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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CONSOLIDATION CAPITAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 6770 52-2054952
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTIONOF INDUSTRIALCLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
1747 PENNSYLVANIA AVENUE, N.W., SUITE 900
WASHINGTON, D.C. 20006
202/955-5490
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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JONATHAN J. LEDECKY
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
CONSOLIDATION CAPITAL CORPORATION
1747 PENNSYLVANIA AVENUE, N.W., SUITE 900
WASHINGTON, D.C. 20006
202/955-5490
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
F. TRAYNOR BECK, ESQUIRE JEFFREY N. KLAUDER, ESQUIRE
EXECUTIVE VICE PRESIDENT, GENERAL MORGAN, LEWIS & BOCKIUS LLP
COUNSEL AND SECRETARY 2000 ONE LOGAN SQUARE
1747 PENNSYLVANIA AVE. N.W., SUITE PHILADELPHIA, PA 19103
900 215/963-5000
WASHINGTON D.C. 20006
202/955-5490
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED(1)(2) PER SHARE OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Common Stock, $.001 par
value per share....... 24,000,000 $20.56(3) $493,500,000(3) $145,582(2)(3)
</TABLE>
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(1) Pursuant to Rule 416(a), the number of shares of Common Stock being
registered shall be adjusted to include any additional shares which may
become issuable as a result of stock splits, stock dividends, or similar
transactions.
(2) Pursuant to Rule 429(b), this Registration Statement includes 6,900,000
shares of Common Stock previously registered on Form S-1 Registration
Statement No. 333-36193, filed on September 23, 1997. In connection with
the 6,900,000 previously registered shares of Common Stock that are being
carried forward onto this Registration Statement, the Registrant paid a fee
of $41,818.14. In connection with this Registration Statement, the
Registrant is paying a fee based solely on the additional 17,100,000 shares
of Common Stock being registered herein.
(3) Estimated for the purposes of calculating the registration fee pursuant to
Rule 457(c) and based on the average high and low sale prices of Common
Stock reported on the Nasdaq National Market on December 12, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
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<PAGE>
PROSPECTUS
CONSOLIDATION CAPITAL CORPORATION
24,000,000 SHARES OF COMMON STOCK
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This Prospectus covers 24,000,000 shares of common stock, $.001 par value
(the "Common Stock"), which may be offered and issued by Consolidation Capital
Corporation (the "Company") from time to time in connection with the
acquisition by the Company of other businesses, assets or securities. It is
expected that the terms of the acquisitions involving the issuances of
securities covered by this Prospectus will be determined by direct
negotiations with the owners or controlling persons of the businesses, assets
or securities to be acquired by the Company. No underwriting discounts or
commissions will be paid, although finder's fees may be paid from time to time
with respect to specific mergers or acquisitions. Any person receiving such
fees may be deemed to be an underwriter within the meaning of the Securities
Act of 1933, as amended (the "Securities Act").
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "BUYR." As of December 2, 1997, the Company had 26,550,000 shares of
Common Stock outstanding. On December 11, 1997, the closing price of the
Common Stock was $20.625 per share. The Company is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and files reports and other information with the
Securities and Exchange Commission. See "Additional Information."
All expenses of this offering will be paid by the Company.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December , 1997
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No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby to any person in any jurisdiction in which it is
unlawful to make such offer or solicitation to such person. Neither the
delivery of this Prospectus nor any offer or sale made hereunder shall under
any circumstance imply that the information contained herein is correct as of
any date subsequent to the date hereof.
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TABLE OF CONTENTS
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PAGE
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Additional Information................................................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Price Range of Common Stock.............................................. 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Selected Financial Data.................................................. 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 18
Management............................................................... 24
Certain Relationships and Related Party Transactions..................... 30
Principal Stockholders................................................... 31
Description of Capital Stock............................................. 32
Plan of Distribution..................................................... 33
Restrictions on Resale................................................... 33
Legal Matters............................................................ 33
Experts.................................................................. 33
Index to Financial Statements............................................ F-1
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ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (the "Registration
Statement") under the Securities Act and the rules and regulations promulgated
thereunder, with respect to the Common Stock offered hereby. This Prospectus
omits certain information contained in the Registration Statement, and
reference is made to the Registration Statement, and the exhibits and
schedules thereto, for further information with respect to the Company and the
Common Stock offered hereby. Statements contained in this Prospectus as to the
contents of any contract, agreement or other document filed as an exhibit to
the Registration Statement are not necessarily complete, and in each instance,
reference is made to the exhibit for a more complete description of the matter
involved, each such statement being qualified in its entirety by such
reference. The Registration Statement may be inspected and copied at the
public reference facilities maintained by the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission maintained at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such materials may be obtained from the Public Reference
Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, registration
statements and certain other filings made with the Commission through its
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are
publicly available through the Commission's site on the Internet's World Wide
Web, located at http://www.sec.gov. The Registration Statement, including all
exhibits thereto and amendments thereof, has been filed with the Commission
through EDGAR.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
Consolidation Capital Corporation is the successor to Ledecky Brothers L.L.C.
Hereinafter, except as otherwise indicated, Consolidation Capital Corporation
and Ledecky Brothers L.L.C. are referred to jointly as the "Company."
References in this Prospectus to operating and financial data of U.S. Office
Products Company are included herein in reliance upon reports filed by that
company with the Securities and Exchange Commission. Such operating and
financial data are not intended to be indicative of the possible future
operating results or financial position of the Company.
Information contained in this Prospectus may contain forward-looking
statements, which can be identified by the use of forward-looking terminology
such as "may," "will," "expect," "intend," "plans," "anticipate," "estimate" or
"continue" or the negative thereof or other variations thereon or comparable
terminology. The matters described in "Risk Factors" and certain other factors
noted throughout this Prospectus and in any exhibits to the Registration
Statement of which this Prospectus is a part, constitute cautionary statements
identifying important factors with respect to any such forward-looking
statements, including certain risks and uncertainties, that could cause actual
results to differ materially, from those in such forward-looking statements.
THE COMPANY
Consolidation Capital Corporation was founded in February 1997 by Jonathan J.
Ledecky to build consolidated enterprises with national market reach through
the acquisition and integration of multiple businesses in one or more
fragmented industries. Jonathan Ledecky is the Chairman and founder and, until
November 5, 1997, was the Chief Executive Officer, of U.S. Office Products
Company ("USOP"). While managing USOP, Jonathan Ledecky developed a strategy of
"corporate democracy," which he believes facilitated USOP's rapid consolidation
of more than 205 companies within seven different industry groups in the office
products and services industry. The corporate democracy approach includes (i) a
general policy of empowering local management and (ii) drawing upon the
contacts and expertise of local management by encouraging them to identify
acquisition candidates and to participate in the process of integrating newly
acquired companies into a consolidated enterprise. The Company intends to
employ a corporate democracy approach as one of its principal operating
strategies.
To date, the Company has had limited operations consisting of organizational
activities and research and analysis with respect to industry consolidations
and acquisition opportunities. The Company was initially capitalized with
$59,000, has generated no revenues to date, and incurred losses of $103,000
from its founding in February 1997 through September 30, 1997. On December 2,
1997, the Company completed its initial public offering (the "IPO") of
24,250,000 shares of Common Stock and 500,000 shares of Convertible Non-Voting
Common Stock in which the Company raised net proceeds of approximately $460.4
million.
From 1994 until November 1997, Jonathan Ledecky served as Chief Executive
Officer of USOP and, in that capacity, was responsible for in excess of $1.7
billion in acquisitions of businesses in seven different industry groups,
including office supplies, office furniture, coffee and beverage services,
computer and telecommunications networks and services, print management,
corporate travel services and educational supplies. The Company will seek to
leverage the experience and expertise of Jonathan Ledecky, its founder,
Chairman and Chief Executive Officer, and the Company's management team to
become a leading consolidator of distribution companies and service providers
in one or more fragmented industries. The Company's management team consists
of, in addition to Jonathan Ledecky: Timothy C. Clayton, Executive Vice
President, Chief Financial Officer and Treasurer; F. Traynor Beck, Executive
Vice President, General Counsel and Secretary; and, David Ledecky, Executive
Vice President and Chief Administrative Officer. See "Management."
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Pursuant to his employment agreement with USOP, Jonathan Ledecky serves as an
executive officer of USOP and, in that capacity, is obligated to assist in
identifying and pursuing new business and investment opportunities and
acquisitions for USOP and providing overall strategic planning and growth
analyses for USOP, among other things. Jonathan Ledecky is restricted by his
employment agreement from selling any products or services in direct
competition with USOP and from recruiting or employing current and certain
former employees of USOP, as well as persons who provide or within the prior
year provided substantial services to USOP (excluding Timothy C. Clayton and F.
Traynor Beck). See "Risk Factors--Conflicts of Interest."
The Company will have broad discretion in identifying and selecting both the
industries which it expects to consolidate and possible acquisition candidates
within those industries. Although the Company has had general discussions with
representatives of numerous businesses within several different industries, the
Company has not identified a specific industry on which it initially intends to
focus and has no present plans, proposals, arrangements or understandings with
respect to the acquisition of any specific business. The Company has no
preference as a general matter as to whether to issue shares of Common Stock or
cash in making acquisitions and has the flexibility to use either shares of
Common Stock or cash, or a combination thereof. The form of the consideration
that the Company uses for a particular acquisition will depend upon the form of
consideration that the sellers of a business require and the most advantageous
way for the Company to account for or finance the acquisition. To the extent
the Company uses Common Stock for all or a portion of the consideration to be
paid for future acquisitions, significant dilution may be experienced by
existing stockholders. See "Risk Factors--Risks Related to Acquisition
Financing; Additional Dilution; Leverage." In addition, to the extent that the
Company uses cash and cannot account for an acquisition under the pooling-of-
interests method of accounting, the Company will have goodwill which it will
amortize over the amortization period, reducing net income. See "Risk Factors--
Consideration for Operating Companies May Exceed Asset Value; Amortization
Charges."
The Company believes that it will possess substantial competitive advantages.
The Company expects to benefit from its ability to deploy rapidly its
significant financial resources and to use its publicly traded stock as
currency in selected acquisitions. Because the Company has significant cash and
cash equivalents, the Company's ability to acquire attractive companies is not
likely to be constrained initially by the need to access the capital markets.
Furthermore, the Company believes that its corporate democracy principles will
help it attract and acquire companies and will differentiate it from
traditional consolidators. The Company believes that its corporate democracy
approach generates significant competitive advantages because this approach
allows managers of the acquired companies to benefit from the economies of a
large organization while simultaneously retaining local operational control,
enabling them to provide flexible and responsive service to customers. Such an
approach could, however, limit possible consolidation efficiencies and
integration efforts. In addition, although the Company's management team has
experience in acquiring and consolidating businesses, it is unlikely to have
experience managing companies in the industries that the Company selects for
consolidation. The Company, therefore, expects to rely in part upon management
of acquired companies or other individuals who are experienced in the
industries in which the Company pursues consolidation. See "Risk Factors--
Competition," "Business--Strategy" and "Management."
The Company believes that industries in which it will pursue consolidation
opportunities will often be characterized by privately-held or family-owned
businesses, whose owner/operators desire liquidity and may be unable to access
the capital markets effectively or to expand beyond a local or regional base.
The Company intends to pursue growing industries that are fragmented with no
clear market leader and that could benefit from economies of scale. Within such
industries, the Company intends to focus on the acquisition of distribution
companies and service providers having some or all of the following
characteristics: (i) stable cash flows and recurring revenue streams from long-
term customer relationships; (ii) low product obsolescence and non-reliance on
innovation or technology to drive recurring revenue streams; (iii) long-term
growth prospects for products and services offered; (iv) a strong "franchise"
or presence in the communities served by the acquisition candidate; (v) an
experienced management team comprised of recognized industry leaders; (vi) an
ability to
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retain, promote and motivate management teams; (vii) favorable demographic
trends within the local regions serviced; and (viii) an underpenetrated market
for products or services provided by the acquisition candidate. See "Risk
Factors--Appropriate Acquisitions May Not Be Available and Full Investment of
Net Proceeds May Be Delayed" and "Business--Strategy."
In general, the Company plans to acquire larger, established, high quality
companies, or "hubs," in high density, metropolitan areas, and additional
smaller companies, or "spokes," in secondary markets surrounding the hubs.
Where possible, the operations of the spokes will be integrated into the
operations of existing hubs, thereby enabling the Company to achieve the
economies of scale necessary to decrease operating cost and increase operating
margin. See "Risk Factors--Integration of Acquisitions."
Upon integration of acquired companies, the Company believes that it will be
able to achieve operating efficiencies by combining administrative functions,
eliminating redundant facilities, implementing system technology improvements,
and purchasing products and services in large volumes. Each of the acquired
companies will continue to manage all functions that "touch the customer,"
including sales, marketing, customer service, credit and collections. The
Company will manage functions such as purchasing, accounting, inventory
management, human resources and finance centrally where it can leverage its
size and scale. In addition, the Company believes that it may achieve certain
synergies through strategic marketing and cross-selling by acquired companies.
The Company's principal executive offices are located at 1747 Pennsylvania
Avenue, N.W., Suite 900, Washington D.C. 20006, and its telephone number is
202-955-5490.
5
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RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
risk factors, in addition to the other information contained in this
Prospectus, in evaluating an investment in the shares of Common Stock offered
hereby.
The risk factors set forth below and elsewhere in this Prospectus should be
read as accompanying all forward-looking statements made in this Prospectus.
These forward-looking statements can be identified by the use of forward-
looking terminology such as "may," "will," "expect," "intend," "plans,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. The Company's actual results
could differ materially from those anticipated in such forward-looking
statements, for the reasons set forth below and for other reasons.
NO PRESENT SOURCE OF REVENUES
The Company was founded in February 1997 and completed its IPO in December
1997. To date, its activities have consisted of organizational activities and
research and analysis with respect to acquisition and consolidation
opportunities. The Company was founded to build consolidated enterprises with
national market reach through the acquisition and integration of multiple
businesses in one or more fragmented industries. It will not generate any
revenues other than interest income on the proceeds from the IPO until, at the
earliest, the consummation of an acquisition of a business after which its
ability to generate revenues and earnings (if any) will be directly dependent
upon the operating results of such acquired business and any additional
acquisitions and the successful integration and consolidation of those
businesses. Although the Company has had general discussions with
representatives of numerous businesses within several different industries,
the Company has no present plans, proposals, arrangements or understandings
with any prospective acquisition candidates.
CONFLICTS OF INTEREST
Jonathan Ledecky serves as both the Chairman and Chief Executive Officer of
the Company and the Chairman and an executive officer of USOP. As a director
and an executive officer of both the Company and USOP, Jonathan Ledecky owes a
duty of loyalty and a duty of care under Delaware law to both companies. These
duties obligate him to present certain business opportunities to the company
to which he owes the duties before pursuing such opportunities himself. There
is no agreement among Jonathan Ledecky, the Company and/or USOP delineating
Jonathan Ledecky's duties to each company or resolving potential conflicts
between his conflicting duties and obligations. In the absence of such an
agreement, the Company may choose to avoid consolidation opportunities and/or
industries that pose risks of conflict.
In addition, Jonathan Ledecky has entered into an amended and restated
employment agreement with USOP (the "USOP Employment Agreement") and an
employment agreement with the Company (the "CCC Employment Agreement"). Under
the USOP Employment Agreement, Jonathan Ledecky is obligated to assist in,
among other things, identifying and pursuing new business and investment
opportunities and acquisitions for USOP, developing and providing strategic
plans and growth analyses for USOP, providing structuring, capitalization,
restructuring, recapitalization and reorganization advice to USOP and
assisting in implementing such advice, and interfacing with the investment and
financial community on an as-needed basis. While Jonathan Ledecky is not
responsible for the day-to-day oversight of USOP, his positions as an
executive officer and Chairman of the Board of USOP may nonetheless result in
competition between USOP matters and Company matters for his time and
professional attention, and may result in or exacerbate conflicts as to his
obligations to present business opportunities to one company or another, or to
pursue such opportunities for one company or another. The USOP Employment
Agreement also contains restrictions on Jonathan Ledecky's ability to recruit
or employ current and certain former employees of USOP, as well as persons who
provide or within the prior year provided substantial services to USOP or its
subsidiaries as part of an entity that is or was a vendor or other outside
service provider to USOP or its subsidiaries (excluding only Timothy Clayton
and F. Traynor Beck). This restriction could present a possible conflict
between Jonathan Ledecky's actions and recommendations to
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retain employees, vendors and outside service providers for USOP and his
efforts to employ suitable individuals with the Company. In addition, the USOP
Employment Agreement recites that in the course of Jonathan Ledecky's
employment with USOP he has become familiar with and aware of certain
information regarding USOP's operations that the agreement describes as a
trade secret of USOP. Were Jonathan Ledecky to be held wrongfully to have
disclosed any trade secret information to the Company or others in violation
of his obligations, he could face liability for such disclosure, and the
Company could face liability for inducing or aiding in any such alleged
violation. Finally, under the USOP Employment Agreement, Jonathan Ledecky is
not prohibited from serving as an officer, director or employee of or
consultant to the Company, provided that such actions do not otherwise breach
his obligations under the USOP Employment Agreement.
Since Jonathan Ledecky owes duties of loyalty and care and has contractual
obligations to both the Company and USOP simultaneously, he may be unable in
certain circumstances to fulfill his duties and obligations to one company
without allegedly breaching them to the other. Any alleged breach could result
in litigation by or on behalf of the offended company under any of a number of
possible legal theories, including seeking damages from Jonathan Ledecky for
the purported breach or from the other such company for tortiously interfering
with the offended company's contractual relationship with Jonathan Ledecky or
for inducing him to breach his duties to the offended company. The conduct or
response to any such litigation could consume significant management attention
and resources, and the defense, settlement or final adjudication of any such
litigation could have a material adverse effect on the Company's business,
financial condition and/or results of operations.
In addition, Jonathan Ledecky is the Non-Executive Chairman of the Board of
U.S.A. Floral Products, Inc. ("USA Floral"), the Non-Executive Chairman of the
Board of U.S. Leasing, Inc. ("US Leasing") and a prospective minority investor
in Unison Partners, Inc. ("Unison Partners"). Each of USA Floral, US Leasing
and Unison Partners is, or is seeking to become, a consolidator of businesses
in one or more industries. Jonathan Ledecky may thus have conflicts of
interest in determining to which of these entities, if any, a particular
relevant business opportunity should be presented. See "Business--Conflicts of
Interest."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success will depend principally upon the
experience of Jonathan J. Ledecky, its founder, Chairman and Chief Executive
Officer. In addition, the Company believes that its success will depend to a
significant extent upon Timothy Clayton, the Company's Executive Vice
President, Chief Financial Officer and Treasurer; F. Traynor Beck, the
Company's Executive Vice President, General Counsel and Secretary; and David
Ledecky, the Company's Executive Vice President and Chief Administrative
Officer.
Although Jonathan Ledecky has substantial experience in acquiring and
consolidating businesses and Messrs. Clayton and Beck have substantial
experience with such transactions on behalf of their prior clients, none of
them has any experience in managing companies formed for the specific purpose
of consolidating one or more industries (other than Jonathan Ledecky's
experience in managing USOP) or in managing businesses in the industries which
the Company is likely to operate. As a result, the Company likely will depend
on the senior management of any significant business it acquires in the
future. Such acquired senior management may not be suitable to the Company's
business model or combined operations.
