<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 25, 1997
REGISTRATION NO. 333-36193
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------
CONSOLIDATION CAPITAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 6770 52-2054952
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTIONOF INCORPORATION INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
OR ORGANIZATION) CODE NUMBER)
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)
----------------
JONATHAN J. LEDECKY
CHAIRMAN
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)
----------------
COPIES TO:
LINDA L. GRIGGS, ESQUIRE RICHARD R. PLUMRIDGE, ESQUIRE
DAVID A. GERSON, ESQUIRE BRIAN B. MARGOLIS, ESQUIRE
MORGAN, LEWIS & BOCKIUS LLP BROBECK, PHLEGER & HARRISON LLP
1800 M STREET, N.W. 1633 BROADWAY, 47TH FLOOR
WASHINGTON, D.C. 20036-5869 NEW YORK, NY 10019
202/467-7245 212/581-1600
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. [_]
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. [_]
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.
===============================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 24, 1997
CONSOLIDATION CAPITAL CORPORATION
24,000,000 SHARES OF COMMON STOCK
----------
All of the shares of capital stock offered hereby are being sold by
Consolidation Capital Corporation (the "Company"). Of such shares, 24,000,000
shares of the Company's common stock ("Common Stock") are being offered in an
initial public offering (the "Offering"). Prior to the Offering, there has been
no public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price per share will be $20.00. See
"Underwriting and Plan of Distribution" for a discussion of the factors
considered in determining the initial public offering price.
This Prospectus also relates to the offer and possible sale by the Company,
simultaneously with the consummation of the Offering, of (i) 250,000 shares of
Common Stock to Jonathan J. Ledecky, the Company's Chairman and Chief Executive
Officer, and (ii) 500,000 shares of Convertible Non-Voting Common Stock to FBR
Asset Investment Corporation, Inc., an affiliate of Friedman, Billings, Ramsey
& Co., Inc., in each case at a per share price equal to the initial public
offering price set forth below. The Convertible Non-Voting Common Stock is
identical in all respects to the Common Stock, except that it is non-voting.
The Convertible Non-Voting Common Stock is non-transferable and will not be
publicly traded. On the first anniversary of the date of this Prospectus, each
share of Convertible Non-Voting Common Stock will automatically convert into
one share of Common Stock. See "Underwriting and Plan of Distribution."
The Common Stock has been approved for quotation on The Nasdaq National
Market under the symbol "BUYR," subject to official notice of issuance.
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
----------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share of Common Stock.................. $ $ $
- --------------------------------------------------------------------------------
Total (3).................................. $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) Does not include additional consideration to be received by Friedman,
Billings, Ramsey & Co., Inc. as representative of the Underwriters ("FBR"
or the "Representative") in the form of warrants to purchase 1,130,000
shares of Common Stock at an exercise price per share equal to the Price to
Public, which warrant will be exercisable on or after the first anniversary
of the date of this Prospectus until the fifth anniversary of the date of
this Prospectus. The Company has also agreed to indemnify the Underwriters
against certain liabilities under the Securities Act of 1933, as amended.
See "Underwriting and Plan of Distribution."
(2) Before deducting expenses payable by the Company estimated at $1,000,000.
(3) The Company has granted to the Underwriters an option, exercisable within
30 days of the date of this Prospectus, to purchase up to an aggregate of
3,600,000 additional shares of Common Stock at the Price to Public less
Underwriting Discounts and Commissions for the purpose of covering over-
allotments, if any. If the Underwriters exercise such option in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to Company will be $ , $ and $ , respectively. See "Underwriting and
Plan of Distribution."
----------
The 24,000,000 shares of Common Stock offered in the Offering, and any
additional shares that may be offered pursuant to the Underwriters' over-
allotment option, are being offered by the Underwriters, subject to prior sale,
when, as and if accepted by the Underwriters and subject to the Underwriters'
right to reject orders, in whole or in part, and to certain other conditions.
It is expected that delivery of the shares to the Underwriters will be made at
the office of the Representative on or about , 1997 against payment therefor
in immediately available funds.
----------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
, 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION
OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING AND
PLAN OF DISTRIBUTION."
<PAGE>
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. Unless
otherwise indicated, all share, per share and financial information set forth
herein (i) assume no exercise of the Underwriters' over-allotment option, and
(ii) give effect to a 1-for-1.918159 reverse stock split of the Common Stock to
be effective immediately prior to the effective date of the registration
statement of which this Prospectus forms a part (the "Effective Date"). The
reverse stock split is designed to ensure that Jonathan J. Ledecky, the
founder, Chairman and Chief Executive Officer of the Company, retains
approximately 15.0% beneficial ownership of the Company's Common Stock after
the Offering, excluding shares issued in the Concurrent Offerings (as defined
below) and shares issued upon exercise of the Underwriters' over-allotment
option, and assuming exercise of a warrant to be issued to Jonathan Ledecky
upon consummation of the Offering. Consequently, the reverse stock split will
be adjusted appropriately immediately prior to the Effective Date if the number
of shares offered in the Offering is increased or decreased. 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." As used herein, the
"Offering Price" equals $20.00, which represents the estimated price per share
for the Common Stock set forth on the front cover page of this Prospectus.
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 190 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 (supplemented by additional capital contributions of
$67,000), has generated no revenues to date, has no significant assets as of
the date of this Prospectus and has incurred losses of $103,000 from its
founding in February 1997 through September 30, 1997.
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. As of the Effective Date, the Company's
management team will consist 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."
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,
3
<PAGE>
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. 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 its 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 the
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 will initially have
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 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 Acquisition May Not Be Available and
Full Investment of Net Proceeds May Be Delayed" and "Business--Strategy."
4
<PAGE>
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
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company... 24,000,000 Shares
Common Stock to be outstanding after
the Offering......................... 26,550,000 Shares (1)
Use of Proceeds....................... To fund future acquisitions and general
corporate purposes, including working
capital. See "Use of Proceeds."
Nasdaq National Market symbol......... BUYR
</TABLE>
- --------
(1) Includes 250,000 shares which Jonathan Ledecky has expressed an interest in
purchasing. If the shares of Common Stock underlying options, warrants and
the shares of Convertible Non-Voting Common Stock expected to be
outstanding at the time of the consummation of the Offering and the
simultaneous offer and possible sale by the Company of shares of Common
Stock to Jonathan Ledecky (the "Concurrent Common Stock Offering") and of
shares of Convertible Non-Voting Common Stock to FBR Asset Investment
Corporation, Inc. (the "Concurrent Non-Voting Common Stock Offering" and,
together with the Concurrent Common Stock Offering, the "Concurrent
Offerings") are included in the number of shares outstanding, the total
number of shares outstanding would be 31,690,000, consisting of (i) the
26,550,000 shares listed above, (ii) 1,950,000 shares reserved for issuance
upon the exercise of warrants to be issued to Jonathan Ledecky on the
Effective Date at an exercise price equal to the initial public offering
price per share, (iii) 1,500,000 shares to be reserved for issuance under
options expected to be granted to members of the management team on the
Effective Date at an exercise price equal to the initial public offering
price per share under the Consolidation Capital Corporation 1997 Long-Term
Incentive Plan (the "Incentive Plan"), (iv) 60,000 shares to be reserved
for issuance under options expected to be granted on the Effective Date at
an exercise price equal to the initial public offering price per share
under the Consolidation Capital Corporation 1997 Non-Employee Directors'
Stock Plan (the "Directors' Plan"), (v) 500,000 shares to be issued upon
the conversion of the Convertible Non-Voting Common Stock, and (vi)
1,130,000 shares of Common Stock reserved for issuance upon the exercise of
warrants to be issued to the Representative. The total number of shares of
Common Stock reserved for issuance under the Incentive Plan, the Directors'
Plan and the Consolidation Capital Corporation 1997 Employee Stock 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
Offering), (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 options, warrants and the
shares of Convertible Non-Voting Common Stock expected to be outstanding at
the time of the consummation of the Offering and the Concurrent Offerings
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," "Description
of Capital Stock--Convertible Non-Voting Common Stock" and "Underwriting
and Plan of Distribution."
6
<PAGE>
THE CONCURRENT OFFERINGS
<TABLE>
<S> <C>
Common Stock offered by the Company... 250,000 Shares
Convertible Non-Voting Common Stock
offered by the Company............... 500,000 Shares
Use of Proceeds....................... To fund future acquisitions and general
corporate purposes, including working
capital. See "Use of Proceeds."
</TABLE>
Jonathan Ledecky has indicated an interest in purchasing 250,000 shares of
Common Stock directly from the Company in the Concurrent Common Stock Offering
at a price per share equal to the initial public offering price per share. No
underwriting discount or commission would be paid in connection with the
Concurrent Common Stock Offering. Consequently, the proceeds to the Company of
such offering would be $5.0 million.
FBR Asset Investment Corporation, Inc., an affiliate of the Representative,
has indicated an interest in purchasing 500,000 shares of Convertible Non-
Voting Common Stock from the Company in the Concurrent Non-Voting Common Stock
Offering at a price equal to the initial public offering price per share. No
underwriting discount or commission would be paid in connection with the
Concurrent Non-Voting Stock Offering. Consequently, the proceeds to the Company
of such offering would be $10.0 million.
----------------
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.
While the protections of the Private Securities Litigation Reform Act of 1995
are not available, readers of this Prospectus should consider carefully these
cautionary statements in connection with the forward-looking statements made
herein.
7
<PAGE>
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. The
protections of the Private Securities Litigation Reform Act of 1995 are not
available.
NO PRESENT SOURCE OF REVENUES
The Company was founded in February 1997. To date, its activities have
consisted of organizational activities and research and analysis with respect
to acquisition and consolidation opportunities. As of September 30, 1997, the
Company had a negative tangible net worth of $292,000, total assets of
$339,000, stockholder's equity of $23,000, and accumulated losses of $103,000.
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 from the
proceeds of this Offering other than interest income 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. 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 intends
to enter into an employment agreement with the Company upon the Effective Date
(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 to be 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,
8
<PAGE>
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.
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."
BENEFITS TO INSIDERS
Prior to the Offering, Jonathan Ledecky owns all of the outstanding shares
of Common Stock of the Company. Following consummation of the Offering and the
Concurrent Common Stock Offering, Jonathan Ledecky will own beneficially
approximately 15.8% of the Company's Common Stock (assuming exercise in full
of the outstanding warrant owned by him as of the date of the Effective Date).
Assuming an initial public offering price of $20.00 per share, the aggregate
market value of the shares of Common Stock beneficially owned by Jonathan
Ledecky following the Offering and the Concurrent Common Stock Offering would
be approximately $90.0 million; Jonathan Ledecky's aggregate purchase price
for such shares will have been approximately $44.1 million. See "Principal
Stockholders."
A portion of the net proceeds of the Offering and the Concurrent Offerings
will be used to repay indebtedness of the Company to Jonathan Ledecky
evidenced by demand notes. As of September 30, 1997, such indebtedness was
approximately $206,000. The Company expects that Jonathan Ledecky will advance
additional funds to the extent necessary to pay any additional expenses
incurred prior to consummation of the Offering. See "Use of Proceeds" and
"Certain Relationships and Related Party Transactions."
Pursuant to the CCC Employment Agreement, Jonathan Ledecky will receive a
salary of $750,000 per year, and will be entitled to receive annual bonuses.
Pursuant to the employment agreements that they are to enter into on the
Effective Date, David Ledecky, Timothy Clayton and F. Traynor Beck will each
receive a salary of $300,000 per year and a guaranteed annual bonus of
$200,000 for the first year, and will also be entitled to receive certain
perquisites. In addition, the Company has adopted the Consolidation Capital
Corporation Section 162(m) Bonus Plan under which the executive officers may
receive, in the discretion of a Bonus Plan committee consisting of at least
two non-employee directors, cash bonus awards. See "Management--Executive
Compensation; Employment Agreements."
9
<PAGE>
Jonathan Ledecky will enter into a Warrant Agreement (the "Ledecky Warrant")
with the Company which will entitle him to acquire 1,950,000 shares of Common
Stock at a purchase price per share equal to the initial public offering price
per share. The Ledecky Warrant will be exercisable for a period of ten years
commencing on the Effective Date. Under the Ledecky Warrant, Jonathan Ledecky
will be entitled to certain registration rights beginning one year after the
Effective Date. See "Shares Eligible for Future Sale."
Jonathan Ledecky, David Ledecky, Timothy Clayton and F. Traynor Beck will
each be eligible to participate in the Incentive Plan, which provides for,
among other things, the award of options to purchase shares of Common Stock.
Such option awards may take the form of incentive stock options (which must be
granted at an exercise price not less than the fair market value of a share of
Common Stock on the date of grant) or non-qualified stock options (which 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). Pursuant to the employment
agreements to be entered into on the Effective Date, David Ledecky, Timothy
Clayton and F. Traynor Beck are each to receive a grant of options (which may
be incentive stock options or non-qualified stock options) to purchase 500,000
shares of Common Stock at an exercise price equal to the initial public
offering price per share. See "Management--1997 Long-Term Incentive Plan."
Each non-employee director of the Company is to receive an annual retainer
fee of $25,000 and, pursuant to the Directors' Plan, automatic initial and
annual grants of stock options. Each such non-employee director will receive
an automatic initial grant of options to purchase 20,000 shares of Common
stock on the later of the Effective Date or the date of his initial election
to the Board of Directors, and an automatic 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 (in the
case of initial grants made on the Effective Date, the initial public offering
price per share). Vincent Eades, W. Russell Ramsey and M. Jude Reyes will each
receive such initial grants on the Effective Date. See "Management--Director
Compensation."
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, who will become the Company's
Executive Vice President, Chief Financial Officer and Treasurer on the
Effective Date; F. Traynor Beck, who will become the Company's Executive Vice
President, General Counsel and Secretary on the Effective Date; and David
Ledecky, Senior Vice President, Secretary and Treasurer of the Company, who
will become Executive Vice President and Chief Administrative Officer on the
Effective Date.
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 clients, none of them has
any prior 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 will be required
to devote the substantial majority of his business time, attention and efforts
to the business of the Company. Pursuant to the USOP Employment Agreement,
Jonathan Ledecky will be 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
10
<PAGE>
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 will be 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 Offering and the Concurrent Offerings are to be invested in readily
marketable, interest-bearing, investment grade securities. Consequently, until
such time as the Company acquires acquisition candidates, the proceeds of the
Offering and the Concurrent Offerings will yield only that rate of return
earned by such interest-bearing securities. In addition, a portion of the net
proceeds of the Offering and the Concurrent Offerings will be 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 in
the Offering will 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."
Upon consummation of the Offering, the Company's management team will
utilize the proceeds of the Offering and the Concurrent Offerings 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 will have 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 Offering. 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
11
<PAGE>
such persons have yet been identified. See "--Conflicts of Interest,"
"Business--Conflicts of Interest" and "Certain Relationships and Related Party
Transactions."
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.
Following the consummation of the Offering and the Concurrent Offerings, the
Company will have cash and cash equivalents of approximately $460.4 million
($527.4 million if the Underwriters' over-allotment option is exercised in
full). 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
12
<PAGE>
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.
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 of 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.
Upon consummation of the Offering and the Concurrent Common Stock Offering,
the Company will have 26,550,000 shares of Common Stock outstanding
(30,150,000 shares of Common Stock if the Underwriters' over-allotment option
is exercised in full). In addition, the Company will have 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 that are to be granted under the Company's 1997 Long-Term Incentive
Plan, (ii) options to purchase 60,000 shares of Common Stock that are to be
granted under the Company's 1997 Non-Employee Directors' Stock Plan, (iii)
500,000 shares of Common Stock that will be issuable upon the conversion of
shares of Convertible Non-Voting Common Stock to be issued in the Concurrent
Non-Voting Stock Offering, (iv) 1,130,000 shares of Common Stock to be
issuable upon the exercise of warrants to be issued to the Representative and
(v) 1,950,000 shares of Common Stock to be issuable upon the exercise of
warrants to be issued to Jonathan Ledecky. The Company will also have (i)
889,500 shares reserved for issuance pursuant to awards available to be made
under the Company's 1997 Long-Term Incentive Plan (1,213,500 shares if the
Underwriters' over-allotment option is exercised in full), (ii) 240,000 shares
reserved for issuance pursuant to options available to be granted under the
Company's 1997 Non-Employee Directors' Stock Plan and (iii) 1,000,000 shares
reserved for issuance pursuant to the Company's 1997 Employee Stock Purchase
Plan. Accordingly, upon completion of the Offering and the Concurrent
Offerings, the Company will have 216,180,500 authorized but unissued and
unreserved shares of Common Stock (212,256,500 authorized but unissued and
unreserved shares if the Underwriters' over-allotment option is exercised 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, including
the purchasers of Common Stock in the Offering. 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 expects to have and there can
be no assurance that the Company will be able to compete successfully.
Competition with other
13
<PAGE>
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, 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 will initially fall within the
Investment Company Act's definition of an investment company upon the
consummation of the Offering, it will rely on a safe harbor rule that will
exempt 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
14
<PAGE>
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, 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
After the consummation of the Offering and the Concurrent Offerings,
Jonathan Ledecky, the Company's founder, Chairman and Chief Executive Officer,
will own 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
15
<PAGE>
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."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering and the Concurrent Common Stock Offering,
the Company will have 26,550,000 shares of Common Stock outstanding. The
24,000,000 shares of Common Stock sold in the Offering will be 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 will be
owned by Jonathan Ledecky, and will be 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, upon consummation of the Offering, 1,950,000 shares will be
reserved for issuance upon the exercise of a Warrant to be issued to Jonathan
Ledecky on the Effective Date at an exercise price equal to the initial public
offering price per share, 1,560,000 shares of Common Stock will be reserved
for issuance upon the exercise of stock options to be granted on the Effective
Date, and an aggregate of 2,129,500 shares will be reserved for issuance
pursuant to the Incentive Plan, the Directors' Plan and the Consolidation
Capital Corporation 1997 Employee Stock Purchase Plan (an aggregate of
2,453,500 shares 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 the number of awards available to be
made. The Company intends to file a registration statement on Form S-8 as soon
as practicable after the consummation of the Offering 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 Warrant during a ten-year period beginning on the first
anniversary of the Effective Date. 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, upon completion of the Offering and the Concurrent Non-Voting Stock
Offering, 1,130,000 shares of Common Stock will be reserved for issuance upon
exercise of the warrants to be issued to the Representative (which will have
the right, beginning one year after the date of this Prospectus, to require
the Company to register such shares for sale under the Securities Act) and
500,000 shares will be reserved for issuance upon the conversion of shares of
Convertible Non-Voting Common Stock (which shares will be eligible for resale
beginning one year from the date of this Prospectus). 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 existing stockholder, 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
date of this Prospectus without the prior written consent of the
Representative. See "Shares Eligible for Future Sale" and "Underwriting and
Plan of Distribution."
16
<PAGE>
NO PRIOR MARKET FOR THE COMMON STOCK; STABILIZATION; POSSIBLE VOLATILITY OF
STOCK PRICE
Prior to the Offering, there has been no public market for the Company's
Common Stock. An active public market for the Common Stock may not develop or
be sustained after the Offering. The initial public offering price of the
Common Stock will be determined by negotiation between the Company and the
Representative of the Underwriters based on the factors described under
"Underwriting and Plan of Distribution." The price at which the Common Stock
will trade in the public market after the Offering may be less than the
initial public offering price.
Certain persons participating in this Offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock,
including stabilizing bids, syndicate covering transactions or the imposition
of penalty bids. For a description of these activities, see "Underwriting and
Plan of Distribution." Any of these activities may stabilize or maintain the
market price of the Common Stock above the price which would prevail in the
absence of such activities. Neither the Company nor the Underwriters makes any
representation that the Representative will engage in such transactions or
that such transactions, if commenced, will not be discontinued without notice.
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. In addition,
the market 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. Moreover, the stock market in the past has
experienced significant price and value fluctuations, which have not
necessarily been related to corporate operating performance. The volatility of
the 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
Purchasers of Common Stock in the Offering and purchasers of Common Stock
and Convertible Non-Voting Common Stock in the Concurrent Offerings will
experience immediate and substantial dilution in the pro forma as adjusted net
tangible book value of their shares in the amount of $2.98 per share. See
"Dilution." 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 in the Offering may experience
further 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."
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
in the Offering, after deducting estimated underwriting discounts and other
offering expenses, all of which are payable by the Company, are estimated to
be approximately $445.4 million (approximately $512.4 million if the
Underwriters' over-allotment option is exercised in full), assuming an initial
public offering price of $20.00 per share. In addition, the Company
anticipates that, contemporaneously with the consummation of the Offering,
Jonathan Ledecky will purchase 250,000 shares of Common Stock directly from
the Company in the Concurrent Common Stock Offering and FBR Asset Investment
Corporation, Inc. will purchase 500,000 shares of Convertible Non-Voting
Common Stock directly from the Company in the Concurrent Non-Voting Stock
Offering, in each case at the initial public offering price. No underwriting
discounts or commissions will be paid in connection with the Concurrent
Offerings. Such purchases, therefore, will result in additional proceeds to
the Company of $15.0 million.
The Company intends to use substantially all of the net proceeds of the
Offering and the Concurrent Offerings to engage in consolidation and operating
activities, including identifying and evaluating prospective acquisition
candidates and structuring, negotiating and consummating the acquisitions. The
Company is not currently involved in negotiations and has no current
commitments or agreements with respect to any acquisitions. The Company cannot
assure that any acquisitions will ever be consummated. A portion of the net
proceeds will be used to repay the indebtedness of the Company to Jonathan
Ledecky evidenced by demand notes having an interest rate equal to 6.75%. As
of September 30, 1997, such indebtedness was approximately $206,000. The
Company expects that Jonathan Ledecky will advance additional funds to the
extent necessary to pay any additional expenses incurred prior to consummation
of the Offering.
Pending use of the net proceeds as described above, the Company intends to
invest the net proceeds in readily marketable, interest-bearing, investment
grade securities.
DETERMINATION OF OFFERING PRICE
Prior to the Offering, there has been no public market for the shares of
Common Stock or the Convertible Non-Voting Common Stock. The initial public
offering price of the Common Stock has been determined by negotiation between
the Company and the Representative. Among the factors considered in making
such determination were the history of, and the prospects for, other
consolidators generally, an assessment of management, the Company's prospects
for future earnings, the general conditions of the economy and the securities
market and the prices of offerings by similar issuers. Nonetheless, the price
at which the shares of Common Stock will sell in the public market after the
Offering may be lower than the price at which they are sold by the
Underwriters. See "Underwriting and Plan of Distribution." The price of the
Convertible Non-Voting Common Stock was determined by negotiation between the
Company and the purchaser of such shares to be equal to the initial public
offering price per share of the Common Stock. The Convertible Non-Voting
Common Stock will be non-transferable and will not be publicly traded.
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on its Common
Stock or Convertible Non-Voting 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.
18
<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 24,000,000 shares of Common Stock in the
Offering, the sale of 250,000 shares of Common Stock in the Concurrent Common
Stock Offering, and the sale of 500,000 shares of Convertible Non-Voting
Common Stock in the Concurrent Non-Voting Common Stock Offering, in each case
at an assumed 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 AS ADJUSTED
--------- -------------
(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) Includes 250,000 shares which Jonathan Ledecky has expressed an interest
in purchasing. If the shares of Common Stock underlying options, warrants
and the shares of Convertible Non-Voting Common Stock expected to be
outstanding at the time of the consummation of the Offering and the
Concurrent Offerings are included in the number of shares outstanding, the
total number of shares outstanding would be 31,690,000, consisting of (i)
the 24,000,000 shares offered hereby, (ii) 2,300,000 shares outstanding
immediately prior to this Offering, (iii) the 250,000 shares referred to
in the preceding sentence, (iv) 1,950,000 shares reserved for issuance
upon the exercise of warrants to be issued to Jonathan Ledecky on the
Effective Date at an exercise price equal to the initial public offering
price per share, (v) 1,500,000 shares to be reserved for issuance under
options expected to be granted to members of the management team on the
Effective Date at an exercise price equal to the initial public offering
price per share under the Incentive Plan, (vi) 60,000 shares to be
reserved for issuance under options expected to be granted on the
Effective Date at an exercise price equal to the initial public offering
price per share under the Directors' Plan, (vii) 500,000 shares to be
issued upon the conversion of the Convertible Non-Voting Common Stock, and
(viii) 1,130,000 shares of Common Stock reserved for issuance upon the
exercise of warrants to be issued to the Representative. The total number
of shares of Common Stock reserved for issuance under the Incentive Plan,
the Directors' Plan and the Consolidation Capital Corporation 1997
Employee Stock 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 Offering), (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
options, warrants and the shares of Convertible Non-Voting Common Stock
expected to be outstanding at the time of the consummation of the Offering
and the Concurrent Offerings 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," "Description of Capital Stock--Convertible Non-Voting Common Stock"
and "Underwriting and Plan of Distribution."
19
<PAGE>
DILUTION
The Company had a net tangible book value deficit at September 30, 1997, of
$292,000, or a deficit of $.13 per share of Common Stock. Net tangible book
value per share is determined by dividing the pro forma net tangible book
value of the Company (tangible assets less total liabilities) by the number of
shares of Common Stock outstanding. Adjusting for the sale by the Company of
the 24,000,000 shares of Common Stock offered hereby and the application of
the estimated net proceeds therefrom as described under "Use of Proceeds," and
after giving effect to the sale of 250,000 shares of Common Stock and 500,000
shares of Convertible Non-Voting Common Stock in the Concurrent Offerings, in
each case at an assumed initial public offering price of $20.00 per share, the
pro forma net tangible book value of the Company, as adjusted, at September
30, 1997 would have been $460,423,000, or $17.02 per share. This amount
represents an immediate dilution to new investors of $2.98 per share and an
immediate increase in pro forma as adjusted net tangible book value per share
to existing stockholders of $17.15 per share. The following table illustrates
this per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $20.00
Net tangible book value per share at September 30, 1997....... $(0.13)
Increase in net tangible book value per share resulting from
the Offering and the Concurrent Offerings.................... 17.15
------
Pro forma net tangible book value per share after the Offering
and the Concurrent Offerings................................... 17.02
------
Pro forma dilution to new investors............................. $ 2.98
======
</TABLE>
If the Underwriters' over-allotment option is exercised in full, the
increase in pro forma net tangible book value per share resulting from the
Offering and the Concurrent Offerings, pro forma net tangible book value per
share after the Offering and the Concurrent Offerings, and pro forma dilution
to new investors would be $17.34, $17.21 and $2.79, respectively.
The following table sets forth at September 30, 1997, after giving effect to
the sale of the Common Stock in the Offering and the sale of 250,000 shares of
Common Stock and 500,000 shares of Convertible Non-Voting Common Stock in the
Concurrent Offerings in each case at an assumed initial public offering price
of $20.00 per share: (i) the number of shares of Common Stock purchased by the
existing stockholder from the Company, the total consideration and the average
price per share paid to the Company for such shares; (ii) the number of shares
of Common Stock purchased by new investors in the Offering from the Company
and the total consideration and the price per share paid by them for such
shares; and (iii) the percentage of shares purchased from the Company by the
existing stockholder and the new investors and the percentages of
consideration paid to the Company for such shares by the existing stockholder
and new investors.
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
------------------------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ---------------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholder..... 2,300,000 8.5% $ 126,000 0.0% $ 0.05
Existing Stockholder
purchasing in the
Concurrent Common Stock
Offering................ 250,000 0.9% 5,000,000 1.0% $20.00
New investors (2)........ 24,500,000 90.6% 490,000,000 99.0% $20.00
------------ ------- ------------ -----
Total.................. 27,050,000 100.0% $495,126,000 100.0%
============ ======= ============ =====
</TABLE>
- --------
(1) Does not include: (i) shares of Common Stock equal to 9% of the shares of
Common Stock outstanding from time to time that are reserved for issuance
under the Incentive Plan (2,389,500 shares on the Effective Date, or
2,713,500 shares if the Underwriters' over-allotment option is exercised
in full), of which options to purchase 1,500,000 shares of Common Stock
are expected to be granted upon consummation of the Offering at an
exercise price equal to the initial public offering price per share; (ii)
300,000 shares of Common Stock reserved for issuance under the Directors'
Plan, of which options to purchase 60,000 shares of Common Stock are
expected to be granted upon consummation of the Offering at an exercise
price equal to the initial public offering price per share; and (iii)
1,000,000 shares of Common Stock reserved for issuance under the
Consolidated Capital Corporation 1997 Employee Stock Purchase Plan. See
"Management--1997 Long-Term Incentive Plan," "--1997 Non-Employee
Directors' Stock Plan" and "--1997 Employee Stock Purchase Plan."
(2) Includes proceeds to be received by the Company from the sale of 500,000
shares of Convertible Non-Voting Common Stock in the Concurrent Non-Voting
Common Stock Offering.
20
<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 business and
consumer products and services companies in one or more fragmented industries.
The Company has generated no revenues since inception. The Company has
incurred expenses of $103,000 in connection with the analysis of industry
consolidation opportunities. The net proceeds from the proposed sales of the
24,000,000 shares of Common Stock offered hereby, and from the sale of 250,000
shares of Common Stock and the 500,000 shares of Convertible Non-Voting Common
Stock in the Concurrent Offerings, which are estimated to be approximately
$460.4 million, 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 Offering offset by salaries and
other operating costs of the Company.
LIQUIDITY AND CAPITAL RESOURCES
Following the consummation of the Offering and the Concurrent Offerings, the
Company will have cash and cash equivalents of approximately $460.4 million
($527.4 million if the Underwriters' over-allotment option is exercised in
full). 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
Offering, 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.
21
<PAGE>
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 190 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.
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 will initially have
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 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 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
22
<PAGE>
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 190 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 after the Offering, 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 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
23
<PAGE>
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 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
24
<PAGE>
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 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
25
<PAGE>
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.
SIGNIFICANT FINANCIAL RESOURCES
The Company believes that, following the Offering and the Concurrent
Offerings, its strong financial position and substantial liquidity, when
combined with the consolidation experience of its management team, will create
significant competitive advantages for the Company that will enable it to
achieve its goal of being the "consolidator of choice" of acquisition
candidates. 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. Furthermore, because the Company will
initially have significant cash reserves, the Company's ability to acquire
attractive companies is not likely to be constrained by the need to access the
capital markets.
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 intends to enter into, upon the Effective Date, 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 to be 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
26
<PAGE>
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
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 September 30, 1997, the
Company employed one person. Upon the consummation of the Offering it is
expected that the Company will employ four executive officers and a limited
number of other personnel.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
27
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning each of the
executive officers and directors of the Company following the consummation of
this Offering:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Jonathan J. Ledecky 39 Chairman and Chief Executive Officer
Timothy C. Clayton 43 Designee to become Executive Vice
President, Chief Financial Officer and
Treasurer
F. Traynor Beck 42 Designee to become Executive Vice
President, General Counsel and Secretary
David Ledecky 36 Senior Vice President, Secretary, Treasurer
and Director Nominee (Designee to become
Executive Vice President and Chief
Administrative Officer)
Vincent W. Eades 38 Director Nominee
W. Russell Ramsey 37 Director Nominee
M. Jude Reyes 42 Director Nominee
</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 190 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 been designated to become Executive Vice President,
Chief Financial Officer and Treasurer of the Company on the Effective Date.
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 been designated to become Executive Vice President,
General Counsel and Secretary of the Company on the Effective Date. Since
1988, Mr. Beck has been associated with Morgan, Lewis and Bockius LLP, most
recently as a partner since October 1994. Mr. Beck's practice focuses 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 has been designated to become Executive Vice President and
Chief Administrative Officer on the Effective Date, and has served as Senior
Vice President, Secretary and Treasurer of the Company since September 1997.
Prior thereto, he operated Ledecky Brothers L.L.C., the Company's predecessor,
as its Vice
28
<PAGE>
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 named to become a director of the Company on the
Effective Date, 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 named to become a director of the Company on the
Effective Date. 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 this Offering, 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 named to become a director of the Company on the
Effective Date. 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 intends to establish an Audit Committee and
a Compensation Committee.
The responsibilities of the Audit Committee will 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. It is currently anticipated that Messrs.
Eades, Ramsey and Reyes will be members of the Audit Committee.
The Compensation Committee will provide a general review of the Company's
compensation plans to ensure that they meet corporate objectives. The
responsibilities of the Compensation Committee will also include administering
the Incentive Plan and Bonus Plan, including selecting the officers and
salaried employees to whom awards will be granted. It is currently anticipated
that Messrs. Eades and Reyes, independent directors of the Company, will be
members of the Compensation Committee.
DIRECTOR COMPENSATION
Directors who are not receiving compensation as officers, employees or
consultants of the Company will be entitled to receive an annual retainer fee
of $25,000. In addition, pursuant to the Company's 1997 Non-Employee
Directors' Stock Plan, each non-employee director will receive an automatic
initial grant of options to purchase
29
<PAGE>
20,000 shares of Common Stock on the later of the Effective Date or the date
of this initial election to the Board of Directors, and an automatic 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 (in the case of initial grants made on the Effective Date,
the exercise price will be equal to the initial public offering price per
share). See "--1997 Non-Employee Directors' Stock Plan."
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS
The Company has paid David Ledecky an annualized salary of $125,000 since
the Company was founded in February 1997.
The Company intends to enter into an employment agreement with Jonathan
Ledecky to be effective upon the Effective Date. The agreement will have a
one-year term and will be 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 will be 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 will be entitled to receive an amount equal to
twice his base salary and one times the bonus he received in the prior year.
The agreement will prohibit 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 intends to enter into employment agreements with each of F.
Traynor Beck, Timothy Clayton and David Ledecky to be effective upon the
Effective Date, the terms of which are substantially identical. Each of the
agreements will have 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 will be
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. Upon the Effective Date, each of these executive
officers will be granted options to purchase 500,000 shares of Common Stock at
an exercise price equal to the initial public offering price per share, which
options 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
will 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, and the sole stockholder has approved, the
Consolidation Capital Corporation 1997 Long-Term Incentive Plan (the
"Incentive Plan") prior to the Effective Date. 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
30
<PAGE>
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.
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).
Upon the Effective Date, the Company intends to grant certain options under
the Incentive Plan, including options 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. 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 date of grant.
1997 NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Company has adopted, and the sole stockholder has approved, the
Consolidation Capital Corporation 1997 Non-Employee Directors' Stock Plan (the
"Directors' Plan") prior to the Effective Date, 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 of the registration
statement of which this Prospectus forms a part 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.
31
<PAGE>
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 upon the effective date of the registration statement
of which this Prospectus forms a part, 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 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, and the sole stockholder has approved, the
Company's 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
will consist 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 participant's 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 the 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.
32
<PAGE>
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
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, and the sole stockholder has approved, the
Consolidation Capital Corporation 1997 Employee Stock Purchase Plan (the
"Purchase Plan"). The Purchase Plan will permit 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.
33
<PAGE>
OTHER PLANS
The Company intends to adopt a "401(k)" plan shortly after consummation of
the Offering. 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.
34
<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 or will become 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, the Company's Senior Vice President,
Secretary and Treasurer and a director nominee of the Company. David Ledecky
will become Executive Vice President and Chief Administrative Officer upon the
Effective Date.
As of September 30, 1997, Jonathan Ledecky has advanced to the Company
$206,000 evidenced by demand notes, having an annual interest rate equal to
6.75%, to pay the expenses incurred in connection with the Offering and
Concurrent Offerings and will advance additional funds to the extent necessary
to pay any additional expenses incurred prior to consummation of the Offering.
The Company will repay Jonathan Ledecky's loans to the Company using the
proceeds of the Offering. In addition, Jonathan Ledecky has contributed
$126,000 in equity to the Company since its inception.
W. Russell Ramsey, a director nominee, is President and a principal
stockholder of FBR. FBR rendered investment banking services to the Company in
connection with the Offering.
Timothy C. Clayton, who, upon the Effective Date, is to become Executive
Vice President, Chief Financial Officer and Treasurer, was, through October,
1997, a Partner at Price Waterhouse LLP, the Company's independent
accountants.
F. Traynor Beck, who, upon the Effective Date, is to become Executive Vice
President, General Counsel and Secretary, is currently a partner at Morgan,
Lewis & Bockius LLP, the Company's legal counsel in connection with the
Offering and the Concurrent Offerings. Mr. Beck will resign from his position
with Morgan, Lewis & Bockius LLP upon the Effective Date.
For information with respect to certain conflicts of interest, see
"Business--Conflicts of Interest."
35
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of October 31, 1997, and as adjusted to
reflect the sale of the Common Stock being offered hereby and the sale of
250,000 shares of Common Stock in the Concurrent Common Stock Offering and the
Ledecky Warrant, 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 and each person
nominated to become a director; and (iii) all of the Company's directors,
persons named to become 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
COMMON STOCK OWNED
--------------------
NUMBER OF NUMBER OF
NAME AND ADDRESS OF SHARES OF SHARES PURCHASED AND BEFORE THE AFTER THE
BENEFICIAL OWNER COMMON STOCK UNDERLYING WARRANT(1) OFFERINGS OFFERINGS
------------------- ------------ --------------------- ---------- ---------
<S> <C> <C> <C> <C>
Jonathan J. Ledecky..... 2,300,000(2) 2,200,000 100% 15.8%
c/o Consolidation
Capital Corporation
1747 Pennsylvania
Avenue, N.W., Suite 900
Washington, DC 20006
David Ledecky........... 0 -- 0 0
F. Traynor Beck......... 0 -- 0 0
Timothy C. Clayton...... 0 -- 0 0
Vincent W. Eades........ 0 -- 0 0
W. Russell Ramsey....... 0 -- 0 0
M. Jude Reyes........... 0 -- 0 0
All directors, persons
named to become
directors and executive
officers and officer
designees, as a group
(7 persons)............ 2,300,000 2,200,000 100% 15.8%
</TABLE>
- --------
(1) Constitutes 250,000 shares to be purchased in the Concurrent Common Stock
Offering and 1,950,000 underlying the Ledecky Warrant. 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) The shares of Common Stock owned by Jonathan Ledecky immediately prior to
the Offering will be subject to a contractual restriction on transfer for
one year following the Offering. See "Underwriting and Plan of
Distribution."
FBR Asset Investment Corporation, Inc. has indicated an interest in
purchasing 500,000 shares, or 100% of the authorized shares of the Convertible
Non-Voting Common Stock. Mr. Ramsey, President and a director of FBR Group, of
which FBR is an indirect wholly-owned subsidiary, could be deemed to own
beneficially the Convertible Non-Voting Common Stock. Mr. Ramsey disclaims
beneficial ownership of such shares. Mr. Ramsey's address is c/o FBR Group,
1001 North 19th Street, Arlington, VA 22209.
36
<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 of Convertible Non-
Voting Common Stock, par value $.001 per share. Upon completion of this
Offering and the Concurrent Offerings, the Company will have outstanding
26,550,000 shares of Common Stock (30,150,000 if the Underwriters' over-
allotment option is exercised in full) 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 qualified in its entirety by reference to, the Company's
Restated Certificate of Incorporation and Amended and Restated Bylaws, copies
of which have been filed as exhibits to the registration statement of which
this Prospectus forms a part, 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 loss, (iii) under Section 174 of 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.
37
<PAGE>
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering and the Concurrent Common Stock Offering,
the Company will have 26,550,000 shares of Common Stock outstanding. The
24,000,000 shares of Common Stock sold in the Offering will be freely
tradeable without restriction or further registration under the Securities
Act, except that any shares purchased by an "affiliate" of the Company, as
that term is defined in Rule 144, 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 will be available for resale, subject to compliance
with Rule 144 and subject to a contractual restriction on transfer for 180
days after the date of this Prospectus on all of the shares of Common Stock
that he owns and a contractual restriction on transfer for one year after the
date of this Prospectus on 2,300,000 of the shares of Common Stock that he
owns.
Further, upon consummation of the Offering, 1,950,000 shares will be
reserved for issuance upon the exercise of a Warrant to be issued to Jonathan
Ledecky on the Effective Date at an exercise price equal to the initial public
offering price per share, 1,560,000 shares of Common Stock will be reserved
for issuance upon the exercise of stock options to be granted on the Effective
Date, and an aggregate of 2,129,500 shares will be reserved for issuance
pursuant to the Company's Incentive Plan, Directors' Plan and Purchase Plan
(an aggregate of 2,453,500 shares 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 as soon as practicable after the consummation of the Offering with
respect to the shares of Common Stock issuable upon exercise of all 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 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.
Finally, upon completion of the Offering and the Concurrent Non-Voting
Common Stock Offering, 1,130,000 shares of Common Stock will be reserved for
issuance upon exercise of the warrants to be issued to the Representative
(which will have the right beginning one year after the date of this
Prospectus, to require the Company to register for sale such shares under the
Securities Act) and 500,000 shares will be reserved for issuance upon the
conversion of shares of Convertible Non-Voting Common Stock (which shares will
be eligible for resale beginning one year from the date of this Prospectus).
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 existing
stockholder, 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 date of this Prospectus without the prior
written consent of the Representative.
38
<PAGE>
In general, under Rule 144 as currently in effect, a stockholder who has
beneficially owned for at least one year shares privately acquired directly or
indirectly from the Company or from an affiliate of the Company, and persons
who are affiliates of the Company who have acquired the shares in registered
transactions, will be entitled to sell within any three-month period a number
of shares that does not exceed the greater of: (i) one percent of the
outstanding shares of Common Stock (approximately 265,500 shares immediately
after completion of the Offering and Concurrent Offerings); or (ii) the
average weekly trading volume in the Common Stock during the four calendar
weeks preceding such sale. Sales under Rule 144 are also subject to certain
requirements relating to the manner and notice of sale and the availability of
current public information about the Company.
Prior to this Offering, there has been no market for the Common Stock. No
predictions can be made with respect to the effect, if any, that public sales
of shares of the Common Stock or the availability of shares for sale will have
on the market price of the Common Stock after the completion of the Offering.
Sales of substantial amounts of Common Stock in the public market following
the Offering, or the perception that such sales may occur, could adversely
affect the market price of the Common Stock or the ability of the Company to
raise capital through sales of its equity securities.
39
<PAGE>
UNDERWRITING AND PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell to each of the Underwriters named below and
each of the Underwriters, for whom Friedman, Billings, Ramsey & Co., Inc., is
acting as Representative, has severally agreed to purchase, the number of
shares of Common Stock offered hereby set forth below opposite its name:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Friedman, Billings, Ramsey & Co., Inc.........................
----------
Total....................................................... 24,000,000
==========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to purchase all the shares of Common Stock offered
hereby if any are purchased.
The Underwriters propose initially to offer the shares of Common Stock
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and to certain dealers at such offering price
less a concession not to exceed $ per share of Common Stock. The
Underwriters may allow and such dealers may reallow a concession not to exceed
$ per share of Common Stock to certain other dealers. After the initial
public offering of shares of Common Stock has been completed, the offering
price and other selling terms may be changed by the Underwriters.
The Company has granted to the Underwriters an over-allotment option, which
is an option exercisable during a 30-day period after the date hereof to
purchase, at the initial offering price less underwriting discounts and
commissions, up to an additional 3,600,000 shares of Common Stock for the sole
purpose of covering over-allotments, if any. To the extent that the
Underwriters exercise the over-allotment option, each Underwriter will be
committed, subject to certain conditions, to purchase a number of the
additional shares of Common Stock proportionate to such Underwriter's initial
commitment.
The Company has agreed, subject to completion of the Offering, to issue to
the Representative warrants ("Warrants") to purchase 1,130,000 shares of
Common Stock. The exercise price per share of the Warrants will be equal to
the initial offering price set forth on the cover page of the Prospectus. The
Warrants are exercisable during the four year period commencing one year from
the date of this Prospectus (the "Warrant Exercise Term"). During the Warrant
Exercise Term, the holders of the Warrants are given the opportunity to profit
from a rise in the market price of the Common Stock. To the extent the
Warrants are exercised, dilution to the interests of the Company's
stockholders will occur. Further, the terms upon which the Company will be
able to obtain additional equity capital may be adversely affected since the
holder of the Warrants can be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed capital on
terms more favorable to the Company than those provided in the Warrants. Any
profit realized by the Representative on the sale of the Warrants and any
securities issuable thereunder may be deemed additional underwriting
compensation. The Company has agreed that, at the request of the holders of a
majority of the Warrants (and on no more than one occasion), the Company will
file a registration statement under the Securities Act for an offering of the
shares of Common Stock underlying the Warrants during the four-year period
beginning on the first anniversary of the date of this Prospectus, and the
Company has agreed to use its best efforts to cause such registration
statement to be declared effective under the Securities Act at the Company's
expense. In addition, the Company has agreed to give advance notice to holders
of the Warrants of its intention to file a registration statement during the
six-year period beginning on the first anniversary date of this Prospectus,
and in each case, holders of the Warrants will have the right to require the
Company to include the Warrants in such registration statement at the
Company's expense (subject to certain limitations).
40
<PAGE>
The Company has agreed to indemnify the several Underwriters against certain
civil liabilities under the Securities Act, or to contribute to payments the
Underwriters may be required to make in respect thereof.
Prior to the Offering, there has been no public market for the shares of
Common Stock. The initial public offering price has been determined by
negotiation between the Company and the Representative. Among the factors
considered in making such determination were the history of, and the prospects
for, other consolidators generally, an assessment of management, the Company's
prospects for future earnings, the general conditions of the economy and the
securities market and the prices of offerings by similar issuers. The price at
which the shares of Common Stock will sell in the public market after the
Offering may be lower than the price at which they are sold by the
Underwriters.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales of the shares offered hereby to any accounts over
which they exercise discretionary authority.
Until the distribution of the Common Stock is completed, the Underwriters
and certain selling group members may be limited in their ability to bid for
or purchase the Common Stock. Pursuant to Regulation M promulgated under the
Securities Exchange Act of 1934, as amended, however, the Representative is
permitted to engage in certain transactions that stabilize the price of the
Common Stock. Such transactions consist of bids or purchases for the purpose
of pegging, fixing or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representative
may reduce that short position by purchasing shares of Common Stock in the
open market. The Representative may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
The Representative may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Representative purchases Common
Stock in the open market to reduce the Underwriters' short position or to
stabilize the price of the Common Stock, it may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
that Common Stock as part of the Offering.
