security interest, a perfected security interest will not continue (with certain exceptions) if possession is not maintained. Continuation of perfection of a security interest in proceeds is limited to the extent set forth in the UCC. (p) We have assumed that (i) value has been given within the meaning of Section 9.203(a)(2) of the UCC and (ii) financing statements have been or will be properly filed in the proper offices in the relevant jurisdictions for perfection of the security interests in all collateral pursuant to the provisions of local law in effect in the relevant jurisdictions. This opinion is to be delivered only to you and your assignees permitted under the Documents and only in connection with the transactions described above and may not be quoted, circulated, or published, in whole or in part, or furnished to any other Person (other than to independent auditors 162 [BRACEWELL & PATTERSON, L.L.P. LETTERHEAD] To the Banks and the Agent October 15, 1998 Page 7 and attorneys, participants or transferees, regulators or government agencies, or pursuant to a court order, subpoena or other legal process) without our prior written consent. Very truly yours, Bracewell & Patterson, L.L.P. 163 [RANDOLPH W. BRYANT LETTERHEAD] October 15, 1998 To the Banks and the Agent referred to below: c/o Chase Bank of Texas, National Association 545 West 19th Street Houston, Texas 77008 Ladies and Gentlemen: As Senior Vice President and General Counsel of Group Maintenance America Corp., a Texas corporation (the "Company"), I have acted as counsel for the Company and its subsidiaries (the "Subsidiaries") in connection with the Second Amended and Restated Credit Agreement (the "Credit Agreement") dated as of October 15, 1998, among the Company, the Subsidiaries, Chase Bank of Texas, National Association, as Agent (the "Agent"), and the Banks party thereto (the "Banks"). This opinion is being delivered to you pursuant to Section 4.01(h)(ii) of the Credit Agreement. Unless otherwise defined herein, capitalized terms used herein have the definitions set forth In the Credit Agreement. I am familiar with the corporate proceedings of the Company and the Subsidiaries (the Company and such subsidiaries are herein collectively referred to as the "GroupMAC Entities") relating to the authorization of the Credit Agreement. In connection with the Credit Agreement, I have examined such statutes, corporate records and other instruments and documents as I have deemed it necessary to examine for the purposes of this opinion. Based upon the foregoing and having regard to the legal considerations that I deem relevant, I am of the opinion that: 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to execute and deliver each of the Loan Documents to which it is a party and to perform its obligations thereunder. 164 October 15, 1998 Page 2 2. Each Subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to execute and deliver each of the Loan Documents to which it is a party and to perform its obligations thereunder. 3. Each of the Company, GroupMAC Management Co. and GroupMAC Holding Corp. is duly licensed or qualified in each jurisdiction in which the character of its business or its ownership of property requires such licensing or qualification except where the failure to be so licensed or qualified would not have a material adverse effect on the business or financial condition of the Company and its Subsidiaries, taken as a whole. 4. Each of the GroupMAC Entities has duly authorized, by all necessary corporate action on its part, its execution, delivery and performance of the Loan Documents to which it is a party and the consummation of the transactions contemplated therein, 5. Each of the GroupMAC Entities has executed and delivered the Loan Documents to which it is a party. 6. The execution and delivery by each GroupMAC Entity of the Loan Documents to which it is a party, and the performance of its obligations thereunder, (i) do not violate (A) any provision of any existing law or regulation applicable to the GroupMAC Entities, (B) any order, judgment, writ, injunction, award or decree, known to me after due inquiry, of any court, arbitrator, or government authority applicable to GroupMAC Entities, (C) the charter or by-laws of any GroupMAC Entity, or (D) any material indenture, material lease or other material agreement, known to me after due inquiry, to which any GroupMAC Entity is a party or by which any GroupMAC Entity or any of its assets is bound, and (ii) do not result in, or require, the creation or imposition of any lien on any property, assets or revenues of any GroupMAC Entity pursuant to the provisions of any such Indenture, lease or other agreement, except for liens created by, or required to be created by, any of the Loan Documents. 7. No consent, license, approval or authorization of, or filing or registration with, any governmental authority, which has not been obtained or made, is required for the valid execution and delivery by each GroupMAC Entity of the Loan Documents to which it is a party. 8. To the best of my knowledge, there is no litigation, investigation or administrative proceeding of or before any court arbitrator or governmental authority pending or threatened against any GroupMAC Entity (1) with respect to the Loan Documents or (ii) that, in my reasonable judgment, would have a material adverse effect on the business or financial condition of the Company and its Subsidiaries, taken as a whole. 