If the Company loses the services of one or more of its current executives,
the Company's business could be adversely affected. The Company may not
successfully recruit additional personnel and any additional personnel that
are recruited may not have the requisite skills, knowledge or experience
necessary or desirable to enhance the incumbent management. The Company does
not intend to maintain key man life insurance with respect to any of its
executive officers. See "Management."
ALLOCATION OF MANAGEMENT TIME
Pursuant to the CCC Employment Agreement, Jonathan Ledecky is required to
devote the substantial majority of his business time, attention and efforts to
the business of the Company. Pursuant to the USOP
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Employment Agreement, Jonathan Ledecky is required to devote a portion of his
business time, attention and efforts to promote and further the business of
USOP. In addition, Jonathan Ledecky anticipates devoting time to his other
directorships and professional pursuits. The competing claims upon Jonathan
Ledecky's time and energies could divert his attention from the affairs of the
Company, placing additional demands on the Company's other management
resources. Pursuant to their employment agreements with the Company, each of
the other executive officers of the Company is required to devote his full
business time, attention and efforts to the business of the Company. The
efforts of all or any of these individuals may not be sufficient to meet the
Company's management needs.
APPROPRIATE ACQUISITIONS MAY NOT BE AVAILABLE AND FULL INVESTMENT OF NET
PROCEEDS MAY BE DELAYED
The results of the Company's planned operations are dependent upon the
Company's ability to identify, attract and acquire desirable acquisition
candidates, which may take considerable time. The Company may not be
successful in identifying, attracting or acquiring desirable acquisition
candidates, in integrating such candidates into the Company or in realizing
profits from any acquisition candidates, if acquired. The failure to complete
acquisitions or to operate the acquired companies profitably would have a
material adverse effect on the Company's business, financial condition and/or
results of operations.
Pending their possible application in acquiring businesses, the net proceeds
of the IPO have been invested in readily marketable, interest-bearing,
investment grade securities. Consequently, until such time as the Company
acquires acquisition candidates, the proceeds of the IPO will yield only that
rate of return earned by such interest-bearing securities. In addition, a
portion of the net proceeds of the IPO are being used to pay corporate
overhead and administrative costs, which the Company estimates will initially
be approximately $5.0 million on an annualized basis, representing the costs
of rent, salaries and employee benefits, insurance, and other miscellaneous
expenses.
RISKS ASSOCIATED WITH CONSOLIDATION STRATEGY
To date, the Company's activities have consisted of organizational
activities, conducting research and analysis principally focused on
identifying fragmented industries that are potentially available for
consolidation and refining the Company's business strategy. In connection with
its research and analysis, the Company has had general discussions with
numerous businesses within several different industries; however, because its
research and analysis is not yet complete to its satisfaction, the Company has
not yet identified a specific industry on which it will initially focus or a
specific acquisition candidate within any industry. Accordingly, investors
have no basis on which to evaluate the possible merits or risks of the
acquisition candidates' operations and prospects. Although management of the
Company will endeavor to evaluate the risks inherent in any particular
acquisition candidate, the Company may not properly ascertain all of such
risks. See "Business--Strategy."
The Company's management team is utilizing the proceeds of the IPO to
accelerate the research and analysis that has been performed to date to
identify and select prospective industries and acquisition candidates. Other
than the Company's determination not to seek to acquire businesses in any of
the industries in which USOP currently operates (or any acquisition candidate
for which USOP performed an acquisition analysis for the purpose of acquiring
such entity) or in the floral products and distribution industry without the
written approval of USOP or USA Floral, as the case may be, management of the
Company has virtually unrestricted flexibility in identifying and selecting
prospective acquisition candidates and broad discretion with respect to the
specific application of the net proceeds of the IPO. Management may not
succeed in selecting acquisition candidates that will be profitable or that
can be integrated successfully. Although the Company intends to scrutinize
closely the management of a prospective acquisition candidate in connection
with evaluating the desirability of effecting a business combination, the
Company's assessment of management may not prove to be correct. The Company
may enlist the assistance of other persons to assess the management of
acquisition candidates (including, without limitation, investment bankers,
brokers, accountants and other advisers who have rendered or may in the future
render services to USOP, subject to Jonathan Ledecky's obligations under the
USOP Employment Agreement), but no such persons have yet been identified. See
"--Conflicts of Interest," "Business--Conflicts of Interest" and "Certain
Relationships and Related Party Transactions."
8
<PAGE>
INTEGRATION OF ACQUISITIONS
The Company's business model contemplates an aggressive and rapid
acquisition program. No assurance can be given that the Company will be able
to successfully integrate its future acquisitions without substantial costs,
delays or other problems. The costs of such acquisitions and their integration
could have an adverse effect on short-term operating results. Such costs could
include severance payments to employees of such acquired companies,
restructuring charges associated with the acquisitions and other expenses
associated with a change of control, as well as non-recurring acquisition
costs including accounting and legal fees, investment banking fees,
recognition of transaction-related obligations and various other acquisition-
related costs. Any failure by the Company to make acquisitions would have a
material adverse effect on the Company's business, financial condition and
results of operations. Moreover, the Company may be unable to replicate the
success in consolidating various industries that has been achieved by other
consolidators, including USOP.
The Company may not be able to execute successfully its consolidation
strategy or anticipate all of the changing demands that successive
consolidation transactions will impose on its management personnel,
operational and management information systems and financial systems. The
integration of newly acquired companies may also lead to diversion of
management attention from other ongoing business concerns. In addition, the
rapid pace of acquisitions may adversely affect the Company's efforts to
integrate acquisitions and manage those acquisitions profitably. Moreover, it
is possible that neither management of the Company nor management of any of
the acquired companies will have the necessary skills to manage a company
intending to implement an aggressive acquisition program. The Company may seek
to recruit additional managers to supplement the incumbent management of the
acquired companies but the Company may not have the ability to recruit
additional managers with the skills necessary to enhance the management of the
acquired companies. Any or all of these factors could have a material adverse
effect on the Company's business, financial condition and/or results of
operations.
RISKS RELATED TO ACQUISITION FINANCING; ADDITIONAL DILUTION; LEVERAGE
The Company intends to use substantially all of its resources for
acquisitions and, to a much lesser extent, for general corporate expenses. The
timing, size and success of the Company's acquisition efforts and any
associated capital commitments cannot be readily predicted. The Company
currently intends to finance future acquisitions by using shares of its Common
Stock, cash, borrowed funds or a combination thereof. If the Common Stock does
not maintain a sufficient market value, or if potential acquisition candidates
are otherwise unwilling to accept Common Stock as part of the consideration
for the sale of their businesses, the Company may be required to use more of
its cash resources or more borrowed funds, in each case if available, in order
to initiate and maintain its acquisition program. If the Company does not have
sufficient cash resources, its growth could be limited unless it is able to
obtain additional capital through debt or equity financings.
As of December 2, 1997, the Company had cash and cash equivalents of
approximately $460.4 million. If the underwriters in the IPO exercise their
over-allotment option in full to purchase 3,600,000 shares of Common Stock,
the Company will receive approximately $67.0 million in additional proceeds.
In addition, the Company has initiated negotiations to obtain a credit
facility which may be used for future acquisitions or other capital
requirements. BT Alex. Brown Incorporated ("BT") has provided the Company with
a letter, dated October 29, 1997, in which BT confirms that, upon the
Company's request, BT commits to use its best efforts to arrange and syndicate
a $100 million senior secured revolving bank credit facility which may, under
certain conditions to be mutually agreed upon, be increased up to a $500
million facility. The terms and conditions of any BT debt facility, including
the fee arrangements, are subject to mutual agreement. Use of any such
facility would likely be subject to conditions customary to facilities of this
type, including restrictions on other indebtedness, mergers, acquisitions,
dispositions and similar transactions. The Company may not succeed in
obtaining a facility of any size or in negotiating terms satisfactory to the
Company. Except for these preliminary negotiations, the Company currently has
no plan or intention to obtain additional capital through debt or equity
financing during the next 12 months. If and when the Company requires
additional financing for its acquisition program or for other capital
requirements, the Company may be unable to obtain any such financing on terms
that the Company deems acceptable.
9
<PAGE>
Among the possible adverse effects of borrowings to consummate acquisitions
or for other capital requirements are: (i) if the Company's operating revenues
after acquisitions were to be insufficient to pay debt service, there would be
a risk of default and foreclosure on the Company's assets; (ii) if a loan
agreement contains covenants that require the maintenance of certain financial
ratios or reserves, and any such covenant were breached without a waiver or
renegotiation of the terms of that covenant, then the lender could have the
right to accelerate the payment of the indebtedness even if the Company has
made all principal and interest payments when due; (iii) if the terms of a
loan did not provide for amortization prior to maturity of the full amount
borrowed and the "balloon" payment could not be refinanced at maturity on
acceptable terms, the Company might be required to seek additional financing
and, to the extent that additional financing were not available on acceptable
terms, to liquidate its assets; and (iv) if the interest rate on a loan is
variable, the Company would be subject to interest rate fluctuations which
could increase the Company's debt service obligations. The level of
indebtedness that the Company may incur cannot be predicted and will depend
upon these factors and the relevant business characteristics of the
acquisition candidates for which such indebtedness will be undertaken.
The Company currently has 250,000,000 authorized shares of Common Stock. As
of December 2, 1997, the Company had 26,550,000 shares of Common Stock
outstanding (30,150,000 shares of Common Stock will be outstanding if the
underwriters in the IPO exercise their over-allotment option in full). In
addition, the Company has securities outstanding that are convertible into or
exercisable for 5,140,000 shares of Common Stock, consisting of (i) options to
purchase 1,500,000 shares of Common Stock granted under the Consolidation
Capital Corporation 1997 Long-Term Incentive Plan (the "Incentive Plan"), (ii)
options to purchase 60,000 shares of Common Stock granted under the
Consolidation Capital Corporation 1997 Non-Employee Directors' Stock Plan (the
"Directors' Plan"), (iii) 500,000 shares of Common Stock issuable upon the
conversion of the 500,000 shares of Convertible Non-Voting Common Stock
currently outstanding, (iv) 1,130,000 shares of Common Stock issuable upon the
exercise of warrants issued to Friedman, Billings, Ramsey & Co., Inc., the
representative of the underwriters in the Company's IPO (the
"Representative"), and (v) 1,950,000 shares of Common Stock issuable upon the
exercise of warrants issued to Jonathan Ledecky in connection with the IPO.
The Company has reserved (i) 889,500 shares for issuance pursuant to awards
available to be made under the Incentive Plan (1,213,500 shares if the
underwriters in the IPO exercise their over-allotment option in full), (ii)
240,000 shares for issuance pursuant to options available to be granted under
the Directors' Plan, and (iii) 1,000,000 shares for issuance pursuant to the
Consolidation Capital Corporation 1997 Employee Stock Purchase Plan (the
"Purchase Plan"). Accordingly, as of December 2, 1997, the Company had
216,180,500 authorized but unissued and unreserved shares of Common Stock
(212,256,500 authorized but unissued and unreserved shares if the underwriters
in the IPO exercise their over-allotment option in full). Consequently,
subject to the rules and regulations of The Nasdaq National Market, the
Company will be able to finance acquisitions by issuing significant amounts of
additional shares of Common Stock without obtaining shareholder approval of
such issuances. To the extent the Company uses Common Stock for all or a
portion of the consideration to be paid for future acquisitions, dilution may
be experienced by existing stockholders. Moreover, the issuance of additional
shares of Common Stock may have a negative impact on earnings per share and
may negatively impact the market price of the Common Stock. See "Use of
Proceeds" and "Dilution."
COMPETITION
The Company may encounter intense competition from other consolidators
having a business objective similar to that of the Company. Many of these
entities are well established and have extensive experience in identifying
consolidation opportunities and effecting business combinations directly or
through affiliates. Many of these competitors possess greater financial,
personnel and other resources than the Company has and there can be no
assurance that the Company will be able to compete successfully. Competition
with other consolidators to buy a limited number or an identifiable set of
businesses could lead to higher prices being paid for acquired companies. In
addition, to the extent that the Company determines to consolidate an industry
that is already in the early stages of consolidation, the Company may compete
with consolidators that already are operating within the industry being
consolidated. Such competitors may have competitive advantages in identifying
and attracting
10
<PAGE>
acquisition candidates as a result of their knowledge of the industry,
industry reputation and contacts within the industry. This inherent
competitive disadvantage to the Company may make certain consolidation
opportunities more difficult to accomplish and may compel the Company to
select certain less attractive consolidation prospects.
Moreover, the industries in which the Company may operate in the future may
be highly competitive. The Company may be unable to differentiate itself or
compete effectively in any markets in which it operates in the future.
CONSIDERATION FOR OPERATING COMPANIES MAY EXCEED ASSET VALUE; AMORTIZATION
CHARGES
The purchase prices of the Company's acquisitions will not be established by
independent appraisals, but generally through arms'-length negotiations
between the Company's management and representatives of such companies. The
consideration paid for each such company will be based primarily on the value
of such company as a going concern and not on the value of the acquired
assets. Valuations of these companies determined solely by appraisals of the
acquired assets are likely to be less than the consideration that is paid for
the companies. The future performance of such companies may not be
commensurate with the consideration paid.
The Company expects to incur significant amortization charges resulting from
consideration paid in excess of the fair value of the net assets of the
companies acquired in business combinations accounted for under the purchase
method of accounting ("goodwill"). The Company will be required to amortize
the goodwill from acquisitions accounted for under the purchase method over a
period of time, with the amount amortized in a particular period constituting
an expense that reduces the Company's net income for that period. The amount
amortized, however, will not give rise to a deduction for tax purposes. As an
example of the degree to which amortization of goodwill relates to the total
purchase prices paid for acquisitions, USOP had recorded approximately $659.0
million of goodwill and other intangibles in connection with the $1.7 billion
in acquisitions made through April 27, 1997, and incurred $14.2 million in
amortization charges for its fiscal year ended April 27, 1997. The Company's
amortization charges, however, could be substantially greater than or less
than the amount of amortization charges incurred by USOP. A reduction in net
income resulting from amortization charges may have a material and adverse
impact upon the market price of the Company's Common Stock.
INVESTMENT COMPANY ACT CONSIDERATIONS
The regulatory scope of the Investment Company Act of 1940 ("Investment
Company Act") extends generally to companies engaged primarily in the business
of investing, reinvesting, owning, holding or trading in securities. The
Investment Company Act also may apply to a company which does not intend to be
characterized as an investment company but which, nevertheless, engages in
activities that bring it within the Investment Company Act's definition of an
investment company. The Company believes that its anticipated principal
activities, which will involve acquiring control of operating companies, will
not subject the Company to registration and regulation under the Investment
Company Act. Nonetheless, since the Company currently falls within the
Investment Company Act's definition of an investment company, it will rely on
a safe harbor rule that exempts the Company from the Investment Company Act
for a period of one year, provided certain conditions are met. Thereafter, the
Company intends to remain exempt from investment company regulation either by
not engaging in investment company activities or by qualifying for the
exemption from investment company regulation available to any company that has
no more than 45% of its total assets invested in, and no more than 45% of its
income derived from, investment securities, as defined in the Investment
Company Act.
There can be no assurance that the Company will be able to avoid
registration and regulation as an investment company. In the event the Company
is unable to avail itself of an exemption or safe harbor from the Investment
Company Act, the Company may become subject to certain restrictions relating
to the Company's activities, as noted below, and contracts entered into by the
Company at such time that it was an unregistered investment company may be
unenforceable. The Investment Company Act imposes substantive requirements on
registered investment companies including limitations on capital structure,
restrictions on certain investments,
11
<PAGE>
prohibitions on transactions with affiliates and compliance with reporting,
record keeping, voting, proxy disclosure and other rules and regulations.
Registration as an investment company could have a material adverse effect on
the Company.
ADVERSE CHANGES IN GENERAL ECONOMIC CONDITIONS CAN ADVERSELY AFFECT COMPANY'S
BUSINESS
The Company's success is dependent upon the general economic conditions in
the geographic areas in which a substantial number of its operating businesses
are located. Adverse changes in national economic conditions or in regional
economic conditions in which the Company conducts substantial business likely
would have an adverse effect on the operating results of one or more of the
acquired companies and, accordingly, on the Company's business, financial
condition and/or results of operations.
RISKS RELATING TO INTERNATIONAL EXPANSION
Although it is not currently anticipated, if the Company were to expand into
international markets, it may face additional risks relating to such matters
as currency exchange rate fluctuations, new and different legal and regulatory
requirements, political and economic risks relating to the stability of
foreign governments and their trading relationships with the United States,
difficulties in staffing and managing foreign operations, differences in
financial reporting, differences in the manner in which different cultures do
business, operating difficulties and other factors. The many difficulties and
risks inherent in international operations could result in a material adverse
impact upon the Company's business, financial condition and results of
operations.
POTENTIAL REGULATORY REQUIREMENTS
The Company's acquisition strategy will likely be subject to the
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), which could adversely affect the pace of the
Company's acquisitions in an industry or its ability to consolidate an
industry to the extent the Company believes appropriate, depending upon the
industry being consolidated. Among the requirements that may be imposed in
order to obtain approval of an acquisition under the HSR Act may be a
requirement that the Company divest a portion of its then-existing operations
or those of the acquisition candidate, which may render a given acquisition
disadvantageous. In addition, acquisitions of businesses in regulated
industries would subject the Company to regulatory requirements which could
limit the Company's flexibility in growing and operating its businesses.
TAX CONSIDERATIONS
As a general rule, federal and state tax laws and regulations have a
significant impact upon the structuring of business combinations. The Company
will evaluate the possible tax consequences of any prospective business
combination and will endeavor to structure the business combination so as to
achieve the most favorable tax treatment to the Company, the acquisition
candidate and their respective stockholders. Nonetheless, the Internal Revenue
Service (the "IRS") or appropriate state tax authorities may not ultimately
agree with the Company's tax treatment of a consummated business combination.
To the extent that the IRS or state tax authorities ultimately prevail in
recharacterizing the tax treatment of a business combination, there may be
adverse tax consequences to the Company, the acquisition candidate and/or
their respective stockholders.
POTENTIAL INFLUENCE OF EXISTING STOCKHOLDER
As of December 2, 1997, Jonathan Ledecky, the Company's founder, Chairman
and Chief Executive Officer, owned beneficially approximately 15.8% of the
outstanding shares of Common Stock. The Company's executive officers and
directors, if acting together, may be able to significantly influence the
election of directors and matters requiring the approval of the stockholders
of the Company. This concentration of ownership may also have the effect of
delaying or preventing a change in control of the Company. See "Principal
Stockholders."
12
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of December 2, 1997, the Company had 26,550,000 shares of Common Stock
outstanding. The 24,000,000 shares of Common Stock sold in the IPO are freely
tradeable without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), except that any shares purchased
by an "affiliate" of the Company, as that term is defined in Rule 144 ("Rule
144") promulgated under the Securities Act, may generally be sold only in
compliance with Rule 144, as described below.