In general, purchases of securities for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representative will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
The Company and its existing stockholder, executive officers and directors
has generally agreed not to directly or indirectly (i) offer, pledge, sell,
offer to sell, contract to sell, grant any option to purchase or otherwise
sell, dispose of, loan or grant any rights with respect to (or announce any
offer, pledge, sale, offer of sale, contract of sale, grant of an option to
purchase or other sale, disposition of, loan or grant of any rights with
respect to) ("Transfer") any shares of Common Stock, any options or warrants
to purchase any shares of Common Stock or any securities convertible into, or
exercisable or exchangeable for, shares of Common Stock or (ii) enter into any
swap or any other agreement or any transaction that transfer, in whole or
part, directly or indirectly, the economic consequence of ownership of the
Common Stock ("Swap"), whether any such swap or transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise for the period ending 180 days from the
date of this Prospectus, subject to certain exceptions. In addition, Jonathan
Ledecky may not Transfer or Swap the 2,300,000 shares of Common Stock owned by
him prior to the Offering during the period beginning 181 days after the date
of this Prospectus and ending one year after the date of this Prospectus.
41
<PAGE>
Pursuant to the Underwriting Agreement, the Company has agreed that it will
nominate and use its best efforts to elect up to two designees of the
Representative to serve on the Company's Board of Directors. Initially, such
designees are expected to be M. Jude Reyes and W. Russell Ramsey.
From time to time, each of the Underwriters and their respective affiliates
may provide investment banking services to the Company.
The Company proposes to offer 250,000 shares of Common Stock directly to
Jonathan Ledecky at the initial public offering price set forth on the cover
page of this Prospectus. In addition, the Company proposes to offer 500,000
shares of Convertible Non-Voting Common Stock to FBR Asset Investment
Corporation Inc., an affiliate of the Representative at the initial public
offering price set forth on the cover page of this Prospectus. No underwriting
discount or commission will be paid in connection with the Concurrent
Offerings. Pursuant to the Company's Restated Certificate of Incorporation,
FBR Asset Investment Corporation Inc., may not offer, pledge, sell, contract
to sell, or otherwise transfer or dispose, directly or indirectly, of any
shares of Convertible Non-Voting Common Stock or enter any swap or any other
agreement or transactions that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Non-Voting Common
Stock, during the period ending one year after the date of this Prospectus.
The Convertible Non-Voting Common Stock will not be publicly traded.
LEGAL MATTERS
The validity of the shares of Common Stock and Convertible Non-Voting Common
Stock offered hereby will be passed upon for the Company by Morgan, Lewis &
Bockius LLP, Washington, D.C. Certain legal matters will be passed upon for
the Underwriters by Brobeck, Phleger & Harrison LLP, New York, New York.
F. Traynor Beck, who, upon the Effective Date, is to become Executive Vice
President, General Counsel and Secretary of the Company, is currently a
partner at Morgan, Lewis & Bockius LLP, the Company's legal counsel in
connection with the Offering and the Concurrent Offerings. Mr. Beck will
resign from his position with Morgan, Lewis & Bockius LLP upon the Effective
Date.
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.
42
<PAGE>
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.
The Company intends to furnish to its stockholders annual reports containing
audited financial statements and an opinion thereon expressed by its
independent auditors, and quarterly reports containing unaudited interim
financial information for the first three quarters of each year.
43
<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
The reverse stock split described in Note 2 had not been consummated as of
September 30, 1997. When it is consummated, we will be in a position to
furnish the following report on the financial statement.
"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
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 these financial statements 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 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.
F-4
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO BALANCE SHEET--(CONTINUED)
(DOLLARS IN THOUSANDS)
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 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.
F-5
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO BALANCE SHEET--(CONTINUED)
(DOLLARS IN THOUSANDS)
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>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH
THE 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 COM-
PANY OR ANY OF THE UNDERWRITERS. 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 OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 18
Determination of Offering Price.......................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Selected Financial Data.................................................. 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 22
Management............................................................... 28
Certain Relationships and Related Party Transactions..................... 35
Principal Stockholders................................................... 36
Description of Capital Stock............................................. 37
Shares Eligible for Future Sale.......................................... 38
Underwriting and Plan of Distribution.................................... 40
Legal Matters............................................................ 42
Experts.................................................................. 42
Additional Information................................................... 43
Index to Financial Statements............................................ F-1
</TABLE>
----------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICI-
PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
24,000,000 SHARES
CONSOLIDATION
CAPITAL
CORPORATION
COMMON STOCK
----------------
PROSPECTUS
----------------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 the National Association of Securities Dealers, Inc., 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.............. $ 213,638
NASD Fee......................................................... 30,500
Nasdaq National Market Listing Fee............................... 50,000
Printing and Engraving Expenses.................................. 300,000
Accounting Fees and Expenses..................................... 100,000
Legal Fees and Expenses.......................................... 250,000
Transfer Agent Fees and Expenses................................. 5,000
Miscellaneous.................................................... 50,862
----------
Total.......................................................... $1,000,000
==========
</TABLE>
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 Board of Directors has authorized the Company to enter into Indemnity
Agreements because the Board believes that the Company's directors' and
officers' insurance does not fully protect the directors and executive
II-1
<PAGE>
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 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 will 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 will 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 or 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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In February 1997, Jonathan J. Ledecky, the Company's Chairman, 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>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.01 Form of Underwriting Agreement.*
3.01 Restated Certificate of Incorporation of Consolidation Capital
Corporation.*
3.02 Amended and Restated Bylaws of Consolidation Capital Corporation.*
4.01 Form of Warrant Agreement.*
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.*
10.03 Consolidation Capital Corporation 1997 Employee Stock Purchase Plan.*
10.04 Consolidation Capital Corporation 1997 Section 162(m) Bonus Plan.*
10.05 Form of Employment Agreement between the Company and Jonathan J.
Ledecky.*
10.06 Form of Employment Agreement between the Company and Timothy C.
Clayton.*
10.07 Form of Employment Agreement between the Company and F. Traynor Beck.*
10.08 Form of Employment Agreement between the Company and David Ledecky.*
10.09 Form of Indemnity Agreement for Executive Officers and Directors of
the Company.*
10.10 Form of Ledecky Warrant Agreement.*
23.01 Consent of Price Waterhouse LLP.*
23.02 Consent of Morgan, Lewis & Bockius LLP (included in opinion to be
filed as Exhibit 5.1).*
24.01 Power of Attorney.**
27.01 Financial Data Schedule.**
99.1 Consent of David Ledecky (Director Nominee) (previously filed as
Exhibit 23.03).**
99.2 Consent of Vincent W. Eades (Director Nominee).**
99.3 Consent of W. Russell Ramsey (Director Nominee).**
99.4 Consent of M. Jude Reyes (Director Nominee).**
</TABLE>
- --------
* Filed herewith.
** Previously filed.
(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.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
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
II-3
<PAGE>
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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
WASHINGTON, DISTRICT OF COLUMBIA, ON NOVEMBER 25, 1997.
Consolidation Capital Corporation
By: /s/ David Ledecky
----------------------------------
DAVID LEDECKY
SENIOR VICE PRESIDENT
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>
* Chairman and Chief November 25, 1997
- ------------------------------------ Executive Officer
JONATHAN J. LEDECKY (principal
executive officer)
/s/ David Ledecky Senior Vice November 25, 1997
- ------------------------------------ President,
DAVID LEDECKY Treasurer and
Secretary
(principal
financial officer
and principal
accounting officer)
</TABLE>
*By: /s/ David Ledecky
--------------------------------
David Ledecky, Attorney in Fact,
pursuant to powers of attorney previously
filed as part of this registration statement.
<PAGE>
EXHIBIT 1.01
CONSOLIDATION CAPITAL CORPORATION
24,000,000 SHARES/1/
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
November __, 1997
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
as Representative of the Several Underwriters
c/o Friedman, Billings, Ramsey & Co., Inc.
Potomac Tower
1001 Nineteenth Street North
Arlington, Virginia 22209
Ladies and Gentlemen:
Consolidation Capital Corporation, a Delaware corporation (the
"Company"), hereby confirms its agreement with the several underwriters named in
- --------
Schedule I hereto (the "Underwriters"), for whom you have been duly authorized
- ---------- ------------
to act as representative (in such capacity, the "Representative"), as set forth
--------------
below. If you are the only Underwriter, all references herein to the
Representative shall be deemed to be to the Underwriter.
1. Securities. Subject to the terms and conditions herein contained, the
----------
Company proposes to issue and sell to the several Underwriters an aggregate of
24,000,000 shares (the "Firm Securities") of the Company's common stock, par
---------------
value $.001 per share (the "Common Stock"). The Company also proposes to grant
------------
to the several Underwriters an option to purchase up to 3,600,000 additional
shares of Common Stock (the "Option Securities" and collectively with the Firm
-----------------
Securities, the "Securities") if requested by the Representative as provided in
----------
Section 3 of this Agreement. The Common Stock is more fully described in the
Registration Statement and the Prospectus hereinafter mentioned.
2. Representations, Warranties and Agreements of the Company and
-------------------------------------------------------------
Jonathan L. Ledecky.
- -------------------
(a) The Company hereby represents and warrants to, and agrees with,
each of the several Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-36193)
with respect to the Securities, including a prospectus subject to
completion, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
---
applicable rules and regulations thereunder and has been filed with the
Securities and Exchange Commission (the "Commission"), and one or more
----------
amendments to such registration statement have been so filed, if
applicable. Copies of such registration statement and of each amendment
thereto, if any, including the related preliminary prospectus (meeting the
requirements of Rule 430A under the Act) heretofore filed by the Company
with the Commission have been delivered to you. After the execution of
this Agreement, the Company will file with the Commission either (i), if
such registration statement, as it may have been amended, has been declared
by the Commission to be effective under the Act, either (A), if the Company
______________________________________________
/1/ Plus an option to purchase from the Company up to 3,600,000 additional
shares to cover over-allotments, if any.
<PAGE>
relies on Rule 434 under the Act, a Term Sheet (as hereinafter defined)
relating to the Securities, that shall identify the Preliminary Prospectus
(as hereinafter defined) that it supplements containing such information as
is required or permitted by Rules 434, 430A and 424(b) under the Act, or
(B), if the Company does not rely on Rule 434 under the Act, a prospectus
in the form most recently included in an amendment to such registration
statement (or, if no such amendment shall have been filed, in such
registration statement), with such changes or insertions as are required by
Rule 430A under the Act or permitted by Rule 424(b) under the Act, and in
the case of either clause (i)(A) or (i)(B) of this sentence, as have been
provided to and approved by the Representative prior to the execution of
this Agreement, or (ii), if such registration statement, as it may have
been amended, has not been declared by the Commission to be effective under
the Act, an amendment to such registration statement, including a form of
prospectus, a copy of which amendment has been furnished to and approved by
the Representative prior to the execution of this Agreement. The Company
may also file a related abbreviated registration statement with the
Commission pursuant to Rule 462(b) under the Act for the purpose of
registering certain additional Securities, which registration statement
shall be effective upon filing with the Commission. If the Company has
elected to rely on Rule 462(b) under the Act: (i) the Company has filed a
Rule 462(b) Registration Statement in compliance with the Act and the rules
and regulations of the Commission promulgated thereunder, which Rule 462(b)
Registration Statement is effective upon filing pursuant to Rule 462(b)
under the Act, and the Company has received confirmation of its receipt and
(ii) the Company has given irrevocable instructions for transmission of the
applicable filing fee in connection with the filing of the Rule 462(b)
Registration Statement, in compliance with Rule 111 promulgated under the
Act or the Commission has received payment of such filing fee. As used in
this Agreement, the term "Original Registration Statement" means the
-------------------------------
registration statement initially filed relating to the Securities, as
amended at the time when it was or is declared effective, including all
financial statement schedules and exhibits thereto and including any
information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus (as hereinafter defined); the term "Rule 462(b)
-----------
Registration Statement" means any abbreviated registration statement filed
----------------------
with the Commission pursuant to Rule 462(b) under the Act (including the
Registration Statement and any Preliminary Prospectus or Prospectus
incorporated therein at the time such Registration Statement becomes
effective); the term "Registration Statement" includes both the Original
----------------------
Registration Statement and any Rule 462(b) Registration Statement; the term
"Preliminary Prospectus" means each prospectus subject to completion filed
----------------------
with such registration statement or any amendment thereto (including the
prospectus subject to completion, if any, included in the Registration
Statement or any amendment thereto at the time it was or is declared
effective); the term "Prospectus" means: (A) if the Company relies on Rule
----------
434 under the Act, the Term Sheet relating to the Securities that is first
filed pursuant to Rule 424(b)(7) under the Act, together with the
Preliminary Prospectus identified therein that such Term Sheet supplements;
(B) if the Company does not rely on Rule 434 under the Act, the prospectus
first filed with the Commission pursuant to Rule 424(b) under the Act; or
(C) if the Company does not rely on Rule 434 under the Act and if no
prospectus is required to be filed pursuant to Rule 424(b) under the Act,
the prospectus included in the Registration Statement; and the term "Term
----
Sheet" means any term sheet that satisfies the requirements of Rule 434
-----
under the Act. Any reference herein to the "date" of a Prospectus that
includes a Term Sheet shall mean the date of such Term Sheet.
(ii) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings
for such purpose. When any Preliminary Prospectus was filed with the
Commission it: (A) contained all statements required to be stated therein
in accordance with, and complied in all material respects with the
requirements of, the Act and the rules and regulations of the Commission
promulgated thereunder, and (B) did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. When the Registration Statement or any
amendment thereto was or is declared effective, it (A) contained all
statements required to be stated therein in accordance with, and complied
in all material respects with the requirements of, the Act and the rules
and regulations of the Commission promulgated thereunder, and (B) did not
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading.
When the Prospectus or any Term Sheet that is a part thereof or any
amendment or supplement to the Prospectus is filed with the Commission
pursuant to Rule 424(b) (or, if the Prospectus or any part thereof
2
<PAGE>
or such amendment or supplement is not required to be so filed, when the
Registration Statement or the amendment thereto containing such amendment
or supplement to the Prospectus was or is declared effective) and on the
Firm Closing Date and any Option Closing Date (both as hereinafter
defined), the Prospectus or any Term Sheet, if applicable, as amended or
supplemented at any such time, (A) contained all statements required to be
stated therein in accordance with, and complied in all material respects
with the requirements of, the Act and the rules and regulations of the
Commission promulgated thereunder and (B) did not include any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The foregoing provisions of
this paragraph (ii) do not apply to statements in, or omissions from, any
Preliminary Prospectus, the Registration Statement or any amendment thereto
or the Prospectus or any amendment or supplement thereto in reliance upon
and in conformity with written information furnished to the Company by or
on behalf of the Underwriters specifically for use therein.
(iii) The Company has been duly incorporated and is validly
existing and in good standing under the laws of its jurisdiction of
organization and is duly qualified to transact business as a foreign entity
and is in good standing under the laws of all other jurisdictions where the
ownership or leasing of its properties or the conduct of its businesses
requires such qualification, except where the failure to be so qualified
would not have a material adverse effect on the business, properties,
business prospects, financial condition or results of operations of the
Company.
(iv) The Company has full power (corporate and other) and
authority to own or lease its properties and conduct its businesses as
described in the Registration Statement and Prospectus.
(v) The Company does not own or control, directly or indirectly,
any corporation, association or other entity.
(vi) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus under the caption
"Capitalization." At the Firm Closing Date, all of the issued and
outstanding shares of capital stock of the Company will have been duly
authorized and validly issued and will be fully paid and nonassessable,
will have been issued in compliance with all federal and state securities
laws, and will not have been issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities.
The Securities have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement, and at the Firm Closing Date or
the related Option Closing Date (as the case may be), when issued and
delivered by the Company after payment therefor in accordance herewith,
will be duly and validly issued, fully paid and nonassessable, and will be
sold free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest; and no preemptive right, co-sale right,
registration right (except those rights granted to the Representative
pursuant to a warrant agreement by and between the Company and the
Representative in connection with the transactions contemplated hereunder),
right of first refusal or other similar right of stockholders exists with
respect to any of the Common Stock issued and outstanding on the date
hereof or to be issued pursuant to this Agreement. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance of the Securities except as may be
required under the Act or state securities or Blue Sky laws.
(vii) The capital stock of the Company conforms to the
description thereof and statements relating thereto contained in the
Prospectus (and such statements correctly state the substance of the
instruments defining the capitalization of the Company to the extent
required by the Act and the rules and regulations promulgated thereunder).
(viii) Except as disclosed in the Prospectus, there are no
outstanding (A) securities or obligations of the Company convertible into
or exchangeable for any capital stock or ownership interests of the
Company, (B) warrants, rights or options to subscribe for or purchase from
the Company any such capital stock or ownership interest or any such
convertible or exchangeable securities or obligations, or (C) obligations
of the Company to issue any shares of capital stock or any ownership
interests, any such
3
<PAGE>
convertible or exchangeable securities or obligations, or any such
warrants, rights or options. The description of the Company's stock option
and purchase plans, and the options or other rights granted and exercised
thereunder, set forth in the Prospectus accurately and fairly presents the
information required to be shown with respect to such plans, arrangements,
options and rights.
(ix) The audited financial statements of the Company, together
with the related schedules and notes, and the unaudited financial
information included in the Registration Statement and the Prospectus
present fairly the financial position of the Company and the results of
operations and changes in financial condition as of the dates and periods
therein specified. Such financial statements and schedules have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (except as otherwise
noted therein). The selected financial data included in the Registration
Statement present fairly the information included therein and have been
compiled on a basis consistent with the audited financial statements
presented therein. No other financial statements or schedules are required
to be included in the Registration Statement.
(x) Price Waterhouse LLP, who have certified certain financial
statements of the Company and delivered their report with respect to the
audited financial statements, together with the related schedules and
notes, included in the Registration Statement and the Prospectus are
independent accountants within the meaning of the Act and the applicable
rules and regulations thereunder.
(xi) The Company has full legal right, power (corporate and
other) and authority to enter into this Agreement and to perform the
transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by the Company and is the valid and binding
agreement of the Company, enforceable against it in accordance with its
terms, except as rights to indemnification and contribution hereunder may
be limited by applicable law and except as the enforcement hereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally, or
by general equitable principles.
(xii) No legal or governmental action, suit, claim or other
proceeding is pending or, to the best of the Company's knowledge,
threatened, to which the Company or any of its officers or directors is a
party or to which the property of the Company is subject that (A) would or
would be reasonably likely to have a material adverse effect on the
business, properties, business prospects, financial condition or results of
operations of the Company, or (B) would or would be reasonably likely to
prevent consummation of the transactions contemplated hereby, or (C) is
required to be described in the Registration Statement or the Prospectus
and is not so described; and no agreement, contract, lease or other
document is required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement that
is not described therein or filed as required and any such description of
such contracts or agreements conforms in all material respects to the terms
of such contracts or agreements.
(xiii) The Company is not (A) in violation of its certificate
of incorporation or bylaws, or (B) in default in the performance or
observance of any obligation, agreement, covenant or condition contained in
any bond, debenture, note or other evidence of indebtedness to which the
Company is a party or pursuant to which the Company's properties are bound,
which default would reasonably be expected to have a material adverse
effect on the business, properties, business prospects, financial condition
or results of operations of the Company, or (C) in default in the
performance or observance of any contract, indenture, mortgage, loan
agreement, joint venture or other agreement or instrument to which it is a
party or by which it or any of its properties are bound, which default
would have a material adverse effect on the business, properties, business
prospects, financial condition or results of operations of the Company, or
(D) in violation of any law, order, rule, regulation, writ, injunction,
judgment or decree of any court or governmental agency or body to which the
Company is subject.
(xiv) The issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance and
performance by the Company with the other
4
<PAGE>
provisions of this Agreement and the consummation of the other transactions
herein contemplated do not and will not (A) require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, domestic or foreign, except such as have been obtained, or such
as may be required under the Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or under state securities or blue sky laws,
------------
all of which requirements have been, or will be, satisfied, or (B) result
in a breach or violation of any of the terms and provisions of, or
constitute a default under the certificate of incorporation or bylaws of
the Company, or (C) result in a breach or violation of any of the terms and
provisions of, or constitute a default under any obligation, agreement,
covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness to which the Company is a party or pursuant to
which the Company's properties are bound, which default would reasonably be
expected to have a material adverse effect on the business, properties,
business prospects, financial condition or results of operations of the
Company, or (D) result in a breach or violation of any of the terms and
provisions of, or constitute a default under any law, order, rule,
regulation, writ, injunction, judgment or decree of any court or
governmental agency or body to which the Company is subject.
(xv) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, except as
contemplated by the Prospectus, there has not been (A) any material adverse
change in the business, properties, business prospects, financial condition
or results of operations of the Company, (B) any transaction that is
material to the Company except transactions entered into in the ordinary
course of business, (C) any obligation, direct or contingent, that is
material to the Company, incurred by the Company, except obligations
incurred in the ordinary course of business, (D) any change in the capital
stock or outstanding indebtedness of the Company that is material to the
Company, (E) any dividend or distribution of any kind declared, paid or
made on the capital stock of the Company, or (F) any loss or damage
(whether or not insured) to the property of the Company which has been
sustained or will have been sustained which would reasonably be expected to
have a material adverse effect on the business, properties, business
prospects, financial condition or results of operations of the Company.
(xvi) The Company has not directly or indirectly, (A) taken any
action designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities, or (B) since the filing of the
Registration Statement (i) other than amounts to be paid to the
Underwriters pursuant to the terms hereof, sold, bid for, purchased, or
paid anyone any compensation for soliciting purchases of, the Securities or
(ii) paid or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of the Company.
(xvii) Neither the Company nor, to the Company's knowledge, any
employee or agent of the Company has at any time since its inception (A)
made any unlawful contribution to any candidate for foreign office or
failed to disclose fully any contribution in violation of law, (B) made any
payment to any federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof, or (C) made any payment of funds of the Company or
received or retained any funds in violation of any law, rule or regulation
or of a character required to be disclosed in the Prospectus.
(xviii) (A) The Company possesses all certificates,
authorizations, licenses, franchises and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to own, lease
and operate its properties and to conduct its business described in the
Prospectus, and (B) no event has occurred which allows, or which with a
fair notice or lapse of time would allow, and the Company has not received
any notice of proceedings relating to, the revocation or modification of
any such certificate, authorization, license, franchise or permit, except
as described in the Prospectus. Except as described in the Prospectus,
none of the Company's certificates, authorizations, licenses, franchises or
permits contain any restrictions that would result in any material adverse
effect on the business, properties, business prospects, financial condition
or results of operations of the Company.
5
<PAGE>
(xix) The Company is familiar with the Investment Company Act of
1940, as amended (the "Investment Company Act"), and the rules and
----------------------
regulations thereunder, and has in the past conducted its affairs in such a
manner to ensure that the Company was not and is not an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act and such rules and regulations.
(xx) The Company has timely filed all foreign, federal, state and
material local tax returns that are required to be filed and has paid all
material taxes and assessments required to be paid by it and any other
assessment, fine or penalty levied against it.
(xxi) The Company does not own any shares of stock or any other
equity securities of any corporation and has no equity interest in any
firm, partnership, association or other entity.
(xxii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that: (A) transactions
are executed in accordance with management's general or specific
authorizations; (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (C) access to
assets is permitted only in accordance with management's general or
specific authorization; and (D) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xxiii) Except as described in the Registration Statement and
the Prospectus, (A) the agreements to which the Company is a party
described in the Registration Statement and Prospectus are valid
agreements, enforceable by the Company, except as the enforcement thereof
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles and the other contracting
party or parties thereto are not in breach or default under any of such
agreements, and (B) no default exists, and no event has occurred which,
with notice or lapse of time or both, would constitute a default, in the
due performance and observance of any term, covenant or condition of any
indenture, mortgage, deed of trust, lease, contract, loan agreement, joint
venture or other agreement or instrument to which the Company is a party or
by which the Company or any of its properties is bound or may be affected,
in any respect which would reasonably be expected to result in any material
adverse effect on the business, properties, business prospects, financial
condition or results of operations of the Company.
(xxiv) The Company has not distributed and will not distribute,
prior to the later of (A) the Firm Closing Date, or any date on which the
Option Securities are to be purchased, as the case may be, and (B) the
completion of the distribution of the Securities, any offering material in
connection with the offering and sale of the Securities other than any
Preliminary Prospectus, the Prospectus, the Registration Statement or Term
Sheet or any amendment or supplement thereto, or other materials, if any,
permitted by the Act.
(xxv) Except as set forth in the Registration Statement and
Prospectus, (A) the Company has good and marketable title to all properties
and assets described in the Registration Statement and Prospectus as owned
by it, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest, other than such as would not reasonably be
expected to have a material adverse effect on the business, properties,
business prospects, financial condition or results of operations of the
Company and (B) the Company has valid and enforceable leases for all
properties described in the Registration Statement and Prospectus as leased
by it, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general
equitable principles. Except as set forth in the Registration Statement
and Prospectus, the Company owns or leases all such properties as are
necessary to its operations as now conducted or as proposed to be
conducted, it being understood that acquisitions of businesses will likely
require the purchase or lease of additional properties and further
understood that the engagement of certain executive officers will require
the purchase or lease of additional properties.
6
<PAGE>
(xxvi) No labor dispute or disturbance with the employees of the
Company exists or, to the Company's knowledge, is threatened or imminent
except as described in the Prospectus. No collective bargaining agreement
exists with any of the Company's employees and no such agreement is
imminent.
(xxvii) The Company owns or possesses adequate rights to use all
patents, patent rights, licenses, inventions, trade secrets, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names currently employed by it in
connection with the business now operated by it; the expiration of any of
the foregoing would not reasonably be expected to have a material adverse
effect on the business, properties, business prospects, financial condition
or results of operations of the Company; and the Company has not received
any notice of infringement of or conflict with asserted rights of any third
party with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would reasonably be expected to result in a material adverse change in the
business, properties, business prospects, financial condition or results of
operations of the Company.
(xxviii) The Company maintains or has applied for insurance with
insurers of recognized financial responsibility against such losses and
risks and in such amounts as it reasonably believes to be appropriate,
including, but not limited to, insurance covering real and personal
property owned or leased by the Company against theft, damage, destruction,
errors and omissions, business interruption and acts of vandalism; the
Company has not been refused any insurance coverage sought or applied for;
and the Company does not have any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not reasonably be
expected to result in any material adverse change in the business,
properties, business prospects, financial condition or results of
operations of the Company.
(xxix) Each certificate signed by any officer of the Company and
delivered to the Representative or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to each
Underwriter as to the matters covered thereby.
(xxx) The Securities to be issued and sold by the Company have
been approved for quotation on the Nasdaq National Market, pending
consummation of the sale of the Securities pursuant to this Agreement.
(xxxi) Except as set forth in the Registration Statement and
Prospectus, (A) the Company is in compliance with all material rules, laws
and regulations relating to the use, treatment, storage and disposal of
toxic substances and protection of health or the environment
("Environmental Laws") which are applicable to its business, (B) the
--------------------
Company has received no notice from any governmental authority or third
party of an asserted claim under Environmental Laws, which claim is
required to be disclosed in the Registration Statement and the Prospectus,
(C) the Company does not now expect to be required to make future material
capital expenditures to comply with Environmental Laws and (D) no property
which is owned, leased or occupied by the Company has been designated as a
Superfund site pursuant to the Comprehensive Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. (S) 9601, et seq.), or
-- ----
otherwise designated as a contaminated site under applicable state or local
law.
(xxxii) The Company has complied with all provisions of Section
517.075, Florida Statutes, relating to doing business with the Government
of Cuba or with any person or affiliate located in Cuba.
(xxxiii) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of
the officers or directors of the Company or any of the members of the
families of any of them, except as disclosed in the Prospectus.
7
<PAGE>
(xxxiv) Each officer, director and director nominee of the
Company, other than Jonathan J. Ledecky, has entered into an agreement
(collectively, the "Lock-up Agreements") to the effect that such person
------------------
will not, during the period ending 180 days after the date of the
Prospectus, directly or indirectly, without the prior written consent of
the Representative, (A) offer, pledge, sell, offer to sell, contract to
sell, grant any option to purchase or otherwise sell, dispose of, loan or
grant any rights with respect to (or announce any offer, pledge, sale,
offer of sale, contract of sale, grant of an option to purchase or other
sale, disposition of, loan or grant of any rights with respect to) any
shares of Common Stock, any options or warrants to purchase any shares of
Common Stock or any securities convertible into, or exercisable or
exchangeable for, shares of Common Stock or (B) enter into any swap or any
other agreement or any transactions that transfers, in whole or part,
directly or indirectly, the economic consequence of ownership of the Common
Stock, whether any such swap or transaction described in clause (A) or (B)
above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise; except that certain gifts may be made.
(xxxv) Jonathan J. Ledecky has entered into an agreement (the
"Ledecky Lock-up Agreement") to the effect that he will not, during the
--------------------------
period ending 180 days after the date of the Prospectus, directly or
indirectly, without the prior written consent of the Representative, (A)
offer, pledge, sell, offer to sell, contract to sell, grant any option to
purchase or otherwise sell, dispose of, loan or grant any rights with
respect to (or announce any offer, pledge, sale, offer of sale, contract of
sale, grant of an option to purchase or other sale, disposition of, loan or
grant of any rights with respect to) ("Transfer") any shares of Common
--------
Stock, any options or warrants to purchase any shares of Common Stock or
any securities convertible into, or exercisable or exchangeable for, shares
of Common Stock or (B) enter into any swap or any other agreement or any
transactions that transfers, in whole or part, directly or indirectly, the
economic consequence of ownership of the Common Stock ("Swap"), whether any
----
such swap or transaction described in clause (A) or (B) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. In addition, pursuant to the Ledecky Lock-up Agreement,
Jonathan J. Ledecky may not Transfer or Swap the 2,300,000 shares of Common
Stock owned by him on the date hereof during the period beginning 181 days
after the date of the Prospectus and ending one year after the date of the
Prospectus.
(xxxvi) The Preliminary Prospectus was and the Prospectus
delivered to the Underwriters for use in connection with this offering will
be identical to the versions of the Preliminary Prospectus and Prospectus
created to be transmitted to the Commission for filing via the Electronic
Data Gathering Analysis and Retrieval System ("EDGAR"), except to the
extent permitted or required by Regulation S-T.
(xxxvii) The Company has not incurred any liability for any
finder's fees or similar payments in connection with the transactions
herein contemplated.
(xxxviii) The Company has obtained on behalf of the
Representative, and has provided to the Representative, the lockup
agreements described in Section 7(f) hereof prior to the date of this
Agreement.
(b) Jonathan J. Ledecky hereby represents and warrants to, and agrees
with, each of the several Underwriters that, to the best of his knowledge, none
of the representations and warranties of the Company set forth in Section 2(a)
above is untrue or inaccurate in any respect.
3. Purchase, Sale and Delivery of the Securities.
---------------------------------------------
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each of the Underwriters, and each of the
Underwriters, severally and not jointly, agrees to purchase from the Company, at
a purchase price of $____ per share, the number of Firm Securities set forth
opposite the name of such Underwriter in Schedule I hereto.
----------
8
<PAGE>
One or more certificates in definitive form for the Firm Securities
that the several Underwriters have agreed to purchase hereunder, and in such
denomination or denominations and registered in such name or names as the
Representative request upon notice to the Company at least 48 hours prior to the
Firm Closing Date, shall be delivered by or on behalf of the Company to the
Representative for the respective accounts of the Underwriters, against payment
by or on behalf of the Underwriters of the aggregate purchase price therefor by
wire transfer in same day funds to the account of the Company. Such delivery of
and payment for the Firm Securities shall be made at the offices of Morgan,
Lewis & Bockius LLP, 1800 M Street, NW, Washington DC 20036 at 9:30 a.m.,
Washington DC time on ________, 1997, or at such other place, time or date as
the Representative and the Company may agree upon or as the Representative may
determine pursuant to Section 9 hereof, such time and date of delivery against
payment being herein referred to as the "Firm Closing Date." The Company will
-----------------
make such certificate or certificates for the Firm Securities available for
checking and packaging by the Representative at the offices in New York, New
York of the Company's transfer agent or registrar at least 24 hours prior to the
Firm Closing Date.
(b) For the purpose of covering any over-allotments in connection with
the distribution and sale of the Firm Securities as contemplated by the
Prospectus, the Company hereby grants to the several Underwriters an option to
purchase, severally and not jointly, the Option Securities. The purchase price
to be paid for any Option Securities shall be the same price per share as the
price per share for the Firm Securities set forth above in paragraph (a) of this
Section 3. The option granted hereby may be exercised as to all or any part of
the Option Securities from time to time within thirty days after the date of the
Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday, on
the next business day thereafter when the New York Stock Exchange is open for
trading). The Underwriters shall not be under any obligation to purchase any of
the Option Securities prior to the exercise of such option. The Representative
may from time to time exercise the option granted hereby by giving notice in
writing or by telephone (confirmed in writing) to the Company setting forth the
aggregate number of Option Securities as to which the several Underwriters are
then exercising the option and the date and time for delivery of and payment for
such Option Securities. Any such date of delivery shall be determined by the
Representative but shall not be earlier than two (2) business days or later than
five (5) business days after such exercise of the option and, in any event,
shall not be earlier than the Firm Closing Date. The time and date set forth in
such notice, or such other time on such other date as the Representative and the
Company may agree upon or as the Representative may determine pursuant to
Section 9 hereof, is herein called the "Option Closing Date" with respect to
-------------------
such Option Securities. Upon exercise of the option as provided herein, the
Company shall become obligated to sell to each of the several Underwriters, and,
subject to the terms and conditions herein set forth, each of the Underwriters
(severally and not jointly) shall become obligated to purchase from the Company,
the same percentage of the total number of the Option Securities as to which the
several Underwriters are then exercising the option as such Underwriter is
obligated to purchase of the aggregate number of Firm Securities, as adjusted by
the Representative in such manner as it deems advisable to avoid fractional
shares. If the option is exercised as to all or any portion of the Option
Securities, one or more certificates in definitive form for such Option
Securities, and payment therefor, shall be delivered on the related Option
Closing Date in the manner, and upon the terms and conditions, set forth in
paragraph (a) of this Section 3, except that reference therein to the Firm
Securities and the Firm Closing Date shall be deemed, for purposes of this
paragraph 3(b), to refer to such Option Securities and Option Closing Date,
respectively.
(c) It is understood that you, individually and not as the
Representative, may (but shall not be obligated to) make payment on behalf of
any Underwriter or Underwriters for any of the Securities to be purchased by
such Underwriter or Underwriters. No such payment shall relieve such
Underwriter or Underwriters from any of its or their obligations hereunder.
(d) The Company hereby acknowledges that the wire transfer by or on
behalf of the Underwriters of the purchase price for any Securities does not
constitute closing of a purchase and sale of the Securities. Only execution and
delivery of a receipt for the Securities by the Underwriters indicates
completion of the closing of a purchase of the Securities from the Company.
Furthermore, in the event that the Underwriters wire funds to the Company prior
to the completion of the closing of a purchase of Securities, the Company hereby
acknowledges that until the Underwriters execute and deliver a receipt for the
Securities, by facsimile or otherwise, the Company will not be entitled to the
wired funds and shall return the wired funds to the Underwriters as soon
9
<PAGE>
as practicable (by wire transfer of same-day funds) upon demand. In the event
that the closing of a purchase of Securities is not completed and the wire funds
are not returned by the Company to the Underwriters on the same day the wired
funds were received by the Company, the Company agrees to pay to the
Underwriters in respect of each day the wire funds are not returned by it, in
same-day funds, interest on the amount of such wire funds in an amount
representing the Underwriters' cost of financing as reasonably determined by the
Representative.
4. Offering by the Underwriters. Upon your authorization of the release
----------------------------
of the Firm Securities, the several Underwriters propose to offer the Firm
Securities for sale to the public at the price and upon the terms set forth in
the Prospectus. The Underwriters may from time to time change the public
offering price after the closing of the initial public offering and increase or
decrease the concessions and discounts to dealers as they may determine.
5. Covenants of the Company. The Company covenants and agrees with each
-------------------------
of the Underwriters that:
(a) The Company will use its best efforts to cause to the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible. The Company will file the Prospectus or any
Term Sheet and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rules 424(b) and 434 under the
Act. During any time when a prospectus relating to the Securities is required
to be delivered under the Act, the Company (i) will comply with all requirements
imposed upon it by the Act and the rules and regulations of the Commission
thereunder to the extent necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and of the
Prospectus, as then amended or supplemented, and (ii) will not file with the
Commission the Prospectus, Term Sheet or the amendment referred to in the second
sentence of Section 2(a) hereof, any amendment or supplement to such Prospectus,
Term Sheet or any amendment to the Registration Statement or any Rule 462(b)
Registration Statement of which the Representative shall not previously have
been advised and furnished with a copy for a reasonable period of time prior to
the proposed filing and as to which filing the Representative shall not have
given its consent (which shall not be unreasonably withheld). The Company will
prepare and file with the Commission, in accordance with the rules and
regulations of the Commission, promptly upon request by the Representative or
counsel for the Underwriters, any amendments to the Registration Statement or
amendments or supplements to the Prospectus that may be reasonably necessary or
advisable in connection with the distribution of the Securities by the several
Underwriters, and will use its best efforts to cause any such amendment to the
Registration Statement to be declared effective by the Commission as promptly as
possible. The Company will advise the Representative, promptly after receiving
notice thereof, of the time when the Registration Statement or any amendment
thereto has been filed or declared effective or the Prospectus or any amendment
or supplement thereto has been filed and will provide to the Representative
copies of each such filing.
(b) The Company will advise the Representative, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or any Rule 462(b) Registration Statement or any amendment thereto or
any order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, (ii) the suspension of the
qualification of the Securities for offering or sale in any jurisdiction, (iii)
the institution, threatening or contemplation of any proceeding for any such
purpose, or (iv) any request made by the Commission for amending the Original
Registration Statement or any Rule 462(b) Registration Statement, for amending
or supplementing the Prospectus or for additional information. The Company will
use its best efforts to prevent the issuance of any such stop order and, if any
such stop order is issued, to obtain the withdrawal thereof as promptly as
possible.
(c) The Company will arrange for the qualification of, or cooperate
with you and your counsel to qualify or register, the Securities for offering
and sale under the securities or blue sky laws of such jurisdictions as the
Representative may designate and will continue such qualifications in effect for
as long as may be necessary to complete the distribution of the Securities;
provided, however, that in connection therewith the Company shall not be
- -------- -------
required to qualify as a foreign corporation or to execute a general consent to
service of
10
<PAGE>
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Securities shall have been qualified as provided
above, the Company will prepare and file such statements and reports in each
year as are or may be required by the laws of such jurisdiction.
(d) If, at any time prior to the later of (i) the final date when a
prospectus relating to the Securities is required to be delivered under the Act,
or (ii) the Option Closing Date, any event occurs as a result of which the
Prospectus, as then amended or supplemented, would include any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or if for any other reason it is necessary at any time to
amend or supplement the Prospectus to comply with the Act or the rules or
regulations of the Commission thereunder, the Company will promptly notify the
Representative thereof and, subject to Section 5(a) hereof, will prepare and
file with the Commission, at the Company's expense, an amendment to the
Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance, provided,
however, that if such alleged misstatement or omission arises from information
supplied or omitted by or on behalf of the Underwriters, then the expenses of
preparation and filing shall be borne by the Underwriters.
(e) The Company will, without charge, provide (i) to the
Representative and to counsel for the Underwriters a signed copy of the Original
Registration Statement filed with respect to the Securities and each amendment
thereto (in each case including exhibits thereto) and any Rule 462(b)
Registration Statement, (ii) to each other Underwriter, a conformed copy of such
registration statement and any Rule 462(b) Registration Statement and each
amendment thereto (in each case without exhibits thereto) and (iii) so long as a
prospectus relating to the Securities is required to be delivered under the Act,
as many copies of each Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto as the Representative may reasonably request; without
limiting the application of clause (iii) of this sentence, the Company, not
later than (A) 6:00 p.m., New York City time, on the date of determination of
the initial public offering price, if such determination occurred at or prior to
10:00 a.m., New York City time, on such date or (B) 12:00 noon, New York City
time, or as promptly thereafter as is practicable, on the business day following
the date of determination of the initial public offering price, if such
determination occurred after 10:00 a.m., New York City time, or as promptly
thereafter as is practicable, on such date, will deliver to the Underwriters,
without charge, as many copies of the Prospectus and any amendment or supplement
thereto as the Representative may reasonably request for purposes of confirming
orders that are expected to settle on the Firm Closing Date.
(f) If the Company elects to rely on Rule 462(b), the Company shall
both file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) and pay or give direction to pay the applicable fees in
accordance with Rule 111 promulgated under the Act by the earlier of (i) 10:00
p.m., New York City time, on the date of this Agreement and (ii) the time
confirmations are sent or given, as specified by Rule 462(b)(2).
(g) The Company will timely make generally available to its
securityholders and to the Representative a consolidated earnings statement of
the Company and its subsidiaries that satisfies the provisions of Section 11(a)
of the Act and Rule 158 thereunder.
(h) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable after the end
of each respective period, annual reports (including financial statements
audited by independent certified public accountants) and unaudited quarterly
reports of operations for each of the first three quarters of the fiscal year,
and will furnish to you and the other several Underwriters hereunder (i)
concurrently with making such reports available to its stockholders, statements
of operations of the Company for each of the first three quarters in the form
made available to the Company's stockholders; (ii) concurrently with the
furnishing thereof to its stockholders, a balance sheet of the Company as of the
end of such fiscal year, together with statements of operations, of
stockholders' equity and of cash flow of the Company for such fiscal year,
accompanied by a copy of the certificate or report thereon of nationally
recognized independent certified public accountants; (iii) concurrently with the
furnishing of such reports to its stockholders, copies of all reports (financial
or other) mailed to stockholders; (iv) as soon as they are available, copies of
all reports and financial statements
11
<PAGE>
furnished to or filed by the Company with the Commission, any securities
exchange, the Nasdaq National Market or the National Association of Securities
Dealers, Inc. ("NASD") (except for documents for which confidential treatment is
----
requested); (v) every material press release in respect of the Company or its
affairs which was generally released to stockholders or prepared for general
release by the Company; and (vi) any additional information of a public nature
concerning the Company or its businesses which you may reasonably request.
During such five (5) year period, if the Company shall have any active
subsidiaries, the foregoing financial statements shall be on a consolidated
basis to the extent that the accounts of the Company are consolidated with any
subsidiaries, and shall be accompanied by similar financial statements for any
significant subsidiary that is not so consolidated.
(i) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Prospectus.
(j) The Company will not, during the period ending 180 days after the
date of the Prospectus, directly or indirectly, without the prior written
consent of the Representative, on behalf of the Underwriters, (i) offer, pledge,
sell, offer to sell, contract to sell, grant any option to purchase or otherwise
sell, dispose of, loan, or grant any rights with respect to (or announce any
offer, pledge, sale, offer of sale, contract of sale, grant of any option to
purchase or other sale, disposition of, loan or grant any rights with respect
to) any shares of Common Stock, any options or warrants to purchase any shares
of Common Stock or any securities convertible into, or exercisable or
exchangeable for, shares of Common Stock or (ii) enter into any swap or any
other agreement or any transactions that transfers, in whole or part, directly
or indirectly, the economic consequence of ownership of the Common Stock,
whether any such swap or transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise, except pursuant to this Agreement and except for issuances pursuant
to the exercise of warrants or employee stock options outstanding on the date
hereof, or pursuant to the terms of convertible securities of the Company
outstanding on the date hereof or upon the issuance of options or Common Stock
under the Company's presently authorized 1997 Long-Term Incentive Plan, 1997
Non-Employee Directors' Stock Plan, 1997 Section 162(m) Bonus Plan, 1997
Employee Stock Purchase Plan and 401(k) Plan (the "Equity Plans"), or pursuant
------------
to an acquisition or a merger.
(k) The Company will not, during a period of thirty (30) days from the
date of the Prospectus, file a registration statement registering shares under
the Equity Plans or other employee benefit plan.
(l) The Company will not, directly or indirectly, (i) take any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities in contravention of Regulation M promulgated under the Exchange Act,
or (ii) (A) sell, bid for, purchase, or pay anyone any compensation for
soliciting purchases of, the Securities or (B) pay or agree to pay to any person
any compensation for soliciting another to purchase any other securities of the
Company.
(m) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any publication or event relating to
or affecting the Company shall occur as a result of which in your opinion the
market price of the Common Stock has been or is likely to be materially affected
(regardless of whether such publication or event necessitates a supplement to or
amendment of the Prospectus), the Company will, after written notice from you
advising the Company to the effect set forth above and in accordance with
applicable law and the rules and policies of The Nasdaq Stock Market, Inc.,
forthwith prepare, consult with you concerning the substance of, and disseminate
a press release or other public statement, reasonably satisfactory to you, your
counsel and counsel to the Company responding to or commenting on such
publication or event.
(n) The Company will cause the Securities to be duly included for
quotation on the Nasdaq National Market prior to the Firm Closing Date. The
Company will use its best efforts to ensure that the Securities remain included
for quotation on the Nasdaq National Market following the Firm Closing Date.
12
<PAGE>
(o) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be the
same entity as the transfer agent) for its Common Stock.
(p) The Company is familiar with the Investment Company Act, and the
rules and regulations thereunder, and for at least one year after the date
hereof will conduct its affairs in such a manner to ensure that the Company will
not be an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act and such rules and
regulations. If after one year from the date hereof the Company cannot, using
its best efforts, conduct its affairs in such a manner so as to ensure that the
Company will not be an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act and such
rules and regulations, the Company will take all steps necessary to register as
an "investment company" under such act or otherwise comply with such act.
(q) The Company, until the third anniversary of this Agreement, will
nominate and use its best efforts to cause the election of two designees of the
Representative to serve on the Company's Board of Directors; the initial such
designees shall be W. Russell Ramsey and M. Jude Reyes.
(r) The Company will use its best efforts to maintain a director and
officer insurance policy substantially in the form that is in effect on the Firm
Closing Date.