165 October 15, 1998 Page 3 I am a member of the State Bar of Texas, and the opinions expressed herein am based upon and are limited exclusively to the laws of the State of Texas, the General Corporation Law of the State of Delaware and the federal laws of the United States of America. For purposes of this opinion I have assumed with your permission, that the laws of any state other than Texas and the corporate laws of Delaware applicable to the matters addressed herein are identical to the laws of the State of Texas. This opinion is provided solely for your benefit and the respective successors and assigns of each of you and may not be relied upon by, or disclosed to, any other persons. Very truly yours, 166 EXHIBIT 11.10(c) FORM OF ASSIGNMENT AND ACCEPTANCE DATED ________________, 199___ Reference is made to the Second Amended and Restated Credit Agreement dated as of October 15, 1998 (the "Credit Agreement"), among Group Maintenance America Corp., a Texas corporation (the "Company"), certain Subsidiaries of the Company, as Guarantors, the Banks party thereto, Chase Bank of Texas, National Association, as Agent for such Banks, Bank of America Texas, N.A., as co-agent, Paribas, as syndication agent, and ABN AMRO Bank, N.V., as documentation Agent. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement. _________________________ (the "Assignor') and _________________ (the "Asignee") agree as follows: 1. The Assignor hereby sells and assigns to the Assignee (without recourse to the Assignor), and the Assignee hereby purchases and assumes from the Assignor, a ___% interest (the "Percentage Interest") in and to all the Assignor's rights and obligations under the Credit Agreement as of the Assignment Date (as defined below), including, without limitation, (i) the Percentage Interest in the Commitment of the Assignor on the Assignment Date, (ii) the Percentage Interest in each of the Loans owing to the Assignor outstanding on the Assignment Date, (iii) the Percentage Interest in all unpaid interest with respect to such Loans and all commitment fees due to Assignor in its capacity as a Bank accrued to the Assignment Date and (iv) the Percentage Interest in any Notes held by the Assignor. 2. The Assignor (a) represents that as of the date hereof its Commitment for all Loans (without giving effect to assignments thereof which have not yet become effective) is $ _____________, and the outstanding balance of its Loans (unreduced by any assignments thereof which have not yet become effective) is $ ______________, broken down as follows: _______________________ ________________________________________________________________________________ _______________________________________________________________________________; (b) makes no representation or warranty and assumes no responsibility with respect to any statements, covenants, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, any other Loan Document or any instrument or document furnished pursuant thereto, other than that it is the legal and beneficial owner of the interest being assigned by it 167 hereunder and that such interest is free and clear of any adverse claim; (c) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any party to the Credit Agreement or the performance or observance by any party to the Credit Agreement of any of its obligations under the Loan Documents or any other instrument or document furnished pursuant thereto; (and) (d) attaches the Note issued to Assignor and requests that the Agent exchange such Note for a new Note executed by the Company and payable to the Assignee in a principal amount equal to $ ____________ and a new Note executed by the Company and payable to the Assignor in a principal amount equal to $ _____________. 3. The Assignee (i) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance; (ii) confirms that it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section ______ thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (iii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iv) confirms that it is an Eligible Assignee; (v) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (vi) agrees that it will perform in accordance with their terms all the obligations which by the terms of the Credit Agreement are required to be performed by it as a Bank; (vii) agrees that it will comply with Section ____ of the Credit Agreement with respect to information furnished to it by the Company, the Agent or the Assignor; (viii) confirms that it has delivered a completed Administrative Questionnaire to the Agent; and (ix) attaches to this Assignment and Acceptance the Prescribed Forms. 4. The effective date for this Assignment and Acceptance shall be ______________ (the "Assignment Date"). Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for acceptance and recording by the Agent pursuant to Section ____________ of the Credit Agreement. 5. Upon such acceptance and recording, from and after the Assignment Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Bank thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 6. Notwithstanding anything to the contrary contained in the Credit Agreement, the Company shall be required to reimburse the Agent, the Assignor or & Assignee for any costs and 168 expenses (including attorneys' fees) incurred by such Person in connection with this Assignment and Acceptance. 