All of the remaining 2,550,000 outstanding shares of Common Stock are owned
by Jonathan Ledecky, and are available for resale, subject to compliance with
Rule 144 and subject to a contractual restriction on transfer for 180 days on
all of the shares of Common Stock that he owns and a contractual restriction
on transfer for one year on 2,300,000 of the shares of Common Stock that he
owns.
Further, as of December 2, 1997, 1,950,000 shares were reserved for issuance
upon the exercise of a warrant issued to Jonathan Ledecky in connection with
the IPO (the "Ledecky Warrant") at an exercise price equal to $20.00 per
share, 1,560,000 shares of Common Stock were reserved for issuance upon the
exercise of outstanding stock options, and an aggregate of 2,129,500 shares
were reserved for issuance pursuant to the Incentive Plan, the Directors' Plan
and the Purchase Plan (an aggregate of 2,453,500 shares will be reserved for
issuance if the underwriters' over-allotment option is exercised in full).
Because the number of shares reserved for issuance upon the exercise of awards
made or to be made under the Incentive Plan is 9% of the aggregate number of
shares of Common Stock outstanding from time to time, future issuances of
Common Stock, whether in acquisitions or otherwise, will result in an increase
in the number of awards available to be made. The Company intends to file a
registration statement on Form S-8 with respect to the shares of Common Stock
issuable upon exercise of all of such options. Such registration statement, to
the extent required under the Securities Act, will register for resale the
shares of Common Stock acquired upon exercise of such options. The Company has
agreed that, at Jonathan Ledecky's request, it will file a registration
statement under the Securities Act for an offering of the shares underlying
the Ledecky Warrant during a ten-year period beginning on November 25, 1998,
the first anniversary of the effective date of the registration statement (the
"Effective Date") filed with the Commission in connection with the IPO. In
addition, the Company has agreed to give Jonathan Ledecky the right to request
that the Company include the shares underlying his warrant on a registration
statement filed by the Company during a twelve-year period beginning on the
Effective Date.
Finally, as of December 2, 1997, 1,130,000 shares of Common Stock were
reserved for issuance upon exercise of the warrants issued to the
Representative (which will have the right, beginning one year after the
Effective Date, to require the Company to register such shares for sale under
the Securities Act) and 500,000 shares were reserved for issuance upon the
conversion of shares of Convertible Non-Voting Common Stock (which shares will
be eligible for resale beginning on November 25, 1998, the first anniversary
of the Effective Date). Sales of substantial amounts of Common Stock, or the
perception that such sales could occur, could adversely affect the prevailing
market price of the Common Stock and impair the Company's ability to raise
additional capital through the sale of equity securities. Each of the Company
and its executive officers and directors has generally agreed not to offer,
pledge, sell, contract to sell, or otherwise transfer or dispose of, directly
or indirectly, any shares of Common Stock or any securities convertible into
or exercisable or exchangeable for Common Stock during the period ending 180
days after the Effective Date without the prior written consent of the
Representative. See "Shares Eligible for Future Sale."
The Company expects to have an aggressive acquisition program under which it
will issue shares of Common Stock. Although some of the shares issued in
acquisitions may be subject to contractual restrictions on the transfer
thereof, shares issued in acquisitions accounted for under the pooling-of-
interests method of accounting cannot be issued subject to contractual
restrictions on transfer. Under the pooling-of-interests method of accounting,
the affiliates of acquired companies, which are expected to be, in most cases,
all of the stockholders of the companies acquired by the Company, must be free
to sell or otherwise transfer shares of Common Stock received in the
acquisition, subject to their compliance with the federal securities laws, as
soon as the Company releases results of operations that reflect the combined
post-acquisition operations of the
13
<PAGE>
Company and the acquired company for a minimum of 30 days. If a significant
number of shares of Common Stock are issued in acquisitions that are completed
in close proximity to each other, such shares will become freely tradeable at
the same time. If a large number of shares are sold in the market by
stockholders as soon as their shares become freely transferable, the price of
shares of Common Stock could be adversely affected.
NO PRIOR MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the IPO, there was no public market for the Company's Common Stock.
An active public market for the Common Stock may not develop or be sustained.
The offering price for the Common Stock to be issued pursuant to this
Prospectus will be determined by negotiations between the Company and the
owners of the companies to be acquired. Any such negotiated price may bear no
relationship to the price at which the Common Stock will trade after each
respective acquisition and an active trading market may not be sustained
subsequent to any future acquisition transactions. The trading price of the
Common Stock could be subject to significant fluctuations in response to
activities of the Company's competitors, variations in quarterly operating
results, changes in market conditions and other events or factors. The market
price of the Company's Common Stock after the offering could also be adversely
affected by confusion or uncertainty as to the pace of the Company's
consolidations, the various industries being consolidated and the status of
the integration of businesses within the industries. Moreover, the volatility
of the stock market could adversely affect the market price of the Common
Stock and the ability of the Company to raise equity in the public markets.
NO DIVIDENDS
The Company has not paid any dividends on its Common Stock to date. The
payment of any dividends will be within the discretion of the Company's Board
of Directors. It is the present intention of the Board of Directors to retain
all earnings, if any, for use in the Company's business operations and,
accordingly, the Board of Directors does not anticipate declaring any
dividends in the foreseeable future. See "Dividend Policy."
DILUTION TO NEW INVESTORS
If the Company issues additional Common Stock in the future, including
shares which may be issued pursuant to earn-out arrangements, option grants,
the Ledecky Warrant, the Representative's warrants and future acquisitions,
purchasers of Common Stock may experience dilution in the net tangible book
value per share of the Common Stock. Since the holders of Common Stock do not
have any pre-emptive right to purchase shares of Common Stock issued by the
Company in the future, their voting power will be diluted by future issuances
of shares of Common Stock by the Company.
CERTAIN ANTITAKEOVER PROVISIONS
The Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which prohibit the Company from engaging in
a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
"interested stockholder," unless the business combination is approved in a
prescribed manner. See "Description of Capital Stock--Certain Provisions of
Delaware Law and the Company's Restated Certificate of Incorporation."
14
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been quoted on the Nasdaq National Market
since November 26, 1997. On December 11, 1997, the closing price of the Common
Stock was $20.625 per share. As of December 11, 1997, there were 2 holders of
record of the Company's Common Stock. The Common Stock has traded at prices
ranging from $20.19 to $21.50 during the period from November 26 to December
11, 1997.
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future because it intends to retain its earnings, if
any, to finance the expansion of its business 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 factors, the Company's
earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to the payment of dividends and other
considerations that the Board of Directors deems relevant. Further, in the
event that the Company obtains a credit facility to be used for future
acquisitions or other capital requirements, it is likely that the terms of
such credit facility will prohibit or limit the payment of dividends by the
Company.
15
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
at September 30, 1997 and (ii) the capitalization of the Company as adjusted
to give effect to the sale of 24,250,000 shares of Common Stock in the IPO and
the sale of 500,000 shares of Convertible Non-Voting Common Stock in
connection with the IPO, in each case at the initial public offering price of
$20.00 per share, and the application of the estimated net proceeds therefrom.
See "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1997
------------------------
ACTUAL PRO FORMA
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Stockholder's equity:
Common stock, $.001 par value per share, 250,000,000
shares authorized, 2,300,000 shares issued and
outstanding and 26,550,000 shares issued and
outstanding (as adjusted)(1)....................... $ 2 $ 27
Convertible Non-Voting Common Stock, $.001 par value
per share, 500,000 shares authorized, no shares
issued and outstanding and 500,000 shares issued
and outstanding (as adjusted)...................... -- 1
Additional paid-in capital.......................... 124 460,498
Accumulated deficit................................. (103) (103)
--------- ------------
Total stockholder's equity........................ 23 460,423
--------- ------------
Total capitalization............................ $ 23 $ 460,423
========= ============
</TABLE>
- --------
(1) If the shares of Common Stock underlying options, warrants and the
outstanding shares of Convertible Non-Voting Common Stock are included in
the number of shares outstanding, the total number of shares outstanding
would be 31,690,000, consisting of (i) the 24,250,000 shares sold in the
IPO, (ii) 2,300,000 shares outstanding immediately prior to the IPO, (iii)
1,950,000 shares reserved for issuance upon the exercise of the Ledecky
Warrant, (iv) 1,500,000 shares reserved for issuance under outstanding
options granted to members of the management team under the Incentive
Plan, (v) 60,000 shares reserved for issuance under outstanding options
granted under the Directors' Plan, (vi) 500,000 shares to be issued upon
the conversion of the Convertible Non-Voting Common Stock, and (vii)
1,130,000 shares of Common Stock reserved for issuance upon the exercise
of warrants issued to the Representative. The total number of shares of
Common Stock reserved for issuance under the Incentive Plan, the
Directors' Plan and the Purchase Plan is (i) 9% of the number of shares of
Common Stock outstanding from time to time (or 2,389,500 shares at the
time of the consummation of the IPO), (ii) 300,000 shares and (iii)
1,000,000 shares, respectively. (If the Underwriters' over-allotment
option is exercised in full for 3,600,000 shares of Common Stock, the
total number of shares of Common Stock outstanding or reserved for
issuance under outstanding options, warrants and the shares of Convertible
Non-Voting Common Stock would be 35,290,000.) See "Risk Factors--Benefits
to Insiders," "Management--1997 Long-Term Incentive Plan," "--1997
Non-Employee Directors' Stock Plan," "--1997 Employee Stock Purchase
Plan," and "Description of Capital Stock--Convertible Non-Voting Common
Stock."
16
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Assets.......................... $339
Liabilities..................... 316
Stockholder's equity............ 23
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
balance sheet of the Company and related notes thereto appearing elsewhere in
this Prospectus.
OVERVIEW AND RESULTS OF OPERATIONS
The Company was founded in February 1997 to consolidate distribution
companies and service providers in one or more fragmented industries. The
Company has generated no revenues since inception other than investment
earnings on the net proceeds of the IPO. As of September 30, 1997, the Company
had incurred expenses of $103,000 in connection with the analysis of industry
consolidation opportunities. The net proceeds from the sales of the 24,250,000
shares of Common Stock and the sale of 500,000 shares of Convertible Non-
Voting Common Stock in the IPO were approximately $460.4 million and will be
utilized by the Company in its acquisition program and, to a much lesser
extent, to fund operations of the Company. While the Company expects to embark
on an active acquisition program, until such time as acquisitions are
consummated, the Company's income will represent interest on the investment of
the net proceeds of the IPO offset by salaries and other operating costs of
the Company.
LIQUIDITY AND CAPITAL RESOURCES
As of December 2, 1997, the Company had cash and cash equivalents of
approximately $460.4 million representing the net proceeds of the IPO. If the
underwriters in the IPO exercise their over-allotment option in full, the
Company will receive approximately $67.0 million in additional proceeds. In
addition, the Company has initiated negotiations to obtain a credit facility
which may be used for future acquisitions or other capital requirements. BT
Alex. Brown Incorporated has provided the Company with a letter, dated October
29, 1997, in which BT confirms that, upon the Company's request, BT commits to
use its best efforts to arrange and syndicate a $100 million senior secured
revolving bank credit facility which may, under certain conditions to be
mutually agreed upon, be increased up to a $500 million facility. The terms
and conditions of any BT debt facility, including the fee arrangements, are
subject to mutual agreement. Use of any such facility would likely be subject
to conditions customary to facilities of this type, including restrictions on
other indebtedness, mergers, acquisitions, dispositions and similar
transactions. The Company may not succeed in obtaining a facility of any size
or in negotiating terms satisfactory to the Company. Except for these
preliminary negotiations, the Company currently has no plan or intention to
obtain additional capital through debt or equity financing in the next 12
months. If and when the Company requires additional financing for its
acquisition program or for other capital requirements, the Company may be
unable to obtain any such financing on terms that the Company deems
acceptable. The Company also expects to utilize its Common Stock as a source
of capital to provide a portion of the consideration paid to acquire certain
companies. The Company believes that the net proceeds from the IPO, combined
with the available authorized but unissued and unreserved shares of Common
Stock that may be issued in acquisitions, will be sufficient to fund its
operations and acquisition program through the end of 1998.
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BUSINESS
THE COMPANY
Consolidation Capital Corporation was founded in February 1997 by Jonathan
J. Ledecky to build consolidated enterprises with national market reach
through the acquisition and integration of multiple businesses in one or more
fragmented industries. Jonathan Ledecky is the Chairman and founder and, until
November 5, 1997, was the Chief Executive Officer, of USOP. While managing
USOP, Jonathan Ledecky developed a strategy of "corporate democracy," which he
believes facilitated USOP's rapid consolidation of more than 205 companies
within seven different industry groups in the office products and services
industry. The corporate democracy approach includes (i) a general policy of
empowering local management and (ii) drawing upon the contacts and expertise
of local management by encouraging them to identify acquisition candidates and
to participate in the process of integrating newly acquired companies into a
consolidated enterprise. The Company intends to employ a corporate democracy
approach as one of its principal operating strategies.
From 1994 until November 1997, Jonathan Ledecky served as Chief Executive
Officer of USOP and, in that capacity, was responsible for in excess of $1.7
billion in acquisitions of domestic and international businesses. The Company
will seek to leverage the experience and expertise of Jonathan Ledecky, its
founder, Chairman and Chief Executive Officer, and the Company's management
team to become a leading consolidator of distribution companies and service
providers in one or more fragmented industries. The Company will have broad
discretion in identifying and selecting both the industries which it expects
to consolidate and possible acquisition candidates within those industries.
Although the Company has had general discussions with representatives of
numerous businesses within several different industries, the Company has not
identified a specific industry on which it initially intends to focus and has
no present plans, proposals, arrangements or understandings with respect to
the acquisition of any specific business. The Company believes that, through
the prior experience of Jonathan Ledecky and the Company's management team, it
has an extensive referral network of investment and commercial bankers,
business leaders, attorneys, accountants and business and financial brokers,
which will further its ability to identify, attract and acquire desirable
acquisition candidates.
The Company believes that it will possess substantial competitive
advantages. The Company expects to benefit from its ability to deploy rapidly
its significant financial resources and to use its publicly traded stock as
currency in selected acquisitions. Because the Company has significant cash
and cash equivalents as of December 2, 1997, the Company's ability to acquire
attractive companies is not likely to be constrained initially by the need to
access the capital markets. Furthermore, the Company believes that its
corporate democracy principles will help it attract and acquire companies and
will differentiate it from traditional consolidators. The Company believes
that its corporate democracy approach generates significant competitive
advantages because this approach allows managers of the acquired companies to
benefit from the economies of a large organization while simultaneously
retaining local operational control, enabling them to provide flexible and
responsive service to customers. Such an approach could, however, limit
possible consolidation efficiencies and integration efforts. In addition,
although the Company's management team has experience in acquiring and
consolidating businesses, it is unlikely to have experience managing companies
in the industries that the Company selects for consolidation. The Company,
therefore, expects to rely in part upon management of acquired companies or
other individuals experienced in the industries in which the Company pursues
consolidation.
INDUSTRY BACKGROUND
During recent years, a number of companies have consolidated businesses
within various industries. The Company believes numerous factors exist which
create a favorable environment for industry consolidations. As businesses have
become nationwide in scope, the need and demand for a nationwide vendor
supplying uniformly high-quality products and services have increased.
Similarly, as brand consciousness among end users has increased in certain
industries, national brands have realized significant advantages in the
marketplace, such as the ability to differentiate their products and services,
allowing premium pricing and enhanced customer loyalty. In addition, larger
consolidators continue to achieve competitive advantages by creating operating
synergies
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through, among other things, the elimination of redundant corporate functions
and the use of information technology to decrease cost and increase revenue.
Furthermore, manufacturers have developed an increased interest in dealing
with large distributors, which has enabled manufacturers to generate
efficiency gains due to streamlined production, distribution and marketing
operations. As the consolidation model has been successfully implemented by
consolidators, their access to the capital markets, particularly the public
equity markets, has increased.
USOP is an example of a company formed to consolidate businesses. USOP was
formed in October 1994 by the Company's founder, Chairman and Chief Executive
Officer, Jonathan Ledecky. Under Jonathan Ledecky's leadership, USOP acquired
over 205 domestic and international businesses in seven different industry
groups, including office supplies, office furniture, coffee and beverage
services, computer and telecommunications networks and services, print
management, corporate travel services and educational supplies.
STRATEGY
The Company's goal is to become the leading consolidator of distribution
companies and service providers in one or more fragmented industries. The
Company intends to acquire established local or regional businesses and
combine and integrate them into an effective national organization. The
Company believes that its strong financial position, the operating and
acquisition expertise of its management team and its ability to address the
needs of local management will allow it to achieve its goal of being the
"consolidator of choice" of acquisition candidates.
In order to achieve its goal, the Company will focus on: (1) identifying
acquisition candidates which meet the Company's consolidation criteria; (2)
attracting and acquiring companies through implementation of the Company's
corporate democracy approach, which the Company believes will differentiate it
from other consolidators; and (3) achieving operating efficiencies and
synergies by combining administrative functions, eliminating redundant
facilities, implementing system and technology improvements and purchasing
products and services in large volumes.
Identify and Pursue Strategic Consolidation Opportunities. The Company
intends to capitalize upon consolidation opportunities in distribution and
service industries by acquiring companies with established sales presences
and/or local brand names. The Company believes that the industries in which it
will pursue consolidation opportunities are fragmented and often characterized
by privately-held or family-owned businesses, whose owner/operators desire
liquidity and may be unable to gain the scale necessary to access the capital
markets effectively or to expand beyond a local or regional base. The Company
believes that, based on the experience of Jonathan Ledecky and the Company's
management team, it will be well positioned to identify suitable industries
for consolidation and to identify acquisition candidates within those
industries to create consolidated enterprises.
In general, the Company plans to acquire larger, established high quality
companies, or "hubs," in high density, metropolitan areas, and additional
smaller companies, or "spokes," in secondary markets surrounding the hubs.
Where possible, the operations of the spokes will be integrated into the
operations of existing hubs, thereby enabling the Company to achieve the
economies of scale necessary to decrease operating cost and increase operating
margin. The Company believes that another competitive advantage will be the
Company's ability to deploy rapidly its significant financial resources and/or
to use its publicly traded stock as consideration in selected acquisitions.
The Company intends to pursue growing industries that are fragmented with no
clear market leader and that will benefit from economies of scale. Within such
industries, the Company intends to focus on the acquisition of distribution
companies and service providers having some or all of the following
characteristics: (i) stable cash flows and recurring revenue streams from
long-term customer relationships; (ii) low product obsolescence and non-
reliance on innovation or technology to drive recurring revenue streams; (iii)
long-term growth prospects for products and services offered; (iv) a strong
"franchise" or presence in the communities served by the
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acquisition candidate; (v) an experienced management team comprised of
recognized industry leaders; (vi) an ability to retain, promote and motivate
management teams; (vii) favorable demographic trends within the local regions
serviced; and (viii) an underpenetrated market for products or services
provided by the acquisition candidate. The Company believes that even if
consolidation in an industry has begun, there may still exist opportunities to
create niche businesses with national reach. The Company has not yet
identified any specific acquisition candidates and has no present plans,
proposals, arrangements or understandings with respect to the acquisition of
specific businesses.