6. Expenses. The Company will pay and bear all costs and expenses
--------
incident to the performance of its obligations under this Agreement, whether or
not the transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 11 hereof, including all costs and expenses
incident to (i) the printing or other production of documents with respect to
the transactions, including any costs of printing the Registration Statement
originally filed with respect to the Securities and any amendment thereto, any
Rule 462(b) Registration Statement, any Preliminary Prospectus and the
Prospectus and any amendment or supplement thereto, this Agreement, any blue sky
memoranda and the quantity of prospectuses or offering circulars as determined
by the Representative, (ii) all arrangements relating to the delivery to the
Underwriters of copies of the foregoing documents, (iii) the fees and
disbursements of its counsel, the accountants and any other experts or advisors
retained by the Company, (iv) the preparation, issuance and delivery to the
Underwriters of any certificates evidencing the Securities, including transfer
agent's and registrar's fees, (v) NASD filing fees and the cost of qualifying
the Securities under state securities and blue sky laws, including filing fees
and fees and disbursements of counsel for the Underwriters relating thereto,
(vi) the filing fees of the Commission relating to the Securities, (vii) the
filing and other fees of securing quotation of the Securities on the Nasdaq
National Market, (viii) any meetings with prospective investors in the
Securities (other than as shall have been specifically approved by the
Representative to be paid for by the Underwriters), (ix) advertising relating to
the offering of the Securities (other than as shall have been specifically
approved by the Representative to be paid for by the Underwriters) and (x) all
other expenses directly incurred by the Company in connection with the
performance of its obligations hereunder. If the sale of the Securities
provided for herein is not consummated because any condition to the obligations
of the Underwriters set forth in Section 7 hereof is not satisfied, because this
Agreement is terminated pursuant to Section 11 hereof or because of any failure,
refusal or inability on the part of the Company to perform all obligations and
satisfy all conditions on its part to be performed or satisfied hereunder other
than by reason of a default by any of the Underwriters, the Company will
reimburse the Underwriters severally upon demand for all out-of-pocket expenses
(including reasonable counsel fees and disbursements) that shall have been
incurred by them in connection with the proposed purchase and sale of the
Securities. The Company shall not in any event be liable to any of the
Underwriters for the loss of anticipated profits from the transactions covered
by this Agreement.
7. Conditions of the Underwriters' Obligations. The obligations of the
-------------------------------------------
several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the Representative's sole discretion, to the accuracy of the
representations and warranties of the Company contained herein as of the date
hereof and as of the Firm Closing Date, as if made on and as of the Firm Closing
Date, to the accuracy of the statements of the Company's officers made pursuant
to the provisions hereof, to the performance by the Company of its covenants and
agreements hereunder and to the following additional conditions:
13
<PAGE>
(a) If the Original Registration Statement or any amendment thereto
filed prior to the Firm Closing Date has not been declared effective as of the
time of execution hereof, the Registration Statement or such amendment, and if
the Company has elected to rely upon Rule 462(b), the Rule 462(b) Registration
Statement, shall have been declared effective not later than the earlier of:
(i) 11:00 a.m., New York City time, on the date on which the amendment to the
Registration Statement originally filed with respect to the Securities or to the
Registration Statement, as the case may be, containing information regarding the
initial public offering price of the Securities has been filed with the
Commission, and (ii) the time confirmations are sent or given as specified by
Rule 462(b) or, with respect to the Original Registration Statement, such later
time and date as shall have been consented to by the Representative; if
required, the Prospectus or any Term Sheet that constitutes a part thereof and
any amendment or supplement thereto shall have been filed with the Commission in
the manner and within the time period required by Rules 434 and 424(b) under the
Act; no stop order suspending the effectiveness of the Registration Statement or
any amendment thereto shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of the
Company, shall be contemplated by the Commission; and the Company shall have
complied to the reasonable satisfaction of Underwriters' counsel with any
request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise).
(b) Subsequent to the execution and delivery of this Agreement and
prior to the Firm Closing Date, or any later date on which Option Securities are
to be purchased, as the case may be, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which, in your judgment, is material and adverse and that makes it,
in your judgment, impracticable or inadvisable to proceed with the public
offering of the Securities as contemplated by the Prospectus.
(c) The Representative shall have received an opinion, dated the Firm
Closing Date, of Morgan, Lewis & Bockius LLP, counsel for the Company, to the
effect that:
(i) the Company has been duly incorporated and is validly
existing and in good standing under the laws of its jurisdiction of
organization and is duly qualified to transact business as a foreign entity
and is in good standing under the laws of the District of Columbia;
(ii) the Company has full corporate power to own or lease its
properties and conduct its businesses as described in the Registration
Statement and the Prospectus;
(iii) to such counsel's knowledge, the Company does not own or
control, directly or indirectly, any corporation, association or other
entity;
(iv) the Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus under the caption
"Capitalization". As of the Firm Closing Date and immediately prior to the
consummation of the sale of the Firm Securities, all of the issued and
outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, and
have not been issued in violation of or subject to any preemptive rights or
other rights to subscribe for or purchase securities. The Securities have
been duly authorized for issuance and sale to the Underwriters pursuant to
this Agreement, and at the Firm Closing Date or related Option Closing Date
(as the case may be), when issued and delivered by the Company after
payment therefor in accordance herewith, will be duly and validly issued,
fully paid and nonassessable, and will be sold free of all adverse claims
within the meaning of the Uniform Commercial Code; and no preemptive right,
co-sale right, registration right (except those rights granted to the
Representative pursuant to a warrant agreement by and between the Company
and the Representative in connection with the transactions contemplated
hereunder), right of first refusal or other similar right of stockholders
exists with respect to any of the Common Stock issued and outstanding on
the date hereof or to be issued pursuant to this Agreement arising out of
any statute or the Company's certificate of incorporation, as amended, or,
to such counsel's knowledge, any contract. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the
14
<PAGE>
issuance of the Securities except as may be required under the Act or state
securities or Blue Sky laws, as to which state securities or Blue Sky laws
such counsel need express no opinion;
(v) the statements set forth under the heading "Description of
Capital Stock" in the Prospectus, insofar as such statements purport to
summarize certain provisions of the capital stock and the stock option and
purchase plans of the Company, provide a fair summary of such provisions;
the statements set forth under the headings "Risk Factors - Investment
Company Act Considerations" and "Shares Eligible for Future Sale" in the
Prospectus, insofar as such statements constitute a summary of the legal
matters, documents or proceedings referred to therein, provide a fair
summary of such legal matters, documents and proceedings in all material
respects; the description in the Registration Statement and the Prospectus
of the certificate of incorporation and bylaws of the Company is accurate
and fairly presents the information required to be presented by the Act and
the applicable rules and regulations thereunder in all material respects
and the description in the Registration Statement and the Prospectus of
statutes fairly presents in all material respects the information required
to be presented by the Act and the applicable rules and regulations
thereunder;
(vi) the Company has full corporate power to enter into this
Agreement and to perform the transactions contemplated hereby; the
execution and delivery of this Agreement have been duly authorized by all
necessary corporate action of the Company and this Agreement has been duly
executed and delivered by the Company and, assuming due authorization,
execution and delivery by you, is a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms,
except as rights to indemnification and contribution hereunder may be
limited by applicable law and except as the enforcement hereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally, or
by general equitable principles;
(vii) to such counsel's knowledge, no legal or governmental
action, suit, claim or other proceedings are pending or, threatened, to
which the Company is a party or to which the property of the Company is
subject that would reasonably be expected to have a material adverse effect
on the business, properties, business prospects, financial condition or
results of operations of the Company and no such action, suit or
proceeding, to such counsel's knowledge, has been threatened against the
Company or with respect to any of its properties or is required to be
described in the Registration Statement or the Prospectus and is not so
described;
(viii) to such counsel's knowledge, no agreement, contract,
lease or other document is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein or filed as required
and any such description of such contract or agreement contained in the
Registration Statement or the Prospectus conforms in all material respects
to the terms of any such contract or agreement;
(ix) the Company is not (A) in violation of its certificate of
incorporation or bylaws, or (B), to such counsel's knowledge, in default in
the performance or observance of any obligation, agreement, covenant or
condition contained in any bond, debenture, note or other evidence of
indebtedness disclosed in the Registration Statement to which the Company
is a party or pursuant to which its properties are bound, which default
would reasonably be expected to have a material adverse effect on the
business, properties, business prospects, financial condition or results of
operations of the Company, or (C), to such counsel's knowledge, in default
in the performance or observance of any contract, indenture, mortgage, loan
agreement, joint venture or other agreement or instrument disclosed in the
Registration Statement to which the Company is a party or by which its
properties are bound, which default would reasonably be expected to have a
material adverse effect on the business, properties, business prospects,
financial condition or results of operations of the Company, or (D), to
such counsel's knowledge, in violation of any law, order, rule, regulation,
writ, injunction, judgment or decree of any court or governmental agency or
body to which the Company is subject;
15
<PAGE>
(x) the issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance and
performance by the Company with the other provisions of this Agreement and
the consummation of the other transactions herein contemplated do not and
will not (A) require the consent, approval, authorization, registration or
qualification of or with any governmental authority, domestic or foreign,
except such as have been obtained, or such as may be required under the Act
or the Exchange Act, all of which requirements have been satisfied, and
except such as may be required under state securities or Blue Sky laws, as
to which such counsel need express no opinion, or (B) result in a breach or
violation of any of the terms and provisions of, or constitute a default
under the certificate of incorporation or bylaws of the Company, or (C)
result in a breach or violation of any of the terms and provisions of, or
constitute a default under any obligation, agreement, covenant or condition
contained in any bond, debenture, note or other evidence of indebtedness to
which the Company is a party or pursuant to which the Company's properties
are bound, which default would reasonably be expected to have a material
adverse effect on the business, properties, business prospects, financial
condition or results of operations of the Company, or (D) result in a
breach or violation of any of the terms and provisions of, or constitute a
default under any law, order, rule, regulation, writ, injunction, judgment
or decree of any court or governmental agency or body known to such counsel
to which the Company is subject;
(xi) (A) the Company possesses all material certificates,
authorizations, licenses, franchises and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to own, lease
and operate its properties and to conduct its business described in the
Prospectus, and (B) no event has occurred which allows, or a fair notice or
lapse of time would be allowed, the Company has not received any notice of
proceedings relating to, the revocation or modification of any such
certificate, authorization, license, franchise or permit, except as
described in the Prospectus. Except as described in the Prospectus, none
of the Company's certificates, authorizations, licenses, franchises or
permits contain any restrictions that would reasonably be expected to
result in any material adverse effect on the business, properties, business
prospects, financial condition or results of operations of the Company.
(xii) based solely upon such counsel's inquiry of the
Commission, the Registration Statement was declared effective under the
Act; any required filing of the Prospectus pursuant to Rule 424(b) has been
made in the manner and within the time period required by Rule 424(b); and
based solely upon such counsel's inquiry of the Commission, no stop order
suspending the effectiveness of the Registration Statement or any amendment
thereto has been issued, and to such counsel's knowledge no proceedings for
that purpose have been instituted or are pending or overtly threatened by
the Commission;
(xiii) the Registration Statement originally filed with respect
to the Securities and each amendment thereto, any Rule 462(b) Registration
Statement and the Prospectus (in each case, other than the financial
statements and other financial and statistical information contained
therein, as to which such counsel need express no opinion) comply as to
form in all material respects with the applicable requirements of the Act
and the rules and regulations of the Commission thereunder;
(xiv) the Company is not, and, assuming the Company conducts its
operations in accordance with the description thereof in the Prospectus,
will not within one year become, an investment company subject to
registration under the Investment Company Act;
(xv) the Securities have been approved for quotation on the
Nasdaq National Market, upon issuance as contemplated hereby; and
(xvi) the specimen stock certificate of the Company has been
duly authorized and approved by the Board of Directors of the Company and
complies with all legal requirements applicable under the corporate laws of
the State of Delaware;
16
<PAGE>
(xvii) to such counsel's knowledge, no officer, director or
director nominee is, or, following the consummation of the transactions
contemplated by this Agreement, will be, in violation of any provision
(including, without limitation, any non-competition provision thereof) of
any contract, agreement or other document, or the federal securities law or
the General Corporation Law of the State of Delaware to which such person
and the Company are jointly subject.
In addition, such counsel shall state that, during the course of preparation of
the Registration Statement and the Prospectus, such counsel has participated in
conferences with you, officers and representatives of the Company and
representatives of the independent certified public accountants of the Company,
at which conferences the contents of the Registration Statement and the
Prospectus and related matters were discussed, and, although such counsel does
not pass upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus, on the basis of the foregoing, no facts have come
to such counsel's attention which cause such counsel to believe that the
Registration Statement at the effective date of the Registration Statement and
at the Firm Closing Date or Option Closing Date, as the case may be, contained
or contains an untrue statement of a material fact or omitted or omits to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus, as amended or
supplemented, if applicable, on the date of this Agreement and on the Firm
Closing Date or the Option Closing Date, as the case may be, included or
includes any untrue statement of a material fact or omitted or omits to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that such counsel need express no comment with respect to the financial
statements, the notes thereto, and other financial or statistical information
contained in the Registration Statement or the Prospectus.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deem(s) proper, on certificates of responsible
officers of the Company and public officials.
References to the Registration Statement and the Prospectus in this
paragraph (c) shall include any amendment or supplement thereto at the date of
such opinion.
(d) The Representative shall have received from Price Waterhouse LLP a
letter or letters, addressed to the Underwriters, dated, respectively, the date
hereof and the Firm Closing Date, in form and substance satisfactory to the
Representative, to the effect that:
(i) they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
rules and regulations thereunder;
(ii) in their opinion, the audited financial statements and
schedules examined by them and included in the Registration Statement and
the Prospectus comply in form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations;
(iii) on the basis of carrying out certain specified procedures
(which do not constitute an examination made in accordance with generally
accepted auditing standards) that would not necessarily reveal matters of
significance with respect to the comments set forth in this paragraph
(iii), a reading of the minute books of the stockholders, the Board of
Directors and any committees thereof of the Company and inquiries of
certain officials of the Company who have responsibility for financial and
accounting matters, nothing came to their attention that caused them to
believe that at a specific date not more than five business days prior to
the date of such letter, there were any changes in the capital stock or
long-term debt of the Company or any decreases in net current assets or
stockholders' equity of the Company in each case compared with amounts
shown on the September 30, 1997 balance sheet included in the Registration
Statement and the Prospectus, or for the period from September 30, 1997 to
such specified date there are any decreases, as compared to total revenues,
net income or pro forma net income per share, respectively, of the Company,
except in all instances for changes, decreases or increases set forth in
such letter;
17
<PAGE>
(iv) they have performed the procedures set out in Statement on
Auditing Standards No. 71 ("SAS 71") for a review of interim financial
information with respect to certain amounts, percentages and financial
information that are derived from the general accounting records of the
Company and are included in the Registration Statement and the Prospectus,
and have compared such amounts, percentages and financial information with
such records of the Company and with information derived from such records
and have found them to be in agreement, excluding any questions of legal
interpretation; and
In addition, such letter or letters will address other matters agreed upon by
Price Waterhouse LLP and you.
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (A) such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Representative deems such explanation unnecessary, and (B) such changes,
decreases or increases do not, in the sole judgment of the Representative, make
it impractical or inadvisable to proceed with the purchase and delivery of the
Securities as contemplated by the Registration Statement, as amended as of the
date hereof.
References to the Registration Statement and the Prospectus in this
paragraph (d) with respect to either letter referred to above shall include any
amendment or supplement thereto at the date of such letter.
(e) The Representative shall have received a certificate, dated the
Firm Closing Date, of the principal executive officer and the principal
financial or accounting officer, respectively, of the Company to the effect
that:
(i) the representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Firm Closing
Date; and the Company has performed all covenants and agreements and
satisfied all conditions on its part to be performed or satisfied at or
prior to the Firm Closing Date; provided, however, that the representation
in Section 2(xvi)(A) shall not apply to the issuance of the convertible
non-voting common stock to the affiliate of the Representative as set forth
in the Prospectus.
(ii) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or, to the best of the
Company's knowledge, are threatened or contemplated by the Commission;
(iii) when the Registration Statement or any amendment thereto
was declared effective, and at all times subsequent thereto up to the
delivery of such certificate, the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained all
statements required to be stated therein in accordance with, and complied
in all material respects with the requirements of, the Act and the rules
and regulations of the Commission promulgated thereunder, the Registration
Statement, and any amendment or supplement thereto, did not and does not
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading, the
Prospectus, and any amendment or supplement thereto, did not and does not
include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, and
since the effective date of the Registration Statement, there has occurred
no event required to be set forth in an amended or supplemented Prospectus
which has not been so set forth; and
(iv) subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, there has not
been (A) any material adverse change in the business, properties, business
prospects, financial condition or results of operations of the Company, (B)
any transaction that is material to the Company, except transactions
entered into in the ordinary course of business, (C) any obligation, direct
or contingent, that is material to the Company, incurred by the Company,
except obligations incurred in the ordinary course of business, except as
contemplated by the
18
<PAGE>
Registration Statement and the Prospectus, (D) any change in the capital
stock or outstanding indebtedness of the Company that is material to the
Company, (E) any dividend or distribution of any kind declared, paid or
made on the capital stock of the Company, or (F) any loss or damage
(whether or not insured) to the property of the Company which has been
sustained or will have been sustained which has a material adverse effect
on the business, properties, business prospects, financial condition or
results of operations of the Company.
(f) On or prior to the date of this Agreement, the Company shall have
obtained and delivered to you the Lock-up Agreements and the Ledecky Lock-up
Agreement.
(g) The Representative and counsel for the Underwriters shall have
received such further certificates, documents or other information as they may
have reasonably requested from the Company.
(h) Prior to the commencement of the offering of the Securities, the
Securities shall have been approved for quotation on the Nasdaq National Market,
upon issuance as contemplated hereby.
(i) The Representative shall have received an opinion, dated the Firm
Closing Date, of Brobeck, Phleger & Harrison LLP, counsel for the Underwriters,
with respect to the issuance and sale of the Firm Securities, the Registration
Statement and Prospectus, and such other related matters as the Representative
may reasonably require, and the Company shall have furnished to such counsel
such documents as they may reasonably request for the purpose of enabling them
to pass upon such matters.
(j) On or prior to the Firm Closing Date, the Company shall have
obtained a director and officer insurance policy with a minimum coverage amount
acceptable to the Representative and provide evidence thereof reasonably
acceptable to counsel for the Underwriters.
(k) On or prior to the date of this Agreement, the Company shall have
entered into an employment agreement with Jonathan J. Ledecky in a form
reasonably acceptable to counsel for the Underwriters.
(l) On the Firm Closing Date, the Company shall have executed the
warrant agreement dated the Firm Closing Date by and between the Company and the
Representative.
(m) On or prior to the date of this Agreement, the Company shall have
entered into a stock purchase agreement with Jonathan J. Ledecky regarding the
purchase by Jonathan J. Ledecky of 250,000 shares of Common Stock, such stock
purchase agreement to be reasonably acceptable to counsel for the Underwriters.
(n) On or prior to the Firm Closing Date, the Company shall have
consummated the transaction contemplated by the stock purchase agreement by and
between the Company and Jonathan J. Ledecky.
(o) On or prior to the date of this Agreement, the Company shall have
entered into a stock purchase agreement with an affiliate of the Representative
regarding the purchase by such affiliate of 500,000 shares of the Company's
convertible non-voting common stock, par value $.001 per share, such stock
purchase agreement to be reasonably acceptable to counsel for the Underwriters.
(p) On or prior to the Firm Closing Date, the Company shall have
consummated the transaction contemplated by the stock purchase agreement by and
between the Company and an affiliate of the Representative.
All opinions, certificates, letters and documents delivered pursuant
to this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representative and
counsel for the Underwriters. The Company shall furnish to the Representative
such conformed copies of such opinions, certificates, letters and documents in
such quantities as the Representative and counsel for the Underwriters shall
reasonably request.
19
<PAGE>
The respective obligations of the several Underwriters to purchase and
pay for any Option Securities shall be subject, in their discretion, to each of
the foregoing conditions to purchase the Firm Securities, except that all
references to the Firm Securities and the Firm Closing Date shall be deemed to
refer to such Option Securities and the related Option Closing Date,
respectively.
8. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter or
such controlling person may become subject under the Act and the Exchange Act,
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement made by the
Company in Section 2(a) of this Agreement;
(ii) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto and including any Rule 462(b) Registration Statement, or
(B) any application or other document, or any amendment or supplement
thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order
to qualify the Securities under the securities or blue sky laws thereof or
filed with the Commission or any securities association or securities
exchange (each an "Application");
-----------
(iii) the omission or alleged omission to state in (A) the
Registration Statement or any amendment or supplement thereto a material
fact necessary to make the statements therein not misleading, or (B) any
Preliminary Prospectus or the Prospectus, any amendment or supplement
thereto, or any Application a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; or
(iv) any untrue statement or alleged untrue statement of any
material fact contained in or the omission of a material fact or alleged
material fact necessary in order to make the statements, in the light of
the circumstances under which they were made, not misleading in, any audio
or visual materials used in connection with the marketing of the
Securities, including without limitation, slides, videos, films, tape
recordings,
and will reimburse, as incurred, each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating, defending against
or any other proceeding in connection with any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
-------- -------
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in such Registration Statement or any
amendment thereto, or any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto or any Application in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
specifically for use therein; and provided, further, the Company will not be
-------- -------
liable to any Underwriter or any person controlling such Underwriter with
respect to any such untrue statement or omission made in any Preliminary
Prospectus that is corrected in the Prospectus (or any amendment or supplement
thereto) if the person asserting any such loss, claim, damage or liability
purchased Securities from such Underwriter but was not sent or given a copy of
the Prospectus (as amended or supplemented) at or prior to the written
confirmation of the sale of such Securities to such person in any case where
such delivery of the Prospectus (as amended or supplemented) is required by the
Act, unless such failure to deliver the Prospectus (as amended or supplemented)
was a result of noncompliance by the Company with this Agreement. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have. The Company will not, without the prior written consent of the
Underwriter or Underwriters purchasing, in the
20
<PAGE>
aggregate, more than 50% of the Securities, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not any such Underwriter or any person who controls any such Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of all of the
Underwriters and such controlling persons from all liability arising out of such
claim, action, suit or proceeding.
(b) Each Underwriter, severally and not jointly, will indemnify and
hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any losses, claims, damages or liabilities to which the
Company or any such director, officer of the Company or controlling person of
the Company may become subject under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment thereto,
or any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or any Application, (ii) the omission or the alleged omission to state
therein a material fact required to be stated in the Registration Statement or
any amendment thereto, or any Application or necessary to make the statements
therein not misleading, or (iii) the omission or the alleged omission to state
therein a material fact required to be stated in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(b) to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter specifically for use therein; and, subject to the limitation set
forth immediately preceding this clause, will reimburse, as incurred, any legal
or other expenses reasonably incurred by the Company or any such director,
officer or controlling person in connection with investigating or defending any
such loss, claim, damage, liability or any action in respect thereof.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 8. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel satisfactory to such indemnified
party; provided, however, that if the defendants in any such action include both
-------- -------
the indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this Section 8 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, designated by the Representative in the case of
paragraph (a) of this Section 8, representing the indemnified parties under such
paragraph (a) who are parties to such action or actions or (ii) the indemnifying
party does not promptly retain counsel satisfactory to the indemnified party or
(iii) the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. After such notice
from the indemnifying party to such indemnified party, the indemnifying
21
<PAGE>
party will not be liable for the costs and expenses of any settlement of such
action effected by such indemnified party without the consent of the
indemnifying party.
(d) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 8 is unavailable or insufficient, for
any reason, to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Securities or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total proceeds from the offering (before deducting expenses) received by
the Company bear to the total underwriting discounts and commissions received by
the Underwriters. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Underwriters, the parties'
relative intents, knowledge, access to information and opportunity to correct or
prevent such statement or omission, and any other equitable considerations
appropriate in the circumstances. The Company and the Underwriters agree that
it would not be equitable if the amount of such contribution were determined by
pro rata or per capita allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation that does not take
into account the equitable considerations referred to above in this paragraph
(d). Notwithstanding any other provision of this paragraph (d), no Underwriter
shall be obligated to make contributions hereunder that in the aggregate exceed
the total public offering price of the Securities purchased by such Underwriter
under this Agreement, less the aggregate amount of any damages that such
Underwriter has otherwise been required to pay in respect of the same or any
substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute hereunder are
several in proportion to their respective underwriting obligations and not
joint, and contributions among Underwriters shall be governed by the provisions
of the Representative's Master Agreement Among Underwriters. For the purposes
of this paragraph 8(d), each person, if any, who controls an Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall
have the same rights to contribution as such Underwriter, and each director of
the Company, each officer of the Company who signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company.
(e) The parties of this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure the adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
9. Default of Underwriters. If one or more Underwriters default in their
-----------------------
obligations to purchase Firm Securities or Option Securities hereunder and the
aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by all
of the Underwriters at such time hereunder, then the other Underwriters may make
arrangements satisfactory to the Representative for the purchase of such
Securities by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representative), but if no such arrangements are
made by the Firm Closing Date or the related Option Closing Date, as the case
may be, the other Underwriters shall be obligated severally in proportion to
their respective commitments hereunder to purchase
22
<PAGE>
the Firm Securities or Option Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase. If one or more Underwriters so
default with respect to an aggregate number of Securities that is more than ten
percent of the aggregate number of Firm Securities or Option Securities, as the
case may be, to be purchased by all of the Underwriters at such time hereunder,
and if arrangements satisfactory to the Representative are not made within
twenty-four (24) hours after such default for the purchase by other persons (who
may include one or more of the non-defaulting Underwriters, including the
Representative) of the Securities with respect to which such default occurs,
this Agreement will terminate without liability on the part of any non-
defaulting Underwriter or the Company other than as provided in Section 10
hereof. In the event of any default by one or more Underwriters as described in
this Section 9, the Representative shall have the right to postpone the Firm
Closing Date or the Option Closing Date, as the case may be, established as
provided in Section 3 hereof for not more than seven business days in order that
any necessary changes may be made in the arrangements or documents for the
purchase and delivery of the Firm Securities or Option Securities, as the case
may be. As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 9. Nothing herein shall
relieve any defaulting Underwriter from liability for its default.
10. Survival. The respective representations, warranties, agreements,
--------
covenants, indemnities and other statements of the Company, its officers, and
the several Underwriters set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement shall remain in full force and
effect, regardless of (i) any investigation made by or on behalf of the Company,
any of its officers or directors, any Underwriter or any controlling person
referred to in Section 8 hereof and (ii) delivery of and payment for the
Securities. The respective agreements, covenants, indemnities and other
statements set forth in Sections 6 and 8 hereof shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement.
11. Termination.
-----------
(a) This Agreement may be terminated with respect to the Firm
Securities or any Option Securities in the sole discretion of the Representative
by notice to the Company given prior to the Firm Closing Date or the related
Option Closing Date, respectively, in the event that the Company shall have
failed, refused or been unable to perform all obligations and satisfy all
conditions on its part to be performed or satisfied hereunder at or prior
thereto or, if at or prior to the Firm Closing Date or, with respect to the
Company, such Option Closing Date, respectively:
(i) the Company shall have, in the sole judgment of the
Representative, sustained any material loss or interference with its
business or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor dispute or
any legal or governmental proceeding or there shall have been any material
adverse change, or any development that could reasonably be expected to
involve a prospective material adverse change (including without limitation
a change in management, control of the Company or the death or disability
of Jonathan J. Ledecky which would not allow him to carry out his duties as
Chief Executive Officer of the Company), in the business, properties,
business prospects, financial condition or results of operations of the
Company, except in each case as described in or contemplated by the
Prospectus (exclusive of any amendment or supplement thereto);
(ii) trading in the Common Stock shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities generally
on the New York Stock Exchange or Nasdaq National Market shall have been
suspended (including automatic halt in trading pursuant to market-declines
triggers other than those in which solely program trading is temporarily
halted), or limitations on prices for trading (other than limitations on
hours or numbers of days of trading) have been fixed, or maximum ranges for
prices for securities have been required, by such exchange or the NASD or
the Nasdaq National Market or by order of the Commission or any other
governmental authority.
(iii) a banking moratorium shall have been declared by New York
or United States authorities;
23
<PAGE>
(iv) the enactment, publication, decree or other promulgation of any
federal or state statute, regulation, rule or order of, or commencement of
any proceeding or investigation by, any court, legislative body, agency or
other government authority which in the Underwriters' sole opinion
materially and adversely affects or will materially or adversely affect the
business or operations of the Company; or
(v) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any other calamity or crisis or material
adverse change in general economic, political or financial conditions
having an effect on the U.S. financial markets that, in the sole judgment
of the Representative, makes it impractical or inadvisable to proceed with
the public offering or the delivery of the Securities as contemplated by
the Registration Statement, as amended as of the date hereof.
(b) Termination of this Agreement pursuant to this Section 11 shall be
without liability of any party to any other party except as provided in Sections
8 and 10 hereof.
(c) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. Information Supplied by Underwriters. The statements set forth in (i)
------------------------------------
the last paragraph on the front cover page, (ii) under the heading "Underwriting
and Plan of Distribution" in any Preliminary Prospectus or the Prospectus and
(iii) on page 2 in any Preliminary Prospectus or the Prospectus and in the
second paragraph under the heading "Risk Factors - No Prior Market for the
Common Stock; Stabilization; Possible Volatility of Stock Price" pertaining to
stabilization (to the extent such statements relate to the Underwriters)
constitute the only information furnished by or on behalf of the Underwriters to
the Company for the purposes of Sections 2(b) and 8 hereof. The Underwriters
confirm that such statements (to such extent) are correct.
13. Notices. All notices or communications hereunder shall be in writing
-------
and, if sent to any of the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission and confirmed in writing to Friedman, Billings,
Ramsey & Co., Inc., Potomac Tower, 1001 Nineteenth Street North, Arlington,
Virginia 22209, Attention: Ms. Suzanne Richardson, with a copy to Brobeck,
Phleger & Harrison LLP, 1633 Broadway, 47th Floor, New York, New York 10019,
Attention: Richard R. Plumridge, Esq.; and if sent to the Company, shall be
delivered or sent by mail, telex or facsimile transmission and confirmed in
writing to the Company at 1747 Pennsylvania Avenue, NW, Suite 900, Washington,
DC 20006, Attention: Chief Executive Officer with a copy to Morgan, Lewis &
Bockius LLP, 1800 M Street, NW, Washington, DC 20036, Attention: Linda L.
Griggs, Esq.
14. Successors. This Agreement shall inure to the benefit of and shall be
----------
binding upon the several Underwriters, the Company and their respective
successors and legal representative, and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement, or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that (i)
the indemnities of the Company contained in Section 8 of this Agreement shall
also be for the benefit of any person or persons who control any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
and (ii) the indemnities of the Underwriters contained in Section 8 of this
Agreement shall also be for the benefit of the directors of the Company, the
officers of the Company who have signed the Registration Statement and any
person or persons who control the Company within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act. No purchaser of Securities from any
Underwriter shall be deemed a successor because of such purchase.
24
<PAGE>
15. Applicable Law. The validity and interpretation of this Agreement,
--------------
and the terms and conditions set forth herein, shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to any provisions relating to conflicts of laws.
16. Consent to Jurisdiction and Service of Process. All judicial
----------------------------------------------
proceedings arising out of or relating to this Agreement may be brought in any
state or federal court of competent jurisdiction in the State of Virginia, and
by execution and delivery of this Agreement, the Company accepts for itself and
in connection with its properties, generally and unconditionally, the
nonexclusive jurisdiction of the aforesaid courts and waives any defense of
forum non conveniens and irrevocably agree to be bound by any judgment rendered
thereby in connection with this Agreement. The Company designates and appoints
Jonathan J. Ledecky and such other persons as may hereafter be selected by the
Company irrevocably agreeing in writing to so serve, as its agent to receive on
its behalf service of all process in any such proceedings in any such court,
such service being hereby acknowledged by the Company to be effective and
binding service in every respect. A copy of any such process so served shall be
mailed by registered mail to the Company at its address provided in Section 13
hereof; provided, however, that, unless otherwise provided by applicable law,
-------- -------
any failure to mail such copy shall not affect the validity of service of such
process. If any agent appointed by the Company refuses to accept service, the
Company hereby agrees that service of process sufficient for personal
jurisdiction in any action against the Company in the State of Virginia may be
made by registered or certified mail, return receipt requested, to the Company
as applicable, at its address provided in Section 13 hereof, and the Company
hereby acknowledges that such service shall be effective and binding in every
respect. Nothing herein shall affect the right to serve process in any other
manner permitted by law or shall limit the right of any Underwriter to bring
proceedings against the Company in the courts of any other jurisdiction.
17. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
25
<PAGE>
If the foregoing correctly sets forth our understanding please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company and each
of the several Underwriters.
Very truly yours,
CONSOLIDATION CAPITAL CORPORATION
By _____________________________________________
David Ledecky
Executive Vice President
JONATHAN J. LEDECKY
_____________________________________________
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
By:
By: ________________________________
Name:
Title:
For itself and as the Representative.
26
<PAGE>
Schedule I
UNDERWRITERS
<TABLE>
<CAPTION>
Underwriting Number of Firm Securities to be Purchased
- ---------------------------------------- -----------------------------------------
Friedman, Billings, Ramsey & Co., Inc.
<S> <C>
Total................................... 24,000,000
==========
</TABLE>
27
<PAGE>
Exhibit 3.01
RESTATED CERTIFICATE OF INCORPORATION
OF
CONSOLIDATION CAPITAL CORPORATION
(a Delaware corporation)
The undersigned, David Ledecky, does hereby certify in his capacity as an
officer of Consolidation Capital Corporation, a Delaware corporation (the
"Corporation"), that:
1. He is the Secretary of the Corporation;
2. The Corporation was originally incorporated in Delaware pursuant to a
Certificate of Incorporation filed with the Delaware Secretary of State on
September 15, 1997;
3. The Corporation's Certificate of Incorporation was amended and
restated pursuant to a Restated Certificate of Incorporation filed with the
Delaware Secretary of State on November 21, 1997;
4. The Corporation's Restated Certificate of Incorporation is hereby
amended and restated in its entirety by the Restated Certificate of
Incorporation of Consolidation Capital Corporation attached hereto as Exhibit A
and incorporated herein by this reference (Exhibit A and this Certificate are
collectively referred to as the "Restated Certificate"); and
5. The Restated Certificate was approved pursuant to resolutions adopted
by written consent of the sole director of the Corporation and by written
consent of the sole stockholder of the Corporation, all in accordance with the
requirements of Sections 141(f), 228, 242, and 245 of the Delaware General
Corporation Law.
IN WITNESS WHEREOF, Consolidation Capital Corporation has caused this
Certificate to be signed by David Ledecky, its Secretary, on November 24,
1997.
CONSOLIDATION CAPITAL CORPORATION
By: /s/ David Ledecky
-------------------------------------
David Ledecky,
Secretary
[Corporate Seal]
<PAGE>
Exhibit A
RESTATED CERTIFICATE OF INCORPORATION
OF
CONSOLIDATION CAPITAL CORPORATION
ARTICLE ONE
NAME
The name of the Corporation is Consolidation Capital Corporation (the
"Corporation").
ARTICLE TWO
REGISTERED OFFICE
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle
19801, and the name of the registered agent at such address is The Corporation
Trust Company.
ARTICLE THREE
PURPOSES
The nature of the business or purposes of the Corporation is to engage in
any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware, and by such statement all
lawful acts and activities shall be within the purposes of the Corporation,
except for express limitations, if any. The Corporation shall possess and
exercise all the powers and privileges granted by the General Corporation Law of
the State of Delaware, by any other law or by this Certificate, together with
any powers incidental thereto as far as such powers and privileges are necessary
or convenient to the conduct, promotion, or attainment of the purposes of the
Corporation.
ARTICLE FOUR
CAPITAL STOCK
4.1 AUTHORIZED SHARES. (a) The total number of shares of capital stock
which the Corporation shall have authority to issue is 250,500,000 shares,
consisting of:
(i) 250,000,000 shares of Common Stock, par value $0.001 per share
(the "Common Shares"); and
<PAGE>
(ii) 500,000 shares of Convertible Non-Voting Common Stock, par value
$0.001 per share (the "CNV Common Shares").
(b) Simultaneously with the effective date of this Restated
Certificate (the "Effective Date"), a reverse split of the Common Shares of the
Corporation shall occur (the "Reverse Split") whereby each 1.918159 Common
Shares issued and outstanding immediately prior to the Effective Date (the "Pre-
Split Common Shares") shall automatically and without any action on the part of
the holder thereof be changed into one (1) Common Share (with no change being
made in the par value thereof) (the "Post-Split Common Shares"), subject to the
treatment of fractional share interests as described below. Each holder of a
certificate or certificates which immediately prior to the Effective Date
represented issued and outstanding Pre-Split Common Shares (the "Pre-Split
Common Certificates," whether one or more), shall be entitled to receive upon
surrender of the Pre-Split Common Certificates for cancellation, a certificate
or certificates representing the number of whole Post-Split Common Shares (the
"Post-Split Common Certificates") into which and for which the Pre-Split Common
Shares formerly represented by the Pre-Split Common Certificates so surrendered
are changed pursuant to the Reverse Split under the terms hereof. From and
after the Effective Date, the Pre-Split Common Certificates shall represent only
the right to receive the Post-Split Common Certificates. No certificate or
scrip representing fractional share interests in the Post-Split Common Shares
will be issued. Instead, each stockholder who holds Pre-Split Common Shares
that are not evenly devisable by 1.918159 will receive one additional Post-Split
Common Share for the fractional Post-Split Common Share such stockholder would
otherwise be entitled to receive as a result of the Reverse Split After the
Reverse Split, the Post-Split Common Shares will be deemed Common Shares for all
purposes of this Restated Certificate of Incorporation.
4.2 DESIGNATIONS, PREFERENCES, ETC. The designations, preferences,
powers, qualifications and special or relative rights and privileges of the
Common Shares and the CNV Common Shares (together, the "Capital Shares"), are as
follows:
(a) IDENTICAL RIGHTS. Except with regard to the Reverse Split and
except as set forth in Paragraph 4.2(d) below relating to voting rights,
Paragraph 4.2(h) below relating to the automatic conversion of CNV Common Shares
into Common Shares and Paragraph 4.2(i) below relating to restrictions on
transfer of CNV Common Stock, all Capital Shares shall be identical and shall
entitle the holders thereof to the same rights and privileges.
(b) DIVIDENDS. (i) When, as, and if dividends are declared by the
Corporation's Board of Directors, whether payable in cash, property or
securities of the Corporation, the holders of Capital Shares shall be entitled
to share equally in and to receive such dividends, in accordance with the number
of Capital Shares held by each such holder.
(ii) Dividends payable under this Paragraph 4.2(b) shall be paid
to the holders of record of the outstanding Capital Shares as their names shall
appear on the stock register of the Corporation on the record date fixed by the
Board of Directors in advance of declaration and payment of each dividend.
3
<PAGE>
(iii) Notwithstanding anything contained herein to the
contrary, no dividends on Capital Shares shall be declared by the Corporation's
Board of Directors or paid or set apart for payment by the Corporation at any
time that such declaration, payment, or setting apart is prohibited by
applicable law.
(c) LIQUIDATION RIGHTS. Upon any voluntary or involuntary
liquidation, dissolution, or winding-up of the affairs of the Corporation, the
holders of Capital Shares shall be entitled to share ratably, in accordance with
the number of Capital Shares held by each such holder, in all remaining assets
of the Corporation available for distribution among the holders of Capital
Shares, whether such assets are capital, surplus or earnings. For the purposes
of this Paragraph 4.2(c), neither the consolidation or merger of the Corporation
with or into any other corporation or corporations in which the stockholders of
the Corporation receive capital stock and/or other securities (including debt
securities) of the acquiring or merged corporation (or of the direct or indirect
parent corporation of the acquiring or merged corporation), nor the sale, lease,
or transfer by the Corporation of all or any part of its assets, nor the
reduction of the capital stock of the Corporation, shall be deemed to be a
voluntary or involuntary liquidation, dissolution, or winding up of the
Corporation as those terms are used in this Paragraph 4.2(c).
(d) VOTING RIGHTS. All rights to vote and all voting power shall be
vested exclusively in the holders of the Common Shares. The CNV Common Shares
shall have no voting power unless otherwise provided by statute.
(e) NO PREEMPTIVE OR SUBSCRIPTION RIGHTS. No holder of Capital Shares
shall be entitled to preemptive or subscription rights.
(f) CONSIDERATION ON MERGER, CONSOLIDATION, ETC. In any merger,
consolidation, or business combination, the consideration to be received per
share by the holders of Common Shares and CNV Common Shares must be identical
for each class of stock.
(g) STOCK SPLITS. Except with regard to the Reverse Split described
in Article Four hereof, the Corporation shall not in any manner subdivide (by
any stock split, reclassification, stock dividend, recapitalization, or
otherwise) or combine the outstanding shares of one class of Capital Shares
unless the outstanding shares of all classes of Capital Shares shall be
proportionately subdivided or combined.
(h) AUTOMATIC CONVERSION OF CNV COMMON SHARES.
(i) AUTOMATIC CONVERSION. Each CNV Common Share shall convert
automatically into one fully paid and non-assessable Common Share on the date
that falls on the first anniversary of the date of the Definitive Prospectus
that forms a part of the Corporation's Registration Statement on Form S-1 (File
No. 333-36193) filed with the Securities and Exchange Commission. The foregoing
automatic conversion event shall be referred to hereinafter as the
4
<PAGE>
"Event of Automatic Conversion." Except in the case of an Event of Automatic
Conversion, the CNV Common Shares shall not be convertible or converted into
Common Shares.
(ii) AUTOMATIC CONVERSION PROCEDURE. Promptly upon the occurrence of
the Event of Automatic Conversion, the holder of CNV Common Shares shall
surrender the certificate or certificates therefor, duly endorsed in blank or
accompanied by proper instruments of transfer, at the office of the Corporation,
or of any transfer agent for the Common Shares, and shall give written notice to
the Corporation, at such office: (A) stating that the shares are being
converted pursuant to the Event of Automatic Conversion into Common Shares as
provided in Paragraph 4.2(h)(i), (B) identifying the number of CNV Common Shares
being converted, and (C) setting out the name or names (with addresses) and
denominations in which the certificate or certificates for Common Shares shall
be issued and shall include instructions for delivery thereof. Delivery of such
notice together with the certificates representing the CNV Common Shares shall
obligate the Corporation to issue such Common Shares. Thereupon, the
Corporation or its transfer agent shall promptly issue and deliver at such
stated address to such holder or to the transferee of CNV Common Shares a
certificate or certificates for the number of Common Shares to which such holder
or transferee is entitled registered in the name of such holder, the designee of
such holder or transferee as specified in such notice. To the extent permitted
by law, conversion pursuant to the Event of Automatic Conversion shall be deemed
to have been effected as of the date on which the Event of Automatic Conversion
has occurred (such time being the "Conversion Time"). The person entitled to
receive the Common Shares issuable upon such conversion shall be treated for all
purposes as the record holder of such Common Shares at and as of the Conversion
Time, and the right of such person as a holder of CNV Common Shares shall cease
and terminate at and as of the Conversion Time, in each case without regard to
any failure by the holder to deliver the certificates or the notice required by
this subparagraph (ii).
(iii) REISSUANCE OF SHARES. CNV Common Shares that are converted into
Common Shares as provided herein shall be retired and canceled and shall not be
reissued.
(iv) RESERVATION. The Corporation hereby reserves and shall at all
times reserve and keep available, out of its authorized and unissued Common
Shares, for the purposes of effecting conversions, such number of duly
authorized Common Shares as shall from time to time be sufficient to effect the
conversion of all outstanding CNV Common Shares. The Corporation covenants that
all the Common Shares so issuable shall, when so issued, be duly and validly
issued, fully paid and non-assessable, and free from liens and charges with
respect to the issue. The Corporation will take all such action as may be
necessary to assure that all such Common Shares may be so issued without
violation of any applicable law or regulation, or of any requirements of any
national securities exchange or inter-dealer quotation system upon which the
Common Shares may be listed or quoted. The Corporation will not take any action
that results in any adjustment of the conversion ratio if the total number of
Common Shares issued and issuable after such action upon conversion of the CNV
Common Shares would exceed the total number of Common Shares then authorized by
the Corporation's Restated Certificate of Incorporation.
5
<PAGE>
(v) RESTRICTIONS ON TRANSFER. Prior to the first anniversary of the
initial effective date of the Corporation's Registration Statement on Form S-1
(File No. 333-36193) filed with the Securities and Exchange Commission, no
holder, beneficially or of record, of any CNV Common Shares may offer, pledge,
sell, contract to sell, or otherwise transfer or dispose of, directly or
indirectly, any CNV Common Shares, or enter into any swap or any other agreement
or transaction that transfers, in whole or in part, directly or indirectly, the
economic consequences of ownership of any CNV Common Shares.
ARTICLE FIVE
MANAGEMENT OF THE CORPORATION
The following provisions relate to the management of the business and the
conduct of the affairs of the Corporation and are inserted for the purpose of
creating, defining, limiting, and regulating the powers of the Corporation and
its directors and stockholders:
(a) The business and affairs of the Corporation shall be managed by and
under the direction of the Board of Directors;
(b) The number of directors shall be as provided in the Corporation's
Bylaws;
(c) The Board of Directors shall have the power to make, alter, amend, or
repeal the Bylaws of the Corporation, except to the extent that the Bylaws
otherwise provide;
(d) All corporate powers and authority of the Corporation (except as at the
time otherwise provided by statute, by this Restated Certificate of
Incorporation, or by the Bylaws) shall be vested in and exercised by the Board
of Directors; and
(e) The stockholders and directors shall have the power, if the Bylaws so
provide, to hold their respective meetings within or without the State of
Delaware and may (except as otherwise required by statute) keep the
Corporation's books outside the State of Delaware, at such places as from time
to time may be designated by the Bylaws or the Board of Directors.
ARTICLE SIX
AMENDMENTS
The Corporation reserves the right to amend or repeal any provisions
contained in this Restated Certificate of Incorporation from the time and at any
time in the manner now or hereafter prescribed in this Restated Certificate of
Incorporation and by the laws of the State of Delaware, and all rights herein
conferred upon stockholders are granted subject to such reservation.
6
<PAGE>
ARTICLE SEVEN
INDEMNIFICATION
The Corporation shall, to the extent required, and may, to the extent
permitted, by Section 145 of the General Corporation Law of Delaware, as the
same may be amended from time to time, indemnify and reimburse all persons whom
it may indemnify and reimburse pursuant thereto.
ARTICLE EIGHT
LIMITATION OF LIABILITY OF DIRECTORS
A director of this Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided, that nothing contained in this ARTICLE EIGHT shall
eliminate or limit the liability of a director (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 that involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the General Corporation Law
of the State of Delaware, or (d) for any transaction from which the director
derived an improper personal benefit. If the Delaware General Corporation Law
is hereafter amended to authorize the further elimination or limitation of the
liability of a director, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended. The provisions of this ARTICLE EIGHT
shall not be deemed to limit or preclude indemnification of a director by the
Corporation for any liability of a director that has not been eliminated by the
provisions of this ARTICLE EIGHT.