7. Upon such acceptance and recording, from and after the Assignment Date, the Agent shall make all payments in respect of the interest assigned hereby (including payments of principal, interest, fees and other amounts) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments for periods prior to the Assignment Date by the Agent or with respect to the making of this assignment directly between themselves. 8. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of Texas. [NAME OF ASSIGNOR), By: -------------------------------- Name: ------------------------------ Title: ----------------------------- [NAME OF ASSIGNEE), By: -------------------------------- Name: ------------------------------ Title: ----------------------------- 169 Consented and Agreed to as of the date first above written. CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Agent By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- GROUP MAINTENANCE AMERICA CORP. By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- EX-12 10 STATEMENT RE: COMPUTATION OF RATIO EARNINGS 1 Exhibit 12 Group Maintenance America Corp. and Subsidiaries Computation of Ratio of Earnings to Fixed Charges (in thousands, except ratio of earnings to fixed charges) (Unaudited)
Ten months Year ended ended Year ended Year ended Year ended December 31, December 31, February 28, February 29, February 28, 1998 1997 1997 1996 1995 ---- ---- ---- ---- ---- Earnings available for fixed charges: Income (loss) before income tax provision $ 46,255 $ (810) $ 3,908 $3,790 $1,700 Fixed Charges 9,963 2,117 514 493 306 ------------------------------------------------------------------------------ Total $ 56,218 $ 1,307 $ 4,422 $4,283 $2,006 ============================================================================== Fixed Charges: Interest expense (a) $ 6,595 $ 1,542 $ 82 $ -- $ -- Interest portion of rent expense (b) 3,368 575 432 493 306 ------------------------------------------------------------------------------ Total $ 9,963 $ 2,117 $ 514 $493 $306 ============================================================================== Ratio of earnings to fixed charges 5.64 -- 8.60 8.69 6.56 Dollar amount of coverage deficiency $ 810 ===========
(a) - Includes amortization of deferred financing costs. (b) - Estimated at 25% of rent expense. EX-21 11 SUBSIDIARIES OF GROUP MAINTEANCE AMERICA CORP. 1 EXHIBIT 21 GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES ORGANIZATION CHART AS OF DECEMBER 31, 1998 Group Maintenance America Corp. (Texas) A-1 Mechanical of Lansing, Inc. (Michigan) AA Advance Air, Inc. (Florida) AA JARL, Inc. (Delaware) (dba Jarrell Plumbing) Air Conditioning Engineers, Inc. (Michigan) Air Conditioning, Plumbing & Heating Service Co., Inc. (Colorado) Aircon Energy Incorporated (California) Airtron, Inc. (Delaware) Airtron of Central Florida, Inc. (Florida) All Service Electric, Inc. (Florida) Arkansas Mechanical Services, Inc. (Arkansas) Atlantic Industrial Constructors, Inc. (Virginia) Barr Electric Corp. (Illinois) Callahan Roach Products & Publications, Inc. (Colorado) Central Air Conditioning Contractors, Inc. (Delaware) Central Carolina Air Conditioning Company (North Carolina) Clark Converse Electric Service, Inc. (Ohio) Colonial Air Conditioning Company (Delaware) Commercial Air Holding Company (Maryland) Commercial Air, Power & Cable, Inc. (Maryland) Continental Electrical Construction Co. (Delaware) Gregory Electric, Inc. (Illinois) Costner Brothers, Inc. (South Carolina) Divco, Inc. (Washington) Dynamic Software Corporation (Maryland) Evans Services, Inc. (Alabama) The Farfield Company (Delaware) Ferguson Electric Corporation (Delaware) Gentzler Electrical Contractors, Inc. (Delaware) Gilbert Mechanical Contractors, Inc. (Minnesota) GroupMAC Holding Corp. (Delaware) A-1 Appliance & Air Conditioning, Inc. (Delaware) A-ABC Appliance, Inc. (Texas) A-ABC Services, Inc. (Delaware) Charlie Crawford, Inc. (Delaware) Hallmark Air Conditioning, Inc. (Delaware) K & N Plumbing, Heating and Air Conditioning, Inc. (Delaware) Trinity Contractors, Inc. (Delaware) 2 GroupMAC Management Co. (Delaware) HPS Plumbing Services, Inc. (California) Hungerford Mechanical Corporation (Virginia) J. D. Steward Air Conditioning, Inc. (Colorado) Laney's, Inc. (Delaware) Linford Service Co. (California) MacDonald-Miller Industries, Inc. (Washington) MacDonald-Miller Co., Inc. (Washington) MacDonald-Miller of Oregon, Inc. (Delaware) MacDonald-Miller Service, Inc. (Washington) Masters, Inc. (Maryland) Mechanical Interiors, Inc. (Delaware) Merritt Island Air & Heat, Inc. (Delaware) New Construction Air Conditioning, Inc. (Michigan) Noron, Inc. (Ohio) Paul E. Smith Co., Inc. (Indiana) Phoenix Electric Company (Delaware) Ray and Claude Goodwin, Inc. (Florida) Reliable Mechanical, Inc. (Delaware) Romanoff Electric Corp. (Ohio) Sibley Services, Incorporated (Tennessee) Southeast Mechanical Service, Inc. (Florida) Stephen C. Pomeroy, Inc. (Delaware) Sterling Air Conditioning, Inc. (Delaware) Sun Plumbing, Inc. (Florida) Team Mechanical, Inc. (Utah) United Acquisition Corp. (Iowa) (dba United Service Alliance) Valley Wide Plumbing and