Some of the industries that meet the industry criteria set forth above and
that may be considered by the Company include the following: aviation services
(fixed base operators, aircraft maintenance, charter/fleet services, equipment
and parts services); accounting practices; architectural services; auto glass
dealerships; auto towing; community newspapers; consumer product distribution;
educational services (vocational schools); fire protection supplies and
service; food services; health care services; home improvement services;
information technology staffing; insurance brokerage; lighting products; mail
order and client marketing; moving services; optical services; rental
equipment distributors; safety equipment distributors; temporary services;
trade show and exhibition management services; veterinary services; and water
treatment equipment services and supplies. The Company has determined,
however, not to seek to acquire businesses in any of the industries in which
USOP currently operates (or any acquisition candidate for which USOP performed
an acquisition analysis for the purpose of acquiring such entity) or in the
floral products and distribution industry without the written approval of USOP
or USA Floral, as the case may be.
Differentiate Through Corporate Democracy. The Company believes that its
implementation of corporate democracy, which Jonathan Ledecky has employed
successfully at USOP, will give the Company a competitive advantage over rival
consolidators in attracting, buying and integrating acquired companies. The
Company's business model entails both a decentralized management philosophy
and a centralized operating approach. Each of the acquired companies will
continue to manage all functions that "touch the customer," including sales,
marketing, customer service, credit and collections. The Company will manage
functions such as purchasing, accounting, inventory management, human
resources and finance centrally where it can leverage its size and scale.
Principles of corporate democracy that will be used by the Company include:
. Control by Owner/Operator. The corporate democracy approach to
consolidation is designed to allow the owners and operators who have
built an acquired company to retain operational control of the business
while the Company centralizes certain administrative functions to
provide benefits from operating efficiencies and synergies resulting
from the consolidation of the acquired company into a larger enterprise.
This is in contrast to the traditional consolidation approach used by
other consolidators in which the owner/operators and their employees are
often relieved of management responsibility as a result of a complete
centralization of management in the consolidated enterprise.
. ""Think National, Act Local" Management. The Company plans to provide
strategic oversight and guidance with respect to acquisitions,
financing, marketing and operations. At the same time, managers of
acquired companies will be responsible for the day-to-day operations of
each of the acquired companies. As part of its "Think National, Act
Local" management strategy, the Company intends to foster a culture of
cooperation and teamwork that emphasizes dissemination of "best
practices" among its local or acquired management teams. The Company
believes that this decentralized management philosophy results in better
customer service by allowing local management the flexibility to
implement policies and make decisions based upon the needs and desires
of local customers and the context of local market conditions. The
decentralized sales and customer contact also facilitates the retention
of historical customers of the acquired companies.
. Local Business Identity, Management and Sales Organization. The
corporate democracy approach to consolidation permits the Company to
capitalize on the strength of the owner/operator's connection to his
locality, region or community by maintaining the original name of the
acquired company in the given geographic location. This contrasts with
other consolidation approaches which often eliminate the local name of
the acquired company and replace it with a single or "national" business
name. The
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Company believes that many customers purchase products and services
based upon long-term commercial relationships. The Company believes that
corporate democracy best preserves the business-customer relationships
by, in most circumstances, retaining the management, sales
organizations, and brand name identity of acquired companies and
minimizing operational changes that adversely affect the customer.
. Use of Stock as Currency and Incentive Compensation. The Company intends
to structure many of its acquisitions using the Company's stock as
currency. This use of stock as acquisition currency, coupled with the
retention of experienced owner/operators and established sales
organizations, creates a high percentage of employee ownership and
strong incentives for good performance. The Company believes that this
stock ownership plan, in conjunction with the implementation of
incentive compensation programs geared to specific performance goals,
will help to align the objectives of the acquired companies' managers
and employees with those of the Company's stockholders.
Achieve Operating Efficiencies. The Company believes that it will be able to
achieve certain operating efficiencies and synergies among its acquired
companies. Such operating efficiencies include:
. Combining Administrative Functions. The Company will seek to institute a
Company-wide management information system and to combine at the
corporate level certain administrative functions, such as financial
reporting and finance, insurance, employee benefits and legal support.
. Using Hub and Spoke System to Eliminate Redundant Facilities and
Service. The hub and spoke strategy involves the acquisition of a
larger, established, high-quality company in a targeted geographic area
into which the facilities and operations of local, smaller acquired
companies, or "spokes", are folded, allowing the elimination of
redundant facilities and reducing overhead. Although the success of the
hub and spoke strategy may vary depending on the industry being
consolidated, the Company believes that there exists a real opportunity
to use this strategy to reduce the number of facilities and the
corporate overhead of acquired companies. This hub and spoke strategy
also enables the integration of certain operational activities, such as
inventory management, purchasing, shipping, accounting and human
resources, among acquired companies located in a geographic area,
thereby permitting the elimination of duplicative facilities and costs.
. Implementing System and Technology Improvements. The Company believes it
will be able to increase the operating margin of combined acquired
companies by using operating and technology systems to improve and
enhance the operations of the combined acquired companies, which may
include computerized inventory management and order processing systems,
computerized quotation and job costing systems and computerized
logistics and distribution systems. The Company believes that many of
the acquired companies have not made material investments in such
operating and technology systems because, as independent entities, they
lack the necessary scale to justify the investment. The Company believes
that the implementation of such systems may significantly increase the
speed and accuracy of order processing and fulfillment at acquired
companies, while increasing inventory turns and providing measurement
and analysis tools that facilitate efficient operation.
. Using Volume Purchasing. The Company believes that, with respect to
certain of the distribution industries that may be consolidated by the
Company, it may achieve operating efficiencies through volume purchasing
and may benefit from favorable prices and rebates accruing as the result
of high volume purchases. The Company may also negotiate improved
arrangements with wholesalers and manufacturers to reduce inventory
levels of certain acquired companies, thereby allowing more efficient
operations by decreasing inventory holding costs and increasing
operating margins. The Company may also seek to leverage the size and
scale of certain consolidated enterprises to negotiate attractive volume
purchasing or leasing programs for goods and services such as delivery
vehicles, long distance voice and data services, overnight delivery
services, real estate services, banking and financial services, and
insurance.
. Implementing Strategic Marketing and Cross-Functional Selling. The
Company believes that, with respect to certain industries that may be
consolidated by the Company, it may achieve certain
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efficiencies through strategic marketing plans to be shared by acquired
companies as well as cross-functional selling to customers of each of
the acquired companies. These synergies of strategic marketing and
cross-functional selling may allow additional services to be provided or
goods to be sold to existing customers of the acquired companies,
resulting in additional revenues for the Company. These synergies may
also provide a broader geographic sales and service reach for each of
the acquired companies, increasing the customer base of the acquired
companies.
CONFLICTS OF INTEREST
Jonathan Ledecky serves as both the Chairman and Chief Executive Officer of
the Company and the Chairman and an executive officer of USOP. As a director
and an executive officer of both the Company and USOP, Jonathan Ledecky owes a
duty of loyalty and a duty of care under Delaware law to both companies. These
duties obligate him to present certain business opportunities to the company
to which he owes the duties before pursuing such opportunities himself. There
is no agreement among Jonathan Ledecky, the Company and/or USOP delineating
Jonathan Ledecky's duties to each company or resolving potential conflicts
between his conflicting duties and obligations. In the absence of such an
agreement, the Company may choose to avoid consolidation opportunities and/or
industries that pose risks of conflict.
In addition, Jonathan Ledecky has entered into the USOP Employment Agreement
and the CCC Employment Agreement. Under the USOP Employment Agreement,
Jonathan Ledecky is obligated to assist in, among other things, identifying
and pursuing new business and investment opportunities and acquisitions for
USOP, developing and providing strategic plans and growth analyses for USOP,
providing structuring, capitalization, restructuring, recapitalization and
reorganization advice to USOP and assisting in implementing such advice, and
interfacing with the investment and financial community on an as-needed basis.
While Jonathan Ledecky is not responsible for the day-to-day oversight of
USOP, his positions as an executive officer and Chairman of the Board of USOP
may nonetheless result in competition between USOP matters and Company matters
for his time and professional attention, and may result in or exacerbate
conflicts as to his obligations to present business opportunities to one
company or another, or to pursue such opportunities for one company or
another. The USOP Employment Agreement also contains restrictions on Jonathan
Ledecky's ability to recruit or employ current and certain former employees of
USOP, as well as persons who provide or within the prior year provided
substantial services to USOP or its subsidiaries as part of an entity that is
or was a vendor or other outside service provider to USOP or its subsidiaries
(excluding only Timothy Clayton and F. Traynor Beck). This restriction could
present a possible conflict between Jonathan Ledecky's actions and
recommendations to retain employees, vendors and outside service providers for
USOP and his efforts to employ suitable individuals with the Company. In
addition, the USOP Employment Agreement recites that in the course of Jonathan
Ledecky's employment with USOP he has become familiar with and aware of
certain information regarding USOP's operations that the agreement describes
as a trade secret of USOP. Were Jonathan Ledecky to be held wrongfully to have
disclosed any trade secret information to the Company or others in violation
of his obligations, he could face liability for such disclosure, and the
Company could face liability for inducing or aiding in any such alleged
violation. Finally, under the USOP Employment Agreement, Jonathan Ledecky is
not prohibited from serving as an officer, director or employee of or
consultant to the Company, provided that such actions do not otherwise breach
his obligations under the USOP Employment Agreement.
Since Jonathan Ledecky owes duties of loyalty and care and has contractual
obligations to both the Company and USOP simultaneously, he may be unable in
certain circumstances to fulfill his duties and obligations to one company
without allegedly breaching them to the other. Any alleged breach could result
in litigation by or on behalf of the offended company under any of a number of
possible legal theories, including seeking damages from Jonathan Ledecky for
the purported breach or from the other such company for tortiously interfering
with the offended company's contractual relationship with Jonathan Ledecky or
for inducing him to breach his duties to the offended company. The conduct or
response to any such litigation could consume significant management attention
and resources, and the defense, settlement or final adjudication of any such
litigation could have a material adverse effect on the Company's business,
financial condition and/or results of operations.
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In addition, Jonathan Ledecky is the Non-Executive Chairman of the Board of
USA Floral, the Non-Executive Chairman of the Board of US Leasing, and a
prospective minority investor in Unison Partners. Each of USA Floral, US
Leasing and Unison Partners is, or is seeking to become, a consolidator of
businesses in one or more industries. Jonathan Ledecky may thus have conflicts
of interest in determining to which of these entities, if any, a particular
relevant business opportunity should be presented.
COMPETITION
The Company may encounter intense competition from other consolidators
having a business objective similar to that of the Company. Many of these
entities are well established and have extensive experience in identifying and
effecting business combinations directly or through affiliates. Many of these
competitors possess greater financial, personnel and other resources than the
Company expects to have and there can be no assurance that the Company will
have the ability to compete successfully. Competition with other consolidators
to buy a limited number or an identifiable set of businesses could lead to
higher prices being paid for acquired companies. In addition, to the extent
that the Company determines to consolidate an industry that is already in the
early stages of consolidation, the Company may compete with consolidators that
already are operating within the industry being consolidated. Such competitors
may have competitive advantages in identifying and attracting acquisition
candidates as a result of their knowledge of the industry and contacts within
the industry. This inherent competitive disadvantage to the Company may make
certain consolidation opportunities more difficult to accomplish and may
compel the Company to select certain less attractive consolidation prospects.
In addition, the industries in which the Company may operate in the future
may be highly competitive. There can be no assurances that the Company's
efforts to differentiate itself will prove to be successful or that the
Company ultimately will be able to compete effectively in the markets in which
it operates in the future.
FACILITIES AND EMPLOYEES
The Company's corporate offices are located in leased space at 1747
Pennsylvania Avenue, N.W., Suite 900, Washington, D.C. 20006. The telephone
number of its principal executive offices is 202/955-5490. To accommodate its
planned growth, the Company intends to seek a larger headquarters facility in
the Washington area, which it intends to lease. As of December 2, 1997, the
Company employed four executive officers and expects to employ a limited
number of other personnel in the near future.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning each of the
executive officers and directors of the Company as of December 2, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Jonathan J. Ledecky 39 Chairman and Chief Executive Officer
Timothy C. Clayton 43 Executive Vice President, Chief Financial
Officer and Treasurer
F. Traynor Beck 42 Executive Vice President, General Counsel
and Secretary
David Ledecky 36 Executive Vice President and Chief
Administrative Officer; Director
Vincent W. Eades 38 Director
W. Russell Ramsey 37 Director
M. Jude Reyes 42 Director
</TABLE>
Jonathan J. Ledecky founded the Company in February 1997 and serves as its
Chairman and Chief Executive Officer. Jonathan Ledecky founded U.S. Office
Products Company, a company engaged in providing office and educational
products and business services, in October 1994 and has served as its Chairman
of the Board and, until November 5, 1997, its Chief Executive Officer. Since
its inception, USOP has acquired over 205 companies. Jonathan Ledecky has also
served as the Non-Executive Chairman of the Board of USA Floral since April
1997 and as the Non-Executive Chairman of the Board of US Leasing since
October 1997. Prior to founding USOP, Jonathan Ledecky served from 1989 to
1991 as the President of The Legacy Fund, Inc., and from 1991 to September
1994 as President and Chief Executive Officer of Legacy Dealer Capital Fund,
Inc., a wholly owned subsidiary of Steelcase Inc. ("Steelcase"), the nation's
largest manufacturer of office furniture products. While at Legacy Dealer
Capital Fund, Inc., Jonathan Ledecky was responsible for providing corporate
advisory services for Steelcase's network of office products distributors. In
addition, Jonathan Ledecky has served as a director of, or corporate adviser
and consultant to, several office products companies. Prior to his tenure at
The Legacy Fund, Inc., Jonathan Ledecky was a partner at Adler and Company and
a Senior Vice President at publicly-traded Allied Capital Corporation, an
investment management company. Jonathan Ledecky serves as a director of
publicly-traded MLC Holdings, Inc. Jonathan Ledecky is a graduate of Harvard
College and Harvard Business School. Jonathan Ledecky is the brother of David
Ledecky.
Timothy C. Clayton has served as Executive Vice President, Chief Financial
Officer and Treasurer of the Company since November 25, 1997. Between August
1976 and October 1997, Mr. Clayton was associated with Price Waterhouse LLP,
most recently as a Partner since July 1988. In his capacity as Partner, Mr.
Clayton focused his practice on, among others, distribution, technology,
financial services, business services and manufacturing industries, and was
responsible for providing audit and business advisory services to clients
active in consolidating a variety of industries. Mr. Clayton is a graduate of
Michigan State University.
F. Traynor Beck has served as Executive Vice President, General Counsel and
Secretary of the Company since November 25, 1997. Between January 1988 and
November 25, 1997, Mr. Beck was associated with Morgan, Lewis and Bockius LLP,
most recently as a partner since October 1994. Mr. Beck's practice was focused
on mergers, acquisitions and general corporate matters, including
consolidation transactions. Mr. Beck is a graduate of the University of
Pennsylvania, Oxford University and Stanford Law School.
David Ledecky joined the Company as Senior Vice President, Secretary and
Treasurer in September 1997 and was appointed Executive Vice President and
Chief Administrative Officer on November 25, 1997. David Ledecky has also
served as a director since November 25, 1997. Prior thereto, he operated
Ledecky Brothers
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L.L.C., the Company's predecessor, as its Vice President and sole employee
since its inception in February 1997. In that capacity, he researched and
analyzed industry consolidation and acquisition opportunities. From 1992 to
1996, David Ledecky was an attorney at the Washington, D.C. law firm of Comey,
Boyd & Luskin. Prior to 1992, he was an attorney with the law firm of Shearman
& Sterling, and a Vice President of The Legacy Fund, Inc. in Washington, D.C.
He is a former consultant to the computer and telecommunications industries.
He is a graduate of Harvard College and Yale Law School. David Ledecky is the
brother of Jonathan Ledecky.
Vincent W. Eades has been a director of the Company since November 25, 1997.
Mr. Eades has served as the Senior Vice President of Sales and Marketing for
Starbucks Coffee Co. Inc. since May 1995. Mr. Eades was employed by Hallmark
Cards Inc., most recently as a General Manager from November 1985 through
April 1995. Additionally, he serves as a director of USA Floral.
W. Russell Ramsey has been a director of the Company since November 25,
1997. Mr. Ramsey is President, co-founder and a director of Friedman,
Billings, Ramsey Group, Inc. ("FBR Group"), a holding company engaged in
brokerage, investment banking, corporate finance and asset management
activities in the Washington, D.C. area. He has continuously served as
President of FBR Group and its predecessors since co-founding FBR Group in
1989. FBR, the Representative in the IPO, is a wholly owned indirect
subsidiary of FBR Group. FBR was ranked fourth in terms of lead managed U.S.
IPO dollar volume for 1997 year to date as of October 17, 1997, according to
CommScan EquiDesk. FBR has 230 full-time employees and operates offices in the
Washington, D.C. area, Boston, London, and Irvine. During 1989, Mr. Ramsey
served as a Vice President at Johnston, Lemon & Co., Inc., a Washington, D.C.
brokerage firm. Mr. Ramsey holds a B.A. from The George Washington University.
Mr. Ramsey is a director designee of FBR pursuant to an agreement between the
Company and FBR.
M. Jude Reyes has been a director of the Company since November 25, 1997.
Mr. Reyes has served as Chairman and President of Premium Distributors of
Virginia, L.L.C., a beverage distributor, since 1992. Between 1989 and 1992,
Mr. Reyes served as President and Chairman of Harbor Distributing Company in
Los Angeles, California. He also is a director and investor in three other
beverage distributors and two wholesale food service distributors. Mr. Reyes
is a director designee of FBR pursuant to an agreement between the Company and
FBR.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established an Audit Committee and a
Compensation Committee.
The responsibilities of the Audit Committee include recommending to the
Board of Directors the independent public accountants to be selected to
conduct the annual audit of the books and records of the Company, reviewing
the proposed scope of such audit and approving the audit fees to be paid,
reviewing accounting and financial controls of the Company with the
independent public accountants and the Company's financial and accounting
staff and reviewing and approving transactions between the Company and its
directors, officers and affiliates. Messrs. Eades, Ramsey and Reyes are the
members of the Audit Committee.
The Compensation Committee provides a general review of the Company's
compensation plans to ensure that they meet corporate objectives. The
responsibilities of the Compensation Committee also include administering the
Incentive Plan and Bonus Plan, including selecting the officers and salaried
employees to whom awards will be granted. Messrs. Eades and Reyes, independent
directors of the Company, are the members of the Compensation Committee.
DIRECTOR COMPENSATION
Directors who are not receiving compensation as officers, employees or
consultants of the Company are entitled to receive an annual retainer fee of
$25,000. In addition, pursuant to the Consolidation Capital Corporation 1997
Non-Employee Directors' Stock Plan, each non-employee director receives an
automatic initial grant of options to purchase 20,000 shares of Common Stock
on the date of their initial election to the Board of Directors, and an
automatic
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annual grant of options to purchase 5,000 shares. Each such option will have
an exercise price equal to the fair market value of a share of Common Stock on
the date of grant. See "--1997 Non-Employee Directors' Stock Plan."
EXECUTIVE COMPENSATION
The Company paid David Ledecky an annualized salary of $125,000 from the
time the Company was founded in February 1997 through November 25, 1997.