7
<PAGE>
EXHIBIT 3.02
AMENDED AND RESTATED
B Y L A W S
OF
CONSOLIDATION CAPITAL CORPORATION
(a Delaware Corporation)
ARTICLE I
Offices and Fiscal Year
SECTION 1.01. Registered Office.--The registered office of the corporation
-----------------
shall be in the City of Wilmington, County of New Castle, State of Delaware
until otherwise established by resolution of the board of directors, and a
certificate certifying the change is filed in the manner provided by statute.
SECTION 1.02. Other Offices.--The corporation may also have offices at
-------------
such other places within or without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation
requires.
SECTION 1.03. Fiscal Year.--The fiscal year of the corporation shall end
-----------
on the 31st of December in each year.
ARTICLE II
Notice - Waivers - Meetings
SECTION 2.01. Notice, What Constitutes.--Whenever, under the provisions of
------------------------
the Delaware General Corporation Law ("GCL") or the certificate of incorporation
or of these bylaws, notice is required to be given to any director or
stockholder, it shall not be construed to mean personal notice, but such notice
may be given in writing, by mail or by telegram (with messenger service
specified), telex or TWX (with answerback received) or courier service, charges
prepaid, or by facsimile transmission to the address (or to the telex, TWX,
facsimile or telephone number) of the person appearing on the books of the
corporation, or in the case of directors, supplied to the corporation for the
purpose of notice. If the notice is sent by mail, telegraph or courier service,
it shall be deemed to be given when deposited in the United States mail or with
a telegraph office or courier service for delivery to that person or, in the
case of telex or TWX, when dispatched, or in the case of facsimile transmission,
when received.
SECTION 2.02. Notice of Meetings of Board of Directors.--Notice of a
----------------------------------------
regular meeting of the board of directors need not be given. Notice of every
special meeting of the board of directors shall be given to each director by
telephone or in writing at least 24 hours (in the case of notice by telephone,
telex, TWX or facsimile transmission) or 48 hours (in the case of notice by
telegraph, courier service or express mail) or five days (in the case of notice
by first class mail) before the time at which the meeting is to be held. Every
such notice shall state the time and place of the meeting. Neither the business
to be transacted at, nor the purpose of, any regular or special meeting of the
board need be specified in a notice of the meeting.
SECTION 2.03. Notice of Meetings of Stockholders.--Written notice of the
----------------------------------
place, date and hour of every meeting of the stockholders, whether annual or
special, shall be given to each stockholder of record entitled to vote at the
meeting not less than ten nor more than 60 days before the date of the meeting.
Every notice of a special meeting shall state the purpose or purposes thereof.
If the notice is sent by mail, it shall be deemed to have been given when
<PAGE>
deposited in the United States mail, postage prepaid, directed to the
stockholder at the address of the stockholder as it appears on the records of
the corporation.
SECTION 2.04. Waivers of Notice.
-----------------
(a) Written Waiver.--Whenever notice is required to be given under any
--------------
provisions of the GCL or the certificate of incorporation or these bylaws, a
written waiver, signed by the person or persons entitled to the notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the stockholders, directors, or members of a committee of
directors need be specified in any written waiver of notice of such meeting.
(b) Waiver by Attendance.--Attendance of a person at a meeting, either in
--------------------
person or by proxy, shall constitute a waiver of notice of such meeting, except
where a person attends a meeting for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the meeting
was not lawfully called or convened.
SECTION 2.05. Exception to Requirements of Notice.
-----------------------------------
(a) General Rule.-- Whenever notice is required to be given, under any
------------
provision of the GCL or of the certificate of incorporation or these bylaws, to
any person with whom communication is unlawful, the giving of such notice to
such person shall not be required and there shall be no duty to apply to any
governmental authority or agency for a license or permit to give such notice to
such person. Any action or meeting which shall be taken or held without notice
to any such person with whom communication is unlawful shall have the same force
and effect as if such notice had been duly given.
(b) Stockholders Without Forwarding Addresses.-- Whenever notice is
-----------------------------------------
required to be given, under any provision of the GCL or the certificate of
incorporation or these bylaws, to any stockholder to whom (i) notice of two
consecutive annual meetings, and all notices of meetings or of the taking of
action by written consent without a meeting to such person during the period
between such two consecutive annual meetings, or (ii) all, and at least two,
payments (if sent by first class mail) of dividends or interest on securities
during a 12 month period, have been mailed addressed to such person at his
address as shown on the records of the corporation and have been returned
undeliverable, the giving of such notice to such person shall not be required.
Any action or meeting which shall be taken or held without notice to such person
shall have the same force and effect as if such notice had been duly given. If
any such person shall deliver to the corporation a written notice setting forth
the person's then current address, the requirement that notice be given to such
person shall be reinstated.
SECTION 2.06. Conference Telephone Meetings.--One or more directors may
-----------------------------
participate in a meeting of the board, or of a committee of the board, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other. Participation in
a meeting pursuant to this section shall constitute presence in person at such
meeting.
ARTICLE III
Meetings of Stockholders
SECTION 3.01. Place of Meeting.--All meetings of the stockholders of the
----------------
corporation shall be held at the registered office of the corporation, or at
such other place within or without the State of Delaware as shall be designated
by the board of directors in the notice of such meeting.
SECTION 3.02. Annual Meeting.--The board of directors may fix and
--------------
designate the date and time of the annual meeting of the stockholders, but if no
such date and time is fixed and designated by the board, the meeting for
-2-
<PAGE>
any calendar year shall be held on the first day of May in such year, if not a
legal holiday under the laws of Delaware, and, if a legal holiday, then on the
next succeeding business day, not a Saturday, at 10:00 o'clock A.M., and at said
meeting the stockholders then entitled to vote shall elect directors and shall
transact such other business as may properly be brought before the meeting.
SECTION 3.03. Special Meetings.--Special meetings of the stockholders of
----------------
the corporation may be called at any time by the chairman of the board, a
majority of the board of directors, the chief executive officer, or at the
request, in writing, of stockholders entitled to cast at least a majority of the
votes that all stockholders are entitled to cast at the particular meeting. At
any time, upon the written request of any person or persons who have duly called
a special meeting, which written request shall state the purpose or purposes of
the meeting, it shall be the duty of the secretary to fix the date of the
meeting which shall be held at such date and time as the secretary may fix, not
less than ten nor more than 60 days after the receipt of the request, and to
give due notice thereof. If the secretary shall neglect or refuse to fix the
time and date of such meeting and give notice thereof, the person or persons
calling the meeting may do so.
SECTION 3.04. Quorum, Manner of Acting and Adjournment.
----------------------------------------
(a) Quorum.--The holders of a majority of the shares entitled to vote,
------
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders except as otherwise provided by the GCL, by the
certificate of incorporation or by these bylaws. If a quorum is not present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present or represented. At any such adjourned
meeting at which a quorum is present or represented, the corporation may
transact any business which might have been transacted at the original meeting.
If the adjournment is for more than 30 days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
(b) Manner of Acting.--Directors shall be elected by a plurality of the
----------------
votes of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors. In all matters other than the
election of directors, the affirmative vote of the majority of shares present in
person or represented by proxy at the meeting and entitled to vote thereon shall
be the act of the stockholders, unless the question is one upon which, by
express provision of the applicable statute, the certificate of incorporation or
these bylaws, a different vote is required in which case such express provision
shall govern and control the decision of the question. The stockholders present
in person or by proxy at a duly organized meeting can continue to do business
until adjournment, notwithstanding withdrawal of enough stockholders to leave
less than a quorum.
SECTION 3.05. Organization.--At every meeting of the stockholders, the
------------
chairman of the board, if there be one, or in the case of a vacancy in the
office or absence of the chairman of the board, one of the following persons
present in the order stated: the vice chairman, if one has been appointed, the
president, the vice presidents in their order of rank or seniority, a chairman
designated by the board of directors or a chairman chosen by the stockholders
entitled to cast a majority of the votes which all stockholders present in
person or by proxy are entitled to cast, shall act as chairman, and the
secretary, or, in the absence of the secretary, an assistant secretary, or in
the absence of the secretary and the assistant secretaries, a person appointed
by the chairman, shall act as secretary.
SECTION 3.06. Voting.
------
(a) General Rule.--Unless otherwise provided in the certificate of
------------
incorporation, each stockholder shall be entitled to one vote, in person or by
proxy, for each share of capital stock having voting power held by such
stockholder.
(b) Voting and Other Action by Proxy.--
--------------------------------
-3-
<PAGE>
(1) A stockholder may execute a writing authorizing another person or
persons to act for the stockholder as proxy. Such execution may be
accomplished by the stockholder or the authorized officer, director,
employee or agent of the stockholder signing such writing or causing his or
her signature to be affixed to such writing by any reasonable means
including, but not limited to, by facsimile signature. A stockholder may
authorize another person or persons to act for the stockholder as proxy by
transmitting or authorizing the transmission of a telegram, cablegram, or
other means of electronic transmission to the person who will be the holder
of the proxy or to a proxy solicitation firm, proxy support service
organization or like agent duly authorized by the person who will be the
holder of the proxy to receive such transmission if such telegram,
cablegram or other means of electronic transmission sets forth or is
submitted with information from which it can be determined that the
telegram, cablegram or other electronic transmission was authorized by the
stockholder.
(2) No proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
(3) A duly executed proxy shall be irrevocable if it states that it
is irrevocable and if, and only so long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is
an interest in the stock itself or an interest in the corporation
generally.
SECTION 3.07. Consent of Stockholders in Lieu of Meeting.--Any action
------------------------------------------
required to be taken at any annual or special meeting of stockholders of the
corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted and shall be delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Every written consent shall bear the
date of signature of each stockholder who signs the consent and no written
consent shall be effective to take the corporate action referred to therein
unless, within 60 days of the earliest dated consent delivered in the manner
required in this section to the corporation, written consents signed by a
sufficient number of holders to take action are delivered to the corporation by
delivery to its registered office in Delaware, its principal place of business,
or an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
SECTION 3.08. Voting Lists.--The officer who has charge of the stock
------------
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting. The list shall be arranged in alphabetical order, showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 3.09. Inspectors of Election.
----------------------
(a) Appointment.--All elections of directors shall be by written ballot,
-----------
unless otherwise provided in the certificate of incorporation; the vote upon any
other matter need not be by ballot. In advance of any meeting of
-4-
<PAGE>
stockholders the board of directors may appoint inspectors, who need not be
stockholders, to act at the meeting. If inspectors are not so appointed, the
chairman of the meeting may, and upon the demand of any stockholder or his proxy
at the meeting and before voting begins shall, appoint inspectors. The number
of inspectors shall be either one or three, as determined, in the case of judges
appointed upon demand of a stockholder, by stockholders present entitled to cast
a majority of the votes which all stockholders present are entitled to cast
thereon. No person who is a candidate for office shall act as an inspector. In
case any person appointed as an inspector fails to appear or fails or refuses to
act, the vacancy may be filled by appointment made by the board of directors in
advance of the convening of the meeting, or at the meeting by the chairman of
the meeting.
(b) Duties.--If inspectors are appointed, they shall determine the number
------
of shares outstanding and the voting power of each, the shares represented at
the meeting, the existence of a quorum and the authenticity, validity and effect
of proxies, shall receive votes or ballots, shall hear and determine all
challenges and questions in any way arising in connection with the right to
vote, shall count and tabulate all votes, shall determine the result, and shall
do such acts as may be proper to conduct the election or vote with fairness to
all stockholders. If there be three inspectors of election, the decision, act
or certificate of a majority shall be effective in all respects as the decision,
act or certificate of all.
(c) Report.--On request of the chairman of the meeting or of any
------
stockholder or his proxy, the inspectors shall make a report in writing of any
challenge or question or matter determined by them, and execute a certificate of
any fact found by them.
ARTICLE IV
Board of Directors
SECTION 4.01. Powers.--All powers vested by law in the corporation shall
------
be exercised by or under the authority of, and the business and affairs of the
corporation shall be managed under the direction of, the board of directors.
SECTION 4.02. Number and Term of Office.--The board of directors shall
-------------------------
consist of such number of directors as may be determined from time to time by
resolution of the board of directors. Each director shall hold office until the
expiration of the term for which he or she was selected and until a successor
shall have been elected and qualified or until his or her earlier death,
resignation or removal. Directors need not be residents of Delaware or
stockholders of the corporation.
SECTION 4.03. Vacancies.--Vacancies and newly created directorships
---------
resulting from any increase in the authorized number of directors elected by all
of the stockholders having a right to vote as a single class may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until
their successors are elected and qualified or until their earlier death,
resignation or removal. If there are no directors in office, then an election
of directors may be held in the manner provided by statute. Whenever the holders
of any class or classes of stock or series thereof are entitled to elect one or
more directors by the provisions of the certificate of incorporation, vacancies
and newly created directorships of such class or classes or series may be filled
by a majority of the directors elected by such class or classes or series
thereof then in office, or by a sole remaining director so elected. If, at the
time of filling any vacancy or any newly created directorship, the directors
then in office shall constitute less than a majority of the whole board (as
constituted immediately prior to any such increase), the Court of Chancery may,
upon application of any stockholder or stockholders holding at least ten percent
of the total number of the shares at the time outstanding having the right to
vote for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
-5-
<PAGE>
SECTION 4.04. Resignations.--Any director may resign at any time upon
------------
written notice to the corporation. The resignation shall be effective upon
receipt thereof by the corporation or at such subsequent time as shall be
specified in the notice of resignation and, unless otherwise specified in the
notice, the acceptance of the resignation shall not be necessary to make it
effective.
SECTION 4.05. Removal.--Any director or the entire board of directors may
-------
be removed, with or without cause, by the holders of shares entitled to cast a
majority of the votes which all stockholders are entitled to cast at an election
of directors.
SECTION 4.06. Organization.--At every meeting of the board of directors,
------------
the chairman of the board, if there be one, or, in the case of a vacancy in the
office or absence of the chairman of the board, one of the following officers
present in the order stated: the vice chairman of the board, if there be one,
the president, the vice presidents in their order of rank and seniority, or a
chairman chosen by a majority of the directors present, shall preside, and the
secretary, or, in the absence of the secretary, an assistant secretary, or in
the absence of the secretary and the assistant secretaries, any person appointed
by the chairman of the meeting, shall act as secretary.
SECTION 4.07. Place of Meeting.--Meetings of the board of directors shall
----------------
be held at such place within or without the State of Delaware as the board of
directors may from time to time determine, or as may be designated in the notice
of the meeting.
SECTION 4.08. Regular Meetings.--Regular meetings of the board of
----------------
directors shall be held without notice at such time and place as shall be
designated from time to time by resolution of the board of directors.
SECTION 4.09. Special Meetings.--Special meetings of the board of
----------------
directors shall be held whenever called by the chief executive officer or by two
or more of the directors.
SECTION 4.10. Quorum, Manner of Acting and Adjournment.
----------------------------------------
(a) General Rule.--At all meetings of the board a majority of the total
------------
number of directors shall constitute a quorum for the transaction of business.
The vote of a majority of the directors present at any meeting at which a quorum
is present shall be the act of the board of directors, except as may be
otherwise specifically provided by the GCL or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present.
(b) Unanimous Written Consent.--Unless otherwise restricted by the
-------------------------
certificate of incorporation, any action required or permitted to be taken at
any meeting of the board of directors may be taken without a meeting, if all
members of the board consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the board.
SECTION 4.11. Executive and Other Committees.
------------------------------
(a) Establishment.--The board of directors may, by resolution adopted by a
-------------
majority of the whole board, establish an Executive Committee and one or more
other committees, each committee to consist of one or more directors. The board
may designate one or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee and the alternate
or alternates, if any, designated for such member, the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not they constitute a quorum, may unanimously appoint another director to act at
the meeting in the place of any such absent or disqualified member.
-6-
<PAGE>
(b) Powers.--The Executive Committee, if established, and any such other
------
committee to the extent provided in the resolution establishing such committee
shall have and may exercise all the power and authority of the board of
directors in the management of the business and affairs of the corporation and
may authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the certificate of incorporation (except that a committee may, to
the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the board of directors as provided in
Section 151(a) of the GCL, fix the designation and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of shares of any series), adopting an agreement of merger or
consolidation under Section 251 or 252 of the GCL, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
bylaws of the corporation. The Executive Committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock and to adopt
a certificate of ownership and merger pursuant to Section 253 of the GCL. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee so
formed shall keep regular minutes of its meetings and report the same to the
board of directors when required.
(c) Committee Procedures.--The term "board of directors" or "board," when
--------------------
used in any provision of these bylaws relating to the organization or procedures
of or the manner of taking action by the board of directors, shall be construed
to include and refer to the Executive Committee or other committee of the board.
SECTION 4.12. Compensation of Directors.--Unless otherwise restricted by
-------------------------
the certificate of incorporation, the board of directors shall have the
authority to fix the compensation of directors.
ARTICLE V
Officers
SECTION 5.01. Number, Qualifications and Designation.--The officers of the
--------------------------------------
corporation shall be chosen by the board of directors and shall be a president,
one or more vice presidents, a secretary, a treasurer, and such other officers
as may be elected in accordance with the provisions of section 5.03 of this
Article. Any number of offices may be held by the same person. Officers may,
but need not, be directors or stockholders of the corporation. The board of
directors may elect from among the members of the board a chairman of the board
and a vice chairman of the board who shall be officers of the corporation. The
chairman of the board or the president, as designated from time to time by the
board of directors, shall be the chief executive officer of the corporation.
SECTION 5.02. Election and Term of Office.--The officers of the
---------------------------
corporation, except those elected by delegated authority pursuant to section
5.03 of this Article, shall be elected annually by the board of directors, and
each such officer shall hold office for a term of one year and until a successor
is elected and qualified, or until his or her earlier resignation or removal.
Any officer may resign at any time upon written notice to the corporation.
SECTION 5.03. Subordinate Officers, Committees and Agents.--The board of
-------------------------------------------
directors may from time to time elect such other officers and appoint such
committees, employees or other agents as it deems necessary, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as are provided in these bylaws, or as the board of directors may from
time to time determine. The board of directors may delegate to any officer or
committee the power to elect subordinate officers and to retain or appoint
employees or other agents, or committees thereof, and to prescribe the authority
and duties of such subordinate officers, committees, employees or other agents.
-7-
<PAGE>
SECTION 5.04. The Chairman and Vice Chairman of the Board.--The chairman
-------------------------------------------
of the board, if there be one, or in the absence of the chairman, the vice
chairman of the board, if there be one, shall preside at all meetings of the
stockholders and of the board of directors, and shall perform such other duties
as may from time to time be assigned to them by the board of directors.
SECTION 5.05. The President.--The president shall have general
-------------
supervision over the business and operations of the corporation, subject,
however, to the control of the board of directors. The president shall, in
general, perform all duties incident to the office of president, and such other
duties as from time to time may be assigned by the board of directors and, if
the chairman of the board is the chief executive officer, the chairman of the
board.
SECTION 5.06. The Vice Presidents.--The vice presidents shall perform the
-------------------
duties of the president in the absence of the president and such other duties as
may from time to time be assigned to them by the board of directors or by the
president.
SECTION 5.07. The Secretary.--The secretary, or an assistant secretary,
-------------
shall attend all meetings of the stockholders and of the board of directors and
shall record the proceedings of the stockholders and of the directors and of
committees of the board in a book or books to be kept for that purpose; shall
see that notices are given and records and reports properly kept and filed by
the corporation as required by law; shall be the custodian of the seal of the
corporation and see that it is affixed to all documents to be executed on behalf
of the corporation under its seal; and, in general, shall perform all duties
incident to the office of secretary, and such other duties as may from time to
time be assigned by the board of directors or the president.
SECTION 5.08. The Treasurer.--The treasurer, or an assistant treasurer,
-------------
shall have or provide for the custody of the funds or other property of the
corporation; shall collect and receive or provide for the collection and receipt
of moneys earned by or in any manner due to or received by the corporation;
shall deposit all funds in his or her custody as treasurer in such banks or
other places of deposit as the board of directors may from time to time
designate; whenever so required by the board of directors, shall render an
account showing his or her transactions as treasurer and the financial condition
of the corporation; and, in general, shall discharge such other duties as may
from time to time be assigned by the board of directors or the president.
SECTION 5.09. Officers' Bonds.--No officer of the corporation need provide
---------------
a bond to guarantee the faithful discharge of the officer's duties unless the
board of directors shall by resolution so require a bond in which event such
officer shall give the corporation a bond (which shall be renewed if and as
required) in such sum and with such surety or sureties as shall be satisfactory
to the board of directors for the faithful performance of the duties of office.
SECTION 5.10. Salaries.--The salaries of the officers and agents of the
--------
corporation elected by the board of directors shall be fixed from time to time
by the board of directors.
ARTICLE VI
Certificates of Stock, Transfer, Etc.
SECTION 6.01. Form and Issuance.
-----------------
(a) Issuance.--The shares of the corporation shall be represented by
--------
certificates unless the board of directors shall by resolution provide that some
or all of any class or series of stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until the
certificate is surrendered to the corporation. Notwithstanding the adoption of
any resolution providing for uncertificated shares, every holder of stock
represented by certificates and upon request every holder of uncertificated
shares shall be entitled to have a certificate signed by, or in the name of the
corporation by, the chairman or vice chairman of the board of directors, or the
president or vice
-8-
<PAGE>
president, and by the treasurer or an assistant treasurer, or the secretary or
an assistant secretary, representing the number of shares registered in
certificate form.
(b) Form and Records.--Stock certificates of the corporation shall be in
----------------
such form as approved by the board of directors. The stock record books and the
blank stock certificate books shall be kept by the secretary or by any agency
designated by the board of directors for that purpose. The stock certificates
of the corporation shall be numbered and registered in the stock ledger and
transfer books of the corporation as they are issued.
(c) Signatures.--Any of or all the signatures upon the stock certificates
----------
of the corporation may be a facsimile. In case any officer, transfer agent or
registrar who has signed, or whose facsimile signature has been placed upon, any
share certificate shall have ceased to be such officer, transfer agent or
registrar, before the certificate is issued, it may be issued with the same
effect as if the signatory were such officer, transfer agent or registrar at the
date of its issue.
SECTION 6.02. Transfer.--Transfers of shares shall be made on the share
--------
register or transfer books of the corporation upon surrender of the certificate
therefor, endorsed by the person named in the certificate or by an attorney
lawfully constituted in writing. No transfer shall be made which would be
inconsistent with the provisions of Article 8, Title 6 of the Delaware Uniform
Commercial Code-Investment Securities.
SECTION 6.03. Lost, Stolen, Destroyed or Mutilated Certificates.--The
-------------------------------------------------
board of directors may direct a new certificate of stock or uncertificated
shares to be issued in place of any certificate theretofore issued by the
corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or the legal representative of the owner,
to give the corporation a bond sufficient to indemnify against any claim that
may be made against the corporation on account of the alleged loss, theft or
destruction of such certificate or the issuance of such new certificate or
uncertificated shares.
SECTION 6.04. Record Holder of Shares.--The corporation shall be entitled
-----------------------
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
SECTION 6.05. Determination of Stockholders of Record.
---------------------------------------
(a) Meetings of Stockholders.--In order that the corporation may determine
------------------------
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors, and which record date shall
not be more than 60 nor less than ten days before the date of such meeting.
If no record date is fixed by the board of directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting unless the board of
directors fixes a new record date for the adjourned meeting.
(b) Consent of Stockholders.--In order that the corporation may determine
-----------------------
the stockholders entitled to consent to corporate action in writing without a
meeting, the board of directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the board of directors, and which date shall not be more than ten days after
the date upon which the resolution fixing the record date is adopted by the
-9-
<PAGE>
board of directors. If no record date has been fixed by the board of directors,
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the board of
directors is required by the GCL, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to a corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the board of directors and prior action by the board of
directors is required by the GCL, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the board of directors adopts the
resolution taking such prior action.
(c) Dividends.--In order that the corporation may determine the
---------
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights of the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than 60 days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the board of directors adopts the resolution relating
thereto.
ARTICLE VII
Indemnification of Directors, Officers and
Other Authorized Representatives
SECTION 7.01. Indemnification of Authorized Representatives in Third Party
------------------------------------------------------------
Proceedings.--The corporation shall indemnify any person who was or is an
- -----------
authorized representative of the corporation, and who was or is a party, or is
threatened to be made a party to any third party proceeding, by reason of the
fact that such person was or is an authorized representative of the corporation,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such third party
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal third party proceeding, had no
reasonable cause to believe such conduct was unlawful. The termination of any
third party proceeding by judgment, order, settlement, conviction or upon a plea
of nolo contendere or its equivalent, shall not of itself create a presumption
that the authorized representative did not act in good faith and in a manner
which such person reasonably believed to be in or not opposed to, the best
interests of the corporation, and, with respect to any criminal third party
proceeding, had reasonable cause to believe that such conduct was unlawful.
SECTION 7.02. Indemnification of Authorized Representatives in Corporate
----------------------------------------------------------
Proceedings.--The corporation shall indemnify any person who was or is an
- -----------
authorized representative of the corporation and who was or is a party or is
threatened to be made a party to any corporate proceeding, by reason of the fact
that such person was or is an authorized representative of the corporation,
against expenses actually and reasonably incurred by such person in connection
with the defense or settlement of such corporate proceeding if such person acted
in good faith and in a manner reasonably believed to be in, or not opposed to,
the best interests of the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such corporate proceeding was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such authorized
representative is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
SECTION 7.03. Mandatory Indemnification of Authorized Representatives.--To
-------------------------------------------------------
the extent that an authorized representative or other employee or agent of the
corporation has been successful on the merits or otherwise in defense
-10-
<PAGE>
of any third party or corporate proceeding or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses actually and
reasonably incurred by such person in connection therewith.
SECTION 7.04. Determination of Entitlement to Indemnification.--Any
-----------------------------------------------
indemnification under section 7.01, 7.02 or 7.03 of this Article (unless ordered
by a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the authorized representative
or other employee or agent is proper in the circumstances because such person
has either met the applicable standard of conduct set forth in section 7.01 or
7.02 or has been successful on the merits or otherwise as set forth in section
7.03 and that the amount requested has been actually and reasonably incurred.
Such determination shall be made:
(1) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such third party or
corporate proceeding; or
(2) if such a quorum is not obtainable, or even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel
in a written opinion; or
(3) by the stockholders.
SECTION 7.05. Advancing Expenses.--Expenses actually and reasonably
------------------
incurred in defending a third party or corporate proceeding shall be paid on
behalf of an authorized representative by the corporation in advance of the
final disposition of such third party or corporate proceeding upon receipt of an
undertaking by or on behalf of the authorized representative to repay such
amount if it shall ultimately be determined that the authorized representative
is not entitled to be indemnified by the corporation as authorized in this
Article. The financial ability of any authorized representative to make a
repayment contemplated by this section shall not be a prerequisite to the making
of an advance. Expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the board of directors deems
appropriate.
SECTION 7.06. Definitions.--For purposes of this Article:
-----------
(1) "authorized representative" shall mean any and all directors and
officers of the corporation and any person designated as an authorized
representative by the board of directors of the corporation (which may, but
need not, include any person serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise);
(2) "corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify
its directors, officers, employees or agents, so that any person who is or
was a director, officer, employee or agent of such constituent corporation,
or is or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position
under the provisions of this Article with respect to the resulting or
surviving corporation as such person would have with respect to such
constituent corporation if its separate existence had continued;
(3) "corporate proceeding" shall mean any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor or investigative proceeding by the corporation;
(4) "criminal third party proceeding" shall include any action or
investigation which could or does lead to a criminal third party
proceeding;
(5) "expenses" shall include attorneys' fees and disbursements;
-11-
<PAGE>
(6) "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan;
(7) "not opposed to the best interests of the corporation" shall
include actions taken in good faith and in a manner the authorized
representative reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan;
(8) "other enterprises" shall include employee benefit plans;
(9) "party" shall include the giving of testimony or similar
involvement;
(10) "serving at the request of the corporation" shall include any
service as a director, officer or employee of the corporation which imposes
duties on, or involves services by, such director, officer or employee with
respect to an employee benefit plan, its participants, or beneficiaries;
and
(11) "third party proceeding" shall mean any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right
of the corporation.
SECTION 7.07. Insurance.--The corporation may purchase and maintain
---------
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
the person and incurred by the person in any such capacity, or arising out of
his or her status as such, whether or not the corporation would have the power
or the obligation to indemnify such person against such liability under the
provisions of this Article.
SECTION 7.08. Scope of Article.--The indemnification of authorized
----------------
representatives and advancement of expenses, as authorized by the preceding
provisions of this Article, shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office. The indemnification and advancement of
expenses provided by or granted pursuant to this Article shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be an authorized representative and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 7.09. Reliance on Provisions.--Each person who shall act as an
----------------------
authorized representative of the corporation shall be deemed to be doing so in
reliance upon rights of indemnification provided by this Article.
ARTICLE VIII
General Provisions
SECTION 8.01. Dividends.--Subject to the restrictions contained in the GCL
---------
and any restrictions contained in the certificate of incorporation, the board of
directors may declare and pay dividends upon the shares of capital stock of the
corporation.
SECTION 8.02. Contracts.--Except as otherwise provided in these bylaws,
---------
the board of directors may authorize any officer or officers including the
chairman and vice chairman of the board of directors, or any agent or agents, to
enter into any contract or to execute or deliver any instrument on behalf of the
corporation and such authority may be general or confined to specific instances.
-12-
<PAGE>
SECTION 8.03. Corporate Seal.--The corporation shall have a corporate
--------------
seal, which shall have inscribed thereon the name of the corporation, the year
of its organization and the words "Corporate Seal, Delaware". The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or in any
other manner reproduced.
SECTION 8.04. Deposits.--All funds of the corporation shall be deposited
--------
from time to time to the credit of the corporation in such banks, trust
companies, or other depositories as the board of directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by such
one or more officers or employees as the board of directors shall from time to
time determine.
SECTION 8.05. Corporate Records.
-----------------
(a) Examination by Stockholders.--Every stockholder shall, upon written
---------------------------
demand under oath stating the purpose thereof, have a right to examine, in
person or by agent or attorney, during the usual hours for business, for any
proper purpose, the stock ledger, list of stockholders, books or records of
account, and records of the proceedings of the stockholders and directors of the
corporation, and to make copies or extracts therefrom. A proper purpose shall
mean a purpose reasonably related to such person's interest as a stockholder.
In every instance where an attorney or other agent shall be the person who seeks
the right to inspection, the demand under oath shall be accompanied by a power
of attorney or such other writing which authorizes the attorney or other agent
to so act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in Delaware or at its principal
place of business. Where the stockholder seeks to inspect the books and records
of the corporation, other than its stock ledger or list of stockholders, the
stockholder shall first establish (1) that the stockholder has complied with the
provisions of this section respecting the form and manner of making demand for
inspection of such documents; and (2) that the inspection sought is for a proper
purpose. Where the stockholder seeks to inspect the stock ledger or list of
stockholders of the corporation and has complied with the provisions of this
section respecting the form and manner of making demand for inspection of such
documents, the burden of proof shall be upon the corporation to establish that
the inspection sought is for an improper purpose.
(b) Examination by Directors.--Any director shall have the right to
------------------------
examine the corporation's stock ledger, a list of its stockholders and its other
books and records for a purpose reasonably related to the person's position as a
director.
SECTION 8.06. Amendment of Bylaws.--These bylaws may be altered, amended
-------------------
or repealed or new bylaws may be adopted either (1) by vote of the stockholders
at a duly organized annual or special meeting of stockholders, or (2) by vote of
a majority of the board of directors at any regular or special meeting of
directors if such power is conferred upon the board of directors by the
certificate of incorporation.
-13-
<PAGE>
EXHIBIT 4.01
WARRANT AGREEMENT dated as of ________ ___, 1997 between Consolidation
Capital Corporation, a Delaware corporation (the "Company"), and Friedman,
Billings, Ramsey & Co., Inc. (hereinafter referred to as the "Representative").
W I T N E S S E T H:
WHEREAS, the Representative has agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated _______________ __, 1997 between
the Representative, as representative of the several Underwriters named in the
Underwriting Agreement (the "Underwriters") and the Company, to act as one of
the underwriters in connection with the Company's proposed initial public
offering (the "Public Offering") of 24,000,000 shares of Common Stock ("Public
Shares") at an initial public offering price of $_____ per Public Share; and
WHEREAS, the Company proposes to issue to the Representative, in its
individual capacity and not as representative of the several Underwriters
(defined below) warrants ("Warrants") to purchase up to 1,130,000 shares of
common stock, par value $.001 per share ("Common Stock") (the shares of Common
Stock covered by the Warrants are referred to as "Shares"); and
WHEREAS, the Warrants issued pursuant to this Agreement are being issued by
the Company to the Representative or officers or partners of the Representative
in consideration for, and as part of the Representative's compensation in
connection with, the Representative acting as one of the underwriters pursuant
to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises and the agreements herein
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. GRANT.
The Representative, and/or any of its designees who are officers or
partners of the Representative is hereby granted the right to purchase, at any
time from __________ __, 1998 [ONE YEAR ANNIVERSARY OF EFFECTIVE DATE] until
5:00 P.M., New York City time, on _______ __, 2002 [FIVE YEAR ANNIVERSARY OF
EFFECTIVE DATE] (the "Warrant Exercise Term"), up to 1,130,000 shares of
Common Stock
<PAGE>
at an initial exercise price (subject to adjustment as provided in Article 8
hereof) of $_____ per Share [100% OF PUBLIC OFFERING PRICE]. Except as provided
in Section 13 hereof, the Shares are in all respects identical to the Public
Shares being sold to the public pursuant to the terms and provisions of the
Underwriting Agreement.
2. WARRANT CERTIFICATES.
The warrant certificates (the "Warrant Certificates") delivered and to be
delivered pursuant to this Agreement shall be in the form set forth as Exhibit
A, attached hereto and made a part hereof, with such appropriate insertions,
omissions, substitutions and other variations as required or permitted by this
Agreement.
3. EXERCISE OF WARRANTS.
3.1 CASH EXERCISE. The Warrants initially are exercisable at a price of
$_____ per Share purchased [100% OF PUBLIC OFFERING PRICE], payable in cash or
by check to the order of the Company, or any combination of cash or check,
subject to adjustment as provided in Article 8 hereof. Upon surrender of the
Warrant Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
Shares purchased, at the principal office of the Company (presently located at
1747 Pennsylvania Avenue, NW, Suite 900, Washington, DC 20006) or at the office
of its transfer agent, the registered holder(s) of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the Shares so purchased. The purchase rights represented by
each Warrant Certificate are exercisable at the option of the Holder hereof, in
whole or in part (but not as to fractional Shares). In the case of the purchase
of less than all of the Shares purchasable under any Warrant Certificate, the
Company shall cancel said Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the Shares purchasable thereunder.
3.2 CASHLESS EXERCISE. At any time during the Warrant Exercise Term, the
Holder may, at its option, exchange this Warrant, in whole or in part (a
"Warrant Exchange"), into the number of Shares determined in accordance with
this Section 3.2, by surrendering this Warrant at the principal office of the
Company or at the office of its transfer agent, accompanied by a notice stating
such Holder's intent to effect such exchange, the number of Shares to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
Shares issuable upon such Warrant Exchange and, if
2
<PAGE>
applicable, a new warrant of like tenor evidencing the balance of the Shares
remaining subject to this Warrant, shall be issued as of the Exchange Date and
delivered to the Holder within three (3) days following the Exchange Date. In
connection with any Warrant Exchange, this Warrant shall represent the right to
subscribe for and acquire the number of Shares (rounded to the next highest
integer) equal to (i) the number of Shares specified by the Holder in its Notice
of Exchange (the "Total Number"), but in no case more than the number of shares
equal to the number of shares listed on the warrant certificate, less (ii) the
number of Shares equal to the quotient obtained by dividing (A) the product of
the Total Number and the existing Exercise Price (as hereinafter defined) by (B)
the current market value of a Public Share.
4. ISSUANCE OF CERTIFICATES.
Upon the exercise of the Warrants, the issuance of certificates for the
Shares purchased shall be made forthwith (and in any event within three business
days thereafter) without charge to the Holder thereof including, without
limitation, any tax which may be payable in respect of the issuance thereof, and
such certificates shall (subject to the provisions of Article 5 hereof) be
issued in the name of, or in such names as may be directed by, the Holder
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of the Holder and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares shall
be executed on behalf of the Company by the manual or facsimile signature of the
present or any future Chairman or Vice Chairman of the Board of Directors or
President or Vice President of the Company under its corporate seal reproduced
thereon, attested to by the manual or facsimile signature of the present or any
future Secretary or Assistant Secretary of the Company. Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer.
Upon exercise, in part or in whole, of the Warrants, certificates
representing the Shares shall bear a legend substantially similar to the
following:
"The securities represented by this certificate and the other securities
issuable upon exercise thereof have not been registered under the
Securities Act of 1933, as amended (the "Act"), and may not be offered or
sold except (i) pursuant to an effective registration statement under the
Act, (ii), to the extent applicable, pursuant to Rule 144 under the Act (or
any similar rule under such Act relating to the disposition of securities),
or (iii) upon the delivery by the holder to the Company of an opinion of
counsel, reasonably
3
<PAGE>
satisfactory to counsel to the Company, stating that an exemption from
registration under such Act is available."
5. RESTRICTION ON TRANSFER OF WARRANTS.
The Holder of a Warrant Certificate, by its acceptance thereof, covenants
and agrees that the Warrants are being acquired as an investment and not with a
view to the distribution thereof, and that the Warrants may not be sold,
transferred, assigned, hypothecated or otherwise disposed of, in whole or in
part, except (i) to officers, directors or affiliates of the Representative, and
(ii) to transferees with the opinion of counsel, acceptable to the Company and
the transferor, that such transfer is exempt from registration under the act.
The Warrant Certificate issued pursuant to (ii) above will bear a legend stating
that the Warrants may only be exercised if there is an applicable exemption
under the Act for the issuance of the shares of Common Stock of the Company upon
the exercise of the Warrants.
6. PRICE.
6.1 INITIAL AND ADJUSTED EXERCISE PRICE. The initial exercise price of
each Warrant shall be $_____ per Share [100% OF PUBLIC OFFERING PRICE]. The
adjusted exercise price shall be the price which shall result from time to time
from any and all adjustments of the initial exercise price in accordance with
the provisions of Article 8 hereof.
6.2 EXERCISE PRICE. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
7. REGISTRATION RIGHTS.
7.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. None of the Warrants
nor the Shares have been registered for purposes of public distribution under
the Securities Act of 1933, as amended (the "Act").
7.2 REGISTRABLE SECURITIES. As used herein the term "Registrable
Security" means each of the Shares and any Common Stock issued upon any stock
split or stock dividend in respect of such Shares; provided, however, that with
respect to any particular Registrable Security, such security shall cease to be
a Registrable Security when, as of the date of determination, (i) it has been
effectively registered under the Act and disposed of pursuant thereto, (ii)
registration under the Act is no longer required for subsequent sale of such
security or (iii) it has ceased to be outstanding. The term "Registrable
Securities" means any and/or all of the securities falling within the foregoing
definition of a "Registrable Security." In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be made in the
definition of
4
<PAGE>
"Registrable Security" as is appropriate in order to prevent any dilution or
enlargement of the rights granted pursuant to this Article 7.
7.3 PIGGYBACK REGISTRATION.
(a) If, at any time during the seven years following the date of this
Agreement, the Company proposes to prepare and file one or more registration
statement(s) filed in connection with a public offering covering equity
securities of the Company, or any such securities of the Company held by its
shareholders (other than in connection with an exchange offer, a "rights"
offering to shareholders, an offering relating to an employee benefit plan,
dividend reinvestment plan, an acquisition, a merger, the conversion of any
convertible securities, an exchange of a security, or a stand-by underwriting
with respect to the call of a warrant, option, right or convertible security for
redemption), (for purposes of this Article 7, collectively, a "Registration
Statement"), it will give written notice of its intention to do so by registered
mail ("Notice"), at least thirty (30) business days prior to the filing of each
such Registration Statement, to all holders of the Registrable Securities or, in
the event that the Company has not formulated its intent to file such
Registration Statement at least thirty (30) calendar days before the anticipated
filing date of the Registration Statement, as soon as practicable upon the
formation by the Company of such intent. However, no such Notice need be given
if the Registration Statement is for an underwritten offering of securities
other than equity securities or securities convertible into equity securities.
Upon the written request of such a holder (a "Requesting Holder"), made within
twenty (20) business days after receipt of the Notice, that the Company include
any of the Requesting Holder's Registrable Securities in the proposed
Registration Statement, the Company shall, as to each such Requesting Holder,
use its best efforts to effect the registration under the Act of the Registrable
Securities which it has been so requested to register ("Piggyback
Registration"), at the Company's sole cost and expense and at no cost or expense
to the Requesting Holders. The Company shall not be required to honor any such
request (i) if, in opinion of counsel to the Company reasonably acceptable to
such Holder who wishes to have such Registrable Securities included in such
Registration Statement, registration under the Act is not required for the
transfer of the Registrable Securities in the manner proposed by such Holder; or
(ii) to register in the aggregate fewer than 25,000 Shares held by the Holders.
The Company shall permit, or shall use its best efforts to cause the managing
underwriter of a proposed offering to permit, the Holders of Registrable
Securities requested to be included in the registration (the "Piggy-Back
Shares") to include such Piggy-Back Shares in the proposed offering on the same
terms and conditions as applicable to the shares of Common Stock offered by the
Company and for the account of any person other than the Company, as the case
may be.
(b) Notwithstanding the foregoing, if any such managing underwriter
shall advise the Company in writing that, in its opinion, the distribution of
all or a portion of the Registrable Securities requested to be included in the
Registration Statement concurrently with the shares of Common Stock being
registered by the Company would materially adversely affect the
5
<PAGE>
distribution of such securities by the Company for its own account, or for the
account of any person or persons other than the Company that have asserted, with
respect to such registration, demand registration rights under any other
agreement, then such inclusion of Registrable Securities shall be made pro rata
--- ----
among the aggregate of the Registrable Securities for which a proper request was
made under this subsection 7.3 and any other securities properly requested to be
included in the registration by other holders pursuant to piggy-back or
incidental registration rights under any other agreement.
7.4 DEMAND REGISTRATION.
(a) At any time during the Warrant Exercise Term, any "Majority
Holder" (as such term is defined in Section 7.4(c) below) of the Registrable
Securities shall have the right (which right is in addition to the piggyback
registration rights provided for under Section 7.3 hereof), exercisable by
written notice to the Company (the "Demand Registration Request"), to have the
Company prepare and file with the Securities and Exchange Commission (the
"Commission"), on one occasion, at the sole expense of the Company, a
Registration Statement and such other documents, including a prospectus, as may
be necessary (in the opinion of both counsel for the Company and counsel for
such Majority Holder), in order to comply with the provisions of the Act, so as
to permit a public offering and sale of the Registrable Securities by the
holders thereof, for twelve (12) consecutive months. The Company shall not be
required to file any amendments to the Registration Statement required by this
subsection 7.4(a) except as is necessary to keep the disclosure about the
Company current.
(b) The Company covenants and agrees to give written notice of any
Demand Registration Request to all holders of the Registrable Securities within
ten (10) days from the date of the Company's receipt of any such Demand
Registration Request. After receiving notice from the Company as provided in
this Section 7.4(b), holders of Registrable Securities may request the Company
to include their Registrable Securities in the Registration Statement to be
filed pursuant to Section 7.4(a) hereof by notifying the Company of their
decision to include such securities within ten (10) days of their receipt of the
Company's notice.
(c) The term "Majority Holder" as used in this Section 7.4 shall mean
any holder or any combination of holders of Registrable Securities, if included
in such holders' Registrable Securities are that aggregate number of Shares
(including Shares already issued and Shares issuable pursuant to the exercise of
outstanding Warrants) as would constitute a majority of the aggregate number of
Shares (including Shares already issued and Shares issuable pursuant to the
exercise of outstanding Warrants) included in all of the Registrable Securities.
7.5 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. The Company
covenants and agrees as follows:
6
<PAGE>
(a) In connection with any registration under Section 7.4 hereof, the
Company shall file the Registration Statement as expeditiously as possible, but
in no event later than thirty (30) days following receipt of any demand
therefor, shall use its best efforts to have any such Registration Statements
declared effective at the earliest possible time. If a written request,
however, is received by the Company that would require the filing of a
Registration Statement between 45 and 105 days after the end of its fiscal year,
the deadline for the filing of the Registration Statement shall be extended
until the 106th day of such fiscal year. The Company shall furnish each holder
of Registrable Securities such number of prospectuses as shall reasonably be
requested. However, in connection with any registration under Sections 7.3 and
7.4 hereof, the Company shall have sole control in connection with the
preparation, filing, amending and supplementing of the Registration Statement,
including the right to withdraw the same or delay the filing or effectiveness
thereof when, in the sole judgment of the Board of Directors of the Company, the
filing or pendency of such registration statement or the effectiveness thereof
would impose an undue burden upon the ability by the Company to proceed with any
other material financing for its own account or any material corporate
transaction, including, but not limited to, a reorganization, recapitalization,
merger, consolidation or material acquisition of the securities or assets of
another firm or corporation; provided, however, that the Company's exercise of
-------- -------
any such right of withdrawal or delay shall not be deemed a waiver of the rights
of the Holders, and the Company shall be required to file a new Registration
Statement or to proceed with such actions as reasonably may be required to cause
the Registration Statement to become effective within a reasonable time after
the consummation of the event or transaction which required such withdrawal or
delay.
(b) The Company shall pay all costs, fees and expenses in connection
with all Registration Statements filed pursuant to Sections 7.3 and 7.4(a)
hereof including, without limitation, the Company's legal and accounting fees,
printing expenses, and blue sky fees and expenses. Each Holder, however, shall
pay the underwriting discount attributable to such Holder's Registrable
Securities, any transfer tax payable with respect thereto and the fees and
expenses of such Holder's counsel.
(c) The Company will take all necessary action which may be required
in qualifying or registering the Registrable Securities included in a
Registration Statement for offering and sale under the securities or blue sky
laws of such states as are requested by the holders of such securities, provided
that the Company shall not be obligated to execute or file any general consent
to service of process or to qualify as a foreign corporation to do business
under the laws of any such jurisdiction.
(d) The Company shall indemnify any holder of the Registrable
Securities to be sold pursuant to any Registration Statement and any underwriter
or person deemed to be an underwriter under the Act and each person, if any, who
controls such holder or underwriter or person deemed to be an underwriter within
the meaning of Section 15 of the Act or Section 20(a)
7
<PAGE>
of the Securities Exchange Act of 1934, as amended ("Exchange Act"), against all
loss, claim, damage, expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which any of them may become subject under the Act, the Exchange Act or
otherwise, arising from such Registration Statement to the same extent and with
the same effect as the provisions pursuant to which the Company has agreed to
indemnify the Underwriters contained in Section 8 of the Underwriting Agreement
and shall provide for just and equitable contribution as set forth in Section 8
of the Underwriting Agreement.