Heating, Inc. (Colorado) Van's Comfortemp Air Conditioning, Inc. (Florida) Vantage Mechanical Contractors, Inc. (Maryland) Wade's Heating & Cooling, Inc. (Florida) Wiegold & Sons, Inc. (Florida) Willis Refrigeration, Air Conditioning & Heating, Inc. (Ohio) Yale Incorporated (Minnesota) 2 EX-23 12 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23 Consent of Independent Auditors The Board of Directors Group Maintenance America Corp. We consent to incorporation by reference in the registration statements (No. 333-41749, No. 333-41751, No. 333-58651, No. 333-60537 and No. 333-69421) on Form S-8 and in the registration statements (No. 333-63923 and No. 333-69533) on Form S-4 of Group Maintenance America Corp. of (i) our report dated February 23, 1999, relating to the consolidated balance sheets of Group Maintenance America Corp. and Subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity and cash flows for the year ended December 31, 1998, the ten months ended December 31, 1997 and the year ended February 28, 1997, and (ii) our report dated July 11, 1997 relating to the balance sheets of Group Maintenance America Corp. as of December 31, 1996 and April 30, 1997, and the related statements of operations, shareholders' equity (deficit) and cash flows for the periods then ended, which reports appear in the December 31, 1998 annual report on Form 10-K of Group Maintenance America Corp. KPMG LLP Houston, Texas March 30, 1999 EX-24 13 POWERS OF ATTORNEY 1 EXHIBIT 24 GROUP MAINTENANCE AMERICA CORP. POWER OF ATTORNEY ANNUAL REPORT ON FORM 10-K The undersigned, in his capacity as a Director of Group Maintenance America Corp., does hereby appoint J. Patrick Millinor, Jr., Randolph W. Bryant and Darren B. Miller, and each of them, severally, his true and lawful attorneys, or attorney, to execute in his name, place and stead, in his capacity as a Director of said Company, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and any and all amendments to said Annual Report, and all instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission. Each of said attorneys shall have the power to act hereunder with or without the other of said attorneys and shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or necessary to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys and each of them. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 30th day of March, 1999. /s/ DAVID L. HENNINGER ----------------------------------- David L. Henninger 2 GROUP MAINTENANCE AMERICA CORP. POWER OF ATTORNEY ANNUAL REPORT ON FORM 10-K The undersigned, in his capacity as a Director of Group Maintenance America Corp., does hereby appoint J. Patrick Millinor, Jr., Randolph W. Bryant and Darren B. Miller, and each of them, severally, his true and lawful attorneys, or attorney, to execute in his name, place and stead, in his capacity as a Director of said Company, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and any and all amendments to said Annual Report, and all instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission. Each of said attorneys shall have the power to act hereunder with or without the other of said attorneys and shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or necessary to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys and each of them. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 30th day of March, 1999. /s/ TIMOTHY JOHNSTON ----------------------------------- Timothy Johnston 3 GROUP MAINTENANCE AMERICA CORP. POWER OF ATTORNEY ANNUAL REPORT ON FORM 10-K The undersigned, in his capacity as a Director of Group Maintenance America Corp., does hereby appoint J. Patrick Millinor, Jr., Randolph W. Bryant and Darren B. Miller, and each of them, severally, his true and lawful attorneys, or attorney, to execute in his name, place and stead, in his capacity as a Director of said Company, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and any and all amendments to said Annual Report, and all instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission. Each of said attorneys shall have the power to act hereunder with or without the other of said attorneys and shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or necessary to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys and each of them. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 30th day of March, 1999. /s/ ANDREW J. KELLY ----------------------------------- Andrew J. Kelly 4 GROUP MAINTENANCE AMERICA CORP. POWER OF ATTORNEY ANNUAL REPORT ON FORM 10-K The undersigned, in his capacity as a Director of Group Maintenance America Corp., does hereby appoint J. Patrick Millinor, Jr., Randolph W. Bryant and Darren B. Miller, and each of them, severally, his true and lawful attorneys, or attorney, to execute in his name, place and stead, in his capacity as a Director of said Company, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and any and all amendments to said Annual Report, and all instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission. Each of said attorneys shall have the power to act hereunder with or without the other of said attorneys and shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or necessary to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys and each of them. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 30th day of March, 1999. /s/ THOMAS B. MCDADE ----------------------------------- Thomas B. McDade 5 GROUP MAINTENANCE AMERICA CORP. POWER OF ATTORNEY ANNUAL REPORT ON FORM 10-K The undersigned, in his capacity as a Director of Group Maintenance America Corp., does hereby appoint J. Patrick Millinor, Jr., Randolph W. Bryant and Darren B. Miller, and each of them, severally, his true and lawful attorneys, or attorney, to execute in his name, place and stead, in his capacity as a Director of said Company, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and any and all amendments to said Annual Report, and all instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission. Each of said attorneys shall have the power to act hereunder with or without the other of said attorneys and shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or necessary to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys and each of them. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 30th day of March, 1999. /s/ ROBERT MUNSON, III ----------------------------------- Robert Munson, III 6 GROUP MAINTENANCE AMERICA CORP. POWER OF ATTORNEY ANNUAL REPORT ON FORM 10-K The undersigned, in his capacity as a Director of Group Maintenance America Corp., does hereby appoint J. Patrick Millinor, Jr., Randolph W. Bryant and Darren B. Miller, and each of them, severally, his true and lawful attorneys, or attorney, to execute in his name, place and stead, in his capacity as a Director of said Company, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and any and all amendments to said Annual Report, and all instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission. Each of said attorneys shall have the power to act hereunder with or without the other of said attorneys and shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or necessary to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys and each of them. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 30th day of March, 1999. /s/ JAMES P. NORRIS ----------------------------------- James P. Norris 7 GROUP MAINTENANCE AMERICA CORP. POWER OF ATTORNEY ANNUAL REPORT ON FORM 10-K The undersigned, in his capacity as a Director of Group Maintenance America Corp., does hereby appoint J. Patrick Millinor, Jr., Randolph W. Bryant and Darren B. Miller, and each of them, severally, his true and lawful attorneys, or attorney, to execute in his name, place and stead, in his capacity as a Director of said Company, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and any and all amendments to said Annual Report, and all instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission. Each of said attorneys shall have the power to act hereunder with or without the other of said attorneys and shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or necessary to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys and each of them. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 30th day of March, 1999. /s/ FREDRIC J. SIGMUND ----------------------------------- Fredric J. Sigmund 8 GROUP MAINTENANCE AMERICA CORP. POWER OF ATTORNEY ANNUAL REPORT ON FORM 10-K The undersigned, in his capacity as a Director of Group Maintenance America Corp., does hereby appoint J. Patrick Millinor, Jr., Randolph W. Bryant and Darren B. Miller, and each of them, severally, his true and lawful attorneys, or attorney, to execute in his name, place and stead, in his capacity as a Director of said Company, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and any and all amendments to said Annual Report, and all instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission. Each of said attorneys shall have the power to act hereunder with or without the other of said attorneys and shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or necessary to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys and each of them. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 30th day of March, 1999. /s/ JOHN M. SULLIVAN ----------------------------------- John M. Sullivan 9 GROUP MAINTENANCE AMERICA CORP. POWER OF ATTORNEY ANNUAL REPORT ON FORM 10-K The undersigned, in his capacity as a Director of Group Maintenance America Corp., does hereby appoint J. Patrick Millinor, Jr., Randolph W. Bryant and Darren B. Miller, and each of them, severally, his true and lawful attorneys, or attorney, to execute in his name, place and stead, in his capacity as a Director of said Company, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and any and all amendments to said Annual Report, and all instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission. Each of said attorneys shall have the power to act hereunder with or without the other of said attorneys and shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or necessary to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys and each of them. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 30th day of March, 1999. /s/ JAMES D. WEAVER ----------------------------------- James D. Weaver EX-27 14 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 2,371 0 192,606 5,355 17,843 251,052 49,582 10,390 701,081 164,611 0 0 0 33 315,896 701,081 761,541 761,541 585,396 585,396 123,702 0 6,188 46,255 20,326 25,929 0 0 0 25,929 0.94 0.93
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