Employment Agreements. The Company has entered into an employment agreement
with Jonathan Ledecky. The agreement has a one-year term and is automatically
renewable for one-year terms thereafter unless either party gives notice of
non-renewal at least 90 days prior to the end of the term. Pursuant to the
terms of the agreement, Jonathan Ledecky is obligated to devote the
substantial majority of his business time, attention and efforts to his duties
thereunder, except when necessary to fulfill his fiduciary obligations to USOP
and the provisions of his employment agreement with USOP, as well as his
fiduciary obligations to USA Floral, US Leasing and Unison Partners, a private
company of which he intends to be a minority investor. The agreement provides
for an annual salary of $750,000 and a discretionary bonus in an amount up to
100% of the employee's base salary. If the agreement is terminated by the
Company other than for Cause (as defined), Jonathan Ledecky is entitled to
receive an amount equal to twice his base salary and one times the bonus he
received in the prior year. The agreement prohibits Jonathan Ledecky from
competing with the Company during the term of his employment and for a period
of one year thereafter. The agreement also provides for certain specified
executive perquisites.
The Company has entered into employment agreements with each of F. Traynor
Beck, Timothy Clayton and David Ledecky, the terms of which are substantially
identical. Each of the agreements has a two-year term and is automatically
renewable for one-year terms thereafter, unless either party gives notice of
non-renewal at least six months prior to the end of the term. Pursuant to the
terms of the agreements, each of F. Traynor Beck, Timothy Clayton and David
Ledecky is obligated to devote his full business time, attention and efforts
to his duties thereunder. Each of the agreements provides for an annual salary
of $300,000, a guaranteed bonus of $200,000 for the first year of the term and
a discretionary bonus in an amount of up to 100% of the employee's base salary
each year thereafter. On the Effective Date, each of these executive officers
received a grant of an option to purchase 500,000 shares of Common Stock at an
exercise price equal to the initial public offering price per share ($20.00),
which option will vest ratably on the first, second, third and fourth
anniversaries of the date of grant, unless accelerated under certain
conditions. If the agreement is terminated by the Company other than for Cause
(as defined), the executive officer will be entitled to receive amounts equal
to twice his base salary and one times the bonus he received in the prior
year. The agreements prohibit the executive officer from competing with the
Company during the term of his employment and for a period of one year
thereafter. The agreements also provide for certain specified executive
benefits and perquisites, including, in the case of Timothy Clayton, the
purchase of an annuity contract to be placed in a deferred compensation plan
that will provide him with an annual payout of $100,000 for each year of his
life between age 55 and age 75.
1997 LONG-TERM INCENTIVE PLAN
The Company has adopted the Consolidation Capital Corporation 1997 Long-Term
Incentive Plan (the "Incentive Plan"). The maximum number of shares of Common
Stock that may be subject to outstanding awards may not be greater than that
number of shares equal to 9% of the number of shares of Common Stock
outstanding from time to time. Awards may be settled in cash, shares, other
awards or other property, as determined by the Compensation Committee. The
number of shares reserved or deliverable under the Incentive Plan and the
annual per-participant limit on the number of shares as to or with reference
to which awards may be granted are subject to adjustment in the event of stock
splits, stock dividends and other extraordinary corporate events. The
Incentive Plan may be amended by the Board without the consent of the
stockholders of the Company, except that any amendment, although effective
when made, will be subject to stockholder approval if required by any federal
or state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.
26
<PAGE>
The purpose of the Incentive Plan is to provide executive officers
(including directors who also serve as executive officers), key employees,
consultants and other service providers with additional incentives by enabling
such persons to increase their ownership interests in the Company. Individual
awards under the Incentive Plan may take the form of one or more of: (i)
either incentive stock options ("ISOs") or non-qualified stock options; (ii)
stock appreciation rights ("SARs"); (iii) restricted or deferred stock; (iv)
dividend equivalents; (v) bonus shares and awards in lieu of Company
obligations to pay cash compensation; and (vi) other awards the value of which
is based in whole or in part upon the value of the Common Stock. Upon a change
of control of the Company (as defined in the Incentive Plan), certain
conditions and restrictions relating to an award with respect to the
exercisability or settlement of such award may be accelerated.
The Compensation Committee will administer the Incentive Plan and generally
select the individuals who will receive awards and the terms and conditions of
those awards (including exercise prices, vesting and forfeiture conditions,
performance conditions and periods during which awards will remain
outstanding). The Incentive Plan also provides that no participant may be
granted in any calendar year awards relating to more than 1,000,000 shares and
limits payments under cash-settled awards in any calendar year to an amount
equal to the fair market value of that number of shares.
Pursuant to the Incentive Plan, non-qualified stock options may, but need
not, be granted at an exercise price less than the fair market value of a
share of Common Stock on the date of grant. If the Company grants non-
qualified stock options at an exercise price less than such grant date fair
market value, then the Company will be required to recognize compensation
expense in an amount equal to the difference between the exercise price and
such fair market value.
The Company generally will be entitled to a tax deduction equal to the
amount of compensation realized by a participant through awards under the
Incentive Plan, except that (i) no deduction is permitted in connection with
ISOs if the participant holds the shares acquired upon exercise for the
required holding periods, and (ii) deductions for some awards could be limited
under the $1 million deductibility cap of Section 162(m) of the Internal
Revenue Code. This limitation, however, should not apply to awards granted
under a plan during a grace period of up to three years following the
Offering, and should not apply to certain options, SARs and performance-based
awards granted thereafter if the Company complies with certain requirements
under Section 162(m).
On November 25, 1997, the Company granted options under the Incentive Plan
to purchase 500,000 shares to each of Timothy Clayton, F. Traynor Beck and
David Ledecky, at an exercise price equal to the initial public offering price
per share ($20.00). The options vest 25% each on the first four anniversaries
of the date of grant, unless accelerated under certain conditions, and expire
on the tenth anniversary of the date of grant.
1997 NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Company has adopted the Consolidation Capital Corporation 1997 Non-
Employee Directors' Stock Plan (the "Directors' Plan"), which provides for the
automatic grant to each non-employee director of an option ("Initial Grant")
to purchase 20,000 shares on the later of Effective Date or the date that such
person commences services as a director. Thereafter, each non-employee
director is entitled to receive, on the day after each annual meeting of the
Company's stockholders, an option to purchase 5,000 shares of Common Stock. A
total of 300,000 shares are reserved for issuance under the Directors' Plan.
The number of shares reserved, as well as the number to be subject to
automatically granted options, will be adjusted in the event of stock splits,
stock dividends and other extraordinary corporate events.
Options granted under the Directors' Plan will have an exercise price per
share equal to the fair market value of a share at the date of grant (in the
case of Initial Grants on November 25, 1997, the initial public offering price
per share). Options will expire at the earlier of (i) 10 years from the date
of grant and (ii) one year after the date the director ceases to serve as a
director of the Company for any reason, provided, however, that with respect
to clause (ii), the option will be exercisable during such one-year period
only to the extent it was exercisable on
27
<PAGE>
the date of such cessation. Options will generally vest and become exercisable
in two equal installments. The first installment will become exercisable on
the date that is six months from the date the option is granted and the second
installment will be exercisable on the date that is one year from the date the
option is granted. In the event of a change in control of the Company unless
otherwise determined by the Board, prior to normal vesting, all options not
already exercisable will become fully vested and exercisable under the
Directors' Plan. A non-employee director's death would also cause immediate
vesting of his or her non-vested options. In addition, the Directors' Plan
permits non-employee directors to elect to receive, in lieu of cash directors'
fees, nonforfeitable shares or nonforfeitable credits representing "deferred
shares" which will be settled at future dates, as elected by the director. The
number of shares or "deferred shares" received will be equal to the number of
shares which, at the date the fees would otherwise be payable, will have an
aggregate fair market value equal to the amount of such fees. Each "deferred
share" will be settled by delivery of a share of Common Stock at such time as
may have been elected by the director prior to the deferral.
1997 SECTION 162(M) BONUS PLAN
The Company has adopted the Consolidation Capital Corporation 1997 Section
162(m) Bonus Plan (the "Bonus Plan"). Section 162(m) of the Internal Revenue
Code generally disallows a public company's tax deduction in excess of $1
million for compensation to its chief executive officer and the four other
most highly compensated executive officers, subject to several exceptions,
including an exception for compensation paid under a stockholder-approved plan
that is "performance-based" within the meaning of Section 162(m). The Bonus
Plan provides a means for the payment of performance-based bonuses to certain
key executive officers of the Company while preserving the Company's tax
deduction with respect to the payment thereof. The Company believes that, as a
matter of general policy, the Company's incentive compensation plans should be
structured to facilitate compliance with Section 162(m), but that the Company
should reserve the right to establish separate annual and other incentive
compensation arrangements for otherwise covered executive officers that may
not comply with Section 162(m) if it determines, in its sole discretion, that
to do so would be in the best interests of the Company and its stockholders.
The Bonus Plan will be administered by the Compensation Committee, which
consists of at least two non-employee directors, each of whom is intended to
qualify as an "outside director" within the meaning of Section 162(m) of the
Internal Revenue Code. The Compensation Committee has broad administrative
authority to, among other things, designate participants, establish
performance goals and performance periods, determine the effect of participant
termination of employment and "change of control" transactions (as defined in
the Bonus Plan, which is the same definition as that set forth in the
Incentive Plan) prior to payment of an award, pay the bonus in stock under the
Incentive Plan and generally interpret and administer the Bonus Plan. The
Compensation Committee has not, to date, designated any participants or
established any performance goals under the Bonus Plan.
Participants in the Bonus Plan for any given performance period may include
any key employee of the Company (including any subsidiary, operating unit or
division) who is also an executive officer of the Company, and who is
designated as a participant for such period by the Compensation Committee. The
participants in the Bonus Plan for any given period will be designated by the
Compensation Committee, in its sole discretion, within the earlier of each
performance period or the date on which 25% of such performance period has
been completed (such period, the "Applicable Period"). This determination may
vary from period to period, and will be based primarily on the Compensation
Committee's judgment as to which executive officers are likely to be named in
the Company's proxy statement as the chief executive officer or one of the
other four most highly compensated executive officers of the Company as of the
end of such performance period, and which are reasonably expected to have
compensation in excess of $1 million.
Within the Applicable Period, the Compensation Committee will specify the
applicable performance criteria and targets to be used under the Bonus Plan
for such performance period, which may vary from participant to participant,
and will be based on one or more of the following Company, subsidiary,
operating unit or division financial performance measures: pre-tax or after-
tax net income, operating income, gross revenue, profit margin, stock price,
cash flows, or strategic business criteria consisting of one or more
objectives based upon meeting specified revenue, market penetration,
geographic business expansion goals, cost targets, and goals relating to
28
<PAGE>
acquisitions or divestitures. These performance measures or goals may be (i)
expressed on an absolute or relative basis, (ii) based on internal targets,
(iii) based on comparison(s) with prior performance, (iv) based on
comparison(s) to capital, stockholders' equity, shares outstanding, assets or
net assets, and/or (v) based on comparison(s) to the performance of other
companies. For example, an income-based performance measure could be expressed
in a number of ways, such as net earnings per share, or return on equity, or
with reference to meeting or exceeding a specific target, or with reference to
growth above a specified level, such as prior year's performance or peer group
performance. The Bonus Plan provides that the achievement of such goals must
be substantially uncertain at the time they are established, and are subject
to the Compensation Committee's right to reduce the amount of any award
payable as a result of such performance as discussed below.
The target bonus opportunity for each participant may be expressed as a
dollar-denominated amount or as a percentage share of a bonus pool to be
created under the Bonus Plan, provided that, if a pool approach is used, the
total bonus opportunities represented by the shares designated for the
participants may not exceed 100% of the pool, and the Compensation Committee
has the sole discretion to reduce (but not increase) the actual bonus awarded
under the Plan. The actual bonus awarded to any given participant at the end
of a given performance period will be based on the extent to which the
applicable financial performance goals for such performance period are
achieved as determined by the Compensation Committee. The maximum bonus
payable under the Plan to any one individual in any one calendar year is $3
million. Bonuses earned under the Bonus Plan may be payable in cash, or if
permitted under the Incentive Plan, in Common Stock or other equity based
awards.
The Board may at any time amend or terminate the Bonus Plan, provided that
(i) without a participant's written consent, no such amendment or termination
will adversely affect the annual bonus rights (if any) of any already
designated participant for a given performance period once the participant
designations and performance goals for such performance period have been
announced, (ii) the Board will be authorized to make any amendments necessary
to comply with applicable regulatory requirements (including, without
limitation, Section 162(m)), and (iii) the Board will submit any Bonus Plan
amendments for the approval of the stockholders of the Company if and to the
extent such approval is required under Section 162(m) of the Internal Revenue
Code.
1997 EMPLOYEE STOCK PURCHASE PLAN
The Company has adopted the Consolidation Capital Corporation 1997 Employee
Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan permits eligible
employees of the Company and its subsidiaries (generally all employees whose
customary employment is for more than 20 hours per week and who were employed
on the date on which the offering first commenced or have completed one year
of service) to purchase shares of Common Stock at a discount. Employees who
elect to participate will have amounts withheld through payroll deductions
during purchase periods. At the end of each purchase period, accumulated
payroll deductions will be used to purchase stock at a price equal to 85% of
the market price at the beginning of the period or the end of the period,
whichever is lower. Stock purchased under the Purchase Plan will be subject to
a one-year holding period. The Company has reserved 1,000,000 shares of Common
Stock for issuance under the Purchase Plan.
The Purchase Plan will remain in effect until terminated by the Board or
until no shares of Common Stock are available for issuance under the Purchase
Plan. The Purchase Plan may be amended by the Board without the consent of the
stockholders of the Company, except that any amendment, although effective
when made, will be subject to stockholder approval if required by any federal
or state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.
OTHER PLANS
The Company intends to adopt a "401(k)" plan. This plan will allow eligible
employees of the Company and its subsidiaries to contribute to the plan on a
pre-tax basis. The Company will likely make matching contributions related to
employee contributions, and may also make year-end discretionary contributions
based on the performance of the Company. It is anticipated that discretionary
contributions will be invested in shares of Common Stock, and that employees
may direct the investment of their own contributions and matching
contributions made on their behalf among several investment options, including
shares of Common Stock.
29
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Set forth below is a description of certain transactions and relationships
between the Company and certain persons who are officers, directors and
principal stockholders of the Company.
Jonathan Ledecky, the Company's Chairman, Chief Executive Officer and
founder, is the brother of David Ledecky, Executive Vice President, Chief
Administrative Officer and a director of the Company.
Jonathan Ledecky advanced to the Company $305,000, at an annual interest
rate equal to 6.75%, to pay the expenses incurred in connection with the IPO.
The Company repaid Jonathan Ledecky's loans to the Company, including accrued
interest of approximately $4,000, using the proceeds of the IPO.
W. Russell Ramsey, a director of the Company, is President and a principal
stockholder of FBR. FBR rendered investment banking services to the Company in
connection with the IPO.
Timothy C. Clayton, Executive Vice President, Chief Financial Officer and
Treasurer of the Company, was, through October 1997, a Partner at Price
Waterhouse LLP, the Company's independent accountants.
F. Traynor Beck, Executive Vice President, General Counsel and Secretary of
the Company, was, until the Effective Date, a partner at Morgan, Lewis &
Bockius LLP, the Company's legal counsel.
For information with respect to certain conflicts of interest, see
"Business--Conflicts of Interest."
30
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of December 2, 1997, by: (i) each person (or
group of affiliated persons) known by the Company to be the beneficial owner
of more than five percent of the outstanding Common Stock; (ii) each director
of the Company; (iii) each executive officer of the Company; and (iv) all of
the Company's directors and executive officers as a group. Each stockholder
possesses sole voting and investment power with respect to the shares listed,
unless otherwise noted.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OF CONVERTIBLE
NUMBER OF CONVERTIBLE NON- PERCENTAGE OF NON-VOTING
NAME AND ADDRESS OF SHARES OF VOTING COMMON STOCK COMMON STOCK
BENEFICIAL OWNER COMMON STOCK COMMON STOCK OWNED OWNED
- ------------------- ------------ ------------------- ------------- -------------
<S> <C> <C> <C> <C>
Jonathan J. Ledecky..... 4,500,000(1) 0 15.8% 0%
c/o Consolidation
Capital Corporation
1747 Pennsylvania
Avenue, N.W., Suite 900
Washington, DC 20006
David Ledecky........... 0 0 0 0
F. Traynor Beck......... 0 0 0 0
Timothy C. Clayton...... 0 0 0 0
Vincent W. Eades........ 0 0 0 0
W. Russell Ramsey(2).... 0 500,000 0 100%
M. Jude Reyes........... 0 0 0 0
All directors and
executive officers as a
group (7 persons)...... 4,500,000 500,000 15.8% 100%
</TABLE>
- --------
(1) Includes: (i) 1,950,000 shares underlying the Ledecky Warrant and (ii) the
2,300,000 shares of Common Stock subject to a contractual restriction on
transfer for one year following the Effective Date. The Company has agreed
that, at Jonathan Ledecky's request, it will file a registration statement
under the Securities Act for an offering of the shares underlying the
Ledecky Warrant during a ten-year period beginning on the Effective Date.
In addition, the Company has agreed to give Jonathan Ledecky the right to
request that the Company include the shares underlying the Ledecky Warrant
on a registration statement filed by the Company during a twelve-year
period beginning on the Effective Date.
(2) Represents the shares of Convertible Non-Voting Common Stock owned by FBR
Asset Investment Corporation, Inc., an indirect wholly owned subsidiary of
FBR Group. Mr. Ramsey is President, co-founder and a director of FBR
Group. Mr. Ramsey disclaims beneficial ownership of such shares. Mr.
Ramsey's address is c/o FBR Group, 1001 North 19th Street, Arlington, VA
22209.
31
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 250,000,000 shares
of Common Stock, par value $.001 per share, and 500,000 shares of Convertible
Non-Voting Common Stock, par value $.001 per share. As of December 2, 1997 the
Company had outstanding 26,550,000 shares of Common Stock and 500,000 shares
of Convertible Non-Voting Common Stock. The following summary description of
the capital stock of the Company does not purport to be complete and is
subject to the detailed provisions of, and is qualified in its entirety by
reference to, the Company's Restated Certificate of Incorporation and Amended
and Restated Bylaws and to the applicable provisions of the General
Corporation Law of the State of Delaware (the "DGCL").
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Cumulative
voting is not permitted under the Company's Restated Certificate of
Incorporation. Holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available. See "Dividend Policy." In the event of a liquidation, dissolution
or winding up of the Company, holders of the Common Stock are entitled to
share ratably in the distribution of all assets remaining after payment of
liabilities, subject to the rights of any holders of preferred stock of the
Company. The holders of Common Stock have no preemptive rights to subscribe
for additional shares of the Company and no right to convert their Common
Stock into any other securities. In addition, there are no redemption or
sinking fund provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are, and the shares of Common Stock offered hereby will
be, fully paid and nonassessable.
CONVERTIBLE NON-VOTING COMMON STOCK
The holders of Convertible Non-Voting Common Stock have the same rights and
privileges as the holders of Common Stock, except that holders of Convertible
Non-Voting Common Stock have no voting rights. The Convertible Non-Voting
Common Stock is non-transferable and will not be publicly traded. Further,
each share of Convertible Non-Voting Common Stock will automatically be
converted into one share of Common Stock on the first anniversary of the date
of this Prospectus.
CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION
The Company is subject to the provisions of Section 203 of the DGCL. Section
203 prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. A "business combination" includes a merger, asset sale or
other transaction resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three
years prior to the proposed business combination has owned 15% or more of the
corporation's voting stock.
The Company's Restated Certificate of Incorporation provides that a director
shall not be liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL
or (iv) for any transaction from which the director derived any improper
personal benefit. The effect of this provision is to eliminate the rights of
the Company and its stockholders (through stockholders' derivative suits on
behalf of the Company) to recover monetary damages against a director for
breach of fiduciary duty of care as a director except in the situation
described in clauses (i) through (iv) above. If the DGCL is subsequently
amended to authorize the further elimination or limitation of the liability of
a director, then the liability of a director of the Company shall be
eliminated or limited to the fullest extent permitted by the DGCL, as so
amended.
32
<PAGE>
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
PLAN OF DISTRIBUTION
The Company will offer and issue the Common Stock from time to time in
connection with the acquisition by the Company of other businesses, assets or
securities. It is expected that the terms of the acquisitions involving the
issuances of securities covered by this Prospectus will be determined by
direct negotiations with the owners or controlling persons of the businesses,
assets or securities to be acquired by the Company. No underwriting discounts
or commission will be paid, although finder's fees may be paid from time to
time with respect to specific mergers or acquisitions. Any person receiving
such fees may be deemed to be an underwriter within the meaning of the
Securities Act. This Prospectus can, in the Company's discretion, be used for
the resale of shares of Common Stock by persons named in further supplements
to this Prospectus.
RESTRICTIONS ON RESALE
Affiliates of entities acquired by the Company who do not become affiliates
of the Company may not resell Common Stock registered under the Registration
Statement to which this Prospectus relates except pursuant to an effective
registration statement under the Securities Act covering such shares, or in
compliance with Rule 145 promulgated under the Securities Act or another
applicable exemption from the registration requirements of the Securities Act.
Generally, Rule 145 permits such affiliates to sell such shares immediately
following the acquisition in compliance with certain volume limitations and
manner of sale requirements. Under Rule 145, sales by such affiliates during
any three-month period cannot exceed the greater of (i) 1% of the shares of
Common Stock of the Company outstanding and (ii) the average weekly reported
volume of trading of such shares of Common Stock on all national securities
exchanges during the four calendar weeks preceding the proposed sale. These
restrictions will cease to apply under most other circumstances if the
affiliate has held the Common Stock for at least one year, provided that the
person or entity is not then an affiliate of the Company. Individuals who are
not affiliates of the entity being acquired and do not become affiliates of
the Company will not be subject to resale restrictions under Rule 145 and,
unless otherwise contractually restricted, may resell Common Stock immediately
following the acquisition without an effective registration statement under
the Securities Act. The ability of affiliates to resell shares of the Common
Stock under Rule 145 will be subject to the Company having satisfied its
Exchange Act reporting requirements for specified periods prior to the time of
sale.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Morgan, Lewis & Bockius LLP, Washington, D.C. F.
Traynor Beck, the Company's Executive Vice President, General Counsel and
Secretary was, until the Effective Date, a partner at Morgan, Lewis & Bockius
LLP, the Company's legal counsel.
EXPERTS
The balance sheet of Consolidation Capital Corporation as of September 30,
1997 included in this Prospectus has been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
33
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................................... F-2
Balance Sheet as of September 30, 1997 ..................................... F-3
Notes to Balance Sheet...................................................... F-4
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of Consolidation Capital Corporation
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Consolidation Capital Corporation
at September 30, 1997, in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the Company's
management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this statement in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
November 17, 1997
except as to the first
paragraph of Note 2,
which is as of November 25, 1997
F-2
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
<S> <C>
ASSETS
Cash........................................................ $ 16
Deferred stock issuance costs............................... 315
Computer equipment.......................................... 8
-----
Total assets............................................ $339
=====
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued liabilities....................................... $ 110
Payable to stockholder.................................... 206
-----
Total liabilities....................................... 316
-----
Stockholder's equity:
Common stock, $.001 par, 250,000,000 shares authorized,
2,300,000 shares issued and outstanding.................. 2
Additional paid-in capital................................ 124
Accumulated deficit....................................... (103)
-----
Total stockholder's equity.............................. 23
-----
Total liabilities and stockholder's equity.............. $ 339
=====
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO BALANCE SHEET
(DOLLARS IN THOUSANDS)
NOTE 1--BUSINESS AND ORGANIZATION
Consolidation Capital Corporation, a Delaware corporation (the "Company"),
was incorporated in September 1997. Ledecky Brothers L.L.C., ("LLC"), a
limited liability corporation, merged with and into the Company in September
1997 (the "Merger"). The sole member of LLC received, in connection with the
Merger, 2,300,000 shares of Common Stock of the Company which represents all
of its issued and outstanding Common Stock, in exchange for 100% of his
ownership interest in the LLC. The Merger was implemented to facilitate a
public offering of securities. On September 23, 1997, the Company filed a
registration statement on Form S-1 for the purpose of the public offering of
Common Stock. Each of LLC and the Company adopted a year-end of December 31.
LLC, the predecessor company, was created in February 1997 to pursue
industry consolidation activities and research. Neither the Company nor LLC
had any operations which generated revenue. The only activities included the
payment of a salary and miscellaneous operating expenses incurred in
connection with the analysis of industry consolidation opportunities. The
Company has also incurred and deferred certain stock issuance costs.
Accordingly, statements of operations and cash flows and earnings per share
information for this period would not provide meaningful information and have
been omitted. Because both of the organizations were under control of the one
sole owner, the Merger has been accounted for on a historical cost basis.
LLC was a nontaxable entity and the tax benefits flowed through to the
member. Accordingly, no future tax benefits attributable to the accumulated
losses of LLC will be available to the Company.
NOTE 2--STOCKHOLDER'S EQUITY
Common Stock
The Company intends to effect a one-for-1.918159 reverse stock split just
prior to the initial public offering of the Company's Common Stock.
Accordingly, all share data reflected in this financial statement have been
retroactively restated.
On September 19, 1997, the sole member of LLC received 2,300,000 shares of
Common Stock of the Company in connection with the Merger in exchange for his
100% ownership interest in LLC. The sole member made contributions to LLC from
time to time to fund expenses in the aggregate amount of $126. These
contributions were included in common stock and additional paid-in capital at
September 30, 1997.
Common Stock Warrants
Conditioned upon the execution of the underwriting agreement in connection
with the public offering of Common Stock, the Company's Board of Directors has
authorized the delivery to Friedman, Billings, Ramsey & Co. Inc. ("FBR"), as
representative of the underwriters, warrants to purchase 1,130,000 shares of
Common Stock at an exercise price per share equal to the initial public
offering price per share. These warrants will be exercisable on or after the
first anniversary and until the fifth anniversary of the initial public
offering.
Additionally, 1,950,000 shares of the Company's Common Stock have been
reserved for issuance upon the exercise of a warrant to be issued to Jonathan
Ledecky at the time of the initial public offering. This warrant will be
exercisable immediately following issuance for a period of ten years at an
exercise price equal to the initial public offering price.
Convertible Non-Voting Common Stock
In November 1997, the Company's Board of Directors authorized 500,000 shares
of Convertible Non-Voting Common Stock (par value of $.001 per share).
Conditioned upon the execution of the underwriting
F-4
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO BALANCE SHEET--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2--STOCKHOLDER'S EQUITY (CONTINUED)
agreement in connection with the public offering of Common Stock, it is
anticipated that an affiliate of FBR will purchase all of the authorized
shares of Convertible Non-Voting Common Stock from the Company at a price
equal to the initial public offering price per share. After one year, the
shares of Convertible Non-Voting Common Stock will automatically convert into
an equivalent number of shares of Common Stock.
1997 Long-Term Incentive Plan
The Company's Board of Directors has adopted, and the Company's stockholder
has approved, the Company's 1997 Long-Term Incentive Plan (the "Incentive
Plan"). The terms of the option awards will be established by the Compensation
Committee of the Company's Board of Directors. The Company intends to file a
registration statement on Form S-8 under the Securities Act of 1933 as soon as
practicable after the consummation of the offering with respect to the shares
of Common Stock issuable pursuant to such plans. The maximum number of shares
that may be issued under the Incentive Plan is equal to 9% of the number of
shares of Common Stock outstanding from time to time.
Options to purchase 1,500,000 shares of Common Stock under the Incentive
Plan are expected to be granted at the time of the public offering at an
exercise price equal to the initial public offering price per share. The
options to be granted are expected to vest 25% each on the first four
anniversaries of the date of grant and are expected to expire on the tenth
anniversary of the grant date. In the event of a change in control of the
Company prior to normal vesting, all options not already exercisable will
become fully vested and exercisable.
1997 Non-Employee Directors' Stock Plan
The Company's Board of Directors has adopted, and the Company's stockholder
has approved, the 1997 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which provides for the automatic grant to each nonemployee director of
an option to purchase 20,000 shares on the later of the effective date of the
registration statement for the initial public offering of the Company's Common
Stock or the date that such person commences services as a director.
Thereafter, each non-employee director will be entitled to receive, on the day
after each annual meeting of the Company's stockholders, an option to purchase
5,000 shares of Common Stock. A maximum of 300,000 shares of Common Stock may
be issued under the Directors' Plan. Options to purchase 60,000 shares of
Common Stock under the Directors' Plan are expected to be granted at the time
of the public offering at an exercise price equal to the initial public
offering price per share.
Options granted under the Directors' Plan will have an exercise price per
share equal to the fair market value of a share at the date of grant. Options
will expire at the earlier of 10 years from the date of grant or 90 days after
termination of service as a director. Options will vest and become exercisable
ratably as to 50% of the shares underlying the Option on the first and second
anniversaries of the date of grant, subject to acceleration by the Board. In
the event of a change in control of the Company prior to normal vesting, all
options not already exercisable will become fully vested and exercisable.
1997 Employee Stock Purchase Plan
The Company has adopted, and the Company's stockholder has approved, the
1997 Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan
permits eligible employees of the Company and its subsidiaries (generally all
full-time employees who have completed one year of service) to purchase shares
of Common Stock at a discount. Employees who elect to participate will have
amounts withheld through payroll deduction during purchase periods. At the end
of each purchase period, accumulated payroll deductions will be used to
purchase stock at a price equal to 85% of the market price at the beginning of
the period or the end of
F-5
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO BALANCE SHEET--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2--STOCKHOLDER'S EQUITY (CONTINUED)
the period, whichever is lower. Stock purchased under the Purchase Plan will
be subject to a one-year holding period. The Company has reserved 1,000,000
shares of Common Stock for issuance under the Purchase Plan.
NOTE 3--DEFERRED STOCK ISSUANCE COSTS
At September 30, 1997, the Company had incurred approximately $315 of costs
in connection with the contemplated public offering of Common Stock, comprised
as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.................... $174
NASD fee............................................................... 31
Printing expenses...................................................... 10
Accounting fees........................................................ 25
Legal fees............................................................. 75
----
$315
====
</TABLE>
These costs have been deferred and reflected as an asset in the accompanying
September 30, 1997 balance sheet. After receipt of the proceeds from the
public offering, the stock issuance costs will be reclassified to additional
paid-in capital in the Company's balance sheet as a reduction to the gross
proceeds from the offering. At September 30, 1997, $205 of the stock issuance
costs had been paid. The remainder of these costs have been included in
accrued liabilities and are expected to be paid using the proceeds from the
Common Stock offering.
NOTE 4--PAYABLE TO STOCKHOLDER
Jonathan Ledecky, the sole stockholder, has advanced to the Company $206 to
pay certain fees in connection with the registration of the Common Stock. Such
demand notes bear interest at 6.75% annually. The Company intends to repay
such stockholder payable and related accrued interest using the proceeds from
the Common Stock offering.
NOTE 5--STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting-
for-Stock-Based Compensation," allows entities to choose between a fair value
based method of accounting for employee stock options or similar equity
instruments and the intrinsic, value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25 ("APB No. 25"). Entities electing
to apply the accounting in APB No. 25 must make pro forma disclosures of net
income and earnings per share as if the fair value method of accounting has
been applied. The Company will provide pro forma disclosure of net income and
earnings per share, as applicable, in the notes to future financial
statements.
NOTE 6--NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share." For the Company, SFAS No. 128 will be effective
for the year ending December 31, 1997. SFAS No. 128 simplifies the standards
required under current accounting rules for computing earnings per share and
replaces the presentation of primary earnings per share and fully diluted
earnings per share with a presentation of basic earnings per share ("basic
EPS") and diluted earnings per share ("diluted EPS"). Basic EPS excludes
dilution and is determined by dividing income available to common stockholders
by the weighted average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution that could occur if securities and
other contracts to issue common stock were exercised or converted into common
stock. Diluted EPS is computed similarly to fully diluted earnings per share
under current accounting rules.
F-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth fees payable to the Securities and Exchange
Commission and other estimated expenses expected to be incurred in connection
with issuance and distribution of securities being registered. All such fees
and expenses shall be paid by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee................ $145,582
Nasdaq National Market Listing Fee................................. 17,500
Printing Expenses.................................................. 75,000*
Accounting Fees and Expenses....................................... 25,000*
Legal Fees and Expenses............................................ 50,000*
Miscellaneous...................................................... 86,918*
--------
Total............................................................ $400,000
========
</TABLE>
- --------
* Estimate
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
permits a corporation, in its certificate of incorporation, to limit or
eliminate, subject to certain statutory limitations, the liability of
directors to the corporation or its stockholders for monetary damages for
breaches of fiduciary duty, except for liability (a) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any
transaction from which the director derived an improper personal benefit.
Article 10 of the Company's Restated Certificate of Incorporation provides
that the personal liability of directors of the Company is eliminated to the
extent permitted by Section 102(b)(7) of the DGCL.
Section 145 of the DGCL (i) requires a corporation to indemnify for
expenses, including attorney's fees, incurred by a director or officers who
has been successful in defending any claim or proceeding in which the director
or officer is involved because of his or her position with the corporation,
(ii) permits indemnification (a) for judgments, fines, expenses and amounts
paid in settlement in the case of a claim by a party other than the
corporation or in the right of the corporation, even where a director or
officer has not been successful, in cases where the director or officer acted
in good faith and in a manner that he or she reasonably believed was in or not
opposed to the best interests of the corporation provided, in the case of a
criminal proceeding, that the director or officer had no reason to believe his
or her conduct was unlawful or (b) for expenses in the case of a claim or
proceeding by or in the right of the corporation, including a derivative suit
(but not judgments, fines or amounts in settlement), if the director or
officer acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the corporation and has not been
adjudged liable to the corporation unless a court determines that, despite
such adjudication but in view of all of the circumstances, he or she is
entitled to indemnification, and (iii) permits the advancement of expenses to
directors and officers who are defending an action, lawsuit or proceeding upon
receipt of an undertaking for the repayment of such advance if it is
ultimately determined that the director or officer has not met the applicable
standard of conduct and is, therefore, not entitled to be indemnified. Section
145 also provides that the permissive indemnification described above is to be
made upon a determination that the director or officer has met the required
standard of conduct by (a) a majority of disinterested directors, (b) a
committee of disinterested directors designated by a majority of such
directors, (c) independent legal counsel or (d) the stockholders.
The Company has entered into Indemnity Agreements because the Board believes
that the Company's directors' and officers' insurance does not fully protect
the directors and executive officers and that the absence of Indemnity
Agreements may threaten the quality and stability of the governance of the
Company by reducing the Company's ability to attract and retain qualified
persons to serve as directors and executive officers of the
II-1
<PAGE>
Company, and by deterring such persons in the making of entrepreneurial
decisions for fear of later legal challenge. In addition, the Board of
Directors believes that the Indemnity Agreements complement the
indemnification rights and liability protections currently provided directors
and executive officers of the Company under the Amended and Restated Bylaws.
These rights and protections were designed to enhance the Company's ability to
attract and retain highly qualified individuals to serve as directors and
executive officers in view of the high incidence of litigation, often
involving large amounts, against publicly-held companies and the need to
provide such persons with reliable knowledge of the legal risks to which they
are exposed. The Indemnity Agreements complement these rights and protections
by providing directors and executive officers with contractual rights to
indemnification, regardless of any amendment to or repeal of the
indemnification provisions in the Bylaws. The Company's Amended and Restated
Bylaws provide that the Company shall indemnify to the fullest extent
authorized or permitted by law directors and officers of the Company who have
been made or threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by reason of the fact that he or she is
or was a director or officer of the Company.
The Indemnity Agreements are predicated upon Section 145(f) which recognizes
the validity of additional indemnity rights granted by contractual agreement.
The Indemnity Agreements alter or clarify statutory indemnity provisions, in a
manner consistent with the Company's Amended and Restated Bylaws, in the
following respects; (i) indemnification is mandatory, rather than optional, to
the full extent permitted by law, including partial indemnification under
appropriate circumstances, except that the Company is not obligated to
indemnify an indemnitee with respect to a proceeding initiated by the
indemnitee (unless the Board should conclude otherwise), payments made by an
indemnitee in a settlement effected without the Company's written consent,
payments that are found to violate the law, conduct found to constitute bad
faith or active and deliberate dishonesty or short-swing profit liability
under Section 16(b) of the Exchange Act or to the extent that indemnification
has been determined to be unlawful in an arbitration proceeding conducted
pursuant to the provisions of the Indemnity Agreement; (ii) prompt payment of
litigation expenses in advance is mandatory, rather than optional, provided
the indemnitee undertakes to repay such amounts if it is ultimately determined
that the indemnitee is not entitled to be indemnified and provided the
indemnitee did not initiate the proceeding; (iii) any dispute arising under
the Indemnity Agreement is to be resolved through an arbitration proceeding,
which will be paid for by the Company unless the arbitrator finds that the
indemnitee's claims or defenses were frivolous or in bad faith, unless such
arbitration is inconsistent with an undertaking given by the Company, such as
to the Securities and Exchange Commission, that the Company will submit to a
court the question of indemnification for liabilities under the Securities Act
of 1933, as amended, and be governed by the final adjudication of such issue;
and (iv) mandatory indemnification shall be paid within 45 days of the
Company's receipt of a request for indemnification unless a determination is
made that the indemnitee has not met the relevant standards for
indemnification by the Board of Directors, or if a quorum of the directors is
not obtainable, at the election of the Company, either by independent legal
counsel or a panel of arbitrators.
The Company maintains a directors' and officers' liability insurance policy
covering certain liabilities which may be incurred by directors and officers
in connection with the performance of their duties. The entire premium for
such insurance is paid by the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In February 1997, Jonathan J. Ledecky, the Company's Chairman and Chief
Executive Officer, founded the Company's predecessor, Ledecky Brothers L.L.C.
On September 19, 1997, Jonathan Ledecky exchanged his 100% interest in Ledecky
Brothers L.L.C. for 4,411,765 shares of the Company's Common Stock, or 100% of
the outstanding shares. The issuances of securities by Ledecky Brothers L.L.C.
and the Company to Jonathan Ledecky were made in reliance upon the exemption
from registration under the Securities Act of 1933, as amended, in Section
4(2).