(e) Any holder of Registrable Securities to be sold pursuant to a
Registration Statement, and its successors and assigns, shall severally, and not
jointly, indemnify the Company, its officers and directors and each person, if
any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished in writing by or on behalf of such holder, or its successors or
assigns, for specific inclusion in such Registration Statement to the same
extent and with the same effect as the provisions contained in Section 8 of the
Underwriting Agreement pursuant to which the Underwriters have agreed to
indemnify the Company and shall provide for just and equitable contribution as
set forth in Section 8 of the Underwriting Agreement.
(f) Nothing contained in this Agreement shall be construed as
requiring any Holder to exercise his Warrants prior to the initial filing of any
Registration Statement or the effectiveness thereof.
(g) If the Company shall fail to comply with the provisions of this
Article 7, the Company shall, in addition to any other equitable or other relief
available to the holders of Registrable Securities, be liable for any or all
incidental, special and consequential damages sustained by the holders of
Registrable Securities that request registration of their Registrable
Securities.
(h) Except as set forth in Section 7.5(j) hereof, the Company shall
not permit the inclusion of any securities other than the Registrable Securities
to be included in any Registration Statement filed pursuant to Section 7.4
hereof, or permit a Registration Statement relating to an underwritten offering
of the same securities as the Registrable Securities to be filed during an
underwritten offering of the Registrable Securities covered by a Registration
Statement filed pursuant to Section 7.4 hereof, without the prior written
consent of the Majority Holders, which consent shall not be unreasonably
withheld.
(i) The Company shall deliver promptly to each holder of Registrable
Securities
8
<PAGE>
participating in the offering in which such Holder's shares are being registered
pursuant to Section 7.3 hereof and requesting the correspondence and memoranda
described in this Section 7.5(i) and to the managing underwriter, if any, copies
of all correspondence between the Commission and the Company, its counsel or
auditors and all memoranda relating to discussions with the Commission or its
staff with respect to the Registration Statement and permit each holder of
Registrable Securities and underwriters to do such investigation, upon
reasonable advance notice, with respect to information contained in or omitted
from the Registration Statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company with its
officers and independent auditors, all to such reasonable extent and at such
reasonable times and as often as any such holder of Registrable Securities or
underwriter shall reasonably request.
(j) Upon the written request therefor by any holders of Registrable
Securities, the Company shall include in the Registration Statement filed for an
underwritten offering covering any such holders Registrable Securities, any
additional shares of Common Stock of the Company held by such holders as of the
date of filing of such Registration Statement. Notwithstanding Section 7.5(b)
hereof, the holders shall pay any additional costs, fees and expenses associated
with the inclusion on such Registration Statement of any of such holders' shares
of Common Stock that are not Registrable Securities which are included on the
Registration Statement. Notwithstanding the foregoing, if any such managing
underwriter shall advise the Company in writing that, in its opinion, the
distribution of all or a portion of the Common Stock that are not Registrable
Securities requested to be included in the Registration Statement concurrently
with the Registrable Securities being registered by such holders would
materially adversely affect the distribution of such offering, then such
additional shares of Common Stock shall be excluded from the Registration
Statement.
(k) Upon the written request therefor by any holders of Registrable
Securities, the Company shall include in the Registration Statement filed for a
non-underwritten offering covering any of the Registrable Securities, any other
securities of the Company held by such holders as of the date of filing of such
Registration Statement, including, without limitation, restricted shares of
Common Stock, options, warrants or any other securities convertible into shares
of Common Stock. Notwithstanding Section 7.5(b) hereof, the holders shall pay
any additional costs, fees and expenses associated with the inclusion on such
Registration Statement of any of such holders' other securities of the Company
that are not Registerable Securities which are included on the Registration
Statement.
8. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF SECURITIES. The following
adjustments apply to the Exercise Price of the Warrants with respect to the
Shares and the number of Shares purchasable upon exercise of the Warrants.
9
<PAGE>
8.1 COMPUTATION OF ADJUSTED PRICE. In case the Company shall at any time
after the date hereof pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock to its stockholders, then upon such
dividend or distribution the Exercise Price in effect immediately prior to such
dividend or distribution shall forthwith be reduced to a price determined by
dividing:
(a) an amount equal to the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution multiplied by the
Exercise Price in effect immediately prior to such dividend or distribution, by
(b) the total number of shares of Common Stock outstanding immediately
after such issuance or sale.
For the purposes of any computation to be made in accordance with the
provisions of this Section 8.1, the shares of Common Stock issuable by way of a
dividend or other distribution on any shares of Common Stock of the Company
shall be deemed to have been issued immediately after the opening of business on
the date following the date fixed for the determination of stockholders entitled
to receive such dividend or other distribution.
8.2 SUBDIVISION AND COMBINATION. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of a subdivision or
increased in the case of a combination.
8.3 ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Article 8, the number of
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full Share by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of Shares issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
8.4 RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving corporation
and which does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as aforesaid), or in the
case of a sale or conveyance to another corporation of the property of the
Company as an entirety, the Holders shall thereafter have the right to purchase
the kind and number of shares of stock and other securities and
10
<PAGE>
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance as if the Holders were the owners of the Shares immediately
prior to any such events and at an aggregate price equal to the product of (x)
the number of shares of Common Stock issuable upon exercise of the Holders'
Warrants and (y) the Exercise Price in effect immediately prior to the record
date for such reclassification, change, consolidation, merger, sale or
conveyance as if such Holders had exercised the Warrants.
8.5 DETERMINATION OF OUTSTANDING COMMON STOCK. The number of shares of
Common Stock at any one time outstanding shall include the aggregate number of
shares issued or issuable upon the exercise of options, rights, warrants and
upon the conversion or exchange of convertible or exchangeable securities.
8.6 SUBSCRIPTION RIGHTS FOR COMMON STOCK OR OTHER SECURITIES. In the case
that the Company or an affiliate of the Company shall at any time after the date
hereof and prior to the exercise of all of the Warrants issue any rights to
subscribe for shares of Common Stock or any other securities of the Company or
of such affiliate to all of the shareholders of the Company, the Holders of the
unexercised Warrants shall be entitled, in addition to the shares of Common
Stock or other securities receivable upon the exercise of the Warrants, to
receive at the time such rights as are distributed to the other shareholders of
the Company.
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES.
Each Warrant Certificate is exchangeable without expense, upon the
surrender hereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of Shares in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTERESTS.
The Company shall not be required to issue certificates representing
fractions of Shares upon the exercise of the Warrants nor shall it be required
to issue scrip or pay cash in lieu of fractional interests, it being the intent
of the parties that all fractional interests shall be eliminated
11
<PAGE>
by rounding any fraction up to the nearest whole number of Shares.
11. RESERVATION AND LISTING OF SECURITIES.
The Company shall at all times reserve and keep available out of its
authorized Common Stock, solely for the purpose of issuance upon the exercise of
the Warrants, such number of shares of Common Stock as shall be issuable upon
the exercise thereof. The Company covenants and agrees that, upon exercise of
the Warrants and payment of the Exercise Price therefor, all Shares issuable
upon such exercise shall be duly and validly issued, fully paid, non-assessable
and not subject to the preemptive rights of any shareholder. As long as the
Warrants shall be outstanding, the Company shall use its best efforts to cause
all shares of Common Stock issuable upon the exercise of the Warrants to be
listed on or quoted by the Nasdaq National Market, or listed on such national
securities exchanges as requested by the Underwriter.
12. NOTICES TO WARRANT HOLDERS.
Nothing contained in this Agreement shall be construed as conferring upon
the Holder or Holders the right to vote or to consent or to receive notice as a
stockholder in respect of any meetings of stockholders for the election of
directors or any other matter, or as having any rights whatsoever as a
stockholder of the Company. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:
(a) the Company shall take a record of all of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash dividend
or distribution payable otherwise than out of current or retained earnings,
as indicated by the accounting treatment of such dividend or distribution
on the books of the Company; or
(b) the Company shall offer to all of the holders of its shares of
Common Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock of
the Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed; or
(d) reclassification or change of the outstanding shares of Common
Stock (other than a change in par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination),
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the
12
<PAGE>
Company is the surviving corporation and which does not result in any
reclassification or change of the shares of outstanding Common Stock,
except a change as a result of a subdivision or combination of such shares
or a change in par value, as aforesaid), or a sale or conveyance to another
corporation of the property of the Company as an entirety is proposed; or
(e) the Company or an affiliate of the Company shall propose to issue
any rights to subscribe for shares of Common Stock or any other securities
of the Company or of such affiliate to all the stockholders of the Company;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or the issuance of any convertible
or exchangeable securities or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
13. NOTICES.
All of notices, requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been duly made when delivered, or
mailed by registered or certified mail, return receipt requested:
(a) If to a registered Holder of the Warrants, to the address of such
Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 of this
Agreement or to such other address as the Company may designate by notice
to the Holders.
14. SUPPLEMENTS AND AMENDMENTS.
The Company and the Representative may from time to time supplement or
amend this Agreement without the approval of any Holders of Warrant Certificates
in order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Representative may deem necessary or desirable and
which the Company and the Representative deem not to adversely affect the
13
<PAGE>
interests of the Holders of Warrant Certificates.
15. SUCCESSORS.
All of the covenants and provisions of this Agreement by or for the benefit
of the Company and the Holders inure to the benefit of their respective
successors and assigns hereunder.
16. TERMINATION.
This Agreement shall terminate at the close of business on __________, 2005
[THREE YEARS AFTER LAST DATE OF EXERCISE OF WARRANTS TO GIVE SUFFICIENT COVERAGE
FOR REGISTRATION OF THE SECURITIES AND PERIOD OF SALE]. Notwithstanding the
foregoing, this Agreement will terminate on any earlier date when all Warrants
have been exercised and all Shares have been resold to the public.
17. GOVERNING LAW.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Delaware and for all
purposes shall be construed in accordance with the laws of said State.
18. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Underwriter and any other registered
holder or holders of the Warrant Certificates, or Shares any legal or equitable
right, remedy or claim under this Agreement; and this Agreement shall be for the
sole and exclusive benefit of the Company and the Underwriter and any other
holder or holders of the Warrant Certificates, Warrants or the Shares.
19. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and such
counterparts shall together constitute but one and the same instrument.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
CONSOLIDATION CAPITAL CORPORATION
By: ____________________________________
Name:
Title:
Attest:
_________________________
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
By: _____________________________________
Name:
Title:
15
<PAGE>
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE 5:00 P.M., NEW YORK TIME, _________, 2002
No. W-____ _______ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that Friedman, Billings, Ramsey & Co.,
Inc. or registered assigns, is the registered holder of _______ Warrants to
purchase, at any time from _______, 1998 until 5:00 P.M. New York City time on
________, 2002 ("Expiration Date"), up to _____ fully paid and non-assessable
shares ("Shares") of the Common Stock, par value $.001 per share ("Common
Stock"), of Consolidation Capital Corporation, a Delaware corporation (the
"Company"), at the initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), of $_____ per Share, upon surrender of this
Warrant Certificate and payment of the Exercise Price at an office or agency of
the Company, but subject to the conditions set forth herein and in the warrant
agreement dated as of __________ __, 1997 between the Company and Friedman,
Billings, Ramsey & Co., Inc. (the "Warrant Agreement"). Payment of the Exercise
Price may be made in cash, or by check payable to the order of the Company, or
any combination of cash or check, or pursuant to Section 3.2 of the Warrant
Agreement.
No Warrant may be exercised after 5:00 P.M., New York City time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
16
<PAGE>
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to in a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events,
the Exercise Price and/or number of the Company's securities issuable thereupon
may, subject to certain conditions, be adjusted. In such event, the Company
will, at the request of the holder, issue a new Warrant Certificate evidencing
the adjustment in the Exercise Price and the number and/or type of securities
issuable upon the exercise of the Warrants; provided, however, that the failure
of the Company to issue such new Warrant Certificates shall not in any way
change, alter, or otherwise impair, the rights of the holder as set forth in the
Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
17
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated: ___________, 199_ CONSOLIDATION CAPITAL CORPORATION
[SEAL] By: ______________________________
Name:
Title:
18
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _________ Shares and
herewith tenders in payment for such Shares cash or a certified or official bank
check payable in New York Clearing House Funds to the order of CONSOLIDATION
CAPITAL CORPORATION in the amount of $__________, all in accordance with the
terms hereof. The undersigned requests that a certificate for such Shares be
registered in the name of ___________________, whose address is
__________________, and that such Certificate be delivered to
__________________, whose address is _____________.
Dated: Signature:_______________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
________________________________
________________________________
(Insert Social Security or Other
Identifying Number of Holder)
19
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires
to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _________________________________________________
hereby sells, assigns and transfers unto
_____________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________, Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:______________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate)
_______________________________
________________________________
Insert Social Security or Other
Identifying Number of Assignee)
20
<PAGE>
EXHIBIT 5.01
November 24, 1997
Consolidation Capital Corporation
1747 Pennsylvania Avenue, N.W., Suite 900
Washington, D.C. 20006
Re: Issuance of shares of Common Stock and Convertible Non-Voting Common Stock
--------------------------------------------------------------------------
Pursuant to Registration Statement on Form S-1
----------------------------------------------
Dear Ladies and Gentlemen:
We have acted as counsel to Consolidation Capital Corporation, a Delaware
corporation (the "Company"), in connection with the preparation and filing of a
registration statement on Form S-1, File No. 333-36193 (the "Registration
Statement"), filed by the Company with the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Act of 1933, as amended (the
"Act"), relating to the public offering of up to an aggregate of 27,850,000
shares (the Common Stock Shares") of the Company's common stock, par value $.001
per share (the "Common Stock"), of which, (i) up to 24,000,000 is to be sold
by the Company to the underwriters (the "Underwriters") for whom Friedman,
Billings, Ramsey & Co., Inc. is acting as representative pursuant to an
underwriting agreement to be entered into between the Company and the
Underwriters (the "Underwriting Agreement"), (ii) up to 3,600,000 is reserved
for sale to the Underwriters solely for the purpose of covering their
over-allotment option, and (ii) 250,000 shares of Common Stock is to be sold
directly by the Company to Jonathan J. Ledecky pursuant to a purchase agreement
to be entered into between the Company and Mr. Ledecky (the "Ledecky Purchase
Agreement"). In addition, the Registration Statement relates to the public
offering of 500,000 shares (the "Convertible Non-Voting Common Shares"), of
Convertible Non-Voting Common Stock, par value $.001 per share, which is to be
sold by the Company to FBR Asset Investment Corporation, Inc., an affiliate of
Friedman, Billings, Ramsey & Co., Inc. ("FBR Asset"), pursuant to a purchase
agreement to be entered into between the Company and FBR Asset (the "FBR Asset
Purchase Agreement").
In so acting, we have examined the Registration Statement, including the
Underwriting Agreement, the Ledecky Purchase Agreement, the Company's Restated
Certificate of Incorporation and Amended and Restated Bylaws. We have also
examined such other public
<PAGE>
Consolidation Capital Corporation
November 23, 197
Page 2
and corporate documents, certificates, instruments and corporate records, and
such questions of law, as we have deemed necessary for purposes of expressing an
opinion on the matters hereinafter set forth. In all examinations of documents,
instruments and other papers, we have assumed the genuineness of all signatures
on original and certified documents and the conformity to original and
certified documents of all copies submitted to us as conformed, photostatic or
other copies.
On the basis of the foregoing, we are of the opinion that the Common Stock
Shares and the Convertible Non-Voting Common Shares, when issued and sold in
accordance with the plan of distribution set forth in the Registration
Statement, the Underwriting Agreement, the Ledecky Purchase Agreement and the
FBR Asset Agreement, as applicable, will be validly issued, fully paid and
non-assessable.
The opinion set forth above is limited to the Delaware General Corporation Law,
as amended.
We hereby consent to the use of this opinion as Exhibit 5.01 to the Registration
Statement and to he use of our name in the Prospectus forming a part thereof
under the caption "Legal Matters." 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
<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 40% 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 $.01, 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>
CONSOLIDATION CAPITAL CORPORATION
1997 NON-EMPLOYEE DIRECTORS' STOCK PLAN
1. Purpose. The purpose of this 1997 Non-Employee Directors' Stock 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 and retain highly qualified persons to serve as
non-employee directors of the Company 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. In addition to terms defined elsewhere in the Plan, the
-----------
following are defined terms under the Plan:
(a) "Board" means the Board of Directors of the Company.
(b) 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 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
1
<PAGE>
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.
(c) "Deferred Share" means a credit to a Participant's deferral account
under Section 7 which represents the right to receive one Share upon settlement
of the deferral account. Deferral accounts, and Deferred Shares credited
thereto, are maintained solely as bookkeeping entries by the Company evidencing
unfunded obligations of the Company.
(d) "Fair Market Value" of a Share on a given date mean the last sales
price or, if last sales information is generally unavailable, the average of the
closing bid and asked prices per Share on such date (or, if there was no trading
or quotation in the stock on such date, on the next preceding date on which
there was trading or quotation) as reported in the Wall Street Journal.
-------------------
(e) "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.
(f) "Option" means the right, granted to a director under Section 6, to
purchase a specified number of Shares at the specified exercise price for a
specified period of time under the Plan. All Options will be non-qualified stock
options.
(g) "Participant" means any person who, as a non-employee director of
the Company, has been granted an Option or Deferred Shares which remain
outstanding or who has elected to be paid fees in the form of Shares or Deferred
Shares under the Plan.
(h) "Share" means a share of common stock, $.01 par value, of the
Company and such other securities as may be substituted for such Share or such
other securities pursuant to Section 8.
3. Shares Available Under the Plan. Subject to adjustment as provided
-------------------------------
in Section 8, the total number of Shares reserved and available for issuance
under the Plan is 250,000. Such Shares may be authorized but unissued Shares,
treasury Shares, or Shares acquired in the market for the account of the
Participant. For purposes of the Plan, Shares that may be purchased upon
exercise of an Option or delivered in settlement of Deferred Shares will not be
considered to be available after such Option has been granted or Deferred Share
credited, except for purposes of
2
<PAGE>
issuance in connection with such Option or Deferred Share; provided, however,
-------- -------
that, if an Option expires for any reason without having been exercised in full,
the Shares subject to the unexercised portion of such Option will again be
available for issuance under the Plan.
4. Administration of the Plan. The Plan will be administered by the
--------------------------
Board; provided, however, that any action by the Board relating to the Plan will
-------- -------
be taken only if, in addition to any other required vote, such action is
approved by the affirmative vote of a majority of the directors who are not then
eligible to participate in the Plan.
5. Eligibility. Each director of the Company who, on any date on which
-----------
an Option is to be granted under Section 6 or on which fees are to be paid which
could be received in the form of Shares or deferred in the form of Deferred
Shares under Section 7, is not an employee of the Company or any subsidiary of
the Company will be eligible, at such date, to be granted an Option under
Section 6 or receive fees in the form of Shares or defer fees in the form of
Deferred Shares under Section 7. No person other than those specified in this
Section 5 will be eligible to participate in the Plan.
6. Options.
-------
(a) Number of Shares. With respect to any person who becomes a director
----------------
of the Company, such person shall receive, on later of the date of the Initial
Public Offering or the date that such person commences service as a director and
is otherwise eligible pursuant to Section 5, an Option to purchase 20,000
Shares. Thereafter, each such person who continues to serve as a director shall
receive, on the day after each annual meeting of the Company's stockholders, an
Option to purchase 5,000 Shares, provided that on any such date, such person
remains eligible pursuant to Section 5.
(b) Exercise Price. The exercise price per Share purchasable upon
--------------
exercise of an Option will be equal to 100% of the Fair Market Value of a Share
on the date of grant of the Option.
(c) Option Expiration. A Participant's Option will expire at the
-----------------
earlier of (i) 10 years after the date of grant or (ii) one year after the date
the Participant ceases to serve as a director of the Company for any reason,
provided, however, that with respect to clause (ii), such Option shall be
exercisable during such one-year period only to the extent it was exercisable
pursuant to Section 6(d) on the date of such cessation.
(d) Exercisability. Each Option shall become exercisable in two equal
--------------
installments. The first installment shall become exercisable on the date that is
six months from the date the Option is granted and the second installment shall
become exercisable on the date that is one year from the date the Option is
granted, provided, however, that unless otherwise determined by the Board, all
Options held by a Participant shall become immediately exercisable upon (i)
a Change in Control or (ii) the death of such Participant.
3
<PAGE>
(e) Method of Exercise. A Participant may exercise an Option, in whole
------------------
or in part, at such time as it is exercisable and prior to its expiration, by
giving written notice of exercise to the Secretary of the Company, specifying
the Option to be exercised and the number of Shares to be purchased, and paying
in full the exercise price in cash (including by check) or by surrender of
Shares already owned by the Participant (except for Shares acquired from the
Company by exercise of an option less than six months before the date of
surrender) having a Fair Market Value at the time of exercise equal to the
exercise price, or by a combination of cash and Shares.
7. Receipt of Shares or Deferred Shares In Lieu of Fees. Each director
----------------------------------------------------
of the Company may elect to be paid fees, in his or her capacity as a director
(including annual retainer fees for service on the Board, fees for service on a
Board committee, fees for service as chairman of a Board committee, and any
other fees paid to directors) in the form of Shares or Deferred Shares in lieu
of cash payment of such fees, if such director is eligible to do so under
Section 5 at the date any such fee is otherwise payable. If so elected, payment
of fees in the form of Shares or Deferred Shares shall be made in accordance
with this Section 7.
(a) Elections. Each director who elects to be paid fees for a given
---------
calendar year in the form of Shares shall file an election in such form and in
such time in advance as prescribed by the Board. Unless otherwise determined by
the Board, each director who elects to defer such payment of fees in the form of
Deferred Shares for such year must file an irrevocable written election with the
Secretary of the Company no later than December 31 of the year preceding such
calendar year; provided, however, that any newly elected or appointed director
-------- -------
may file an election for any year not later than 30 days after the date such
person first became a director, and a director may file an election for the year
in which the Plan became effective not later than 30 days after the date of
effectiveness. An election by a director shall be deemed to be continuing unless
the director revokes or changes such election by filing a new election form by
the due date for such form specified in this Section 7(a). The election must
specify the following:
(i) A percentage of fees to be received in the form of Shares or
deferred in the form of Deferred Shares under the Plan; and
(ii) In the case of a deferral, the period or periods during which
settlement of Deferred Shares will be deferred (subject to such
limitations as may be specified by counsel to the Company).
(b) Payment of Fees in the Form of Shares. At any date on which fees
-------------------------------------
are payable to a Participant who has elected to receive such fees in the form of
Shares, the Company will issue to such Participant, or to a designated third
party for the account of such Participant, a number of Shares having an
aggregate Fair Market Value at that date equal to the fees, or as nearly as
possible equal to the fees (but in no event greater than the fees), that would
have been payable at such date but for the Participant's election to receive
Shares in lieu thereof. If the Shares are to be credited to an account
maintained by the Participant and to the extent reasonably practicable
4
<PAGE>
without requiring the actual issuance of fractional Shares, the Company shall
cause fractional Shares to be credited to the Participant's account. If
fractional Shares are not so credited, any part of the Participant's fees not
paid in the form of whole Shares will be payable in cash to the Participant
(either paid separately or included in a subsequent payment of fees, including a
subsequent payment of fees subject to an election under this Section 7).
(c) Deferral of Fees in the Form of Deferred Shares. The Company will
-----------------------------------------------
establish a deferral account for each Participant who elects to defer fees in
the form of Deferred Shares under this Section 7. At any date on which fees are
payable to a Participant who has elected to defer fees in the form of Deferred
Shares, the Company will credit such Participant's deferral account with a
number of Deferred Shares equal to the number of Shares having an aggregate Fair
Market Value at that date equal to the fees that otherwise would have been
payable at such date but for the Participant's election to defer receipt of such
fees in the form of Deferred Shares. The amount of Deferred Shares so credited
shall include fractional Shares calculated to at least three decimal places.
(d) Crediting of Dividend Equivalents. Whenever dividends are paid or
---------------------------------
distributions made with respect to Shares, a Participant to whom Deferred Shares
are then credited in a deferral account shall be entitled to be receive, as
dividend equivalents, an amount equal in value to the amount of the dividend
paid or property distributed on a single Share multiplied by the number of
Deferred Shares (including any fractional Share) credited to his or her deferral
account as of the record date for such dividend or distribution. Such dividend
equivalents shall be credited to the Participant's deferral account as a number
of Deferred Shares determined by dividing the aggregate value of such dividend
equivalents by the Fair Market Value of a Share at the payment date of the
dividend or distribution.
(e) Settlement of Deferred Shares. The Company will settle the
-----------------------------
Participant's deferral account by delivering to the Participant (or his or her
beneficiary) a number of Shares equal to the number of whole Deferred Shares
then credited to his or her deferral account (or a specified portion in the
event of any partial settlement), together with cash in lieu of any fractional
Share remaining at a time that less than one whole Deferred Share is credited to
such deferral account. Such settlement shall be made at the time or times
specified in the Participant's election filed in accordance with Section 7(a);
provided, however, that a Participant may further defer settlement of Deferred
- -------- -------
Shares if counsel to the Company determines that such further deferral likely
would be effective under applicable federal income tax laws and regulations.
(f) Nonforfeitability. The interest of each Participant in any fees
-----------------
paid in the form of Shares or Deferred Shares (and any deferral account relating
thereto) at all times will be nonforfeitable.
8. Adjustment Provisions.
---------------------
(a) Corporate Transactions and Events. In the event any dividend or
other
5
<PAGE>
distribution (whether in the form of cash, Shares or other property),
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, exchange of Shares or other
securities of the Company, extraordinary dividend (whether in the form of cash,
Shares, or other property), liquidation, dissolution, or other similar corporate
transaction or event affects the Shares such that an adjustment is appropriate
in order to prevent dilution or enlargement of each Participant's rights under
the Plan, then an adjustment shall be made, in a manner that is proportionate to
the change to the Shares and otherwise equitable, in (i) the number and kind of
Shares remaining reserved and available for issuance under Section 3, (ii) the
number and kind of Shares issuable upon exercise of outstanding Options, and/or
the exercise price per Share thereof (provided that no fractional Shares will be
issued upon exercise of any Option), (iii) the number and kind of Shares to be
issued pursuant to Section 6(a), (iv) the kind of Shares to be issued in lieu of
fees under Section 7, and (v) the number and kind of Shares to be issued upon
settlement of Deferred Shares under Section 7. In addition, the Board is
authorized to make such adjustments in recognition of unusual or non-recurring
events (including, without limitation, events described in the preceding
sentence) 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. The foregoing not withstanding, no
adjustment may be made hereunder except as will be necessary to maintain the
proportionate interest of the Participant under the Plan and to preserve,
without exceeding, the value of outstanding Options and potential grants of
Options and the value of outstanding Deferred Shares.
(b) Insufficient Number of Shares. If at any date an insufficient
-----------------------------
number of Shares are available under the Plan for the receipt of fees in the
form of Shares or deferral of fees in the form of Deferred Shares at that date,
fees shall be paid in the form of Shares or deferred in the form of Deferred
Shares proportionately among directors then eligible to participate to the
extent Shares are then available and otherwise as provided under Section 7.
9. Changes to the Plan. The Board of Directors may amend, alter,
-------------------
suspend, discontinue, or terminate the Plan or authority to grant Options or pay
fees in the form of Shares or Deferred Shares under the Plan without the consent
of stockholders or Participants, except that any amendment or alteration will 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 the date of
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 as then in effect, and the Board may otherwise determine to
submit other such amendments or alterations to stockholders for approval;
provided, however, that, without the consent of an affected Participant, no such
- -------- -------
action may materially impair the rights of such Participant with respect to any
previously granted Option or any previous payment of fees in the form of Shares
or Deferred Shares.
10. General Provisions.
------------------
(a) Agreements. Options, Deferred Shares, and any other right or
----------
obligation under
6
<PAGE>
the Plan may be evidenced by agreements or other documents executed by the
Company and the Participant incorporating the terms and conditions set forth in
the Plan, together with such other terms and conditions not inconsistent with
the Plan, as the Board may from time to time approve.
(b) Compliance with Laws and Obligations. The Company will not be
------------------------------------
obligated to issue or deliver Shares in connection with any Option, in payment
of any directors' fees, or in settlement of Deferred Shares in a transaction
subject to the registration requirements of the Securities Act of 1933, as
amended, or any other federal or state securities law, any requirement under any
listing agreement between the Company and any stock 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 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.
(c) Limitations on Transferability. Unless otherwise permitted by the
------------------------------
Board, Options, Deferred Shares, and any other right under the Plan will not be
transferable by a Participant except by will or the laws of descent and
distribution (or to a designated beneficiary in the event of a Participant's
death), and will be exercisable during the lifetime of the Participant only by
such Participant or his or her guardian or legal representative. Options,
Deferred Shares, and other rights under the Plan may not be pledged, mortgaged,
hypothecated, or otherwise encumbered, and shall not be subject to the claims of
creditors of any Participant.
(d) No Right To Continue as a Director. Nothing contained in the Plan
----------------------------------
or any agreement hereunder will confer upon any Participant any right to
continue to serve as a director of the Company.
(e) No Stockholder Rights Conferred. Nothing contained in the Plan or
-------------------------------
any agreement hereunder will confer upon any Participant (or any person or
entity claiming rights by or through a Participant) any rights of a stockholder
of the Company unless and until Shares are in fact issued to such Participant
(or person) or, in the case an Option, such Option is validly exercised in
accordance with Section 6.
(f) 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 for directors as it may deem desirable.
(g) Governing Law. The validity, construction, and effect of the Plan
-------------
and any agreement hereunder will 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.
7
<PAGE>
11. Effective Date and Plan Termination. The Plan will be effective as
-----------------------------------
of the date of its approval by the stockholders of the Company, and, unless
earlier terminated by action of the Board, shall terminate at such time as no
Shares remain available for issuance under the Plan and the Company and
Participants have no further rights or obligations under the Plan.
8
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
Introduction
Sec. 1.01 Statement of Purpose. The purpose of the
Consolidation Capital Corporation Employee Stock Purchase Plan is to provide
eligible employees of the Company and its Subsidiaries, who wish to become
stockholders, an opportunity to purchase Common Stock of the Company. The Board
of Directors of the Company believes that employee participation in ownership
will be to the mutual benefit of the employees and the Company.
Sec. 1.02 Internal Revenue Code Considerations. The Plan is
intended to constitute an "employee stock purchase plan" within the meaning of
section 423 of the Internal Revenue Code of 1986, as amended.
ARTICLE II
Definitions
Sec. 2.01 "Administrative Committee" means the committee
appointed by the Board to administer the Plan, as provided in Section 6.04
hereof.
Sec. 2.02 "Board" means the Board of Directors of the Company.
Sec. 2.03 "Code" means the Internal Revenue Code of 1986, as
amended.
Sec. 2.04 "Company" means Consolidation Capital Corporation, a
Delaware corporation.
Sec. 2.05 "Compensation" means the total remuneration paid,
during the period of reference, to an Employee by the Company or a Subsidiary,
including regular salary or wages, overtime payments, bonuses, commissions and
vacation pay, to which has been added (a) any elective deferral amounts by which
the Employee has had his current remuneration reduced for the purposes of
funding a contribution to any plan sponsored by the Company and satisfying the
requirements of section 401(k) of the Code, and (b) any amounts by which the
Employee's compensation has been reduced pursuant to a compensation reduction
agreement between the Employee and the Company for the purpose of funding
benefits through any cafeteria plan sponsored by the Company meeting the
requirements of section 125 of the Code. There shall be excluded from
"Compensation" for the purposes of the Plan, whether or not reportable as income
by the Employee, expense reimbursements of all types, payments in lieu of
expenses, the Company contributions to any qualified retirement plan or other
program of deferred compensation (except as provided above), the Company
contributions
PH02/193098.2
<PAGE>
to Social Security or worker's compensation, the costs paid by the Company in
connection with fringe benefits and relocation, including gross-ups, and any
amounts accrued for the benefit of the Employee, but not paid, during the period
of reference.
Sec. 2.06 "Continuous Service" means the period of time during
which the Employee has been employed by the Company or a Subsidiary and during
which there has been no interruption of the Employee's employment by the
Company. For this purpose, periods of Excused Absence shall not be considered to
be interruptions of Continuous Service.
Sec. 2.07 "Effective Date" shall mean the date determined by
the Administrative Committee on which the first Offering shall commence, if
within twelve months of that date, the Plan is or has been approved at a meeting
of the stockholders of the Company by the affirmative vote of the holders of the
majority of Common Stock of the Company outstanding.
Sec. 2.08 "Eligible Employee" means each person who:
(a) is an Employee whose customary employment is for
more than 5 months in any calendar year;
(b) is an Employee whose customary employment is for
more than 20 hours per week;
(c) is employed on the Effective Date, or has
completed at least one year of Continuous Service; and
(d) is not deemed for purposes of section 423(b)(3)
of the Code to own stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the
Company.
Sec. 2.09 "Employee" means each person employed by the Company
or a Subsidiary.
Sec. 2.10 "Excused Absence" means absence pursuant to a leave
of absence granted by the Company or any other entity constituting the Company,
absence due to disability or illness, absence by reason of a layoff, or absence
by reason of active duty in the armed forces of the United States. In no event
may an Excused Absence exceed six (6) months in length (or, if longer and if
applicable, the period of the individual's active duty in the armed forces of
the United States and such period thereafter as such individual's right to
reemployment by the Company is protected by law), and any absence shall cease to
be an Excused Absence upon the earlier of (a) the last day of the calendar month
in which the duration of the absence reaches six (6) months or (b) the last day
of the calendar month in which the leave expires by its terms, the layoff ends
by recall or permanent separation from service, or recovery from illness or
disability occurs.
PH02/193098.2
2
<PAGE>
Sec. 2.11 "Exercise Date" means the last day of each Purchase
Period, as determined by the Administrative Committee.
Sec. 2.12 "Market Value" means, with respect to Stock, the
fair market value of such Stock, determined by such methods or procedures as
shall be established from time to time by the Administrative Committee,
provided, however, that if the Stock is listed on a national securities exchange
or quoted in an interdealer quotation system, the 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 the next
preceding date on which there was trading or quotation) as provided by one of
such organizations.
Sec. 2.13 "Offering" means the offering of shares of Stock
under the Plan.
Sec. 2.14 "Offering Date" means the date on which each
Offering is to commence, as determined by the Administrative Committee.
Sec. 2.15 "Participant" means each Eligible Employee who
elects to participate in the Plan.
Sec. 2.16 "Plan" means the Consolidation Capital Corporation
Employee Stock Purchase Plan, as the same is set forth herein and as the same
may hereafter be amended.
Sec. 2.17 "Purchase Agreement" means the document prescribed
by the Administrative Committee pursuant to which an Eligible Employee has
enrolled to be a Participant.
Sec. 2.18 "Purchase Period" means the period beginning on an
Offering Date and ending on the Exercise Date.
Sec. 2.19 "Purchase Price" means such term as it is defined in
Section 4.03 hereof.
Sec. 2.20 "Stock" means Common Stock of the Company.
Sec. 2.21 "Stock Purchase Account" means a noninterest bearing
account consisting of all amounts withheld from an Employee's compensation (or
otherwise paid into the Plan) for the purpose of purchasing shares of Stock for
such employee under the Plan, reduced by all amounts applied to the purchase of
Stock for such Employee under the Plan.
Sec. 2.22 "Subsidiary" shall mean a corporation described in
section 424(f) of the Code that has, with the permission of the Board, adopted
the Plan.
PH02/193098.2
3
<PAGE>
ARTICLE III
Admission to Participation
Sec. 3.01 Initial Participation. Any Eligible Employee may
elect to be a Participant and may become a Participant by executing and filing
with the Administrative Committee a Purchase Agreement at such time in advance
and on such forms as prescribed by the Administrative Committee. The effective
date of an Eligible Employee's participation shall be the Offering Date next
following the date on which the Administrative Committee receives from the
Eligible Employee a properly executed and timely filed Purchase Agreement.
Participation in the Plan will continue automatically from one Purchase Period
to another unless notice is given pursuant to Section 3.02.
Sec. 3.02 Voluntary Discontinuance of Participation. Any
Participant may voluntarily withdraw from the Plan by filing a notice of
withdrawal with the Administrative Committee at such time in advance as the
Administrative Committee may specify. Upon such withdrawal, there shall be paid
to the Participant the amount, if any, standing to his credit in his Stock
Purchase Account.
Sec. 3.03 Involuntary Discontinuance of Participation. If a
Participant ceases to be an Eligible Employee, the entire amount, if any,
standing to the Participant's credit in his Stock Purchase Account shall be
refunded to him.
Sec. 3.04 Readmission to Participation. Any Eligible Employee
who has previously been a Participant, who has discontinued participation, and
who wishes to be reinstated as a Participant may again become a Participant for
any subsequent Purchase Period by executing and filing with the Administrative
Committee, at such time in advance as the Administrative Committee shall
determine, a new Purchase Agreement on forms provided by the Administrative
Committee. Reinstatement to Participant status shall be effective as of the
Offering Date next following the date on which the Administrative Committee
receives from the Eligible Employee the properly executed and timely filed
Purchase Agreement. Notwithstanding the foregoing, readmission of any Eligible
Employee may be suspended for such time as may be necessary to comply with Rule
16b-3 promulgated under the Securities Exchange Act of 1934.
ARTICLE IV
Stock Purchase
Sec. 4.01 Reservation of Shares. There shall be 1,000,000
shares of Stock reserved for the Plan, subject to adjustment in accordance with
the antidilution provisions hereinafter set forth. Except as provided in Section
5.02 hereof, the aggregate number of shares that may be purchased under the Plan
shall not exceed the number of shares reserved for the Plan.
Sec. 4.02 Limitation on Shares Available. The maximum number
of shares of Stock that may be purchased for each Participant on an Exercise
Date is the least of (a) the number of
PH02/193098.2
4
<PAGE>
shares of Stock that can be purchased by applying the full balance of his Stock
Purchase Account to such purchase of shares at the Purchase Price (as
hereinafter determined), or (b) the Participant's proportionate part of the
maximum number of whole shares of Stock available within the limitation
established by the maximum aggregate number of such shares reserved for the
Plan, as stated in Section 4.01 hereof. Notwithstanding the foregoing, if any
person entitled to purchase shares pursuant to any offering hereunder would be
deemed for the purposes of section 423(b)(3) of the Code to own stock (including
any number of shares that such person would be entitled to purchase hereunder)
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of Company, the maximum number of shares that such
person shall be entitled to purchase pursuant to the Plan shall be reduced to
that number which, when added to the number of shares of Stock that such person
is so deemed to own (excluding any number of shares that such person would be
entitled to purchase hereunder), is one less than such five percent (5%). Any
portion of a Participant's Stock Purchase Account that cannot be applied by
reason of the foregoing limitation shall remain in the Participant's Stock
Purchase Account for application to the purchase of Stock on the next Offering
Date (unless withdrawn before that Offering Date).
Sec. 4.03 Purchase Price of Shares. The Purchase Price per
share of the Stock sold to Participants pursuant to any Offering shall be the
sum of (a) eighty-five percent (85%) of the Market Value of such share on the
Offering Date on which such Offering commences or on the Exercise Date on which
such Offering expires, whichever is lower, and (b) any transfer, excise or
similar tax imposed on the transaction pursuant to which such share of Stock is
purchased. If the Exercise Date with respect to the purchase of Stock is a day
on which the stock is selling ex-dividend but is on or before the record date
for such dividend, then for Plan purposes the Purchase Price per share will be
increased by an amount equal to the dividend per share. In no event shall the
Purchase Price be less than the par value of the Stock.
Sec. 4.04 Exercise of Purchase Privilege.
(a) Subject to the provisions of Section 4.02 above,
if on any Exercise Date there is a credit balance in the Participant's
Stock Purchase Account, there shall be purchased for the Participant at
the Purchase Price for the Purchase Period that expires on such
Exercise Date the largest number of whole shares of Stock, as can be
purchased with the entire amount then standing to the Participant's
credit in his Stock Purchase Account; provided, however, that the
-------- -------
number of shares so purchased shall not exceed 5,000. Each such
purchase shall be deemed to have occurred on the Exercise Date
occurring at the close of the Offering for which the purchase was made.
(b) Any amount remaining in the Stock Purchase
Account on the Exercise Date after the purchase of the maximum number
of whole shares shall remain in the Stock Purchase Account to the
credit of the Participant and applied to purchase additional shares of
Stock on subsequent Exercise Dates.
PH02/193098.2
5
<PAGE>
(c) Notwithstanding anything contained herein to the
contrary, a Participant may not during any calendar year purchase
shares of Stock having an aggregate Market Value, determined at the
time of each Offering Date during such calendar year, of more than
$25,000.
Sec. 4.05 Establishment of Stock Purchase Account. Each
Participant shall authorize payroll deductions from Compensation for the
purposes of funding his Stock Purchase Account. In the Purchase Agreement, each
Participant shall authorize a deduction from each payment of his Compensation
during a Purchase Period, subject to Section 4.04(c). Subject to Section 3.02, a
Participant may not reduce or increase his payroll deduction rate during any
Purchase Period. However, a Participant may change the deduction to any
permissible level for any subsequent Offering by filing notice thereof at such
time preceding the Offering Date on which such subsequent Offering commences as
the Administrative Committee shall determine.
Sec. 4.06 Payment for Stock. The Purchase Price for all shares
of Stock purchased by a Participant under the Plan shall be paid out of the
Participant's Stock Purchase Account. As of each Exercise Date, the entire
amount standing to the credit of each Participant in his Stock Purchase Account
on the date of the last paycheck issued to the Participant prior to the Exercise
Date in the Purchase Period that expires on such Exercise Date shall be charged
with the aggregate Purchase Price of the shares of Stock purchased by such
Participant on the Exercise Date. No interest shall be paid or payable with
respect to any amount held in the Participant's Stock Purchase Account.
Sec. 4.07 Share Ownership; Issuance of Certificates.
(a) The shares purchased by a Participant on an
Exercise Date shall, for all purposes, be deemed to have been issued
and/or sold at the close of business on such Exercise Date. Prior to
that time, none of the rights or privileges of a stockholder of the
Company shall inure to the Participant with respect to such shares. All
the shares of Stock purchased under the Plan shall be delivered by the
Company in a manner as determined by the Administrative Committee.
(b) The Administrative Committee, in its sole
discretion, may determine that the shares of Stock shall be delivered
by the Company (i) by issuing and delivering to the Participant a
certificate for the number of whole shares of Stock purchased by such
Participant on an Exercise Date or during a Calendar year, or (ii) by
issuing and delivering a certificate or certificates for the number of
shares of Stock purchased by all Participants on an Exercise Date or
during a Calendar year to a member firm of the New York Stock Exchange
which is also a member of the National Association of Securities
Dealers, as selected by the Administrative Committee from time to time,
which shares shall be maintained by such member firm in separate
brokerage accounts of each Participant, or (iii) by issuing and
delivering a certificate or certificates for the number of shares of
Stock purchased by all Participants on an Exercise Date or during the
calendar year to a bank or trust
PH02/193098.2
6
<PAGE>
company or affiliate thereof, as selected by the Administrative
Committee from time to time, which shares shall be maintained by such
bank or trust company or affiliate in separate accounts for each
Participant or, if he designates on his Stock Purchase Agreement, in
his name jointly with his spouse, with right of survivorship. A
Participant who is a resident of a jurisdiction that does not recognize
such joint tenancy may have a certificate or account in his name as
tenant in common with his spouse, without right of survivorship. Such
designation may be changed by filing a notice thereof signed by the
Participant and his spouse. Such spouse shall be bound by all of the
terms and conditions of the Plan as if such spouse were a Participant.
Sec. 4.08 Restrictions on Resale. Stock acquired under the
Plan may not be sold or otherwise disposed of for at least one year after the
Exercise Date on which the shares were acquired, except in the case of death or
disability.
ARTICLE V
Special Adjustments
Sec. 5.01 Shares Unavailable. If, on any Exercise Date, the
aggregate funds available for the purchase of Stock would purchase a number of
shares in excess of the number of shares then available for purchase under the
Plan, the following events shall occur:
(a) The number of shares that would otherwise be
purchased by each Participant shall be proportionately reduced on the
Exercise Date in order to eliminate such excess;
(b) The Plan shall automatically terminate
immediately after the Exercise Date as of which the supply of available
shares is exhausted; and
(c) Any amount remaining in the Stock Purchase
Account of each of the Participants shall be repaid to such
Participants.
Sec. 5.02 Antidilution Provisions. The aggregate number of
shares of Stock reserved for purchase under the Plan, as hereinabove provided,
and the calculation of the Purchase Price per share may be appropriately
adjusted to reflect any increase or decrease in the number of issued shares of
Stock resulting from a subdivision or consolidation of shares or other capital
adjustment, or the payment of a stock dividend, or other increase or decrease in
such shares, if effected without receipt of consideration by the Company. Any
such adjustment shall be made by the Administrative Committee acting with the
consent of, and subject to the approval of, the Board.
Sec. 5.03 Effect of Certain Transactions. Subject to any
required action by the stockholders, if the Company shall be the surviving or
resulting corporation in any merger or
PH02/193098.2
7
<PAGE>
consolidation, or if the Company shall be merged for the purpose of changing the
jurisdiction of its incorporation, any Offering hereunder shall pertain to and
apply to the shares of stock of the Company or the survivor. However, in the
event of a dissolution or liquidation of the Company, or of a merger or
consolidation in which the Company is not the surviving or resulting
corporation, the Plan and any Offering hereunder shall terminate upon the
effective date of such dissolution, liquidation, merger or consolidation, and
the balance then standing to the credit of each Participant in his Stock
Purchase Account shall be returned to him.
ARTICLE VI
Miscellaneous
Sec. 6.01 Nonalienation. The right to purchase shares of Stock
under the Plan is personal to the Participant, is exercisable only by the
Participant during his lifetime except as hereinafter set forth, and may not be
assigned or otherwise transferred by the Participant. Notwithstanding the
foregoing, there shall be delivered to the executor, administrator or other
personal representative of a deceased Participant such shares of Stock and such
residual balance as may remain in the Participant's Stock Purchase Account as of
the date the Participant's death occurs. However, such representative shall be
bound by the terms and conditions of the Plan as if such representative were a
Participant.
Sec. 6.02 Administrative Costs. The Company shall pay all
administrative expenses associated with the operation of the Plan. No
administrative charges shall be levied against the Stock Purchase Accounts of
the Participants.
Sec. 6.03 Collection of Taxes. The Company shall be entitled
to require any Participant to remit, through payroll withholding or otherwise,
any tax that it determines it is so obligated to collect with respect to the
issuance of Stock hereunder, or the subsequent sale or disposition of such
Stock, and the Administrative Committee shall institute such mechanisms as shall
insure the collection of such taxes.
Sec. 6.04 Administrative Committee. The Compensation Committee
of the Board shall appoint an Administrative Committee, which shall have the
authority and power to administer the Plan and to make, adopt, construe, and
enforce rules and regulations not inconsistent with the provisions of the Plan.
The Administrative Committee shall adopt and prescribe the contents of all forms
required in connection with the administration of the Plan, including, but not
limited to, the Purchase Agreement, payroll withholding authorizations,
withdrawal documents, and all other notices required hereunder. The
Administrative Committee shall have the fullest discretion permissible under law
in the discharge of its duties. The Administrative Committee's interpretations
and decisions in respect of the Plan, the rules and regulations pursuant to
which it is operated, and the rights of Participants hereunder shall be final
and conclusive.
PH02/193098.2
8
<PAGE>
Sec. 6.05 Amendment of the Plan. The Board may amend 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
Participant under any award theretofore granted to him.
Sec. 6.06 Termination of the Plan. The Plan shall continue in
effect unless terminated pursuant to action by the Board, which shall have the
right to terminate the Plan at any time without prior notice to any Participant
and without liability to any Participant. Upon the termination of the Plan, the
balance, if any, then standing to the credit of each Participant in his Stock
Purchase Account shall be refunded to him.
Sec. 6.07 Repurchase of Stock. The Company shall not be
required to purchase or repurchase from any Participant any of the shares of
Stock that the Participant acquired under the Plan.
Sec. 6.08 Notice. A Purchase Agreement and any notice that a
Participant files pursuant to the Plan shall be on the form prescribed by the
Administrative Committee and shall be effective only when received by the
Administrative Committee. Delivery of such forms may be made by hand or by
certified mail, sent postage prepaid, to Consolidation Capital Corporation, 3500
Whitehaven Parkway, Washington, D.C. 20007, Attention: Stock Purchase Plan
Committee. Delivery by any other mechanism shall be deemed effective at the
option and discretion of the Administrative Committee.
Sec. 6.09 Government Regulation. The Company's obligation to
sell and to deliver the Stock under the Plan is at all times subject to all
approvals of any governmental authority required in connection with the
authorization, issuance, sale or delivery of such Stock.
Sec. 6.10 Headings, Captions, Gender. The headings and
captions herein are for convenience of reference only and shall not be
considered as part of the text. The masculine shall include the feminine, and
vice versa.
Sec. 6.11 Severability of Provisions; Prevailing Law. The
provisions of the Plan shall be deemed severable. In the event any such
provision is determined to be unlawful or unenforceable by a court of competent
jurisdiction or by reason of a change in an applicable statute, the Plan shall
continue to exist as though such provision had never been included therein (or,
in the case of a change in an applicable statute, had been deleted as of the
date of such change). The Plan shall be governed by the laws of the State of
Delaware, to the extent such laws are not in conflict with, or superseded by,
federal law.
PH02/193098.2
9
<PAGE>
EXHIBIT 10.04
CONSOLIDATION CAPITAL CORPORATION
SECTION 162(m) BONUS PLAN
1. Purpose. The purpose of this Section 162(m) Bonus Plan (the "Plan") of
-------
Consolidation Capital Corporation (the "Company") is (i) to retain and motivate
key senior executives of the Company who have been designated as Participants in
the Plan for a given Performance Period, by providing them with the opportunity
to earn bonus awards that are based on the extent to which specified performance
goals for such Performance Period have been achieved or exceeded; and (ii) to
structure such bonus opportunities in a way that will qualify the awards made as
"performance-based" for purposes of Section 162(m) of the Internal Revenue Code
of 1986, as amended (or any successor section) so that the Company will be
entitled to a tax deduction on the payment of such incentive awards to such
employees.
2. Definitions. As used in the Plan, the following terms shall the meanings
-----------
set forth below:
(a) "Annual Base Salary" shall mean the amount of base salary paid to a
Participant for a given year, adjusted to include the amount of any base salary
deferrals for such year, unless the Plan Committee otherwise specifies at the
time that the Participant's award opportunity for a given Performance Period is
established.
(b) "Applicable Period" shall mean, with respect to any Performance Period,
a period commencing on or before the first day of such Performance Period and
ending no later than the earlier of (i) the 90th day of such Performance Period,
or (ii) the date on which 25% of such Performance Period has been completed.
Any action required under the Plan to be taken with the period specified in the
preceding sentence may be taken at a later date if, but only if, the regulations
under Section 162(m) of the Code are hereafter amended, or interpreted by the
Internal Revenue Service, to permit such later date, in which case the term
"Applicable Period" shall be deemed amended accordingly.
(c) "Board" shall mean the Board of Directors of the Company as constituted
from time to time.
(d) "Cause" shall mean "cause" as defined in any employment agreement then
in effect between the Participant and the Company or if not defined therein or,
if there shall be no such agreement, where the Participant: (i) commits any
act of fraud, willful misconduct or dishonesty in connection with his employment
or which injures the Company or its direct or indirect subsidiaries; (ii)
breaches any other material provision of any agreement between the Participant
and the Company or a subsidiary of the Company relating to the Participant's
employment or breaches any fiduciary duty to the Company or its direct or
indirect subsidiaries; (iii) fails, refuses or neglects to timely perform any
material duty or obligation relating to his position; (iv) commits a material
1
<PAGE>
violation of any law, rule, regulation or by-law of any governmental authority
(state, federal or foreign), any securities exchange or association or other
regulatory or self-regulatory body or agency applicable to the Company or its
direct or indirect subsidiaries or any general policy or directive of the
Company or its direct or indirect subsidiaries communicated in writing to the
Participant; or (v) is charged with a crime involving moral turpitude,
dishonesty, fraud or unethical business conduct, or a felony; .
(e) "Chance of Control" shall have the same meaning as set forth in the
Consolidation Capital Corporation 1997 Long-Term Incentive Plan, as amended from
time to time (the "1997 LTIP").
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(g) "Committee" or "Plan Committee" shall mean the committee for the board
consisting solely of two or more non-employee directors (each of whom is
intended to qualify as an "outside director" within the meaning of Section
162(m) of the Code) designated by the Board as the committee responsible for
administering and interpreting the Plan.
(h) "Company" shall mean Consolidation Capital Corporation, a corporation
organized under the laws of the State of Delaware, and any successor thereto.
(i) "Disability" shall mean "disability" as defined in any employment
agreement then in effect between the Participant and the Company or if not
defined therein or if there shall be no such agreement, as defined in the
Company's long-term disability plan as in effect from time to time, or if there
shall be no plan or if not defined therein, the Participant's becoming
physically or mentally incapacitated and consequent inability for a period of
120 days in any twelve consecutive month period to perform his duties to the
Company.
(j) "Executive Officer" shall have the meaning set forth in Rule 3b-7
promulgated under the Securities Exchange Act of 1934, in each case as amended
from time to time.
(k) "Individual Award Opportunity" shall mean the performance-based award
opportunity for a given Participant for a given Performance Period as specified
by the Plan Committee within the Applicable Period, which may be expressed in
dollars or on a formula basis that is consistent with the provisions of this
Plan.
(l) "Negative Discretion" shall mean the discretion authorized by the Plan
to be applied by the Committee to eliminate, or reduce the size of, a bonus
award otherwise payable to a Participant for a given Performance Period,
provided that the exercise of such discretion would not cause the award to fail
to qualify as "performance-based compensation" under Section 162(m) of the Code.
By way of example and not by way of limitation, in no event shall any
discretionary authority granted to the Committee by the Plan including, but not
limited to, Negative Discretion,
2
<PAGE>
be used (i) to provide for an award under the Plan in excess of the amount
payable based on actual performance versus the applicable performance goals for
the Performance Period in question, or in excess of the maximum individual award
limit specified in Section 6(b) below, or (ii) to increase the amount otherwise
payable to any other Participant.
(m) "Participant" shall mean, for any given Performance Period with respect
to which the Plan is in effect, each key employee of the Company (including any
subsidiary, operating unit or division) who is an Executive Officer of the
Company and who is designated as a Participant in the Plan for such Performance
Period by the Committee pursuant to Section 4 below.
(n) "Performance Period" shall mean any period commencing on or after
January 1, 1998 for which performance goals are set under Section 5 and during
which performance shall be measured to determine whether such goals have been
met for purposes of determining whether a Participant is entitled to payment of
a bonus under the Plan. A Performance Period may be coincident with one or more
fiscal years of the Company, or a portion thereof.
(o) "Plan" or "Section 162(m) Plan" shall mean the Consolidation Capital
Corporation Section 162(m) Bonus Plan as set forth in this document, and as
amended from time to time.
(p) "Retirement" shall mean any termination of employment with the Company
and its subsidiaries (other than a termination by the Company (or any of its
subsidiaries) for Cause) that (i) qualifies as a "retirement" event under the
terms of any tax-qualified retirement plan maintained by the Company in which
the Participant participates, and (ii) is approved in writing as a "Retirement"
event for purposes of this Plan by (or pursuant to procedures established by)
the Plan Committee.
3. Administration.
--------------
(a) General. The Plan shall be administered by the Committee. Subject to
-------
the terms of the Plan and applicable law (including, but not limited to, Section
162(m) of the Code), and in addition to any other express powers and
authorizations conferred on the Committee by the Plan, the Committee shall have
the full power and authority, after taking into account, in its sole and
absolute discretion, the recommendations of the Company's Chief Executive
Officer:
(i) to designate (within the Applicable Period) the Participants in
the Plan and the individual award opportunities and/or, if
applicable, bonus pool award opportunities for such Performance
Period;
(ii) to designate (within the Applicable Period) and thereafter
administer the performance goals and other award terms and
conditions that are to apply under the Plan for such Performance
Period;
3
<PAGE>
(iii) to determine and certify the bonus amounts earned for any given
Performance Period, based on actual performance versus the
performance goals for such Performance Period, after making any
permitted Negative Discretion adjustments;
(iv) to decide (within the Applicable Period) any issues that are
not resolved under the express terms of the Plan relating to
the impact on the bonus awards for such Performance Period of
(A) a termination of employment (due to death, Disability,
Retirement, voluntary termination (other than Retirement),
termination by the Company other than for Cause, or termination
by the Company for Cause), provided, in each case, that no
payment shall be made for any given Performance Period prior to
the time that the Plan Committee certifies, pursuant to Section
6(c)(i) below, that the applicable performance goals for such
Performance Period have been met or (B) a Change of Control;
(v) to decide whether, under what circumstances and subject to what
terms bonus payouts are to be paid on a deferred basis,
including automatic deferrals at the Committee's election as
well as elective deferrals at the election of Participants;
(vi) to adopt, revise, suspend, waive or repeal, when and as
appropriate, in its sole and absolute discretion, such
administrative rules, guidelines and procedures for the Plan as
it deems necessary or advisable to implement the terms and
conditions of the Plan;
(vii) to interpret and administer the terms and provisions of the
Plan and any award issued under the Plan (including reconciling
any inconsistencies, correcting any defaults and addressing any
omissions in the Plan or any related instrument or agreement);
and
(viii) to otherwise supervise the administration of the Plan.
It is intended that all amounts payable to Participants under the Plan
who are "covered employees" within the meaning of Treas. Reg. Sec. 1.162-
27(c)(2) (as amended from time to time) shall constitute "qualified performance-
based compensation" within the meaning of Section 162(m) of the Code and Treas.
Reg. Sec. 1.162-27(e) (as amended from time to time), and, to the maximum extent
possible, the Plan and the terms of any awards under the Plan shall be so
interpreted and construed.
(b) Binding Nature of Committee Decisions. Unless otherwise expressly
-------------------------------------
provided in the Plan, all designations, determinations, interpretations and
other decisions made under or with respect to the Plan or any award under the
Plan shall be within the sole and absolute discretion of the
4
<PAGE>
Committee, and shall be final, conclusive and binding on all person, including
the Company, any Participant, and any award beneficiary or other person having,
or claiming, any rights under the Plan.
(c) Other. No member of the Committee shall be liable for any action or
-----
determination (including, but limited to, any decision not to act) made in good
faith with respect to the Plan or any award under the Plan. If a Committee
member intended to qualify as an "outside director" under Section 162(m) of the
Code does not in fact so qualify, the mere fact of such non-qualification shall
not invalidate any award or other action made by the Committee under the Plan
which otherwise was validly made under the Plan.
4. Plan Participation.
------------------
(a) Annual Participant Designations By Plan Committee. For any given
-------------------------------------------------
Performance Period, the Plan Committee, in its sole and absolute discretion,
shall, within the Applicable Period, designate those key employees of the
Company (including its subsidiaries, operating units and divisions) who shall be
Participants in the Plan for such Performance Period. Such Participant
designations shall be made by the Plan Committee, in its sole and absolute
discretion, based primarily on its determination as to which key employees:
(i) are likely to be Executive Officers of the Company as of the
last day of the fiscal year for which the Company would be
entitled to a Federal tax deduction for payment of the award in
respect of such Performance Period;
(ii) are reasonably expected by the Plan Committee to have
individual compensation for such fiscal year that may be in
excess of $1 million, excluding any compensation that is
grandfathered for Section 162(m) purposes or is otherwise
excluded for Section 162(m) purposes based on an existing or
other "performance-based" plan other than this Plan; and
(iii) are reasonably expected by the Plan Committee to be "covered
employees" for such fiscal year for Section 162(m) purposes,
and such other consideration as the Committee deems appropriate, in its sole and
absolute discretion.
(b) Impact Of Plan Participation. An individual who is a designated
----------------------------
Participant in the Section 162(m) Plan for any given Performance Period shall
not also participate in the Company's general bonus plans for such Performance
Period, if such participation would cause any award hereunder to fail to qualify
as "performance-based" under Section 162(m).
5
<PAGE>
5. Performance Goals.
-----------------
(a) Setting Of Performance Goals. For a given Performance Period, the Plan
----------------------------
Committee shall, within the Applicable Period, set one or more objective
performance goals for each Participant and/or each group of Participants and/or
each bonus pool (if any). Such goals shall be based exclusively on one or more
of the following corporate-wide or subsidiary, division or operating unit
financial measures:
(1) pre-tax or after-tax net income,
(2) operating income,
(3) gross revenue,
(4) profit margin,
(5) stock price,
(6) cash flow(s),
(7) 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,
or any combination thereof (in each case before or after such objective income
and expense allocations or adjustments as the Committee may specify within the
Applicable Period). Each such goal may be expressed on an absolute and/or
relative basis, may be based on or otherwise employ comparisons based on current
internal targets, the past performance of the Company (including the performance
of one or more subsidiaries, divisions and/or operating units) and/or the past
or current performance of other companies, and in the case of earnings-based
measures, may use or employ comparisons relating to capital (including, but
limited to, the cost of capital), shareholders' equity and/or shares
outstanding, or to assets or net assets. In all cases, the performance goals
shall be such that they satisfy any applicable requirements under Treas. Reg.
Sec. 1.162-27(e)(2) (as amended from time to time) that the achievement of such
goals be "substantially uncertain" at the time that they are established, and
that the award opportunity be defined in such a way that a third party with
knowledge of the relevant facts could determine whether and to what extent the
performance goal has been met, and, subject to the Plan Committee's right to
apply Negative Discretion, the amount of the award payable as a result of such
performance.
(b) Impact Of Extraordinary Items Or Changes In Accounting. The measures
------------------------------------------------------
used in setting performance goals set under the Plan for any given Performance
Period shall be determined in accordance with GAAP and a manner consistent with
the methods used in the Company's audited
6
<PAGE>
financial statements, without regard to (i) extraordinary items as determined by
the Company's independent public accountants in accordance with GAAP, (ii)
changes in accounting, unless, in each case, the Plan Committee decides
otherwise within the Applicable Period or (iii) non-recurring acquisition
expenses and restructuring charges.
6. Bonus Pools, Award Opportunities And Awards.
-------------------------------------------
(a) Setting Of Individual Award Opportunities. At the time that annual
-----------------------------------------
performance goals are set for Participants for a given Performance Period
(within the Applicable Period), the Plan Committee shall also establish each
Individual Award Opportunity for such Performance Period, which shall be based
on the achievement of stated target performance goals, and may be stated in
dollars or on a formula basis (based, for example, on a designated share of a
bonus pool or on a multiple of Annual Base Salary), provided:
(i) that the designated shares of any bonus pool shall not exceed
100% of such pool; and
(ii) that the Plan Committee, in all cases, shall have the sole and
absolute discretion, based on such factors as it deems
appropriate, to apply Negative Discretion to reduce (but not
increase) the actual bonus awards that would otherwise actually
be payable to any Participant on the basis of the achievement
of the applicable performance goals.
(b) Maximum Individual Bonus Award. Notwithstanding any other provision of
------------------------------
this Plan, the maximum bonus payable under the Plan to any one individual in any
one calendar year shall be $3.0 million.
(c) Bonus Payments. Subject to the following, bonus awards determined
--------------
under the Plan for given Performance Period shall be paid to Participants in
cash, or, if permitted under the Company's 1997 LTIP, in shares of Company stock
or other equity based awards, as soon as practicable following the end of the
Performance Period to which they apply, provided:
(i) that no such payment shall be made unless and until the Plan
Committee, based on the Company's audited financial results for
such Performance Period (as prepared and reviewed by the
Company's independent public accountants), has certified (in the
manner prescribed under applicable regulations) the extent to
which the applicable performance goals for such Performance
Period have been satisfied, and has made its decisions regarding
the extent of any Negative Discretion adjustment of awards (to
the extent permitted under the Plan);
(ii) that the Plan Committee may specify that a portion of the actual
bonus award for any given Performance Period shall be paid on a
deferred basis, based on
7
<PAGE>
such award payment rules as the Plan Committee may establish and
announce for such Performance Period;
(iii) that the Plan Committee may require (if established and
announced within the Applicable Period), as a condition of bonus
eligibility (and subject to such exceptions as the Committee may
specify within the Applicable Period) that Participants for such
Performance Period must still be employed as of end of such
Performance Period and/or as of the later date that the actual
bonus awards for such Performance Period are announced, in order
to be eligible for an award for such Performance Period; and
(iv) that, within the Applicable Period and subject to Section
6(c)(i) above, the Committee may adopt such forfeiture, pro-
ration or other rules as it deems appropriate, in its sole and
absolute discretion, regarding the impact on bonus award rights
of a Participant's death, Disability, Retirement, voluntary
termination (other than Retirement), termination by the Company
other than for Cause, or termination by the Company for Cause.
7. General Provisions.
------------------
(a) Plan Amendment Or Termination. The Board may at any time amend or
-----------------------------
terminate the Plan, provided that (i) without the Participant's written consent,
no such amendment or termination shall adversely affect the 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 shall be authorized to make any amendments
necessary to comply with applicable regulatory requirements (including, without
limitation, Section 162(m) of the Code), and (iii) the Board shall submit any
Plan amendment to the Company's stockholders for their approval if and to the
extent such approval is required under Section 162(m) of the Code.
(b) Applicable Law. All issues arising under the Plan shall be governed
--------------
by, and construed in accordance with, the laws of the State of Delaware, applied
without regard to conflict of law principles.
(c) Tax Withholding. The Company (and its subsidiaries) shall have right
---------------
to make such provisions and take such action as it may deem necessary or
appropriate for the withholding of any and all Federal, state and local taxes
that the Company (or any of its subsidiaries) may be required to withhold.
(d) No Employment Right Conferred. Participation in the Plan shall not
-----------------------------
confer on any Participant the right to remain employed by the Company or any of
its subsidiaries, and the Company and its subsidiaries specifically reserve the
right to terminate any Participant's employment at any time with or without
cause or notice.
8
<PAGE>
(e) Impact of Plan Awards on Other Plans. Plan awards shall not be treated
------------------------------------
as compensation for purposes of any other compensation or benefit plan, program
or arrangement of the Company or any subsidiary, unless and except to the extent
that the Board or its Compensation Committee so determines in writing. Neither
the adoption of the Plan nor the submission of the Plan to the Company's
stockholders for their approval shall be construed as limiting the power of the
Board or the Plan Committee to adopt such other incentive arrangements as it may
otherwise deem appropriate.
(f) Beneficiary Designations. Each Participant shall designate in a
------------------------
written form filed with the Committee the beneficiary (or beneficiaries) to
receive the amounts (if any) payable under the Plan in the event of the
Participant's death prior to the bonus payment date for a given Performance
Period. Any such beneficiary designation may be changed by the Participant at
any time without the consent of the beneficiary (unless otherwise required by
law) by filing a new written beneficiary designation with the Committee. A
beneficiary designation shall be effective only if the Company is in receipt of
the designation prior to the Participant's death. If no effective beneficiary
designation is made, the beneficiary of any amounts die shall be the
Participant's estate.
(g) Costs & Expenses. All award and administrative costs and expenses of
----------------
the Plan shall be borne by the Company.
(h) Non-Transferability of Rights. Except as and to the extent required by
-----------------------------
law, a Participant's rights under the Plan may not be assigned or transferred in
whole or in part either directly or by operation of law or otherwise (except,
pursuant to Section 7(f) above, in the event of the Participant's death),
including, but not limited to, by way of execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner, and no such right of the
Participant shall be subject to any obligation or liability of the Participant
other than any obligation or liability owed by the Participant to the Company
(or any of its subsidiaries).
8. Effective Date.
--------------
The Plan shall be effective for Performance Periods commencing on and after
January 1, 1998 and shall remain effective until terminated by the Board,
provided, however, that the continued effectiveness of the Plan shall be subject
to the approval of the Company's stockholders at such times and in such manner
as may be required pursuant to Section 162(m).
9
<PAGE>
EXHIBIT 10.05
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement"), dated as of November __, 1997, between
CONSOLIDATION CAPITAL CORPORATION, a Delaware corporation (the "Company"), and
Jonathan J. Ledecky, a resident of the District of Columbia (the "Executive").
W I T N E S S E T H:
-------------------
WHEREAS, the Company wishes to secure the services of the Executive
and the Executive wishes to furnish such services to the Company pursuant to the
terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and obligations hereinafter set forth, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. Employment: Term. The Company hereby agrees to employ the
----------------
Executive, and the Executive hereby agrees to enter into such employment, as
Chairman and Chief Executive Officer of the Company, for the period commencing
on the date of the closing of the Company's initial public offering (the
"Commencement Date") and ending one year from the Commencement Date, unless
terminated sooner pursuant to Section 5 hereof. The initial one year term shall
be extended for additional successive periods of one year each, on the same
terms and conditions contained herein, unless ninety (90) days prior written
notice is given by the Company of its intention to terminate the term of this
Agreement without cause. For purposes hereof, the period of Executive's
employment hereunder is referred to as the "Term."
2. Duties and Extent of Services.
-----------------------------
(a) During the Term, the Executive shall serve as Chairman and Chief
Executive Officer of the Company with such duties and responsibilities as are
consistent with such positions, and shall so serve faithfully and to the best of
his ability, under the direction and supervision of the Company's Board of
Directors (the "Board").
(b) The Executive shall serve as a Director of the Company and hold
such other positions and executive offices of the Company and/or of any of the
Company's subsidiaries or affiliates as may from time to time be authorized by
the Board, provided that each such position shall be commensurate with the
Executive's standing in the business community as Chairman and Chief Executive
Officer of the Company. The Executive shall not be entitled to any compensation
other than the compensation provided for herein for serving during the Term as a
Director of the Company or in any other office or position of the Company, or
any of its subsidiaries or affiliates, unless the Board shall have specifically
approved such additional compensation.
<PAGE>
(c) The executive shall devote the substantial majority of his
business time, attention and efforts to his duties hereunder, except when
necessary to fulfill his fiduciary obligations as Chairman of U.S. Office
Products Company, non-executive chairman of U.S.A. Floral Products, Inc., non-
executive chairman of U.S. Leasing, Inc. and an investor or director in Unison
Partners, Inc. The Executive agrees that he will not be employed by any other
entity or serve as Chairman of the Board, co-Chairman of the Board, or non-
executive Chairman of the Board of any other entity during the term of this
Agreement, except as specified in the preceding sentence. The Executive shall
diligently perform to the best of his ability all of the duties required of him
as Chairman and Chief Executive Officer of the Company, and in the other
positions or offices of the Company or its subsidiaries or affiliates required
of him hereunder. The Executive shall faithfully adhere to, execute and fulfill
all policies established by the Company. Notwithstanding the foregoing
provisions of this Section, the Executive may participate in charitable, civic,
political, social, trade, or other non-profit organizations to the extent such
participation does not materially interfere with the performance of his duties
hereunder, and may serve as a non-management director of business corporations
(or in a like capacity in other for-profit organizations) so long as it does not
materially interfere with the Executive's obligations hereunder.
3. Compensation
------------
(a) Base Salary. Effective as of November 1, 1997, the Company
-----------
shall pay the Executive a base salary (the "Base Salary") equal to seven hundred
and fifty thousand dollars ($750,000) per year, payable on a regular basis in
accordance with the Company's regular payroll policies in effect from time to
time, but not less frequently than monthly. On at least an annual basis, the
Board will review the Executive's performance and may make increases to such
Base Salary if, in its sole discretion, any such change is warranted.
(b) Incentive Bonus. The Company will develop a written Incentive
---------------
Bonus Plan (the "Bonus Plan") setting forth the criteria under which the
Executive and other officers and key employees of the Company will be eligible
to receive year-end incentive bonus compensation. The Bonus Plan will provide
for the Executive to earn up to 100% of his Base Salary in bonus compensation,
payable out of a bonus pool determined by the Board or a compensation committee
thereof. Subject to the provisions of Section 3(e) hereof, such bonus payments
shall be made to the Executive as soon as practicable after the end of each
calendar year during the Term.
(c) Employee Stock Purchase Plan. The Executive shall be entitled to
----------------------------
participate in the Company's 1997 Employee Stock Purchase Plan in accordance
with the terms set forth therein.
(d) 1997 Long-Term Incentive Plan. The Executive shall be entitled to
-----------------------------
participate in the Company's 1997 Long-Term Incentive Plan in accordance with
the terms set forth therein.
2
<PAGE>
(e) Deferral. The Executive may elect to defer payment of all or any
--------
part of the incentive bonus compensation amount payable in accordance with
Section 3(b) hereof with respect to any calendar year during the Term, by giving
the Company written notice thereof not later than June 30 of such year.
Additionally, in the event that in respect of any fiscal year of the Company any
amount of Base Salary, incentive bonus compensation or any other amount payable
to the Executive hereunder or otherwise, shall, either alone or in combination
with other amounts payable hereunder or otherwise, result in a payment by the
Company that shall not be currently deductible by it pursuant to the provisions
of Section 162(m) of the Internal Revenue Code, as amended, or like or successor
provisions (a "Non-Deductible Amount"), the Company may elect to defer the
payment of the Non-Deductible Amount. Any amounts, so deferred, either
by election of the Executive or by election of the Company, shall be credited to
a bookkeeping account in the name of the Executive as of the date scheduled for
payment hereunder or invested in a brokerage account at the election of the
Executive. If not invested in a brokerage account, such amounts shall be
credited with interest as of each June 30 during the term of deferral,
compounded annually, at a rate per annum equal to the annual rate of interest
announced by Citibank, N.A. in New York, New York as its base rate in effect on
such June 30, but in no event shall such rate exceed 9%. The entire amount
credited to such bookkeeping account shall be paid to the Executive on a date to
be chosen by the Company, but in no event later than the first anniversary of
the termination of the Executive from employment with the Company.
(f) Car Allowance. The Executive shall receive a monthly car
-------------
allowance of $750 during the Term of this Agreement.
4. Benefits.
--------
(a) Standard Benefits. During the Term, the Executive shall be
-----------------
entitled to participate in any and all benefit programs and arrangements now in
effect and hereinafter adopted and generally made available by the Company to
its senior officers, including but not limited to, 4 weeks of paid vacation
during each year of the Term in accordance with the policies and procedures of
the Company as in effect from time to time for its senior officers, pension
plans, contributory and non-contributory Company welfare and benefit plans,
disability plans, and medical, death benefit and life insurance plans for which
the Executive shall be eligible, or may become eligible during the Term.
(b) Expense Reimbursement. The Company agrees to reimburse the
---------------------
Executive for all reasonable and necessary travel, business entertainment and
other business out-of-pocket expenses incurred or expended by him in connection
with the performance of his duties hereunder upon presentation of proper expense
statements or vouchers or such other supporting information as the Company may
reasonably require of the Executive.
(c) Other Executive Perquisites. The Company shall provide the
---------------------------
Executive with other executive perquisites as may be available to or deemed
appropriate for the Executive by the Board or a compensation committee thereof.
3
<PAGE>
5. Termination. This Agreement and the Executive's employment with
-----------
the Company may be terminated in any one of the following ways:
(a) Death. In the event of the death of the Executive during the
-----
Term, this Agreement shall automatically terminate, and the Company shall have
no further obligations hereunder except as provided in Section 5(g) below.
(b) Disability. In the event of the "permanent disability" (as
----------
hereinafter defined) of the Executive during the Term, the Company shall have
the right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, effective upon the giving of such notice (or such later
date as shall be specified in such notice). In the event of such termination,
and subject to the provisions of Section 5(h) below, the Company shall have no
further obligations hereunder, except that the Executive shall be entitled to be
paid his Base Salary under Section 3(a) hereof for a period of two (2) years
from the effective date of termination; provided, however, that the Company
-------- -------
shall only be required to pay that amount of the Executive's Base Salary which
shall not be covered by long-term disability payments, if any, to the Executive.
In addition, upon termination for permanent disability, the Executive shall
continue to participate in any and all pension, insurance and other benefit
plans and programs of the Company during the period the Executive is continuing
to receive his Base Salary. Thereafter, the Executive's rights to participate
in such programs and plans, or to receive similar coverage, if any, shall be as
determined under such programs. For purposes of this Section, "permanent
disability" means any disability as defined under the Company's applicable
disability insurance policy or, if no such policy is available, any physical or
mental disability or incapacity that renders the Executive incapable of
performing the services required of him in accordance with his obligations under
Section 2 hereof for a period of four (4) consecutive months or for shorter
periods aggregating six (6) months during any twelve-month period.
(c) Cause. The Company shall have the right, upon ten (10) days'
-----
written notice to the Executive, to terminate the Executive's employment under
this Agreement for "Cause" (as hereinafter defined), effective upon the giving
of such notice (or such later date as shall be specified in such notice), and
the Company shall have no further obligations hereunder, except to pay the
Executive any amounts otherwise payable pursuant to Section 5(g) below. The
Executive's right to participate in any of the Company's retirement, insurance
and other benefit plans and programs shall be as determined under such programs
and plans. For purposes of this Agreement, "Cause" means:
(i) fraud, embezzlement or gross insubordination on the part of
the Executive or material breach by the Executive of his obligations
under Sections 6 or 7 hereof;
(ii) a material breach of, gross negligence with respect to,
or the willful failure or refusal by the Executive to perform and
discharge, his duties, responsibilities or obligations under this Agreement
(other than under Sections 6 and 7 hereof, which shall be governed by
clause (i) above, and other than by reason of disability or death) that is
not corrected within ten (10) days following written notice thereof to the
Executive by the
4
<PAGE>
Company, such notice to state with specificity the nature of the breach,
failure or refusal; provided that if such breach, failure or refusal cannot
--------
reasonably be corrected within ten (10) days of written notice thereof,
correction shall be commenced by the Executive within such period and may
be corrected within a reasonable period thereafter;
(iii) conviction of, or the entry of a plea of nolo contendere
---- ----------
by, the Executive of any felony; or
(iv) illegal drug use or alcohol abuse by the Executive.
(d) Without Cause. The Company shall have the right, upon thirty (30)
-------------
days' written notice given to the Executive, to terminate this Agreement for any
reason whatsoever. In the event of a termination without cause, the Executive
shall be entitled (i) to receive from the Company an amount equal to two times
his Base Salary at the rate then in effect plus any bonus he received during the
previous year for whatever time period is remaining under the Term of this
Agreement, payable in a single lump sum at the time of termination without
cause, and (ii) to participate in all pension, insurance and other benefit plan
programs or arrangements on terms identical to those applicable to other senior
officers of the Company. In the event this Agreement is terminated pursuant to
this Section 5(g), the Executive shall be released from his obligations under
Section 6 or Section 7 hereof and all Options previously granted to the
Executive that have not yet vested shall immediately vest and be exercisable.
(e) By Executive. The Executive shall have the right, exercisable at
------------
any time during the Term, to terminate this Agreement for any reason whatsoever,
upon three (3) months written notice to the Company. In such event, and other as
provided by the terms of Section 5(g) below, the Company shall have no further
obligations hereunder and the Executive shall not be entitled to receive any
severance compensation.
(f) Effect of Termination. Upon the termination of the Executive's
---------------------
employment hereunder for any reason, the Company shall have no further
obligations hereunder, except as otherwise provided herein. The Executive,
however, shall continue to have the obligations provided in Sections 6 and 7
hereof, except as otherwise provided herein.
(g) General Provisions. Upon termination of this Agreement for any
------------------
reasons provided above, the Executive (or his estate or personal representative,
as applicable) shall be entitled to receive all compensation earned and all
benefits and reimbursements accrued and due through the effective date of
termination. Without limiting the generality of the foregoing, all Options
granted to the Executive shall immediately vest and be exercisable upon any
termination of this Agreement, other than a termination pursuant to Section 5(c)
or Section 5(e) hereof. Additional compensation subsequent to termination, if
any, will be due and payable to the Executive only to the extent and in the
manner expressly provided above. In the event that the Executive secures
employment with another entity during the period that any payment is continuing
pursuant to the provisions of this Section 5, the
5
<PAGE>
amounts to be paid hereunder shall be reduced by the amount of the Executive's
earnings from such other employment.
6. Confidentiality. The Executive acknowledges that, by reason of
---------------
his employment by the Company, he will have access to confidential information
of the Company and its subsidiaries and affiliates, including, without
limitation, information and knowledge pertaining to products, inventions,
discoveries, improvements, innovations, designs, ideas, trade secrets,
proprietary information, manufacturing, packaging, advertising, distribution and
sales methods, sales and profit figures, customer and client lists and
relationships between the Company, any of its subsidiaries or affiliates and
dealers, distributors, sales representatives, wholesalers, customers, clients,
suppliers and others who have business dealings with them ("Confidential
Information"). The Executive acknowledges that such Confidential Information is
a valuable and unique asset of the Company and its subsidiaries and affiliates
and covenants that, both during and after the Term, he will not disclose any
Confidential Information to any person (except as his duties as an employee of
the Company may require) without the prior written authorization of the Board.
The obligation of confidentiality imposed by this Section 6 shall not apply to
Confidential Information that otherwise becomes generally known in the industry
or to the public through no act of the Executive in breach of this Agreement or
any other party in violation of an existing confidentiality agreement with the
Company or any subsidiary or affiliate or which is required to be disclosed by
court order or applicable law.
7. Covenant Not to Compete.
-----------------------
(a) Scope of Covenant. The Executive agrees that during the Term and
-----------------
for a period equal to the longer of (i) one (1) year commencing upon the
expiration or termination of the Executive's employment hereunder (for any
reason whatsoever) or (ii) the period during which the Executive is entitled to
receive and is receiving any payment pursuant to Section 5 hereof, the Executive
shall not, directly or indirectly, for himself or on behalf of or in conjunction
with any other person, persons, company, partnership, corporation or business of
whatever nature, without the prior written consent of the Company:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in direct
competition with the Company within 100 miles of the principal executive
offices or the principal operations of the Company (the "Territory");
(ii) call upon any person who is at that time, or who was at any
time within one (1) year prior to that time, an employee of the Company
(including the respective subsidiaries thereof) in a managerial capacity
for the purpose or with the intent of enticing such employee away from or
out of the employ of the Company (including the respective subsidiaries
thereof), provided that the Executive shall be permitted to call upon and
hire any member of his immediate family;
6
<PAGE>
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services in
direct competition with the Company (including the respective subsidiaries
thereof) within the Territory; or
(iv) call upon any prospective acquisition candidate, on the
Executive's own behalf or on behalf of any competitor, which candidate was
either called upon by the Company (including the respective subsidiaries
thereof) or for which the Company (including the respective subsidiaries
thereof) made an acquisition analysis, for the purpose of acquiring such
entity;
provided, however, that nothing in this Section 7(a) shall be construed to
- -------- -------
preclude the Executive from making any investments in the securities of any
business enterprise whether or not engaged in competition with the Company or
any of its subsidiaries, to the extent that such securities are actively traded
on a national securities exchange or in the over-the-counter market in the
United States or on any foreign securities exchange; and provided further,
however, that nothing shall preclude the Executive from serving as the Chairman
of U.S. Office Products Company, the non-executive Chairman of U.S.A. Floral
Products, the non-executive Chairman of U.S. Leasing, Inc. and an investor or
director in Unison Partners, Inc.
(b) Reasonableness. It is agreed by the parties that the foregoing
--------------
covenants in this Section 7 impose a reasonable restraint on the Executive in
light of the activities and business of the Company (including the Company's
subsidiaries) on the date of the execution of this Agreement and the current
plans of the Company (including the Company's subsidiaries); but it is also the
intent of the Company and the Executive that such covenants be construed and
enforced in accordance with the changing activities, business and locations of
the Company (including the Company's other subsidiaries) throughout the term of
this covenant.
(c) Severability. The covenants in this Section 7 are severable and
------------
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth are unreasonable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent which the court deems reasonable,
and this Agreement shall thereby be reformed.
(d) Enforcement by the Company not Limited. All of the covenants in
--------------------------------------
this Section 7 shall be construed as an agreement independent of any other
provision in this Agreement, and the existence of any claim or cause of action
of the Executive against the Company, whether predicated in this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
such covenants. It is specifically agreed that the period of one (1) year
stated at the beginning of this Section 7, during which the agreements and
covenants of the Executive made in this Section 7
7
<PAGE>
shall be effective, shall be computed by excluding from such computation any
time during which the Executive is in violation of any provision of this Section
7.
(e) Change of Relevant Law. Notwithstanding any of the foregoing, if
----------------------
any applicable law shall reduce the time period during which the Executive shall
be prohibited from engaging in any competitive activity described in Section
7(a) hereof, the period of time for which the Executive shall be prohibited from
engaging in competitive activities pursuant to Section 7(a) hereof shall be the
maximum time permitted by law. However, in the event that the time period
specified by Section 7(a) shall be so reduced, then, notwithstanding the
provisions of Section 5 hereof, the Executive shall be entitled to receive from
the Company his Base Salary at the rate then in effect solely for the longer of
(i) the time period during which the provisions of Section 7(a) shall be
enforceable under the provisions of such applicable law, or (ii) the time period
during which the Executive is not engaging in any competitive activity, but in
no event longer than the term provided in Section 5.
8. Specific Performance. The Executive acknowledges that the
--------------------
services to be rendered by the Executive are of a special, unique and
extraordinary character and, in connection with such services, the Executive
will have access to confidential information vital to the Company's business and
the business of the Company's subsidiaries and affiliates. By reason of this,
the Executive consents and agrees that if the Executive violates any of the
provisions of Section 6 or 7 hereof, the Company and its subsidiaries and
affiliates would sustain irreparable injury and that monetary damages would not
provide adequate remedy to the Company or any of its subsidiaries or affiliates.
Therefore, the Executive hereby agrees that the Company and any affected
subsidiary and affiliate shall be entitled to have Sections 6 or 7 hereof,
specifically enforced (including, without limitation, by injunctions and
restraining orders) by any court having equity jurisdiction. Nothing contained
herein shall be construed as prohibiting the Company or any of its subsidiaries
or affiliates from pursuing any other remedies available to it for such breach
or threatened breach, including the recovery of damages from the Executive.
9. Deductions and Withholding. The Executive agrees that the
--------------------------
Company or its subsidiaries or affiliates, as applicable, shall withhold from
any and all compensation paid to and required to be paid to the Executive
pursuant to this Agreement, all Federal, state, local and/or other taxes which
the Company determines are required to be withheld in accordance with applicable
statutes or regulation from time to time in effect and all amounts required to
be deducted in respect of the Executive's coverage under applicable employee
benefit plans. For purposes of this Agreement and calculations hereunder, all
such deductions and withholdings shall be deemed to have been paid to and
received by the Executive.
10. No Conflicts. The Executive hereby represents and warrants to
------------
the Company that his execution, delivery and performance of this Agreement and
any other agreement to be delivered pursuant to this Agreement will not (a)
require the consent, approval or action of any other person or (b) violate,
conflict with or result in the breach of any of the terms of, or constitute (or
with notice or lapse of time or both, constitute) a default under, any
agreement, arrangement or
8
<PAGE>
understanding with respect to the Executive's employment to which the Executive
is a party or by which the Executive is bound or subject including, without
limitation, any non-competition or non-disclosure provisions in agreements to
which the Executive is or was a party. The Executive hereby agrees to indemnify
and hold harmless the Company and its directors, officers, employees, agents,
representatives, subsidiaries and affiliates (and each such subsidiary's and
affiliate's directors, officers, employees, agents and representatives) from and
against any and all losses, liabilities or claims (including interest, penalties
and attorneys' fees, disbursements and related charges) based upon or arising
out of the Executive's breach of any of the foregoing representations and
warranties.
The Executive has provided to the Company a copy of his Amended and
Restated Employment Agreement with U.S. Office Products Company, the terms of
which are hereby acknowledged and agreed to by the Company.
11. Complete Agreement. This Agreement is not a promise of future
------------------
employment. This Agreement embodies the entire agreement of the parties with
respect to the Executive's employment, compensation, perquisites and related
items and supersedes any other prior oral or written agreements, arrangements or
understandings between the Executive and the Company or any of its subsidiaries
or affiliates, and any such prior agreements, arrangements or understandings are
hereby terminated and of no further effect. This Agreement may not be changed
or terminated orally but only by an agreement in writing signed by the parties
hereto.
12. Waiver. The waiver by the Company of a breach of any provision
------
of this Agreement by the Executive shall not operate or be construed as a waiver
of any subsequent breach by him. The waiver by the Executive of a breach of any
provision of this Agreement by the Company shall not operate or be construed as
a waiver of any subsequent breach by the Company.
13. Governing Law; Jurisdiction.
---------------------------
(a) This Agreement shall be subject to, and governed by, the laws of
the State of Delaware.
(b) Any action to enforce any of the provisions of this Agreement
shall be brought in a local or federal court within the District of Columbia.
The Parties consent to the jurisdiction of such court and to the service of
process in any manner provided by District of Columbia law. Each party
irrevocably waives any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding brought in such court
and any claim that such suit, action or proceeding brought in such court has
been brought in an inconvenient forum and agrees that service of process in
accordance with the foregoing sentences shall be deemed in every respect
effective and valid personal service of process upon such party.
(c) Assignability. This obligations of the Executive may not be
-------------
delegated and, except with respect to the designation of beneficiaries in
connection with any of the benefits payable to the Executive hereunder, the
Executive may not, without the Company's written consent thereto,
9
<PAGE>
assign, transfer, convey, pledge, encumber, hypothecate or otherwise dispose of
this Agreement or any interest herein. Any such attempted delegation or
disposition shall be null and void and without effect. The Company and the
Executive agree that this Agreement and all of the Company's rights and
obligations hereunder may be assigned or transferred by the Company to and shall
be assumed by and be binding upon any successor to the Company. The term
"successor" means, with respect to the Company or any of its subsidiaries, any
corporation or other business entity which, by merger, consolidation, purchase
of the assets or otherwise acquires all or a material part of the assets of the
Company.
15. Severability. If any provision of this Agreement of any part
------------
thereof, including, without limitation, Sections 6 and 7 hereof, as applied to
either party or to any circumstances shall be adjudged by a court of competent
jurisdiction to be void or unenforceable, the same shall in no way affect any
other provision of this Agreement or remaining part thereof, which shall be
given full effect without regard to the invalid or unenforceable part thereof,
or the validity or enforceability of this Agreement.
If any court construes any of the provisions of Sections 6 or 7
hereof, or any part thereof, to be unreasonable because of the duration of such
provision or the geographic scope thereof, such court may reduce the duration or
restrict or redefine the geographic scope of such provision and enforce such
provision so reduced, restricted or redefined.
16. Notices. All notices to the Company or the Executive permitted
-------
or required hereunder shall be in writing and shall be delivered personally, by
telecopier or by courier service providing for next-day delivery or sent by
registered or certified mail, return receipt requested, to the following
addresses:
If to the Company:
Consolidation Capital Corporation
1747 Pennsylvania Avenue, N.W
Suite 900
Washington, D.C. 20006
Attn: General Counsel
Fax: (202)
With a required copy to:
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
Attn: Linda L. Griggs, Esq.
Fax: (202) 467-7176
10
<PAGE>
If to the Executive:
Jonathan J. Ledecky
1400 34th Street, N.W.
Washington, D.C. 20007
Fax: (202)
Either party may change the address to which notices shall be sent by sending
written notice of such change of address to the other party. Any such notice
shall be deemed given, if delivered personally, upon receipt; if telecopied,
when telecopied; if sent by courier service providing for next-day delivery, the
next business day following deposit with such courier service; and if sent by
certified or registered mail, three days after deposit (postage prepaid) with
the U.S. mail service.
17. Section Headings. The section headings contained in this
----------------
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
18. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
CONSOLIDATION CAPITAL CORPORATION
__________________________________
By:
Its:
EXECUTIVE
__________________________________
Jonathan J. Ledecky
11
<PAGE>
EXHIBIT 10.06
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement"), dated as of November __, 1997, between
CONSOLIDATION CAPITAL CORPORATION, a Delaware corporation (the "Company"), and
TIMOTHY C. CLAYTON, a resident of the State of Minnesota (the "Executive").
W I T N E S S E T H:
-------------------
WHEREAS, the Company wishes to secure the services of the Executive
and the Executive wishes to furnish such services to the Company pursuant to the
terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and obligations hereinafter set forth, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. Employment: Term. The Company hereby agrees to employ the
----------------
Executive, and the Executive hereby agrees to enter into such employment, as
Executive Vice President and Chief Financial Officer of the Company, for the
period commencing on the date of the closing of the Company's initial public
offering (the "Commencement Date") and ending on the date two years from the
Commencement Date, unless terminated sooner pursuant to Section 5 hereof. The
initial two year term shall be extended for additional successive periods of one
year each, on the same terms and conditions contained herein, unless six months
prior written notice is given by the Company of its intention to terminate the
term of this Agreement without cause. For purposes hereof, the period of
Executive's employment hereunder is referred to as the "Term."