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are or will be filed as part of this registration
statement:
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO THE
EXHIBIT INDICATED
BELOW TO THE COMPANY'S
REGISTRATION STATEMENT
EXHIBIT ON FORM S-1
NUMBER DESCRIPTION (FILE NO. 333-36193)
------- ----------- ----------------------
<S> <C> <C>
3.01 Restated Certificate of Incorporation of
Consolidation Capital Corporation. 3.01
3.02 Amended and Restated Bylaws of Consolidation
Capital Corporation. 3.02
5.01 Opinion of Morgan, Lewis & Bockius LLP as to
the legality of the securities being
registered. *
10.01 Consolidation Capital Corporation 1997 Long-
Term Incentive Plan. *
10.02 Consolidation Capital Corporation 1997 Non-
Employee Directors' Stock Plan. 10.02
10.03 Consolidation Capital Corporation 1997
Employee Stock Purchase Plan. 10.03
10.04 Consolidation Capital Corporation 1997
Section 162(m) Bonus Plan. 10.04
10.05 Employment Agreement between the Company and
Jonathan J. Ledecky. 10.05
10.06 Employment Agreement between the Company and
Timothy C. Clayton. 10.06
10.07 Employment Agreement between the Company and
F. Traynor Beck. 10.07
10.08 Employment Agreement between the Company and
David Ledecky. 10.08
10.09 Form of Indemnity Agreement for Executive
Officers and Directors of the Company. 10.09
23.01 Consent of Price Waterhouse LLP. *
23.02 Consent of Morgan, Lewis & Bockius LLP
(included in opinion filed as Exhibit 5.1). *
24.01 Power of Attorney (included on signature page
of this registration statement). *
27.01 Financial Data Schedule. *
</TABLE>
- --------
* Filed herewith
(b) Financial statement schedules have been omitted because they are
inapplicable, are not required under applicable provisions of Regulation S-X,
or the information that would otherwise be included in such schedules is
contained in the registrant's financial statements or accompanying notes.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
The undersigned registrant hereby undertakes that:
(1) To file, during any period in which any offers or sales are being
made, a post-effective amendment to the registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any other material change to such information in the registration
statement.
(2) That for the purpose of determining any liability under the Act each
such post-effective amendment may be deemed to be a new registration
statement relating to the securities being offered therein and the offering
of such securities at the time may be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities which are being registered which remain unsold at the
termination of the offering.
(4) To supply by means of a post-effective amendment, Rule 424(c)
supplement or information incorporated by reference, all information
concerning a material transaction, and the company being acquired involved
there, that was not the subject of and included in the registration
statement when it became effective.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT ON TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WASHINGTON,
DISTRICT OF COLUMBIA, ON DECEMBER 15, 1997.
Consolidation Capital Corporation
/s/ Jonathan J. Ledecky
By: _________________________________
JONATHAN J. LEDECKY CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
Each person whose signature appears below hereby appoints Jonathan J.
Ledecky and F. Traynor Beck, and both of them, either of whom may act without
the joinder of the other, as his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and any
registration statements for the same offering filed pursuant to Rule 462 under
the Securities Act of 1933, and to file the same, with all exhibits thereto
and all other documents in connection therewith, with the Commission, granting
unto said attorneys-in-fact and agents full power and authority to perform
each and every act and thing appropriate or necessary to be done, as full and
for all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or their
substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Jonathan J. Ledecky Chairman and Chief December 15, 1997
- ------------------------------------- Executive Officer
JONATHAN J. LEDECKY (Principal Executive
Officer)
/s/ Timothy C. Clayton Executive Vice December 15, 1997
- ------------------------------------- President, Chief
TIMOTHY C. CLAYTON Financial Officer and
Treasurer (Principal
Financial and
Accounting Officer
/s/ David Ledecky Executive Vice December 15, 1997
- ------------------------------------- President, Chief
DAVID LEDECKY Administrative
Officer and Director
/s/ Vincent E. Eades Director December 15, 1997
- -------------------------------------
VINCENT E. EADES
/s/ W. Russell Ramsey Director December 15, 1997
- -------------------------------------
W. RUSSELL RAMSEY
/s/ M. Jude Reyes Director December 15, 1997
- -------------------------------------
M. JUDE REYES
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO THE
EXHIBIT INDICATED
BELOW TO THE COMPANY'S
REGISTRATION STATEMENT
EXHIBIT ON FORM S-1
NUMBER DESCRIPTION (FILE NO. 333-36193)
------- ----------- ----------------------
<C> <S> <C>
3.01 Restated Certificate of Incorporation of
Consolidation Capital Corporation. 3.01
3.02 Amended and Restated Bylaws of Consolidation
Capital Corporation. 3.02
5.01 Opinion of Morgan, Lewis & Bockius LLP as to
the legality of the securities being
registered. *
10.01 Consolidation Capital Corporation 1997 Long-
Term Incentive Plan. *
10.02 Consolidation Capital Corporation 1997 Non-
Employee Directors' Stock Plan. 10.02
10.03 Consolidation Capital Corporation 1997
Employee Stock Purchase Plan. 10.03
10.04 Consolidation Capital Corporation 1997
Section 162(m) Bonus Plan. 10.04
10.05 Employment Agreement between the Company and
Jonathan J. Ledecky. 10.05
10.06 Employment Agreement between the Company and
Timothy C. Clayton. 10.06
10.07 Employment Agreement between the Company and
F. Traynor Beck. 10.07
10.08 Employment Agreement between the Company and
David Ledecky. 10.08
10.09 Form of Indemnity Agreement for Executive
Officers and Directors of the Company. 10.09
23.01 Consent of Price Waterhouse LLP. *
23.02 Consent of Morgan, Lewis & Bockius LLP
(included in opinion filed as Exhibit 5.1). *
24.01 Power of Attorney (included on signature page
of this registration statement). *
27.01 Financial Data Schedule. *
</TABLE>
- --------
* Filed herewith
<PAGE>
EXHIBIT 5.1
December 15, 1997
Consolidation Capital Corporation
1747 Pennsylvania Avenue, N.W.
Suite 900
Washington, D.C. 20007
Re: Issuance of Shares Pursuant to
Registration Statement on Form S-1
Gentlemen:
We have acted as counsel to Consolidation Capital Corporation, a Delaware
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act"), of a Registration Statement on Form S-1 (the "Registration
Statement") relating to the offering by the Company of up to an aggregate of
24,000,000 shares (the "Shares") of the Company's common stock, $.001 par value
per share, which may be issued from time to time.
In so acting, we have examined originals, or copies certified or otherwise
identified to our satisfaction, of such documents, records, certificates and
other instruments of the Company as in our judgment are necessary or
appropriate for purposes of this opinion. We have assumed that the issuance of
such Shares will have been duly authorized, the Shares will have been reserved
for issuance, and certificates evidencing the same will have been duly executed
and delivered, against receipt of the consideration approved by the Board of
Directors of the Company or a committee thereof which will be not less than the
par value thereof.
Based upon the foregoing, we are of the opinion that the Shares, when and to
the extent issued and sold by the Company, will be duly authorized, validly
issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement. In giving such consent, we do not
hereby admit that we are acting within the category of persons whose consent is
required under Section 7 of the Act and the rules and regulations of the
Commission thereunder.
Very truly yours,
Morgan, Lewis & Bockius LLP
<PAGE>
EXHIBIT 10.01
CONSOLIDATION CAPITAL CORPORATION
1997 LONG-TERM INCENTIVE PLAN
1. Purpose. The purpose of this 1997 Long-Term Incentive Plan (the
-------
"Plan") of Consolidation Capital Corporation, a Delaware corporation (the
"Company"), is to advance the interests of the Company and its stockholders by
providing a means to attract, retain and reward directors, officers and other
key employees and consultants of and service providers to the Company and its
subsidiaries and to enable such persons to acquire or increase a proprietary
interest in the Company, thereby promoting a closer identity of interests
between such persons and the Company's stockholders.
2. Definitions. The definitions of awards under the Plan, including
-----------
Options, SARs (including Limited SARs), Restricted Stock, Deferred Stock, Stock
granted as a bonus or in lieu of other awards, Dividend Equivalents and Other
Stock-Based Awards are set forth in Section 6 of the Plan. Such awards,
together with any other right or interest granted to a Participant under the
Plan, are termed "Awards." For purposes of the Plan, the following additional
terms shall be defined as set forth below:
(a) "Award Agreement" means any written agreement, contract, notice or
other instrument or document evidencing an Award.
(b) "Beneficiary" shall mean the person, persons, trust or trusts which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(c) "Board" means the Board of Directors of the Company.
(d) A "Change in Control" shall be deemed to have occurred if:
(i) the date of the acquisition by any "person" (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act), excluding the Company or
any of its subsidiaries or affiliates or any employee benefit plan
sponsored by any of the foregoing, of beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act) of 50% or more of either (x)
the then outstanding shares of common stock of the Company or (y) the then
outstanding voting securities entitled to vote generally in the election of
directors; or
(ii) the date the individuals who constitute the Board as of the date
of the Initial Public Offering (the "Incumbent Board") cease for any reason
to
<PAGE>
constitute at least a majority of the members of the Board, provided
that any individual becoming a director subsequent to the effective date of
this Agreement whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than any individual
whose nomination for election to Board membership was not endorsed by the
Company's management prior to, or at the time of, such individual's initial
nomination for election) shall be, for purposes of this Agreement,
considered as though such person were a member of the Incumbent Board; or
(iii) the consummation of a merger, consolidation, recapitalization,
reorganization, sale or disposition of all or a substantial portion of the
Company's assets, a reverse stock split of outstanding voting securities,
the issuance of shares of stock of the Company in connection with the
acquisition of the stock or assets of another entity, provided, however,
that a Change in Control shall not occur under this clause (iii) if
consummation of the transaction would result in at least 70% of the total
voting power represented by the voting securities of the Company (or, if
not the Company, the entity that succeeds to all or substantially all of
the Company's business) outstanding immediately after such transaction
being beneficially owned (within the meaning of Rule 13d-3 promulgated
pursuant to the Exchange Act) by at least 75% of the holders of outstanding
voting securities of the Company immediately prior to the transaction, with
the voting power of each such continuing holder relative to other such
continuing holders not substantially altered in the transaction.
(e) "Code" means the Internal Revenue Code of 1986, as amended from time to
time. References to any provision of the Code shall be deemed to include
regulations thereunder and successor provisions and regulations thereto.
(f) "Committee" means the committee appointed by the Board to administer
the Plan, or if no committee is appointed, the Board.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time. References to any provision of the Exchange Act shall be
deemed to include rules thereunder and successor provisions and rules thereto.
(h) "Fair Market Value" means, with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the Committee, provided, however, that (i) if the Stock is listed on a
national securities exchange or quoted in an interdealer quotation system, the
Fair Market Value of such Stock on a given date shall be based upon the last
sales price or, if unavailable, the average of the closing bid and asked prices
per share of the Stock on such date (or, if there was no trading or quotation in
the Stock on such date, on
2
<PAGE>
the next preceding date on which there was trading or quotation) as provided by
one of such organizations, (ii) the "fair market value" of Stock on the date on
which shares of Stock are first issued and sold pursuant to a registration
statement filed with and declared effective by the Securities and Exchange
Commission shall be the Initial Public Offering price of the shares so issued
and sold, as set forth in the first final prospectus used in such offering and
(iii) the "fair market value" of Stock prior to the date of the Initial Public
Offering shall be as determined by the Board.
(i) "Initial Public Offering" shall mean an initial public offering of
shares of Stock in a firm commitment underwriting registered with the Securities
and Exchange Commission in compliance with the provisions of the 1933 Act.
(j) "ISO" means any Option intended to be and designated as an incentive
stock option within the meaning of Section 422 of the Code.
(l) "Participant" means a person who, at a time when eligible under Section
5 hereof, has been granted an Award under the Plan.
(m) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(n) "Stock" means the Common Stock, par value $.001, of the Company and
such other securities as may be substituted for Stock or such other securities
pursuant to Section 4.
3. Administration.
--------------
(a) Authority of the Committee. The Plan shall be administered by the
--------------------------
Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions of
the Plan:
(i) to select persons to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted to each
such person;
(iii) to determine the number of Awards to be granted, the number of
shares of Stock to which an Award will relate, the terms and conditions of
any Award granted under the Plan (including, but not limited to, any
exercise price, grant price or purchase price, any restriction or
condition, any schedule for lapse of restrictions or conditions relating to
transferability or forfeiture, exercisability or settlement of an Award,
and waivers or accelerations thereof, performance conditions relating to an
Award (including performance conditions relating to Awards not intended to
be governed by Section 7(f) and waivers and modifications thereof), based
in each case on such considerations as the
3
<PAGE>
Committee shall determine), and all other matters to be determined in
connection with an Award;
(iv) to determine whether, to what extent and under what circumstances
an Award may be settled, or the exercise price of an Award may be paid, in
cash, Stock, other Awards, or other property, or an Award may be canceled,
forfeited, or surrendered;
(v) to determine whether, to what extent and under what circumstances
cash, Stock, other Awards or other property payable with respect to an
Award will be deferred either automatically, at the election of the
Committee or at the election of the Participant;
(vi) to prescribe the form of each Award Agreement, which need not be
identical for each Participant;
(vii) to adopt, amend, suspend, waive and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(viii) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any
Award, rules and regulations, Award Agreement or other instrument
hereunder; and
(ix) to make all other decisions and determinations as may be required
under the terms of the Plan or as the Committee may deem necessary or
advisable for the administration of the Plan.
Other provisions of the Plan notwithstanding, the Board may perform any function
of the Committee under the Plan, including without limitation for the purpose of
ensuring that transactions under the Plan by Participants who are then subject
to Section 16 of the Exchange Act in respect of the Company are exempt under
Rule 16b-3. In any case in which the Board is performing a function of the
Committee under the Plan, each reference to the Committee herein shall be deemed
to refer to the Board.
(b) Manner of Exercise of Committee Authority. Any action of the Committee
-----------------------------------------
with respect to the Plan shall be final, conclusive and binding on all persons,
including the Company, subsidiaries of the Company, Participants, any person
claiming any rights under the Plan from or through any Participant and
stockholders, except to the extent the Committee may subsequently modify, or
take further action not consistent with, its prior action. If not specified in
the Plan, the time at which the Committee must or may make any determination
shall be determined by the Committee, and any such determination may thereafter
by modified by the Committee (subject to Section 8(e)). The express grant of
any specific power to the Committee, and the taking of any action by the
Committee, shall not be construed as limiting any power or authority of the
Committee. Except as provided under Section 7(f), the Committee may delegate to
officers or
4
<PAGE>
managers of the Company or any subsidiary of the Company the authority, subject
to such terms as the Committee shall determine, to perform such functions as the
Committee may determine, to the extent permitted under applicable law.
(c) Limitation of Liability. Each member of the Committee shall be
-----------------------
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants or any
executive compensation consultant, legal counsel or other professional retained
by the Company to assist in the administration of the Plan. No member of the
Committee, nor any officer or employee of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any officer or employee of the Company acting on
its behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination or
interpretation.
4. Stock Subject to Plan.
---------------------
(a) Amount of Stock Reserved. The total amount of Stock that may be
------------------------
subject to outstanding awards, determined immediately after the grant of any
Award, shall not exceed 9% of the total number of shares of Stock outstanding at
the effective time of such grant. Notwithstanding the foregoing, the number of
shares that may be delivered upon the exercise of ISOs shall not exceed
3,198,971 shares (subject to adjustment as provided in Section 4(c)), provided,
--------
however, that shares subject to ISOs shall not be deemed delivered if such ISOs
- -------
are forfeited, expire or otherwise terminate without delivery of shares to the
Participant. If an Award valued by reference to Stock may only be settled in
cash, the number of shares to which such Award relates shall be deemed to be
Stock subject to such Award for purposes of this Section 4(a). Any shares of
Stock delivered pursuant to an Award may consist, in whole or in part, of
authorized and unissued shares, treasury shares or shares acquired in the market
for a Participant's Account.
(b) Annual Per-Participant Limitations. During any calendar year, no
----------------------------------
Participant may be granted Awards that may be settled by delivery of more than
1,000,000 shares of Stock, subject to adjustment as provided in Section 4(c). In
addition, with respect to Awards that may be settled in cash (in whole or in
part), no Participant may be paid during any calendar year cash amounts relating
to such Awards that exceed the greater of the Fair Market Value of the number of
shares of Stock set forth in the preceding sentence at the date of grant or the
date of settlement of Award. This provision sets forth two separate limitations,
so that Awards that may be settled solely by delivery of Stock will not operate
to reduce the amount of cash-only Awards, and vice versa; nevertheless, Awards
that may be settled in Stock or cash must not exceed either limitation.
(c) Adjustments. In the event that the Committee shall determine that any
-----------
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or exchange of Stock or other
securities, Stock dividend or other
5
<PAGE>
special, large and non-recurring dividend or distribution (whether in the form
of cash, securities or other property), liquidation, dissolution, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Participants under the Plan, then the Committee shall, in such manner
as it may deem equitable, adjust any or all of (i) the number and kind of shares
of Stock reserved and available for Awards under Section 4(a), including shares
reserved for ISOs, (ii) the number and kind of shares of Stock specified in the
Annual Per-Participant Limitations under Section 4(b), (iii) the number and kind
of shares of outstanding Restricted Stock or other outstanding Award in
connection with which shares have been issued, (iv) the number and kind of
shares that may be issued in respect of other outstanding Awards and (v) the
exercise price, grant price or purchase price relating to any Award. (or, if
deemed appropriate, the Committee may make provision for a cash payment with
respect to any outstanding Award). In addition, the Committee is authorized to
make adjustments in the terms and conditions of, and the criteria included in,
Awards (including, without limitation, cancellation of unexercised or
outstanding Awards, or substitution of Awards using stock of a successor or
other entity) in recognition of unusual or nonrecurring events (including,
without limitation, events described in the preceding sentence and events
constituting a Change in Control) affecting the Company or any subsidiary or the
financial statements of the Company or any subsidiary, or in response to changes
in applicable laws, regulations, or accounting principles.
5. Eligibility. Executive officers and other employees of the Company
-----------
and its subsidiaries, including any officer or member of the Board who is also
such an employee, and persons who provide consulting or other services to the
Company deemed by the Committee to be of substantial value to the Company, are
eligible to be granted Awards under the Plan. In addition, persons who have
been offered employment by the Company or its subsidiaries, and persons employed
by an entity that the Committee reasonably expects to become a subsidiary of the
Company, are eligible to be granted an Award under the Plan.
6. Specific Terms of Awards.
------------------------
(a) General. Awards may be granted on the terms and conditions set forth
-------
in this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment or
service of the Participant. Except as provided in Section 6(f), 6(h), or 7(a),
or to the extent required to comply with requirements of applicable law, only
services may be required as consideration for the grant (but not the exercise)
of any Award.
(b) Options. The Committee is authorized to grant Options (including
-------
"reload" options automatically granted to offset specified exercises of Options)
on the following terms and conditions ("Options"):
6
<PAGE>
(i) Exercise Price. The exercise price per share of Stock purchasable
--------------
under an Option shall be determined by the Committee.