2. Duties and Extent of Services.
-----------------------------
(a) During the Term, the Executive shall serve as Executive Vice
President and Chief Financial Officer of the Company with such duties and
responsibilities as are consistent with such positions, and shall so serve
faithfully and to the best of his ability, under the direction and supervision
of the Company's Board of Directors (the "Board").
(b) The Executive shall serve as a Director of the Company if elected
to such position in accordance with law and hold such other positions and
executive offices of the Company and/or of any of the Company's subsidiaries or
affiliates as may from time to time be authorized by the Board, provided that
each such position shall be commensurate with the Executive's standing in the
business community as Executive Vice President and Chief Financial Officer of
the Company. The Executive shall not be entitled to any compensation other than
the compensation provided for herein for serving during the Term as a Director
of the Company or in any other office or position
<PAGE>
of the Company, or any of its subsidiaries or affiliates, unless the Board shall
have specifically approved such additional compensation.
(c) The Executive shall devote his full business time, attention and
efforts to his duties hereunder. The Executive shall diligently perform to the
best of his ability all of the duties required of him as Executive Vice
President and Chief Financial Officer of the Company, and in the other positions
or offices of the Company or its subsidiaries or affiliates required of him
hereunder. The Executive shall faithfully adhere to, execute and fulfill all
policies established by the Company. Notwithstanding the foregoing provisions of
this Section, the Executive may participate in charitable, civic, political,
social, trade, or other non-profit organizations to the extent such
participation does not materially interfere with the performance of his duties
hereunder, and may serve as a non-management director of business corporations
(or in a like capacity in other for-profit organizations) so long as it does not
materially interfere with the Executive's obligations hereunder.
(d) The Executive shall not be required to relocate to Washington,
D.C., to perform his duties hereunder, but acknowledges and agrees that he will
be in Washington, D.C. to the extent necessary to perform his duties hereunder.
Instead, the Company will provide, at its sole cost and expense, office space in
or around the city of Minneapolis, from which the Executive will perform his
duties under the terms of this Agreement. The Executive understands that he
will be required to travel from time to time in order to perform his duties
hereunder (including travel to Washington, D.C.) and agrees to undertake such
travel as part of his duties to the Company under the terms of this Agreement.
3. Compensation
------------
(a) Base Salary. Effective as of the Commencement Date, the Company
-----------
shall pay the Executive a base salary (the "Base Salary") equal to Three Hundred
Thousand Dollars ($300,00.00) per year, payable on a regular basis in accordance
with the Company's regular payroll policies in effect from time to time, but not
less frequently than monthly. On at least an annual basis, the Board will
review the Executive's performance and may make increases to such Base Salary
if, in its sole discretion, any such change is warranted. The Base Salary for
the first calendar year of the Term shall be personally guaranteed by Jonathan
J. Ledecky ("Ledecky"), pursuant to an instrument in form and substance
satisfactory to both the Executive and Ledecky, to be executed at the time of
the execution of this Agreement (the "Base Salary Guaranty").
(b) Annual Bonus. The Executive shall be entitled to receive an
------------
annual bonus payment during the first twelve month period within the Term of Two
Hundred Thousand Dollars ($200,000.00) (the "Annual Bonus Payment"), payable in
such number of payments and at such time as the Board may determine, but in no
event later than the end of each calendar year during the Term. It is
contemplated that a bonus at least equal to the bonus payment during the first
year of the Term will be paid during each twelve month period during the
remainder of the Term.
2
<PAGE>
(c) Incentive Bonus. The Company will develop a written Incentive
---------------
Bonus Plan (the "Bonus Plan") setting forth the criteria under which the
Executive and other officers and key employees of the Company will be eligible
to receive year-end incentive bonus compensation. The Bonus Plan will provide
for the Executive to earn up to 100% of his Base Salary in bonus compensation,
payable out of a bonus pool determined by the Board or a compensation committee
thereof. Subject to the provisions of Section 3(f) hereof, such bonus payments
shall be made to the Executive as soon as practicable after the end of each
calendar year during the Term.
(d) Employee Stock Purchase Plan. The Executive shall be entitled to
----------------------------
participate in the Company's 1997 Employee Stock Purchase Plan in accordance
with the terms set forth therein.
(e) 1997 Long-Term Incentive Plan. The Executive shall be entitled to
-----------------------------
participate in the Company's 1997 Long-Term Incentive Plan in accordance with
the terms set forth therein.
(f) Deferral. The Executive may elect to defer payment of all or any
--------
part of the Annual Bonus Payment or incentive bonus compensation amount payable
in accordance with Section 3(b) and Section 3(c) hereof with respect to any
calendar year during the Term, by giving the Company written notice thereof not
later than June 30 of such year. Additionally, in the event that in respect of
any fiscal year of the Company any amount of Base Salary, Annual Bonus Payment,
incentive bonus compensation or any other amount payable to the Executive
hereunder or otherwise, shall, either alone or in combination with other amounts
payable hereunder or otherwise, result in a payment by the Company that shall
not be currently deductible by it pursuant to the provisions of Section 162(m)
of the Internal Revenue Code, as amended, or like or successor provisions (a
"Non-Deductible Amount"), the Company may elect to defer the payment of the Non-
Deductible Amount. Any amounts, so deferred, either by election of the Executive
or by election of the Company, shall be credited to a bookkeeping account in the
name of the Executive as of the date scheduled for payment hereunder. Such
amounts shall be credited with interest as of each June 30 during the term of
deferral, compounded annually, at a rate per annum equal to the annual rate of
interest announced by Citibank, N.A. in New York, New York as its base rate in
effect on such June 30, but in no event shall such rate exceed 9%. The entire
amount credited to such bookkeeping account shall be paid to the Executive on a
date to be chosen by the Company, but in no event later than the first
anniversary of the termination of the Executive from employment with the
Company.
(g) Option Grant. In connection with the execution and delivery of
------------
this Agreement, and pursuant to the terms of the Company's 1997 Long-Term
Incentive Plan (the "Option Plan"), the Executive will be granted options (the
"Options") to purchase five hundred thousand (500,000) shares of the Company's
Common Stock (the "Common Stock"), on and pursuant to the terms of the Option
Plan and an award agreement. Each Option will be granted at a price equal to
the price at which shares of Common Stock are sold to the public in the IPO (the
"Offering Price"). Subject to the next sentence hereof, the Options will be
exercisable with respect to 25% of the shares underlying the Options on each
anniversary of the date of grant.
3
<PAGE>
Notwithstanding the foregoing, the vesting of the Options will accelerate, (i)
upon a Change In Control (as defined in the Option Plan) in which case all
Options will be exercisable immediately, and (ii) upon the expiration of the
Term for any reason other than "for cause" pursuant to Section 5(c) hereunder,
in which case all Options will be exercisable immediately.
(h) Car Allowance. The Executive shall receive a monthly car
-------------
allowance of $750 during the Term of this Agreement.
(i) In addition, no later than sixty (60) days after the Commencement
date, the Company will purchase from a financial institution acceptable to the
Executive and place in a deferred compensation plan an annuity contract (the
"Annuity Contract") that will provide to the Executive, for each year of the
Executive's life beginning at the age of 55 and ending at the age of 75, an
annual payout of One Hundred Thousand Dollars ($100,000.00). Notwithstanding
anything contained herein to the contrary, the Annuity Contract will become the
property of the Executive upon termination of his employment hereunder.
4. Benefits.
--------
(a) Standard Benefits. During the Term, the Executive shall be
-----------------
entitled to participate in any and all benefit programs and arrangements now in
effect and hereinafter adopted and generally made available by the Company to
its senior officers, including but not limited to, 4 weeks of paid vacation
during each year of the Term in accordance with the policies and procedures of
the Company as in effect from time to time for its senior officers, pension
plans, contributory and non-contributory Company welfare and benefit plans,
disability plans, and medical, death benefit and life insurance plans for which
the Executive shall be eligible, or may become eligible during the Term.
(b) Expense Reimbursement/Provision of Equipment. The Company agrees
--------------------------------------------
to reimburse the Executive for all reasonable and necessary travel, business
entertainment and other business out-of-pocket expenses (including travel to
Washington, D.C.) incurred or expended by him in connection with the performance
of his duties hereunder upon presentation of proper expense statements or
vouchers or such other supporting information as the Company may reasonably
require of the Executive. The Company will, at its sole cost and expense,
provide to the Executive a computer, computer printer, copier, facsimile machine
and such other office equipment as Executive shall reasonably request from time
to time for use by the Executive to carry out his duties hereunder.
(c) Other Executive Perquisites. The Company shall provide the
---------------------------
Executive with other executive perquisites as may be available to or deemed
appropriate for the Executive by the Board or a compensation committee thereof.
4
<PAGE>
5. Termination. This Agreement and the Executive's employment with
-----------
the Company may be terminated in any one of the following ways:
(a) Death. In the event of the death of the Executive during the
-----
Term, this Agreement shall automatically terminate, and the Company shall have
no further obligations hereunder except as provided in Section 5(g) below.
(b) Disability. In the event of the "permanent disability" (as
----------
hereinafter defined) of the Executive during the Term, the Company shall have
the right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, effective upon the giving of such notice (or such later
date as shall be specified in such notice). In the event of such termination,
and subject to the provisions of Section 5(g) below, the Company shall have no
further obligations hereunder, except that the Executive shall be entitled to
be paid his Base Salary under Section 3(a) hereof for a period of two (2) years
from the effective date of termination; provided, however, that the Company
-------- -------
shall only be required to pay that amount of the Executive's Base Salary which
shall not be covered by long-term disability payments, if any, to the Executive.
In addition, upon termination for permanent disability, the Executive shall
continue to participate in any and all pension, insurance and other benefit
plans and programs of the Company during the period the Executive is continuing
to receive his Base Salary. Thereafter, the Executive's rights to participate
in such programs and plans, or to receive similar coverage, if any, shall be as
determined under such programs. For purposes of this Section, "permanent
disability" means any disability as defined under the Company's applicable
disability insurance policy or, if no such policy is available, any physical or
mental disability or incapacity that renders the Executive incapable of
performing the services required of him in accordance with his obligations under
Section 2 hereof for a period of four (4) consecutive months or for shorter
periods aggregating six (6) months during any twelve-month period.
(c) Cause. The Company shall have the right, upon written notice to
-----
the Execu tive, to terminate the Executive's employment under this Agreement for
"Cause" (as hereinafter defined), effective upon the giving of such notice (or
such later date as shall be specified in such notice), and the Company shall
have no further obligations hereunder, except to pay the Executive any amounts
otherwise payable pursuant to Section 5(g) below. It is understood and agreed
that notwithstanding anything contained in this Agreement to the contrary, in
the case of termination by the Company of the Executive for Cause, the Annual
Bonus Payment for the calendar year in which termination occurs shall be
forfeited. The Executive's right to participate in any of the Company's
retirement, insurance and other benefit plans and programs shall be as
determined under such programs and plans. For purposes of this Agreement,
"Cause" means:
(i) fraud, embezzlement or gross insubordination on the part of
the Executive or material breach by the Executive of his obligations
under Sections 6 or 7 hereof;
(ii) a material breach of, gross negligence with respect to,
or the willful failure or refusal by the Executive to perform and
discharge, his duties, responsibilities or obligations under this Agreement
(other than under Sections 6 and 7 hereof, which shall be
5
<PAGE>
governed by clause (i) above, and other than by reason of disability or
death) that is not corrected within ten (10) days following written notice
thereof to the Executive by the Company, such notice to state with
specificity the nature of the breach, failure or refusal; provided that if
--------
such breach, failure or refusal cannot reasonably be corrected within ten
(10) days of written notice thereof, correction shall be commenced by the
Executive within such period and may be corrected within a reasonable
period thereafter;
(iii) conviction of or the entry of a plea of nolo contendere by
---- ----------
the Executive of any felony; or
(iv) illegal drug use or alcohol abuse by the Executive.
(d) Without Cause. The Company shall have the right, upon thirty (30)
-------------
days' written notice given to the Executive, to terminate this Agreement for any
reason whatsoever. In the event of a termination without cause, the Executive
shall be entitled (i) to receive from the Company an amount equal to two times
his Base Salary at the rate then in effect plus any bonus he received during the
previous year, payable in a single lump sum at the time of termination without
cause and (ii) to participate in all pension, insurance and other benefit plan
programs or arrangements on terms identical to those applicable to other senior
officers of the Company. In the event this Agreement is terminated pursuant to
this Section 5(d), the Executive shall be released from his obligations under
Section 6 or Section 7 hereof and all Options previously granted to the
Executive that have not yet vested shall immediately vest and be exercisable.
(e) By Executive. The Executive shall have the right, exercisable at
------------
any time during the Term, to terminate this Agreement for any reason whatsoever,
upon six (6) months written notice to the Company. In such event, and other
than as provided by the terms of Section 5(g) below, the Company shall have no
further obligations hereunder and the Executive shall not be entitled to receive
any severance compensation. Notwithstanding anything contained in this
Agreement to the contrary, in the event of a termination by the Executive, the
amount of any unpaid Annual Bonus Payment for the calendar year in which the
termination occurs shall be forfeited.
(f) Effect of Termination. Upon the termination of the Executive's
---------------------
employment hereunder for any reason, the Company shall have no further
obligations hereunder, except as otherwise provided herein. The Executive,
however, shall continue to have the obligations provided in Section 6 and 7
hereof, except as otherwise provided herein. Without limiting the generality of
the foregoing, all Options granted to the Executive shall immediately vest and
be exercisable as of the date of any termination of this Agreement, other than a
termination pursuant to Section 5(c) or Section 5(e) hereof. Furthermore, upon
such termination, the Executive shall be deemed to have resigned immediately
from all offices and directorships held by him in the Company or any of its
subsidiaries.
(g) General Provisions. Upon termination of this Agreement for any
------------------
reasons provided above, the Executive (or his estate or personal representative,
as applicable) shall be entitled to receive all compensation earned (including
a pro-rata portion of the Annual Bonus Payment in the event of a termination
pursuant to Section 5(a) or Section 5(b) hereof) and
6
<PAGE>
all benefits and reimbursements accrued and due through the effective date of
termination. Without limiting the generality of the foregoing, all Options
granted to the Executive shall immediately vest and be exercisable upon any
termination of this Agreement, other than a termination pursuant to Section 5(c)
or Section 5(e) hereof. Additional compensation subsequent to termination, if
any, will be due and payable to the Executive only to the extent and in the
manner expressly provided above. In the event that the Executive secures
employment with another entity during the period that any payment is continuing
pursuant to the provisions of this Section 5, the amounts to be paid hereunder
shall be reduced by the amount of the Executive's earnings from such other
employment.
6. Confidentiality. The Executive acknowledges that, by reason of
---------------
his employment by the Company, he will have access to confidential information
of the Company and its subsidiaries and affiliates, including, without
limitation, information and knowledge pertaining to products, inventions,
discoveries, improvements, innovations, designs, ideas, trade secrets,
proprietary information, manufacturing, packaging, advertising, distribution and
sales methods, sales and profit figures, customer and client lists and
relationships between the Company, any of its subsidiaries or affiliates and
dealers, distributors, sales representatives, wholesalers, customers, clients,
suppliers and others who have business dealings with them ("Confidential
Information"). The Executive acknowledges that such Confidential Information is
a valuable and unique asset of the Company and its subsidiaries and affiliates
and covenants that, both during and after the Term, he will not disclose any
Confidential Information to any person (except as his duties as an employee of
the Company may require) without the prior written authorization of the Board.
The obligation of confidentiality imposed by this Section 6 shall not apply to
Confidential Information that otherwise becomes generally known in the industry
or to the public through no act of the Executive in breach of this Agreement or
any other party in violation of an existing confidentiality agreement with the
Company or any subsidiary or affiliate or which is required to be disclosed by
court order or applicable law.
7. Covenant Not to Compete.
-----------------------
(a) Scope of Covenant. The Executive agrees that during the Term and
-----------------
for a period equal to the longer of (i) one (1) year commencing upon the
expiration or termination of the Executive's employment hereunder (for any
reason whatsoever) or (ii) the period during which the Executive is entitled to
receive and is receiving any payment pursuant to Section 5 hereof, the Executive
shall not, directly or indirectly, for himself or on behalf of or in conjunction
with any other person, persons, company, partnership, corporation or business of
whatever nature, without the prior written consent of the Company:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in direct
competition with the Company within 100 miles of the principal executive
offices or the principal operations of the Company (the "Territory");
7
<PAGE>
(ii) call upon any person who is at that time, or who was at any
time within one (1) year prior to that time, an employee of the Company
(including the respective subsidiaries thereof) in a managerial capacity
for the purpose or with the intent of enticing such employee away from or
out of the employ of the Company (including the respective subsidiaries
thereof), provided that the Executive shall be permitted to call upon and
hire any member of his immediate family;
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services in
direct competition with the Company (including the respective subsidiaries
thereof) within the Territory; or
(iv) call upon any prospective acquisition candidate, on the
Executive's own behalf or on behalf of any competitor, which candidate was
either called upon by the Company (including the respective subsidiaries
thereof) or for which the Company (including the respective subsidiaries
thereof) made an acquisition analysis, for the purpose of acquiring such
entity;
provided, however, that nothing in this Section 7(a) shall be construed to
- -------- -------
preclude the Executive from making any investments in the securities of any
business enterprise whether or not engaged in competition with the Company or
any of its subsidiaries, to the extent that such securities are actively traded
on a national securities exchange or in the over-the-counter market in the
United States or on any foreign securities exchange.
(b) Reasonableness. It is agreed by the parties that the foregoing
--------------
covenants in this Section 7 impose a reasonable restraint on the Executive in
light of the activities and business of the Company (including the Company's
subsidiaries) on the date of the execution of this Agreement and the current
plans of the Company (including the Company's subsidiaries); but it is also the
intent of the Company and the Executive that such covenants be construed and
enforced in accordance with the changing activities, business and locations of
the Company (including the Company's other subsidiaries) throughout the term of
this covenant.
(c) Severability. The covenants in this Section 7 are severable and
------------
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth are unreasonable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent which the court deems reasonable,
and this Agreement shall thereby be reformed.
(d) Enforcement by the Company not Limited. All of the covenants in
--------------------------------------
this Section 7 shall be construed as an agreement independent of any other
provision in this Agreement, and the existence of any claim or cause of action
of the Executive against the Company, whether predicated
8
<PAGE>
in this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of such covenants. It is specifically agreed that the
period of one (1) year stated at the beginning of this Section 7, during which
the agreements and covenants of the Executive made in this Section 7 shall be
effective, shall be computed by excluding from such computation any time during
which the Executive is in violation of any provision of this Section 7.
(e) Change of Relevant Law. Notwithstanding any of the foregoing, if
----------------------
any appli cable law shall reduce the time period during which the Executive
shall be prohibited from engaging in any competitive activity described in
Section 7(a) hereof, the period of time for which the Executive shall be
prohibited from engaging in competitive activities pursuant to Section 7(a)
hereof shall be the maximum time permitted by law. However, in the event that
the time period specified by Section 7(a) shall be so reduced, then,
notwithstanding the provisions of Section 5 hereof, the Executive shall be
entitled to receive from the Company his Base Salary at the rate then in effect
solely for the longer of (i) the time period during which the provisions of
Section 7(a) shall be enforceable under the provisions of such applicable law,
or (ii) the time period during which the Executive is not engaging in any
competitive activity, but in no event longer than the term provided in Section
5.
8. Specific Performance. The Executive acknowledges that the
--------------------
services to be rendered by the Executive are of a special, unique and
extraordinary character and, in connection with such services, the Executive
will have access to confidential information vital to the Company's business
and the business of the Company's subsidiaries and affiliates. By reason of
this, the Executive consents and agrees that if the Executive violates any of
the provisions of Section 6 or 7 hereof, the Company and its subsidiaries and
affiliates would sustain irreparable injury and that monetary damages would not
provide adequate remedy to the Company or any of its subsidiaries or affiliates.
Therefore, the Executive hereby agrees that the Company and any affected
subsidiary and affiliate shall be entitled to have Sections 6 or 7 hereof
specifically enforced (including, without limitation, by injunctions and
restraining orders) by any court having equity jurisdiction. Nothing contained
herein shall be construed as prohibiting the Company or any of its subsidiaries
or affiliates from pursuing any other remedies available to it for such breach
or threatened breach, including the recovery of damages from the Executive.
9. Deductions and Withholding. The Executive agrees that the
--------------------------
Company or its subsidiaries or affiliates, as applicable, shall withhold from
any and all compensation paid to and required to be paid to the Executive
pursuant to this Agreement, all Federal, state, local and/or other taxes which
the Company determines are required to be withheld in accordance with applicable
statutes or regulation from time to time in effect and all amounts required to
be deducted in respect of the Executive's coverage under applicable employee
benefit plans. For purposes of this Agreement and calculations hereunder, all
such deductions and withholdings shall be deemed to have been paid to and
received by the Executive.
10. No Conflicts. The Executive hereby represents and warrants to
------------
the Company that his execution, delivery and performance of this Agreement and
any other agreement to be delivered pursuant to this Agreement will not (a)
require the consent, approval or action of any other
9
<PAGE>
person or (b) violate, conflict with or result in the breach of any of the terms
of, or constitute (or with notice or lapse of time or both, constitute) a
default under, any agreement, arrangement or understanding with respect to the
Executive's employment to which the Executive is a party or by which the
Executive is bound or subject including, without limitation, any non-competition
or non-disclosure provisions in agreements to which the Executive is or was a
party. The Executive hereby agrees to indemnify and hold harmless the Company
and its directors, officers, employees, agents, representatives, subsidiaries
and affiliates (and each such subsidiary's and affiliate's directors, officers,
employees, agents and representatives) from and against any and all losses,
liabilities or claims (including interest, penalties and attorneys' fees,
disbursements and related charges) based upon or arising out of the Executive's
breach of any of the foregoing representations and warranties.
11. Complete Agreement. This Agreement is not a promise of future
------------------
employment. This Agreement embodies the entire agreement of the parties with
respect to the Executive's employment, compensation, perquisites and related
items and supersedes any other prior oral or written agreements, arrangements or
understandings between the Executive and the Company or any of its subsidiaries
or affiliates, and any such prior agreements, arrangements or understandings are
hereby terminated and of no further effect. This Agreement may not be changed
or terminated orally but only by an agreement in writing signed by the parties
hereto.
12. Waiver. The Waiver by the Company of a breach of any provision
------
of this Agreement by the Executive shall not operate or be construed as a waiver
of any subsequent breach by him. The waiver by the Executive of a breach of any
provision of this Agreement by the Company shall not operate or be construed as
a waiver of any subsequent breach by the Company.
13. Governing Law; Jurisdiction.
---------------------------
(a) This Agreement shall be subject to, and governed by, the laws of
the State of Delaware.
(b) Any action to enforce any of the provisions of this Agreement
shall be brought in a local or federal court within the District of Columbia.
The Parties consent to the jurisdiction of such court and to the service of
process in any manner provided by District of Columbia law. Each party
irrevocably waives any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding brought in such court
and any claim that such suit, action or proceeding brought in such court has
been brought in an inconvenient forum and agrees that service of process in
accordance with the foregoing sentences shall be deemed in every respect
effective and valid personal service of process upon such party.
(c) Assignability. This obligations of the Executive may not be
-------------
delegated and, except with respect to the designation of beneficiaries in
connection with any of the benefits payable to the Executive hereunder, the
Executive may not, without the Company's written consent thereto, assign,
transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this
Agreement or any interest herein. Any such attempted delegation or disposition
shall be null and void and without
10
<PAGE>
effect. The Company and the Executive agree that this Agreement and all of the
Company's rights and obligations hereunder may be assigned or transferred by the
Company to and shall be assumed by and be binding upon any successor to the
Company. The term "successor" means, with respect to the Company or any of its
subsidiaries, any corporation or other business entity which, by merger,
consolidation, purchase of the assets or otherwise acquires all or a material
part of the assets of the Company.
15. Severability. If any provision of this Agreement of any part
------------
thereof, including, without limitation, Sections 6 and 7 hereof, as applied to
either party or to any circumstances shall be adjudged by a court of competent
jurisdiction to be void or unenforceable, the same shall in no way affect any
other provision of this Agreement or remaining part thereof, which shall be
given full effect without regard to the invalid or unenforceable part thereof,
or the validity or enforceability of this Agreement.
If any court construes any of the provisions of Sections 6 or 7
hereof, or any part thereof, to be unreasonable because of the duration of such
provision or the geographic scope thereof, such court may reduce the duration or
restrict or redefine the geographic scope of such provision and enforce such
provision so reduced, restricted or redefined.
16. Notices. All notices to the Company or the Executive permitted
-------
or required hereunder shall be in writing and shall be delivered personally, by
telecopier or by courier service providing for next-day delivery or sent by
registered or certified mail, return receipt requested, to the following
addresses:
If to the Company:
Consolidation Capital Corporation
1747 Pennsylvania Avenue, N.W
Suite 900
Washington, D.C. 20006
Attn: General Counsel
Fax: (202)
With a required copy to:
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
Attn: Linda L. Griggs, Esq.
Fax: (202) 467-7176
11
<PAGE>
If to the Executive:
_________________________
_________________________
_________________________
Either party may change the address to which notices shall be sent by sending
written notice of such change of address to the other party. Any such notice
shall be deemed given, if delivered personally, upon receipt; if telecopied,
when telecopied; if sent by courier service providing for next-day delivery, the
next business day following deposit with such courier service; and if sent by
certified or registered mail, three days after deposit (postage prepaid) with
the U.S. mail service.
17. Section Headings. The section headings contained in this
----------------
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
18. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
CONSOLIDATION CAPITAL CORPORATION
__________________________________
By:
Its:
EXECUTIVE
__________________________________
12
<PAGE>
EXHIBIT 10.07
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement"), dated as of November __, 1997, between
CONSOLIDATION CAPITAL CORPORATION, a Delaware corporation (the "Company"), and
F. TRAYNOR BECK, a resident of the Commonwealth of Pennsylvania (the
"Executive").
W I T N E S S E T H:
-------------------
WHEREAS, the Company wishes to secure the services of the Executive
and the Executive wishes to furnish such services to the Company pursuant to the
terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and obligations hereinafter set forth, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. Employment: Term. The Company hereby agrees to employ the
----------------
Executive, and the Executive hereby agrees to enter into such employment, as
Executive Vice President and General Counsel of the Company, for the period
commencing on the date of the closing of the Company's initial public offering
(the "Commencement Date") and ending on the date two years from the Commencement
Date, unless terminated sooner pursuant to Section 5 hereof. The initial two
year term shall be extended for additional successive periods of one year each,
on the same terms and conditions contained herein, unless six months prior
written notice is given by the Company of its intention to terminate the term of
this Agreement without cause. For purposes hereof, the period of Executive's
employment hereunder is referred to as the "Term."
2. Duties and Extent of Services.
-----------------------------
(a) During the Term, the Executive shall serve as Executive Vice
President and General Counsel of the Company with such duties and
responsibilities as are consistent with such positions, and shall so serve
faithfully and to the best of his ability, under the direction and supervision
of the Company's Board of Directors (the "Board").
(b) The Executive shall serve as a Director of the Company if elected
to such position in accordance with law and hold such other positions and
executive offices of the Company and/or of any of the Company's subsidiaries or
affiliates as may from time to time be authorized by the Board, provided that
each such position shall be commensurate with the Executive's standing in the
business community as Executive Vice President and General Counsel of the
Company. The Executive shall not be entitled to any compensation other than the
compensation provided for herein for serving during the Term as a Director of
the Company or in any other office or position of the
<PAGE>
Company, or any of its subsidiaries or affiliates, unless the Board shall have
specifically approved such additional compensation.
(c) The Executive shall devote his full business time, attention and
efforts to his duties hereunder. The Executive shall diligently perform to the
best of his ability all of the duties required of him as Executive Vice
President and General Counsel of the Company, and in the other positions or
offices of the Company or its subsidiaries or affiliates required of him
hereunder. The Executive shall faithfully adhere to, execute and fulfill all
policies established by the Company. Not withstanding the foregoing provisions
of this Section, the Executive may participate in charitable, civic, political,
social, trade, or other non-profit organizations to the extent such
participation does not materially interfere with the performance of his duties
hereunder, and may serve as a non-management director of business corporations
(or in a like capacity in other for-profit organizations) so long as it does not
materially interfere with the Executive's obligations hereunder.
(d) The Executive shall not be required to relocate to Washington,
D.C., to perform his duties hereunder, but acknowledges and agrees that he will
be in Washington, D.C. to the extent necessary to perform his duties hereunder.
Instead, the Company will provide, at its sole cost and expense, office space in
or around the city of Philadelphia, from which the Executive will perform his
duties under the terms of this Agreement. The Executive understands that he
will be required to travel from time to time in order to perform his duties
hereunder (including travel to Washington, D.C.) and agrees to undertake such
travel as part of his duties to the Company under the terms of this Agreement.
3. Compensation
------------
(a) Base Salary. Effective as of the Commencement Date, the Company
-----------
shall pay the Executive a base salary (the "Base Salary") equal to Three Hundred
Thousand Dollars ($300,00.00) per year, payable on a regular basis in accordance
with the Company's regular payroll policies in effect from time to time, but not
less frequently than monthly. On at least an annual basis, the Board will
review the Executive's performance and may make increases to such Base Salary
if, in its sole discretion, any such change is warranted. The Base Salary for
the first calendar year of the Term shall be personally guaranteed by Jonathan
J. Ledecky ("Ledecky"), pursuant to an instrument in form and substance
satisfactory to both the Executive and Ledecky, to be executed at the time of
the execution of this Agreement (the "Base Salary Guaranty").
(b) Annual Bonus. The Executive shall be entitled to receive an
------------
annual bonus payment during the first twelve month period within the Term of
Two Hundred Thousand Dollars ($200,000.00) (the "Annual Bonus Payment"), payable
in such number of payments and at such time as the Board may determine, but in
no event later than the end of each calendar year during the Term. It is
contemplated that a bonus at least equal to the bonus payment during the first
year of the Term will be paid during each twelve month period during the
remainder of the Term.
2
<PAGE>
(c) Incentive Bonus. The Company will develop a written Incentive
---------------
Bonus Plan (the "Bonus Plan") setting forth the criteria under which the
Executive and other officers and key employees of the Company will be eligible
to receive year-end incentive bonus compensation. The Bonus Plan will provide
for the Executive to earn up to 100% of his Base Salary in bonus compensation,
payable out of a bonus pool determined by the Board or a compensation committee
thereof. Subject to the provisions of Section 3(f) hereof, such bonus payments
shall be made to the Executive as soon as practicable after the end of each
calendar year during the Term.
(d) Employee Stock Purchase Plan. The Executive shall be entitled to
----------------------------
participate in the Company's 1997 Employee Stock Purchase Plan in accordance
with the terms set forth therein.
(e) 1997 Long-Term Incentive Plan. The Executive shall be entitled to
-----------------------------
participate in the Company's 1997 Long-Term Incentive Plan in accordance with
the terms set forth therein.
(f) Deferral. The Executive may elect to defer payment of all or any
--------
part of the Annual Bonus Payment or incentive bonus compensation amount payable
in accordance with Section 3(b) and Section 3(c) hereof with respect to any
calendar year during the Term, by giving the Company written notice thereof not
later than June 30 of such year. Additionally, in the event that in respect of
any fiscal year of the Company any amount of Base Salary, Annual Bonus Payment,
incentive bonus compensation or any other amount payable to the Executive
hereunder or otherwise, shall, either alone or in combination with other amounts
payable hereunder or otherwise, result in a payment by the Company that shall
not be currently deductible by it pursuant to the provisions of Section 162(m)
of the Internal Revenue Code, as amended, or like or successor provisions (a
"Non-Deductible Amount"), the Company may elect to defer the payment of the Non-
Deductible Amount. Any amounts, so deferred, either by election of the Executive
or by election of the Company, shall be credited to a bookkeeping account in the
name of the Executive as of the date scheduled for payment hereunder. Such
amounts shall be credited with interest as of each June 30 during the term of
deferral, compounded annually, at a rate per annum equal to the annual rate of
interest announced by Citibank, N.A. in New York, New York as its base rate in
effect on such June 30, but in no event shall such rate exceed 9%. The entire
amount credited to such bookkeeping account shall be paid to the Executive on a
date to be chosen by the Company, but in no event later than the first
anniversary of the termination of the Executive from employment with the
Company.
(g) Option Grant. In connection with the execution and delivery of
------------
this Agreement, and pursuant to the terms of the Company's 1997 Long-Term
Incentive Plan (the "Option Plan"), the Executive will be granted options (the
"Options") to purchase five hundred thousand (500,000) shares of the Company's
Common Stock (the "Common Stock"), on and pursuant to the terms of the Option
Plan and an award agreement. Each Option will be granted at a price equal to
the price at which shares of Common Stock are sold to the public in the IPO (the
"Offering Price"). Subject to the next sentence hereof, the Options will be
exercisable with respect to 25% of the shares underlying the Options on each
anniversary of the date of grant. Notwithstanding the foregoing, the
3
<PAGE>
vesting of the Options will accelerate, (i) upon a Change In Control (as defined
in the Option Plan) in which case all Options will be exercisable immediately,
and (ii) upon the expiration of the Term for any reason other than "for cause"
pursuant to Section 5(c) hereunder, in which case all Options will be
exercisable immediately.
(h) Car Allowance. The Executive shall receive a monthly car
-------------
allowance of $750 during the Term of this Agreement.
4. Benefits.
--------
(a) Standard Benefits. During the Term, the Executive shall be
-----------------
entitled to participate in any and all benefit programs and arrangements now in
effect and hereinafter adopted and generally made available by the Company to
its senior officers, including but not limited to, up to 4 weeks of paid
vacation during each year of the Term in accordance with the policies and
procedures of the Company as in effect from time to time for its senior
officers, pension plans, contributory and non-contributory Company welfare and
benefit plans, disability plans, and medical, death benefit and life insurance
plans for which the Executive shall be eligible, or may become eligible during
the Term.
(b) Expense Reimbursement/Provision of Equipment. The Company agrees
--------------------------------------------
to reimburse the Executive for all reasonable and necessary travel, business
entertainment and other business out-of-pocket expenses (including travel to
Washington, D.C.) incurred or expended by him in connection with the performance
of his duties hereunder upon presentation of proper expense statements or
vouchers or such other supporting information as the Company may reasonably
require of the Executive. The Company will, at its sole cost and expense,
provide to the Executive a computer, computer printer, copier, facsimile
machine and such other office equipment as Executive shall reasonably request
from time to time for use by the Executive to carry out his duties hereunder.
(c) Other Executive Perquisites. The Company shall provide the
---------------------------
Executive with other executive perquisites as may be available to or deemed
appropriate for the Executive by the Board or a compensation committee thereof.
5. Termination. This Agreement and the Executive's employment with
-----------
the Company may be terminated in any one of the following ways:
(a) Death. In the event of the death of the Executive during the
-----
Term, this Agreement shall automatically terminate, and the Company shall have
no further obligations hereunder except as provided in Section 5(g) below.
(b) Disability. In the event of the "permanent disability" (as
----------
hereinafter defined) of the Executive during the Term, the Company shall have
the right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, effective upon the giving of such notice (or such later
date as shall be specified in such notice). In the event of such termination,
and subject to the provisions of Section 5(g) below, the Company shall have no
further obligations here-
4
<PAGE>
under, except that the Executive shall be entitled to be paid his Base Salary
under Section 3(a) hereof for a period of two (2) years from the effective date
of termination; provided, however, that the Company shall only be required to
-------- -------
pay that amount of the Executive's Base Salary which shall not be covered by
long-term disability payments, if any, to the Executive. In addition, upon
termination for permanent disability, the Executive shall continue to
participate in any and all pension, insurance and other benefit plans and
programs of the Company during the period the Executive is continuing to receive
his Base Salary. Thereafter, the Executive's rights to participate in such
programs and plans, or to receive similar coverage, if any, shall be as
determined under such programs. For purposes of this Section, "permanent
disability" means any disability as defined under the Company's applicable
disability insurance policy or, if no such policy is available, any physical or
mental disability or incapacity that renders the Executive incapable of
performing the services required of him in accordance with his obligations under
Section 2 hereof for a period of four (4) consecutive months or for shorter
periods aggregating six (6) months during any twelve-month period.
(c) Cause. The Company shall have the right, upon written notice to
-----
the Executive, to terminate the Executive's employment under this Agreement for
"Cause" (as hereinafter defined), effective upon the giving of such notice (or
such later date as shall be specified in such notice), and the Company shall
have no further obligations hereunder, except to pay the Executive any amounts
otherwise payable pursuant to Section 5(g) below. It is understood and agreed
that not withstanding anything contained in this Agreement to the contrary, in
the case of termination by the Company of the Executive for Cause, the Annual
Bonus Payment for the calendar year in which termination occurs shall be
forfeited. The Executive's right to participate in any of the Company's
retirement, insurance and other benefit plans and programs shall be as
determined under such programs and plans. For purposes of this Agreement,
"Cause" means:
(i) fraud, embezzlement or gross insubordination on the part of
the Executive or material breach by the Executive of his obligations
under Sections 6 or 7 hereof;
(ii) a material breach of, gross negligence with respect to,
or the willful failure or refusal by the Executive to perform and
discharge, his duties, responsibilities or obligations under this Agreement
(other than under Sections 6 and 7 hereof, which shall be governed by
clause (i) above, and other than by reason of disability or death) that is
not corrected within ten (10) days following written notice thereof to
the Executive by the Company, such notice to state with specificity the
nature of the breach, failure or refusal; provided that if such breach,
--------
failure or refusal cannot reasonably be corrected within ten (10) days of
written notice thereof, correction shall be commenced by the Executive
within such period and may be corrected within a reasonable period
thereafter;
(iii) conviction of or the entry of a plea of nolo contendere by
---- ----------
the Executive of any felony; or
(iv) illegal drug use or alcohol abuse by the Executive.
5
<PAGE>
(d) Without Cause. The Company shall have the right, upon thirty (30)
-------------
days' written notice given to the Executive, to terminate this Agreement for any
reason whatsoever. In the event of a termination without cause, the Executive
shall be entitled (i) to receive from the Company an amount equal to two times
his Base Salary at the rate then in effect plus any bonus he received during the
previous year (or if this Agreement is terminated without cause by the Company
prior to the receipt by the Executive of a bonus hereunder, the bonus shall be
deemed to be $200,000), payable in a single lump sum at the time of termination
without cause and (ii) to participate in all pension, insurance and other
benefit plan programs or arrangements on terms identical to those applicable to
other senior officers of the Company. In the event this Agreement is terminated
pursuant to this Section 5(d), the Executive shall be released from his
obligations under Section 6 or Section 7 hereof and all Options previously
granted to the Executive that have not yet vested shall immediately vest and be
exercisable.
(e) By Executive. The Executive shall have the right, exercisable at
------------
any time during the Term, to terminate this Agreement for any reason whatsoever,
upon six (6) months written notice to the Company. In such event, and other
than as provided by the terms of Section 5(g) below, the Company shall have no
further obligations hereunder and the Executive shall not be entitled to receive
any severance compensation. Notwithstanding anything contained in this
Agreement to the contrary, in the event of a termination by the Executive, the
amount of any unpaid Annual Bonus Payment for the calendar year in which the
termination occurs shall be forfeited.
(f) Effect of Termination. Upon the termination of the Executive's
---------------------
employment hereunder for any reason, the Company shall have no further
obligations hereunder, except as other wise provided herein. The Executive,
however, shall continue to have the obligations provided in Sections 6 and 7
hereof, except as otherwise provided herein. Without limiting the generality of
the foregoing, all Options granted to the Executive shall immediately vest and
be exercisable as of the date of any termination of this Agreement, other than a
termination pursuant to Section 5(c), or Section 5(e) hereof. Furthermore, upon
such termination, the Executive shall be deemed to have resigned immediately
from all offices and directorships held by him in the Company or any of its
subsidiaries.
(g) General Provisions. Upon termination of this Agreement for any
------------------
reasons provided above, the Executive (or his estate or personal representative,
as applicable) shall be entitled to receive all compensation earned (including a
pro-rata portion of the Annual Bonus Payment in the event of a termination
pursuant to Section 5(a) or Section 5(b) hereof and all benefits and
reimbursements accrued and due through the effective date of termination.
Without limiting the generality of the foregoing, all Options granted to the
Executive shall immediately vest and be exercisable upon any termination of this
Agreement, other than a termination pursuant to Section 5(c) or Section 5(e)
hereof. Additional compensation subsequent to termination, if any, will be due
and payable to the Executive only to the extent and in the manner expressly
provided above. In the event that the Executive secures employment with another
entity during the period that any payment is continuing pursuant to the
provisions of this Section 5, the amounts to be paid hereunder shall be reduced
by the amount of the Executive's earnings from such other employment.
6
<PAGE>
6. Confidentiality. The Executive acknowledges that, by reason of
---------------
his employment by the Company, he will have access to confidential information
of the Company and its subsidiaries and affiliates, including, without
limitation, information and knowledge pertaining to products, inventions,
discoveries, improvements, innovations, designs, ideas, trade secrets,
proprietary information, manufacturing, packaging, advertising, distribution and
sales methods, sales and profit figures, customer and client lists and
relationships between the Company, any of its subsidiaries or affiliates and
dealers, distributors, sales representatives, wholesalers, customers, clients,
suppliers and others who have business dealings with them ("Confidential
Information"). The Executive acknowledges that such Confidential Information is
a valuable and unique asset of the Company and its subsidiaries and affiliates
and covenants that, both during and after the Term, he will not disclose any
Confidential Information to any person (except as his duties as an employee of
the Company may require) without the prior written authorization of the Board.
The obligation of confidentiality imposed by this Section 6 shall not apply to
Confidential Information that otherwise becomes generally known in the industry
or to the public through no act of the Executive in breach of this Agreement or
any other party in violation of an existing confidentiality agreement with the
Company or any subsidiary or affiliate or which is required to be disclosed by
court order or applicable law.
7. Covenant Not to Compete.
-----------------------
(a) Scope of Covenant. The Executive agrees that during the Term and
-----------------
for a period equal to the longer of (i) one (1) year commencing upon the
expiration or termination of the Executive's employment hereunder (for any
reason whatsoever) or (ii) the period during which the Executive is entitled to
receive and is receiving any payment pursuant to Section 5 hereof, the
Executive shall not, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature, without the prior written consent of the Company:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in direct
competition with the Company within 100 miles of the principal executive
offices or the principal operations of the Company (the "Territory");
(ii) call upon any person who is at that time, or who was at any
time within one (1) year prior to that time, an employee of the Company
(including the respective subsidiaries thereof) in a managerial capacity
for the purpose or with the intent of enticing such employee away from or
out of the employ of the Company (including the respective subsidiaries
thereof), provided that the Executive shall be permitted to call upon and
hire any member of his immediate family;
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or
7
<PAGE>
services in direct competition with the Company (including the respective
subsidiaries thereof) within the Territory; or
(iv) call upon any prospective acquisition candidate, on the
Executive's own behalf or on behalf of any competitor, which candidate was
either called upon by the Company (including the respective subsidiaries
thereof) or for which the Company (including the respective subsidiaries
thereof) made an acquisition analysis, for the purpose of acquiring such
entity;
provided, however, that nothing in this Section 7(a) shall be construed to
- -------- -------
preclude the Executive from making any investments in the securities of any
business enterprise whether or not engaged in competition with the Company or
any of its subsidiaries, to the extent that such securities are actively traded
on a national securities exchange or in the over-the-counter market in the
United States or on any foreign securities exchange.
(b) Reasonableness. It is agreed by the parties that the foregoing
--------------
covenants in this Section 7 impose a reasonable restraint on the Executive in
light of the activities and business of the Company (including the Company's
subsidiaries) on the date of the execution of this Agreement and the current
plans of the Company (including the Company's subsidiaries); but it is also the
intent of the Company and the Executive that such covenants be construed and
enforced in accordance with the changing activities, business and locations of
the Company (including the Company's other subsidiaries) throughout the term
of this covenant.
(c) Severability. The covenants in this Section 7 are severable and
------------
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth are unreasonable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent which the court deems
reasonable, and this Agreement shall thereby be reformed.
(d) Enforcement by the Company not Limited. All of the covenants in
--------------------------------------
this Section 7 shall be construed as an agreement independent of any other
provision in this Agreement, and the existence of any claim or cause of action
of the Executive against the Company, whether predicated in this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
such covenants. It is specifically agreed that the period of one (1) year
stated at the beginning of this Section 7, during which the agreements and
covenants of the Executive made in this Section 7 shall be effective, shall be
computed by excluding from such computation any time during which the Executive
is in violation of any provision of this Section 7.
(e) Change of Relevant Law. Notwithstanding any of the foregoing, if
----------------------
any applicable law shall reduce the time period during which the Executive
shall be prohibited from engaging in any competitive activity described in
Section 7(a) hereof, the period of time for which the Executive shall be
prohibited from engaging in competitive activities pursuant to Section 7(a)
hereof shall
8
<PAGE>
be the maximum time permitted by law. However, in the event that the time period
specified by Section 7(a) shall be so reduced, then, notwithstanding the
provisions of Section 5 hereof, the Executive shall be entitled to receive from
the Company his Base Salary at the rate then in effect solely for the longer of
(i) the time period during which the provisions of Section 7(a) shall be
enforceable under the provisions of such applicable law, or (ii) the time period
during which the Executive is not engaging in any competitive activity, but in
no event longer than the term provided in Section 5.
8. Specific Performance. The Executive acknowledges that the
--------------------
services to be rendered by the Executive are of a special, unique and
extraordinary character and, in connection with such services, the Executive
will have access to confidential information vital to the Company's business
and the business of the Company's subsidiaries and affiliates. By reason of
this, the Executive consents and agrees that if the Executive violates any of
the provisions of Section 6 or 7 hereof, the Company and its subsidiaries and
affiliates would sustain irreparable injury and that monetary damages would not
provide adequate remedy to the Company or any of its subsidiaries or affiliates.
Therefore, the Executive hereby agrees that the Company and any affected
subsidiary and affiliate shall be entitled to have Sections 6 or 7 hereof
specifically enforced (including, without limitation, by injunctions and
restraining orders) by any court having equity jurisdiction. Nothing contained
herein shall be construed as prohibiting the Company or any of its subsidiaries
or affiliates from pursuing any other remedies available to it for such breach
or threatened breach, including the recovery of damages from the Executive.