(ii) Time and Method of Exercise. The Committee shall determine the
---------------------------
time or times at which an Option may be exercised in whole or in part, the
methods by which such exercise price may be paid or deemed to be paid, the
form of such payment, including, without limitation, cash, Stock, other
Awards or awards granted under other Company plans or other property
(including notes or other contractual obligations of Participants to make
payment on a deferred basis, such as through "cashless exercise"
arrangements, to the extent permitted by applicable law), and the methods
by which Stock will be delivered or deemed to be delivered to Participants.
(iii) ISOs. The terms of any ISO granted under the Plan shall comply
----
in all respects with the provisions of Section 422 of the Code, including
but not limited to the requirement that no ISO shall be granted with an
exercise price less than 100% (110% for an individual described in Section
422(b)(6) of the Code) of the Fair Market Value of a share of Stock on the
date of grant and granted no more than ten years after the effective date
of the Plan. Anything in the Plan to the contrary notwithstanding, no term
of the Plan relating to ISOs shall be interpreted, amended, or altered, nor
shall any discretion or authority granted under the Plan be exercised, so
as to disqualify either the Plan or any ISO under Section 422 of the Code,
unless requested by the affected Participant.
(iv) Termination of Employment. Unless otherwise determined by the
-------------------------
Committee, upon termination of a Participant's employment with the Company
and its subsidiaries, such Participant may exercise any Options during the
three-month period following such termination of employment, but only to
the extent such Option was exercisable as of such termination of
employment. Notwithstanding the foregoing, if the Committee determines that
such termination is for cause, all Options held by the Participant shall
terminate as of the termination of employment.
(c) Stock Appreciation Rights. The Committee is authorized to grant SARs
-------------------------
on the following terms and conditions ("SARs"):
(i) Right to Payment. An SAR shall confer on the Participant to whom
----------------
it is granted a right to receive, upon exercise thereof, the excess of (A)
the Fair Market Value of one share of Stock on the date of exercise (or, if
the Committee shall so determine in the case of any such right other than
one related to an ISO, the Fair Market Value of one share at any time
during a specified period before or after the date of exercise), over (B)
the grant price of the SAR as determined by the Committee as of the date of
grant of the SAR, which, except as provided in Section 7(a), shall be not
less than the Fair Market Value of one share of Stock on the date of grant.
7
<PAGE>
(ii) Other Terms. The Committee shall determine the time or times at
-----------
which an SAR may be exercised in whole or in part, the method of exercise,
method of settlement, form of consideration payable in settlement, method
by which Stock will be delivered or deemed to be delivered to Participants,
whether or not an SAR shall be in tandem with any other Award, and any
other terms and conditions of any SAR. Limited SARs that may only be
exercised upon the occurrence of a Change in Control may be granted on such
terms, not inconsistent with this Section 6(c), as the Committee may
determine. Limited SARs may be either freestanding or in tandem with other
Awards.
(d) Restricted Stock. The Committee is authorized to grant Restricted
----------------
Stock on the following terms and conditions ("Restricted Stock"):
(i) Grant and Restrictions. Restricted Stock shall be subject to such
----------------------
restrictions on transferability and other restrictions, if any, as the
Committee may impose, which restrictions may lapse separately or in
combination at such times, under such circumstances, in such installments,
or otherwise, as the Committee may determine. Except to the extent
restricted under the terms of the Plan and any Award Agreement relating to
the Restricted Stock, a Participant granted Restricted Stock shall have all
of the rights of a stockholder including, without limitation, the right to
vote Restricted Stock or the right to receive dividends thereon.
(ii) Forfeiture. Except as otherwise determined by the Committee, upon
----------
termination of employment or service (as determined under criteria
established by the Committee) during the applicable restriction period,
Restricted Stock that is at that time subject to restrictions shall be
forfeited and reacquired by the Company; provided, however, that the
-------- -------
Committee may provide, by rule or regulation or in any Award Agreement, or
may determine in any individual case, that restrictions or forfeiture
conditions relating to Restricted Stock will be waived in whole or in part
in the event of termination resulting from specified causes.
(iii) Certificates for Stock. Restricted Stock granted under the Plan
----------------------
may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of
the Participant, such certificates may bear an appropriate legend referring
to the terms, conditions, and restrictions applicable to such Restricted
Stock, the Company may retain physical possession of the certificate, and
the Participant shall have delivered a stock power to the Company, endorsed
in blank, relating to the Restricted Stock.
(iv) Dividends. Dividends paid on Restricted Stock shall be either
---------
paid at the dividend payment date in cash or in shares of unrestricted
Stock having a Fair Market Value equal to the amount of such dividends, or
the payment of such dividends shall be deferred and/or the amount or value
thereof automatically reinvested in additional Restricted Stock, other
Awards, or other investment vehicles, as the Committee shall
8
<PAGE>
determine or permit the Participant to elect. Stock distributed in
connection with a Stock split or Stock dividend, and other property
distributed as a dividend, shall be subject to restrictions and a risk of
forfeiture to the same extent as the Restricted Stock with respect to which
such Stock or other property has been distributed, unless otherwise
determined by the Committee.
(e) Deferred Stock. The Committee is authorized to grant Deferred Stock
--------------
subject to the following terms and conditions ("Deferred Stock"):
(i) Award and Restrictions. Delivery of Stock will occur upon
----------------------
expiration of the deferral period specified for an Award of Deferred Stock
by the Committee (or, if permitted by the Committee, as elected by the
Participant). In addition, Deferred Stock shall be subject to such
restrictions as the Committee may impose, if any, which restrictions may
lapse at the expiration of the deferral period or at earlier specified
times, separately or in combination, in installments or otherwise, as the
Committee may determine.
(ii) Forfeiture. Except as otherwise determined by the Committee,
----------
upon termination of employment or service (as determined under criteria
established by the Committee) during the applicable deferral period or
portion thereof to which forfeiture conditions apply (as provided in the
Award Agreement evidencing the Deferred Stock), all Deferred Stock that is
at that time subject to such forfeiture conditions shall be forfeited;
provided, however, that the Committee may provide, by rule or regulation or
-------- -------
in any Award Agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Deferred Stock will be
waived in whole or in part in the event of termination resulting from
specified causes.
(f) Bonus Stock and Awards in Lieu of Cash Obligations. The Committee is
--------------------------------------------------
authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu
of Company obligations to pay cash under other plans or compensatory
arrangements.
(g) Dividend Equivalents. The Committee is authorized to grant Dividend
--------------------
Equivalents entitling the Participant to receive cash, Stock, other Awards or
other property equal in value to dividends paid with respect to a specified
number of shares of Stock ("Dividend Equivalents"). Dividend Equivalents may be
awarded on a free-standing basis or in connection with another Award. The
Committee may provide that Dividend Equivalents shall be paid or distributed
when accrued or shall be deemed to have been reinvested in additional Stock,
Awards or other investment vehicles, and subject to such restrictions on
transferability and risks of forfeiture, as the Committee may specify.
(h) Other Stock-Based Awards. The Committee is authorized, subject to
------------------------
limitations under applicable law, to grant such other Awards that may be
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on, or related to, Stock and factors that
9
<PAGE>
may influence the value of Stock, as deemed by the Committee to be consistent
with the purposes of the Plan, including, without limitation, convertible or
exchangeable debt securities, other rights convertible or exchangeable into
Stock, purchase rights for Stock, Awards with value and payment contingent upon
performance of the Company or any other factors designated by the Committee and
Awards valued by reference to the book value of Stock or the value of securities
of or the performance of specified subsidiaries ("Other Stock Based Awards").
The Committee shall determine the terms and conditions of such Awards. Stock
issued pursuant to an Award in the nature of a purchase right granted under this
Section 6(h) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Stock,
other Awards, or other property, as the Committee shall determine. Cash awards,
as an element of or supplement to any other Award under the Plan, may be granted
pursuant to this Section 6(h).
7. Certain Provisions Applicable to Awards.
---------------------------------------
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted
------------------------------------------------------
under the Plan may, in the discretion of the Committee, be granted either alone
or in addition to, in tandem with or in substitution for any other Award granted
under the Plan or any award granted under any other plan of the Company, any
subsidiary or any business entity to be acquired by the Company or a subsidiary,
or any other right of a Participant to receive payment from the Company or any
subsidiary. Awards granted in addition to or in tandem with other Awards or
awards may be granted either as of the same time as or a different time from the
grant of such other Awards or awards.
(b) Term of Awards. The term of each Award shall be for such period as may
--------------
be determined by the Committee; provided, however, that in no event shall the
-------- -------
term of any ISO or an SAR granted in tandem therewith exceed a period of ten
years from the date of its grant (or such shorter period as may be applicable
under Section 422 of the Code).
(c) Form of Payment Under Awards. Subject to the terms of the Plan and any
----------------------------
applicable Award Agreement, payments to be made by the Company or a subsidiary
upon the grant, exercise or settlement of an Award may be made in such forms as
the Committee shall determine, including, without limitation, cash, Stock, other
Awards or other property, and may be made in a single payment or transfer, in
installments or on a deferred basis. Such payments may include, without
limitation, provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of Dividend
Equivalents in respect of installment or deferred payments denominated in Stock.
(d) Rule 16b-3 Compliance.
---------------------
(i) Six-Month Holding Period. Unless a Participant could otherwise
------------------------
dispose of equity securities, including derivative securities, acquired
under the Plan without incurring liability under Section 16(b) of the
Exchange Act,
10
<PAGE>
equity securities acquired under the Plan must be held for a period of six
months following the date of such acquisition, provided that this condition
shall be satisfied with respect to a derivative security if at least six
months elapse from the date of acquisition of the derivative security to
the date of disposition of the derivative security (other than upon
exercise or conversion) or its underlying equity security.
(ii) Other Compliance Provisions. With respect to a Participant who
---------------------------
is then subject to Section 16 of the Exchange Act in respect of the
Company, the Committee shall implement transactions under the Plan and
administer the Plan in a manner that will ensure that each transaction by
such a Participant is exempt from liability under Rule 16b-3, except that
such a Participant may be permitted to engage in a non-exempt transaction
under the Plan if written notice has been given to the Participant
regarding the non-exempt nature of such transaction. The Committee may
authorize the Company to repurchase any Award or shares of Stock resulting
from any Award in order to prevent a Participant who is subject to Section
16 of the Exchange Act from incurring liability under Section 16(b). Unless
otherwise specified by the Participant, equity securities, including
derivative securities, acquired under the Plan which are disposed of by a
Participant shall be deemed to be disposed of in the order acquired by the
Participant.
(e) Loan Provisions. With the consent of the Committee, and subject at all
---------------
times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee or arrange for a loan
or loans to a Participant with respect to the exercise of any Option or other
payment in connection with any Award, including the payment by a Participant of
any or all federal, state or local income or other taxes due in connection with
any Award. Subject to such limitations, the Committee shall have full authority
to decide whether to make a loan or loans hereunder and to determine the amount,
terms and provisions of any such loan or loans, including the interest rate to
be charged in respect of any such loan or loans, whether the loan or loans are
to be with or without recourse against the borrower, the terms on which the loan
is to be repaid and conditions, if any, under which the loan or loans may be
forgiven.
(f) Performance-Based Awards. The Committee may, in its discretion,
------------------------
designate any Award the exercisability or settlement of which is subject to the
achievement of performance conditions as a performance-based Award subject to
this Section 7(f), in order to qualify such Award as "qualified performance-
based compensation" within the meaning of Code Section 162(m) and regulations
thereunder. The performance objectives for an Award subject to this Section
7(f) shall consist of one or more business criteria and a targeted level or
levels of performance with respect to such criteria, as specified by the
Committee but subject to this Section 7(f). Performance objectives shall be
objective and shall otherwise meet the requirements
11
<PAGE>
of Section 162(m)(4)(C) of the Code. Business criteria used by the Committee in
establishing performance objectives for Awards subject to this Section 7(f)
shall be selected from among the following:
(1) Annual return on capital;
(2) Annual earnings or earnings per share;
(3) Annual cash flow provided by operations;
(4) Changes in annual revenues; and/or
(5) Strategic business criteria, consisting of one or more objectives
based on meeting specified revenue, market penetration,
geographic business expansion goals, cost targets, and goals
relating to acquisitions or divestitures.
The levels of performance required with respect to such business criteria may be
expressed in absolute or relative levels. Achievement of performance objectives
with respect to such Awards shall be measured over a period of not less than one
year nor more than five years, as the Committee may specify. Performance
objectives may differ for such Awards to different Participants. The Committee
shall specify the weighting to be given to each performance objective for
purposes of determining the final amount payable with respect to any such Award.
The Committee may, in its discretion, reduce the amount of a payout otherwise to
be made in connection with an Award subject to this Section 7(f), but may not
exercise discretion to increase such amount, and the Committee may consider
other performance criteria in exercising such discretion. All determinations by
the Committee as to the achievement of performance objectives shall be in
writing. The Committee may not delegate any responsibility with respect to an
Award subject to this Section 7(f).
(g) Acceleration upon a Change of Control. Notwithstanding anything
-------------------------------------
contained herein to the contrary, all conditions and/or restrictions relating to
the continued performance of services and/or the achievement of performance
objectives with respect to the exercisability or full enjoyment of an Award
shall immediately lapse upon a Change in Control, provided, however, that such
lapse shall not occur if (i) it is intended that the transaction constituting
such Change in Control be accounted for as a pooling of interests under
Accounting Principles Board Option No. 16 (or any successor thereto), and
operation of this Section 7(g) would otherwise violate Paragraph 47(c) thereof,
or (ii) the Committee, in its discretion, determines that such lapse shall not
occur, provided, further, that the Committee shall not have the discretion
granted in clause (ii) if it is intended that the transaction constituting such
Change in Control be accounted for as a pooling of interests under Accounting
Principles Board Option No. 16 (or any successor thereto), and such discretion
would otherwise violate Paragraph 47(c) thereof.
8. General Provisions.
------------------
12
<PAGE>
(a) Compliance With Laws and Obligations. The Company shall not be
------------------------------------
obligated to issue or deliver Stock in connection with any Award or take any
other action under the Plan in a transaction subject to the requirements of any
applicable securities law, any requirement under any listing agreement between
the Company and any national securities exchange or automated quotation system
or any other law, regulation or contractual obligation of the Company until the
Company is satisfied that such laws, regulations, and other obligations of the
Company have been complied with in full. Certificates representing shares of
Stock issued under the Plan will be subject to such stop-transfer orders and
other restrictions as may be applicable under such laws, regulations and other
obligations of the Company, including any requirement that a legend or legends
be placed thereon.
(b) Limitations on Transferability. Awards and other rights under the Plan
------------------------------
will not be transferable by a Participant except by will or the laws of descent
and distribution or to a Beneficiary in the event of the Participant's death,
shall not be pledged, mortgaged, hypothecated or otherwise encumbered, or
otherwise subject to the claims of creditors, and, in the case of ISOs and SARs
in tandem therewith, shall be exercisable during the lifetime of a Participant
only by such Participant or his guardian or legal representative; provided,
--------
however, that such Awards and other rights (other than ISOs and SARs in tandem
- -------
therewith) may be transferred to one or more transferees during the lifetime of
the Participant to the extent and on such terms as then may be permitted by the
Committee.
(c) No Right to Continued Employment or Service. Neither the Plan nor any
-------------------------------------------
action taken hereunder shall be construed as giving any employee or other person
the right to be retained in the employ or service of the Company or any of its
subsidiaries, nor shall it interfere in any way with the right of the Company or
any of its subsidiaries to terminate any employee's employment or other person's
service at any time.
(d) Taxes. The Company and any subsidiary is authorized to withhold from
-----
any Award granted or to be settled, any delivery of Stock in connection with an
Award, any other payment relating to an Award or any payroll or other payment to
a Participant amounts of withholding and other taxes due or potentially payable
in connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Company and
Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations.
(e) Changes to the Plan and Awards. The Board may amend, alter, suspend,
------------------------------
discontinue or terminate the Plan or the Committee's authority to grant Awards
under the Plan without the consent of stockholders or Participants, except that
any such action shall be subject to the approval of the Company's stockholders
at or before the next annual meeting of stockholders for which the record date
is after such Board action if such stockholder approval is required by any
federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Stock may then be listed or quoted, and
the Board may otherwise, in its discretion, determine to submit other such
changes to the Plan to stockholders for approval; provided, however, that,
-------- -------
without the consent of an affected Participant, no such action may materially
impair the rights of such
13
<PAGE>
Participant under any Award theretofore granted to him (as such rights are set
forth in the Plan and the Award Agreement). The Committee may waive any
conditions or rights under, or amend, alter, suspend, discontinue, or terminate,
any Award theretofore granted and any Award Agreement relating thereto;
provided, however, that, without the consent of an affected Participant, no such
- -------- -------
action may materially impair the rights of such Participant under such Award (as
such rights are set forth in the Plan and the Award Agreement).
(f) No Rights to Awards; No Stockholder Rights. No Participant or employee
------------------------------------------
shall have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Participants and employees. No Award
shall confer on any Participant any of the rights of a stockholder of the
Company unless and until Stock is duly issued or transferred and delivered to
the Participant in accordance with the terms of the Award or, in the case of an
Option, the Option is duly exercised.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to
---------------------------------------------
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of the Company;
provided, however, that the Committee may authorize the creation of trusts or
- -------- --------
make other arrangements to meet the Company's obligations under the Plan to
deliver cash, Stock, other Awards, or other property pursuant to any Award,
which trusts or other arrangements shall be consistent with the "unfunded"
status of the Plan unless the Committee otherwise determines with the consent of
each affected Participant.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
--------------------------
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other compensatory arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under the Plan, and
such arrangements may be either applicable generally or only in specific cases.
(i) No Fractional Shares. No fractional shares of Stock shall be issued or
--------------------
delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) Compliance with Code Section 162(m). It is the intent of the Company
-----------------------------------
that employee Options, SARs and other Awards designated as Awards subject to
Section 7(f) shall constitute "qualified performance-based compensation" within
the meaning of Code Section 162(m). Accordingly, if any provision of the Plan or
any Award Agreement relating to such an Award does not comply or is inconsistent
with the requirements of Code Section 162(m), such provision shall be construed
or deemed amended to the extent necessary to conform to such requirements, and
no provision shall be deemed to confer upon the Committee or any other person
discretion to increase
14
<PAGE>
the amount of compensation otherwise payable in connection with any such Award
upon attainment of the performance objectives.
(k) Governing Law. The validity, construction and effect of the Plan, any
-------------
rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of laws, and applicable federal law.
(l) Effective Date; Plan Termination. The Plan shall become effective as
--------------------------------
of the date of its adoption by the Board and approval of the Company's
stockholders, and shall continue in effect until terminated by the Board.
15
<PAGE>
Exhibit 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated November 17, 1997,
relating to the financial statement of Consolidation Capital Corporation, which
appears in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
December 15, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Consolidation Capital Corporations financial statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> FEB-27-1997
<PERIOD-END> SEP-30-1997
<CASH> 16
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 315
<PP&E> 8
<DEPRECIATION> 0
<TOTAL-ASSETS> 339
<CURRENT-LIABILITIES> 316
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 21
<TOTAL-LIABILITY-AND-EQUITY> 339
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