9. Deductions and Withholding. The Executive agrees that the
--------------------------
Company or its subsidiaries or affiliates, as applicable, shall withhold from
any and all compensation paid to and required to be paid to the Executive
pursuant to this Agreement, all Federal, state, local and/or other taxes which
the Company determines are required to be withheld in accordance with applicable
statutes or regulation from time to time in effect and all amounts required to
be deducted in respect of the Executive's coverage under applicable employee
benefit plans. For purposes of this Agreement and calculations hereunder,
all such deductions and withholdings shall be deemed to have been paid to and
received by the Executive.
10. No Conflicts. The Executive hereby represents and warrants to
------------
the Company that his execution, delivery and performance of this Agreement and
any other agreement to be delivered pursuant to this Agreement will not (a)
require the consent, approval or action of any other person or (b) violate,
conflict with or result in the breach of any of the terms of, or constitute (or
with notice or lapse of time or both, constitute) a default under, any
agreement, arrangement or under standing with respect to the Executive's
employment to which the Executive is a party or by which the Executive is bound
or subject including, without limitation, any non-competition or non-disclosure
provisions in agreements to which the Executive is or was a party. The Executive
hereby agrees to indemnify and hold harmless the Company and its directors,
officers, employees, agents, representatives, subsidiaries and affiliates (and
each such subsidiary's and affiliate's directors, officers, employees, agents
and representatives) from and against any and all losses, liabilities or claims
(including interest, penalties and attorneys' fees, disbursements and related
charges) based upon or arising out of the Executive's breach of any of the
foregoing representations and warranties.
9
<PAGE>
11. Complete Agreement. This Agreement is not a promise of future
------------------
employment. This Agreement embodies the entire agreement of the parties with
respect to the Executive's employment, compensation, perquisites and related
items and supersedes any other prior oral or written agreements, arrangements or
understandings between the Executive and the Company or any of its subsidiaries
or affiliates, and any such prior agreements, arrangements or understandings are
hereby terminated and of no further effect. This Agreement may not be changed
or terminated orally but only by an agreement in writing signed by the parties
hereto.
12. Waiver. The Waiver by the Company of a breach of any provision
------
of this Agreement by the Executive shall not operate or be construed as a waiver
of any subsequent breach by him. The waiver by the Executive of a breach of any
provision of this Agreement by the Company shall not operate or be construed as
a waiver of any subsequent breach by the Company.
13. Governing Law; Jurisdiction.
---------------------------
(a) This Agreement shall be subject to, and governed by, the laws of
the State of Delaware.
(b) Any action to enforce any of the provisions of this Agreement
shall be brought in a local or federal court within the District of Columbia.
The Parties consent to the jurisdiction of such court and to the service of
process in any manner provided by District of Columbia law. Each party
irrevocably waives any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding brought in such court
and any claim that such suit, action or proceeding brought in such court has
been brought in an inconvenient forum and agrees that service of process in
accordance with the foregoing sentences shall be deemed in every respect
effective and valid personal service of process upon such party.
(c) Assignability. This obligations of the Executive may not be
-------------
delegated and, except with respect to the designation of beneficiaries in
connection with any of the benefits payable to the Executive hereunder, the
Executive may not, without the Company's written consent thereto, assign,
transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this
Agreement or any interest herein. Any such attempted delegation or disposition
shall be null and void and without effect. The Company and the Executive agree
that this Agreement and all of the Company's rights and obligations hereunder
may be assigned or transferred by the Company to and shall be assumed by and be
binding upon any successor to the Company. The term "successor" means, with
respect to the Company or any of its subsidiaries, any corporation or other
business entity which, by merger, consolidation, purchase of the assets or
otherwise acquires all or a material part of the assets of the Company.
15. Severability. If any provision of this Agreement of any part
------------
thereof, including, without limitation, Sections 6 and 7 hereof, as applied to
either party or to any circumstances shall be adjudged by a court of competent
jurisdiction to be void or unenforceable, the same shall in no way affect any
other provision of this Agreement or remaining part thereof, which shall be
given full
10
<PAGE>
effect without regard to the invalid or unenforceable part thereof,
or the validity or enforceability of this Agreement.
If any court construes any of the provisions of Sections 6 or 7
hereof, or any part thereof, to be unreasonable because of the duration of such
provision or the geographic scope thereof, such court may reduce the duration or
restrict or redefine the geographic scope of such provision and enforce such
provision so reduced, restricted or redefined.
16. Notices. All notices to the Company or the Executive permitted
-------
or required hereunder shall be in writing and shall be delivered personally, by
telecopier or by courier service providing for next-day delivery or sent by
registered or certified mail, return receipt requested, to the following
addresses:
If to the Company:
Consolidation Capital Corporation
1747 Pennsylvania Avenue, N.W
Suite 900
Washington, D.C. 2006
Attn: General Counsel
Fax: (202)
With a required copy to:
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
Attn: Linda L. Griggs, Esq.
Fax: (202) 467-7176
If to the Executive:
________________________
________________________
________________________
Either party may change the address to which notices shall be sent by sending
written notice of such change of address to the other party. Any such notice
shall be deemed given, if delivered personally, upon receipt; if telecopied,
when telecopied; if sent by courier service providing for next-day delivery, the
next business day following deposit with such courier service; and if sent by
certified or registered mail, three days after deposit (postage prepaid) with
the U.S. mail service.
11
<PAGE>
17. Section Headings. The section headings contained in this
----------------
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
18. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
CONSOLIDATION CAPITAL CORPORATION
__________________________________
By:
Its:
EXECUTIVE
__________________________________
13
<PAGE>
EXHIBIT 10.08
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement"), dated as of November __, 1997, between
CONSOLIDATION CAPITAL CORPORATION, a Delaware corporation (the "Company"), and
DAVID LEDECKY, a resident of the State of Maryland (the "Executive").
W I T N E S S E T H:
-------------------
WHEREAS, the Company wishes to secure the services of the Executive
and the Executive wishes to furnish such services to the Company pursuant to the
terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and obligations hereinafter set forth, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. Employment: Term. The Company hereby agrees to employ the
----------------
Executive, and the Executive hereby agrees to enter into such employment, as
Executive Vice President and Chief Administrative Officer of the Company, for
the period commencing on the date of the closing of the Company's initial public
offering (the "Commencement Date") and ending on the date two years from the
Commencement Date, unless terminated sooner pursuant to Section 5 hereof. The
initial two year term shall be extended for additional successive periods of one
year each, on the same terms and conditions contained herein, unless six months
prior written notice is given by the Company of its intention to terminate the
term of this Agreement without cause. For purposes hereof, the period of
Executive's employment hereunder is referred to as the "Term."
2. Duties and Extent of Services.
-----------------------------
(a) During the Term, the Executive shall serve as Executive Vice
President and Chief Administrative Officer of the Company with such duties and
responsibilities as are consistent with such positions, and shall so serve
faithfully and to the best of his ability, under the direction and supervision
of the Company's Board of Directors (the "Board").
(b) The Executive shall serve as a Director of the Company if elected
to such position in accordance with law and hold such other positions and
executive offices of the Company and/or of any of the Company's subsidiaries or
affiliates as may from time to time be authorized by the Board, provided that
each such position shall be commensurate with the Executive's standing in the
business community as Executive Vice President and Chief Administrative Officer
of the Company. The Executive shall not be entitled to any compensation other
than the compensation provided for herein for serving during the Term as a
Director of the Company or in any other office or position of the Company, or
any of its subsidiaries or affiliates, unless the Board shall have specifically
approved such additional compensation.
<PAGE>
(c) The Executive shall devote his full business time, attention and
efforts to his duties hereunder. The Executive shall diligently perform to the
best of his ability all of the duties required of him as Executive Vice
President and Chief Administrative Officer of the Company, and in the other
positions or offices of the Company or its subsidiaries or affiliates required
of him hereunder. The Executive shall faithfully adhere to, execute and fulfill
all policies established by the Company. Notwithstanding the foregoing
provisions of this Section, the Executive may participate in charitable, civic,
political, social, trade, or other non-profit organizations to the extent such
participation does not materially interfere with the performance of his duties
hereunder, and may serve as a non-management director of business corporations
(or in a like capacity in other for-profit organizations) so long as it does not
materially interfere with the Executive's obligations hereunder.
3. Compensation
------------
(a) Base Salary. Effective as of the Commencement Date, the Company
-----------
shall pay the Executive a base salary (the "Base Salary") equal to Three Hundred
Thousand Dollars ($300,00.00) per year, payable on a regular basis in accordance
with the Company's regular payroll policies in effect from time to time, but not
less frequently than monthly. On at least an annual basis, the Board will
review the Executive's performance and may make increases to such Base Salary
if, in its sole discretion, any such change is warranted.
(b) Annual Bonus. The Executive shall be entitled to receive an
------------
annual bonus payment during the first twelve month period within the Term of Two
Hundred Thousand Dollars ($200,000.00) (the "Annual Bonus Payment"), payable in
such number of payments and at such time as the Board may determine, but in no
event later than the end of each calendar year during the Term. It is
contemplated that a bonus at least equal to the bonus payment during the first
year of the Term will be paid during each twelve month period during the
remainder of the Term.
(c) Incentive Bonus. The Company will develop a written Incentive
---------------
Bonus Plan (the "Bonus Plan") setting forth the criteria under which the
Executive and other officers and key employees of the Company will be eligible
to receive year-end incentive bonus compensation. The Bonus Plan will provide
for the Executive to earn up to 100% of his Base Salary in bonus compensation,
payable out of a bonus pool determined by the Board or a compensation committee
thereof. Subject to the provisions of Section 3(f) hereof, such bonus payments
shall be made to the Executive as soon as practicable after the end of each
calendar year during the Term.
(d) Employee Stock Purchase Plan. The Executive shall be entitled to
----------------------------
participate in the Company's 1997 Employee Stock Purchase Plan in accordance
with the terms set forth therein.
(e) 1997 Long-Term Incentive Plan. The Executive shall be entitled to
-----------------------------
participate in the Company's 1997 Long-Term Incentive Plan in accordance with
the terms set forth therein.
2
<PAGE>
(f) Deferral. The Executive may elect to defer payment of all or any
--------
part of the Annual Bonus Payment or incentive bonus compensation amount payable
in accordance with Section 3(b) and Section 3(c) hereof with respect to any
calendar year during the Term, by giving the Company written notice thereof not
later than June 30 of such year. Additionally, in the event that in respect of
any fiscal year of the Company any amount of Base Salary, Annual Bonus Payment,
incentive bonus compensation or any other amount payable to the Executive
hereunder or otherwise, shall, either alone or in combination with other amounts
payable hereunder or otherwise, result in a payment by the Company that shall
not be currently deductible by it pursuant to the provisions of Section 162(m)
of the Internal Revenue Code, as amended, or like or successor provisions (a
"Non-Deductible Amount"), the Company may elect to defer the payment of the Non-
Deductible Amount. Any amounts, so deferred, either by election of the Executive
or by election of the Company, shall be credited to a bookkeeping account in the
name of the Executive as of the date scheduled for payment hereunder. Such
amounts shall be credited with interest as of each June 30 during the term of
deferral, compounded annually, at a rate per annum equal to the annual rate of
interest announced by Citibank, N.A. in New York, New York as its base rate in
effect on such June 30, but in no event shall such rate exceed 9%. The entire
amount credited to such bookkeeping account shall be paid to the Executive on a
date to be chosen by the Company, but in no event later than the first
anniversary of the termination of the Executive from employment with the
Company.
(g) Option Grant. In connection with the execution and delivery of
------------
this Agreement, and pursuant to the terms of the Company's 1997 Long-Term
Incentive Plan (the "Option Plan"), the Executive will be granted options (the
"Options") to purchase five hundred thousand (500,000) shares of the Company's
Common Stock (the "Common Stock"), on and pursuant to the terms of the Option
Plan and an award agreement. Each Option will be granted at a price equal to
the price at which shares of Common Stock are sold to the public in the IPO (the
"Offering Price"). Subject to the next sentence hereof, the Options will be
exercisable with respect to 25% of the shares underlying the Options on each
anniversary of the date of grant. Notwithstanding the foregoing, the vesting of
the Options will accelerate, (i) upon a Change In Control (as defined in the
Option Plan) in which case all Options will be exercisable immediately, and
(ii) upon the expiration of the Term for any reason other than "for cause"
pursuant to Section 5(c) hereunder, in which case all Options will be
exercisable immediately.
(h) Car Allowance. The Executive shall receive a monthly car
-------------
allowance of $750 during the Term of this Agreement.
4. Benefits.
--------
(a) Standard Benefits. During the Term, the Executive shall be
-----------------
entitled to participate in any and all benefit programs and arrangements now in
effect and hereinafter adopted and generally made available by the Company to
its senior officers, including but not limited to, up to 4 weeks of paid
vacation during each year of the Term in accordance with the policies and
procedures of the Company as in effect from time to time for its senior
officers, pension plans, contributory and non-contributory Company welfare and
benefit plans, disability plans, and medical,
3
<PAGE>
death benefit and life insurance plans for which the Executive shall be
eligible, or may become eligible during the Term.
(b) Expense Reimbursement/Provision of Equipment. The Company agrees
--------------------------------------------
to reimburse the Executive for all reasonable and necessary travel, business
entertainment and other business out-of-pocket expenses (including travel to
Washington, D.C.) incurred or expended by him in connection with the performance
of his duties hereunder upon presentation of proper expense statements or
vouchers or such other supporting information as the Company may reasonably
require of the Executive. The Company will, at its sole cost and expense,
provide to the Executive a computer, computer printer, copier, facsimile machine
and such other office equipment as Executive shall reasonably request from time
to time for use by the Executive to carry out his duties hereunder.
(c) Other Executive Perquisites. The Company shall provide the
---------------------------
Executive with other executive perquisites as may be available to or deemed
appropriate for the Executive by the Board or a compensation committee thereof.
5. Termination. This Agreement and the Executive's employment with
-----------
the Company may be terminated in any one of the following ways:
(a) Death. In the event of the death of the Executive during the
-----
Term, this Agreement shall automatically terminate, and the Company shall have
no further obligations hereunder except as provided in Section 5(g) below.
(b) Disability. In the event of the "permanent disability" (as
----------
hereinafter defined) of the Executive during the Term, the Company shall have
the right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, effective upon the giving of such notice (or such later
date as shall be specified in such notice). In the event of such termination,
and subject to the provisions of Section 5(g) below, the Company shall have no
further obligations here under, except that the Executive shall be entitled to
be paid his Base Salary under Section 3(a) hereof for a period of two (2) years
from the effective date of termination; provided, however, that the Company
-------- -------
shall only be required to pay that amount of the Executive's Base Salary which
shall not be covered by long-term disability payments, if any, to the Executive.
In addition, upon termination for permanent disability, the Executive shall
continue to participate in any and all pension, insurance and other benefit
plans and programs of the Company during the period the Executive is continuing
to receive his Base Salary. Thereafter, the Executive's rights to participate
in such programs and plans, or to receive similar coverage, if any, shall be as
determined under such programs. For purposes of this Section, "permanent
disability" means any disability as defined under the Company's applicable
disability insurance policy or, if no such policy is available, any physical or
mental disability or incapacity that renders the Executive incapable of
performing the services required of him in accordance with his obligations under
Section 2 hereof for a period of four (4) consecutive months or for shorter
periods aggregating six (6) months during any twelve-month period.
4
<PAGE>
(c) Cause. The Company shall have the right, upon written notice to
-----
the Executive, to terminate the Executive's employment under this Agreement for
"Cause" (as hereinafter defined), effective upon the giving of such notice (or
such later date as shall be specified in such notice), and the Company shall
have no further obligations hereunder, except to pay the Executive any amounts
otherwise payable pursuant to Section 5(g) below. It is understood and agreed
that notwithstanding anything contained in this Agreement to the contrary, in
the case of termination by the Company of the Executive for Cause, the Annual
Bonus Payment for the calendar year in which termination occurs shall be
forfeited. The Executive's right to participate in any of the Company's
retirement, insurance and other benefit plans and programs shall be as
determined under such programs and plans. For purposes of this Agreement,
"Cause" means:
(i) fraud, embezzlement or gross insubordination on the part of
the Executive or material breach by the Executive of his obligations
under Sections 6 or 7 hereof;
(ii) a material breach of, gross negligence with respect to,
or the willful failure or refusal by the Executive to perform and
discharge, his duties, responsibilities or obligations under this Agreement
(other than under Sections 6 and 7 hereof, which shall be governed by
clause (i) above, and other than by reason of disability or death) that is
not corrected within ten (10) days following written notice thereof to the
Executive by the Company, such notice to state with specificity the nature
of the breach, failure or refusal; provided that if such breach, failure
--------
or refusal cannot reasonably be corrected within ten (10) days of written
notice thereof, correction shall be commenced by the Executive within such
period and may be corrected within a reasonable period thereafter;
(iii) conviction of or the entry of a plea of nolo contendere by
---- ----------
the Executive of any felony; or
(iv) illegal drug use or alcohol abuse by the Executive.
(d) Without Cause. The Company shall have the right, upon thirty (30)
-------------
days' written notice given to the Executive, to terminate this Agreement for any
reason whatsoever. In the event of a termination without cause, the Executive
shall be entitled (i) to receive from the Company an amount equal to two times
his Base Salary at the rate then in effect plus any bonus he received during the
previous year (or if this Agreement is terminated without cause by the Company
prior to the receipt by the Executive of a bonus hereunder, the bonus shall be
deemed to be $200,000), payable in a single lump sum at the time of termination
without cause and (ii) to participate in all pension, insurance and other
benefit plan programs or arrangements on terms identical to those applicable to
other senior officers of the Company. In the event this Agreement is terminated
pursuant to this Section 5(d), the Executive shall be released from his
obligations under Section 6 or Section 7 hereof and all options previously
granted to the Executive that have not yet vested shall immediately vest and be
exercisable.
5
<PAGE>
(e) By Executive. The Executive shall have the right, exercisable at
------------
any time during the Term, to terminate this Agreement for any reason whatsoever,
upon six (6) months written notice to the Company. In such event, and other
than as provided by the terms of Section 5(g) below, the Company shall have no
further obligations hereunder and the Executive shall not be entitled to receive
any severance compensation. Notwithstanding anything contained in this
Agreement to the contrary, in the event of a termination by the Executive, the
amount of any unpaid Annual Bonus Payment for the calendar year in which the
termination occurs shall be forfeited.
(f) Effect of Termination. Upon the termination of the Executive's
---------------------
employment hereunder for any reason, the Company shall have no further
obligations hereunder, except as otherwise provided herein. The Executive,
however, shall continue to have the obligations provided in Sections 6 and 7
hereof, except as otherwise provided herein. Without limiting the generality of
the foregoing, all Options granted to the Executive shall immediately vest and
be exercisable as of the date of any termination of this Agreement, other than a
termination pursuant to Section 5(c) or Section 5(e) hereof. Furthermore, upon
such termination, the Executive shall be deemed to have resigned immediately
from all offices and directorships held by him in the Company or any of its
subsidiaries.
(g) General Provisions. Upon termination of this Agreement for any
------------------
reasons provided above, the Executive (or his estate or personal representative,
as applicable) shall be entitled to receive all compensation earned (including
a pro-rata portion of the Annual Bonus Payment in the event of an termination
pursuant to Section 5(a) or Section 5(b) and all benefits and reimbursements
accrued and due through the effective date of termination. Without limiting the
generality of the foregoing, all Options granted to the Executive shall
immediately vest and be exercisable upon any termination of this Agreement,
other than a termination pursuant to Section 5(c) or Section 5(e) hereof.
Additional compensation subsequent to termination, if any, will be due and
payable to the Executive only to the extent and in the manner expressly provided
above. In the event that the Executive secures employment with another entity
during the period that any payment is continuing pursuant to the provisions of
this Section 5, the amounts to be paid hereunder shall be reduced by the amount
of the Executive's earnings from such other employment.
6. Confidentiality. The Executive acknowledges that, by reason of
---------------
his employment by the Company, he will have access to confidential information
of the Company and its subsidiaries and affiliates, including, without
limitation, information and knowledge pertaining to products, inventions,
discoveries, improvements, innovations, designs, ideas, trade secrets,
proprietary information, manufacturing, packaging, advertising, distribution and
sales methods, sales and profit figures, customer and client lists and
relationships between the Company, any of its subsidiaries or affiliates and
dealers, distributors, sales representatives, wholesalers, customers, clients,
suppliers and others who have business dealings with them ("Confidential
Information"). The Executive acknowledges that such Confidential Information is
a valuable and unique asset of the Company and its subsidiaries and affiliates
and covenants that, both during and after the Term, he will not disclose any
Confidential Information to any person (except as his duties as an employee of
the Company may require) without the prior written authorization of the Board.
The obligation of confidentiality imposed by this Section 6 shall not apply to
Confidential Information that otherwise becomes generally known in the industry
or to the public through no act of the Executive in breach
6
<PAGE>
of this Agreement or any other party in violation of an existing confidentiality
agreement with the Company or any subsidiary or affiliate or which is required
to be disclosed by court order or applicable law.
7. Covenant Not to Compete.
-----------------------
(a) Scope of Covenant. The Executive agrees that during the Term and
-----------------
for a period equal to the longer of (i) one (1) year commencing upon the
expiration or termination of the Executive's employment hereunder (for any
reason whatsoever) or (ii) the period during which the Executive is entitled to
receive and is receiving any payment pursuant to Section 5 hereof, the Executive
shall not, directly or indirectly, for himself or on behalf of or in conjunction
with any other person, persons, company, partnership, corporation or business of
whatever nature, without the prior written consent of the Company:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in direct
competition with the Company within 100 miles of the principal executive
offices or the principal operations of the Company (the "Territory");
(ii) call upon any person who is at that time, or who was at any
time within one (1) year prior to that time, an employee of the Company
(including the respective subsidiaries thereof) in a managerial capacity
for the purpose or with the intent of enticing such employee away from or
out of the employ of the Company (including the respective subsidiaries
thereof), provided that the Executive shall be permitted to call upon and
hire any member of his immediate family;
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services in
direct competition with the Company (including the respective subsidiaries
thereof) within the Territory; or
(iv) call upon any prospective acquisition candidate, on the
Executive's own behalf or on behalf of any competitor, which candidate was
either called upon by the Company (including the respective subsidiaries
thereof) or for which the Company (including the respective subsidiaries
thereof) made an acquisition analysis, for the purpose of acquiring such
entity;
provided, however, that nothing in this Section 7(a) shall be construed to
- -------- -------
preclude the Executive from making any investments in the securities of any
business enterprise whether or not engaged in competition with the Company or
any of its subsidiaries, to the extent that such securities are actively
7
<PAGE>
traded on a national securities exchange or in the over-the-counter market in
the United States or on any foreign securities exchange.
(b) Reasonableness. It is agreed by the parties that the foregoing
--------------
covenants in this Section 7 impose a reasonable restraint on the Executive in
light of the activities and business of the Company (including the Company's
subsidiaries) on the date of the execution of this Agreement and the current
plans of the Company (including the Company's subsidiaries); but it is also the
intent of the Company and the Executive that such covenants be construed and
enforced in accordance with the changing activities, business and locations of
the Company (including the Company's other subsidiaries) throughout the term of
this covenant.
(c) Severability. The covenants in this Section 7 are severable and
------------
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth are unreasonable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent which the court deems reasonable,
and this Agreement shall thereby be reformed.
(d) Enforcement by the Company not Limited. All of the covenants in
--------------------------------------
this Section 7 shall be construed as an agreement independent of any other
provision in this Agreement, and the existence of any claim or cause of action
of the Executive against the Company, whether predicated in this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
such covenants. It is specifically agreed that the period of one (1) year
stated at the beginning of this Section 7, during which the agreements and
covenants of the Executive made in this Section 7 shall be effective, shall be
computed by excluding from such computation any time during which the Executive
is in violation of any provision of this Section 7.
(e) Change of Relevant Law. Notwithstanding any of the foregoing, if
----------------------
any applicable law shall reduce the time period during which the Executive shall
be prohibited from engaging in any competitive activity described in Section
7(a) hereof, the period of time for which the Executive shall be prohibited from
engaging in competitive activities pursuant to Section 7(a) hereof shall be the
maximum time permitted by law. However, in the event that the time period
specified by Section 7(a) shall be so reduced, then, notwithstanding the
provisions of Section 5 hereof, the Executive shall be entitled to receive from
the Company his Base Salary at the rate then in effect solely for the longer of
(i) the time period during which the provisions of Section 7(a) shall be
enforceable under the provisions of such applicable law, or (ii) the time period
during which the Executive is not engaging in any competitive activity, but in
no event longer than the term provided in Section 5.
8. Specific Performance. The Executive acknowledges that the
--------------------
services to be rendered by the Executive are of a special, unique and
extraordinary character and, in connection with such services, the Executive
will have access to confidential information vital to the Company's business and
the business of the Company's subsidiaries and affiliates. By reason of this,
the
8
<PAGE>
Executive consents and agrees that if the Executive violates any of the
provisions of Section 6 or 7 hereof, the Company and its subsidiaries and
affiliates would sustain irreparable injury and that monetary damages would not
provide adequate remedy to the Company or any of its subsidiaries or affiliates.
Therefore, the Executive hereby agrees that the Company and any affected
subsidiary and affiliate shall be entitled to have Sections 6 or 7 hereof
specifically enforced (including, without limitation, by injunctions and
restraining orders) by any court having equity jurisdiction. Nothing contained
herein shall be construed as prohibiting the Company or any of its subsidiaries
or affiliates from pursuing any other remedies available to it for such breach
or threatened breach, including the recovery of damages from the Executive.
9. Deductions and Withholding. The Executive agrees that the
--------------------------
Company or its subsidiaries or affiliates, as applicable, shall withhold from
any and all compensation paid to and required to be paid to the Executive
pursuant to this Agreement, all Federal, state, local and/or other taxes which
the Company determines are required to be withheld in accordance with applicable
statutes or regulation from time to time in effect and all amounts required to
be deducted in respect of the Executive's coverage under applicable employee
benefit plans. For purposes of this Agreement and calculations hereunder, all
such deductions and withholdings shall be deemed to have been paid to and
received by the Executive.
10. No Conflicts. The Executive hereby represents and warrants to
------------
the Company that his execution, delivery and performance of this Agreement and
any other agreement to be delivered pursuant to this Agreement will not (a)
require the consent, approval or action of any other person or (b) violate,
conflict with or result in the breach of any of the terms of, or constitute (or
with notice or lapse of time or both, constitute) a default under, any
agreement, arrangement or understanding with respect to the Executive's
employment to which the Executive is a party or by which the Executive is bound
or subject including, without limitation, any non-competition or non-disclosure
provisions in agreements to which the Executive is or was a party. The
Executive hereby agrees to indemnify and hold harmless the Company and its
directors, officers, employees, agents, representatives, subsidiaries and
affiliates (and each such subsidiary's and affiliate's directors, officers,
employees, agents and representatives) from and against any and all losses,
liabilities or claims (including interest, penalties and attorneys' fees,
disbursements and related charges) based upon or arising out of the Executive's
breach of any of the foregoing representations and warranties.
11. Complete Agreement. This Agreement is not a promise of future
------------------
employment. This Agreement embodies the entire agreement of the parties with
respect to the Executive's employment, compensation, perquisites and related
items and supersedes any other prior oral or written agreements, arrangements or
understandings between the Executive and the Company or any of its subsidiaries
or affiliates, and any such prior agreements, arrangements or understandings are
hereby terminated and of no further effect. This Agreement may not be changed
or terminated orally but only by an agreement in writing signed by the parties
hereto.
12. Waiver. The Waiver by the Company of a breach of any provision
------
of this Agreement by the Executive shall not operate or be construed as a waiver
of any subsequent breach
9
<PAGE>
by him. The waiver by the Executive of a breach of any provision of this
Agreement by the Company shall not operate or be construed as a waiver of any
subsequent breach by the Company.
13. Governing Law; Jurisdiction.
---------------------------
(a) This Agreement shall be subject to, and governed by, the laws of
the State of Delaware.
(b) Any action to enforce any of the provisions of this Agreement
shall be brought in a local or federal court within the District of Columbia.
The Parties consent to the jurisdiction of such court and to the service of
process in any manner provided by District of Columbia law. Each party
irrevocably waives any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding brought in such court
and any claim that such suit, action or proceeding brought in such court has
been brought in an inconvenient forum and agrees that service of process in
accordance with the foregoing sentences shall be deemed in every respect
effective and valid personal service of process upon such party.
(c) Assignability. This obligations of the Executive may not be
-------------
delegated and, except with respect to the designation of beneficiaries in
connection with any of the benefits payable to the Executive hereunder, the
Executive may not, without the Company's written consent thereto, assign,
transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this
Agreement or any interest herein. Any such attempted delegation or disposition
shall be null and void and without effect. The Company and the Executive agree
that this Agreement and all of the Company's rights and obligations hereunder
may be assigned or transferred by the Company to and shall be assumed by and be
binding upon any successor to the Company. The term "successor" means, with
respect to the Company or any of its subsidiaries, any corporation or other
business entity which, by merger, consolidation, purchase of the assets or
otherwise acquires all or a material part of the assets of the Company.
15. Severability. If any provision of this Agreement of any part
------------
thereof, including, without limitation, Sections 6 and 7 hereof, as applied to
either party or to any circumstances shall be adjudged by a court of competent
jurisdiction to be void or unenforceable, the same shall in no way affect any
other provision of this Agreement or remaining part thereof, which shall be
given full effect without regard to the invalid or unenforceable part thereof,
or the validity or enforceability of this Agreement.
If any court construes any of the provisions of Sections 6 or 7
hereof, or any part thereof, to be unreasonable because of the duration of such
provision or the geographic scope thereof, such court may reduce the duration or
restrict or redefine the geographic scope of such provision and enforce such
provision so reduced, restricted or redefined.
16. Notices. All notices to the Company or the Executive permitted
-------
or required hereunder shall be in writing and shall be delivered personally, by
telecopier or by courier service
10
<PAGE>
providing for next-day delivery or sent by registered or certified mail, return
receipt requested, to the following addresses:
If to the Company:
Consolidation Capital Corporation
1747 Pennsylvania Avenue, N.W
Suite 900
Washington, D.C. 20006
Attn: General Counsel
Fax: (202)
With a required copy to:
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
Attn: Linda L. Griggs, Esq.
Fax: (202) 467-7176
If to the Executive:
David Ledecky
5305 Elliott Road
Bethesda, MD 20816
(301) 320-5780
Either party may change the address to which notices shall be sent by sending
written notice of such change of address to the other party. Any such notice
shall be deemed given, if delivered personally, upon receipt; if telecopied,
when telecopied; if sent by courier service providing for next-day delivery, the
next business day following deposit with such courier service; and if sent by
certified or registered mail, three days after deposit (postage prepaid) with
the U.S. mail service.
17. Section Headings. The section headings contained in this
----------------
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
18. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
CONSOLIDATION CAPITAL CORPORATION
__________________________________
By:
Its:
EXECUTIVE
__________________________________
12
<PAGE>
EXHIBIT 10.09
FORM OF INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of__________, 1997, is made by and
between Consolidation Capital Corporation, a Delaware corporation (the
"Company"), and ____________ (the "Indemnitee"), an "agent" (as hereinafter
defined) of the Company.
R E C I T A L S
- - - - - - - -
A. The Company recognizes that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations unless
they are protected by comprehensive liability insurance or indemnification, or
both, due to increased exposure to litigation costs and risks resulting from
their service to such corporations, and due to the fact that the exposure
frequently bears no reasonable relationship to the compensation of such
directors and officers;
B. The statutes and judicial decisions regarding the duties of directors
and officers are often difficult to apply, ambiguous or conflicting, and
therefore fail to provide such directors and officers with adequate, reliable
knowledge of legal risks to which they are exposed or information regarding the
proper course of action to take;
C. The Company and the Indemnitee recognize that plaintiffs often seek
damages in such large amounts and the costs of litigation may be so enormous
(whether or not the case is meritorious), that the defense and/or settlement of
such litigation is often beyond the personal resources of directors and
officers;
D. The Company believes that it is unfair for its directors and executive
officers to assume the risk of huge judgments and other expenses which may occur
in cases in which the director or executive officer received no personal profit
and in cases where the director or executive officer was not culpable;
E. The Company, after reasonable investigation, has determined that the
liability insurance coverage presently available to the Company is inadequate to
cover all possible exposure for which the Indemnitee should be protected. The
Company believes that the interests of the Company and its stockholders would
best be served by a combination of such insurance and the indemnification by the
Company of the directors and executive officers of the Company;
F. Section 145 of the General Corporation Law of Delaware ("Section 145"),
under which the Company is organized, empowers the Company to indemnify its
directors, officers, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive;
<PAGE>
G. The Board of Directors has determined that contractual indemnification
as set forth herein is not only reasonable and prudent but necessary to promote
the best interests of the Company and its stockholders;
H. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or executive officer of the Company free from
undue concern for claims for damages arising out of or related to such services
to the Company; and
I. The Indemnitee is willing to serve, or to continue to serve, the
Company, only on the condition that he is furnished the indemnity provided for
herein.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Definitions.
-----------
(a) Agent. For purposes of this Agreement, "agent" of the Company
-----
means any person who is or was a director, officer, employee or other agent of
the Company or a subsidiary of the Company; or is or was serving at the request
of, for the convenience of, or to represent the interest of the Company or a
subsidiary of the Company as a director, officer, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise.
(b) Expenses. For purposes of this Agreement, "expenses" includes all
--------
direct and indirect costs of any type or nature whatsoever (including, without
limitation, all attorneys' fees and related disbursements and other out-of-
pocket costs), actually and reasonably incurred by the Indemnitee in connection
with either the investigation, defense or appeal of a proceeding or establishing
or enforcing a right to indemnification under this Agreement, Section 145 or
otherwise, and amounts paid in settlement by or on behalf of the Indemnitee, but
shall not include any final judgments, fines or penalties actually levied
against the Indemnitee.
(c) Proceedings. For the purposes of this Agreement, "proceeding"
-----------
means any threatened, pending or completed action, suit or other proceeding,
whether civil, criminal, administrative or investigative.
(d) Subsidiary. For purposes of this Agreement, "subsidiary" means any
----------
corporation of which more than 50% of the outstanding voting securities are
owned directly or indirectly by the Company, by the Company and one or more
other subsidiaries or by one or more other subsidiaries.
2
<PAGE>
(e) Other Enterprise. For purpose of this Agreement, "other
----------------
enterprise" shall include employee benefit plans; references to "fines" shall
include any excise tax assessed with respect to any employee benefit plans;
references to "serving at the request of the Company" shall include any service
as a director, officer, employee or agent of the Company which imposes duties
on, or involves services by, such director, officer, employee or agent with
respect to an employee benefit plan, its participants or beneficiaries; and any
person who acts in good faith and in a manner he reasonably believes to be in
the best interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Company" as referred to in this Agreement.
2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to
------------------
serve as an agent of the Company, at the will of the Company (or under separate
agreement, if such agreement exists), in the capacity the Indemnitee currently
serves as an agent of the Company, so long as he is duly appointed or elected
and qualified in accordance with the applicable provisions of the By-Laws of the
Company or any subsidiary of the Company or until such time as he tenders his
resignation in writing; provided, however, that nothing contained in this
Agreement is intended to create any right to continued employment by the
Indemnitee in any capacity. The indemnification provided pursuant to this
Agreement shall continue in force after the Indemnitee has ceased to serve as an
agent of the Company.
3. Indemnity in Third Party Proceedings. The Company shall indemnify the
------------------------------------
Indemnitee if the Indemnitee is a party to or threatened to be made a party to
or otherwise involved in any proceeding (other than a proceeding by or in the
right of the Company) by reason of the fact that the Indemnitee is or was an
agent of the Company, including any proceeding based upon any act or inaction by
the Indemnitee in his capacity as an agent of the Company, against any and all
expenses, judgments, fines and penalties actually and reasonably incurred by him
in connection with such proceeding, but only if the Indemnitee acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
proceeding by judgment, order of court, settlement, conviction or on plea of
nolo contendere, or its equivalent, shall not, of itself, create a presumption
- ---- ----------
that the Indemnitee did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company, and with respect to any criminal proceedings, that such person had
reasonable cause to believe that his conduct was unlawful.
4. Indemnity in Derivative Actions. The Company shall indemnify the
-------------------------------
Indemnitee if the Indemnitee is a party to or threatened to be made a party to
or otherwise involved in any proceeding by or in the right of the Company to
procure a judgment in its favor by reason of the fact that the Indemnitee is or
was an agent of the Company, including any proceeding based upon any act or
inaction by the Indemnitee in his capacity as an agent of the Company, against
all expenses actually and reasonably incurred by the Indemnitee in connection
with such proceeding, but only if the Indemnitee acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, except that no indemnification under this Section 4 shall be made
in
3
<PAGE>
respect of any claim, issue or matter as to which the Indemnitee shall have been
finally adjudged to be liable to the Company by a court of competent
jurisdiction for gross negligence or misconduct in the performance of his duty
to the Company, unless and only to the extent that any court in which such
proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as such
court shall deem proper.
5. Indemnification of Expenses of Successful Party. Notwithstanding any
-----------------------------------------------
other provisions of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise in defense of any proceeding or in defense
of any claim, issue or matter therein, the Company shall indemnify the
Indemnitee against all expenses actually and reasonably incurred in connection
with such proceeding.
6. Partial Indemnification. If the Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses, judgments, fines or penalties, actually and reasonably
incurred by him in a proceeding but is not entitled, however, to indemnification
for the total amount thereof, the Company shall nevertheless indemnify the
Indemnitee for the portion thereof to which the Indemnitee is entitled.
7. Advancement of Expenses. Subject to Section 11(a) hereof, the Company
-----------------------
shall advance all expenses incurred by the Indemnitee in connection with any
proceeding to which the Indemnitee is a party or is threatened to be made a
party by reason of the fact that the Indemnitee is or was an agent of the
Company. The Indemnitee hereby undertakes to repay such amounts advanced only
if, and to the extent that, it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified by the Company as authorized by
this Agreement. The advances to be made hereunder shall be paid by the Company
to or on behalf of the Indemnitee within thirty (30) days following delivery of
a written request therefor by the Indemnitee to the Company.
8. Notice and Other Indemnification Procedures.
-------------------------------------------
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof, provided the failure to provide
such notification shall not diminish the Indemnitee's indemnification hereunder.
(b) Any indemnification requested by the Indemnitee under Section 3, 4,
5 or 6 hereof shall be made no later than forty-five (45) days after receipt of
the written request of the Indemnitee unless a determination is made within said
forty-five (45) day period (i) by the Board of Directors of the Company by a
majority vote of a quorum thereof consisting of directors who are not parties to
such proceeding, or (ii) in the event such a quorum is not obtainable, at the
election of the Company, either by independent legal counsel in a written
opinion or by a panel of arbitrators
4
<PAGE>
(selected in the manner set forth in Section 8(c) hereof) that the Indemnitee
has not met the relevant standards for indemnification set forth in Section 3,
4, 5 or 6 hereof.
(c) Except as set forth herein, the right of indemnification under this
Agreement and any dispute arising hereunder or under any indemnification
provision contained in the Company's Bylaws, including but not limited to
matters of validity, interpretation, application and enforcement, shall be
determined exclusively by and through final and binding arbitration in
Washington, DC, each party hereto expressly and conclusively waiving his right
to proceed to a judicial determination with respect to such matter. Such
arbitration shall be conducted in accordance with the commercial arbitration
rules then in effect of the American Arbitration Association before a panel of
three arbitrators, one of whom shall be selected by the Company, the second of
whom shall be selected by the Indemnitee and the third of whom shall be selected
by the other two arbitrators. If for any reason arbitration under the
arbitration rules of the American Arbitration Association cannot be initiated,
the necessary arbitrator or arbitrators shall be selected by the presiding judge
of the Superior Court of the District of Columbia. Each arbitrator selected as
provided herein is required to be serving or to have served as a director or an
executive officer of a corporation whose shares of common stock, during at least
one year of such service, were quoted in the Nasdaq National Market System or
listed on the New York Stock Exchange. It is expressly understood and agreed by
the parties that, notwithstanding any provision contained in the Bylaws or right
granted thereunder, a party may compel arbitration pursuant to this Section 8(c)
through an action for specific performance and that any award entered by the
arbitrators may be enforced, without further evidence or proceedings, in any
court of competent jurisdiction.
(d) The provisions of Section 8(c) hereof shall not apply if, and to
the extent that, they may be inconsistent with an undertaking given by the
Company (including an undertaking given after the date of this Agreement) to the
Securities and Exchange Commission to submit to a court of competent
jurisdiction the question whether indemnification for liabilities under the
Securities Act of 1933, as amended (the "Securities Act"), by the Company is
against public policy as expressed in the Securities Act, and to be governed by
the final adjudication of such issue. In such case, the determination by such
court shall be deemed, for purposes of this Agreement, to be a determination
pursuant to Section 8(c) hereof.
(e) The Company shall reimburse the Indemnitee for the expenses
incurred in prosecuting or defending such arbitration unless the arbitrator
finds that each of the claims and/or defenses of the Indemnitee in any such
proceeding was frivolous or in bad faith.
9. Assumption of Defense. In the event the Company shall be obligated to
---------------------
pay the expenses of any proceeding against the Indemnitee, the Company, if
appropriate, shall be entitled to assume the defense of such proceeding, with
counsel reasonably acceptable to the Indemnitee, upon the delivery to the
Indemnitee of written notice of its election to do so. After delivery of such
notice, approval of such counsel by the Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to the Indemnitee under
this Agreement for any fees of counsel subsequently incurred by the Indemnitee
with respect to the same proceeding, provided that (a) the
5
<PAGE>
Indemnitee shall have the right to employ his counsel in such proceeding at the
Indemnitee's expense and (b) if (i) the employment of counsel by the Indemnitee
has been previously authorized in writing by the Company, (ii) the Company shall
have reasonably concluded that there may be a conflict of interest between the
Company and the Indemnitee in the conduct of any such defense or (iii) the
Company shall not, in fact, have employed counsel to assume the defense of such
proceeding, the fees and expenses of the Indemnitee's counsel shall be at the
expense of the Company.
10. Insurance. The Company shall obtain directors' and officers'
---------
liability insurance ("D&O Insurance") as may be or become available in
reasonable amounts from established and reputable insurers with respect to which
the Indemnitee is named as an insured. Notwithstanding any other provision of
the Agreement, the Company shall not be obligated to indemnify the Indemnitee
for expenses, judgments, fines or penalties which have been paid directly to the
Indemnitee by D&O Insurance. If the Company has D&O Insurance in effect at the
time the Company receives from the Indemnitee any notice of the commencement of
a proceeding, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
policy. The Company shall thereafter take all necessary or desirable action to
cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as
a result of such proceeding in accordance with the terms of such policy.
11. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by the Indemnitee. To indemnify or
----------------------------------
advance expenses to the Indemnitee with respect to proceedings or claims
initiated or brought voluntarily by the Indemnitee and not by way of defense,
except to the extent set forth in Section 8(e) hereof; provided, however, that
such indemnification or advancement of expenses may be provided by the Company
in specific cases if the Board of Directors finds it to be appropriate; or
(b) Unauthorized Settlements. To indemnify the Indemnitee
------------------------
under this Agreement for any amounts paid in settlement of a proceeding effected
without the Company's written consent; the Company shall not settle any
proceeding without the Indemnitee's written consent; neither the Company nor the
Indemnitee will unreasonably withhold consent to any proposed settlement; or
(c) Certain Matters. To indemnify the Indemnitee on account of
---------------
any proceeding with respect to (i) payments made to the Indemnitee if it is
determined by final judgment or other final adjudication that such payments were
in violation of law or (ii) which it is determined by final judgment or other
final adjudication that the conduct of the Indemnitee constituted bad faith or
active and deliberate dishonesty; or
(d) Section 16. To indemnify the Indemnitee on account of any
----------
claim by or on behalf of the Company for recovery of profits resulting from the
purchase and sale or sale and
6
<PAGE>
purchase by the Indemnitee of equity securities of the Company pursuant to
Section 16(b) of the Securities Exchange Act of 1934, as amended; or
(e) Unlawful. To indemnify the Indemnitee to the extent such
--------
indemnification has been determined pursuant to Section 8(c) hereof to be
unlawful.
12. Nonexclusivity. The provisions for indemnification and
--------------
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any provision
of law, the Company's Certificate of Incorporation or By-Laws, the vote of the
Company's stockholders or disinterested directors, other agreements or
otherwise, both as to action in his official capacity and to action in another
capacity while occupying his position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.
13. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to bring
suit to enforce such rights.
14. Interpretation of Agreement. It is understood that the parties
---------------------------
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law.
15. Severability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(a) the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 14 hereof.
16. Modification and Waiver. No supplement, modification or amendment
-----------------------
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
17. Successor and Assigns. The terms of this Agreement shall bind,
---------------------
and shall inure to the benefit of, the successors and assigns of the parties
hereto.
7
<PAGE>
18. Notice. All notices, claims, requests, demands and other
------
communications hereunder shall be in writing and shall be duly given if: (a)
personally delivered or sent via telecopy, (b) sent by telegram (other than
where original payment or other documents must be delivered) for delivery within
24 hours or (c) sent by Federal Express, DHL Worldwide Express or Airborne
Courier (for next business day delivery), shipping prepaid to the addresses
shown on the signature page of this Agreement or such other address or addresses
as the person to whom notice is to be given may have previously furnished to the
other party in writing in the manner set forth above. Notices shall be deemed
given at the time of personal delivery or completed telecopy, or, if sent by
telegram, 24 hours after the time sent, or, if sent by Federal Express, DHL
Worldwide Express, or Airborne Courier, one (1) business day after such sending.
19. Governing Law. This Agreement shall be governed exclusively by
-------------
and construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware, without giving effect to conflict of laws principles. If a
court of competent jurisdiction shall make a final determination that the
provisions of the law of any state other than Delaware govern indemnification by
the Company of its directors and executive officers, then the indemnification
provided under this Agreement shall in all instances be enforceable to the
fullest extent permitted under such law, notwithstanding any provision of this
Agreement to the contrary.
8
<PAGE>
The parties hereto have entered into this Indemnity Agreement effective as
of the date first above written.
CONSOLIDATION CAPITAL CORPORATION:
By
---------------------------------------------
Name: Jonathan J. Ledecky
Title: Chairman and Chief Executive Officer
Address: 1747 Pennsylvania Avenue, N.W.
Suite 900
Washington, DC 20006
INDEMNITEE:
---------------------------------------------
[INSERT NAME]
Address: [INSERT]
9
<PAGE>
EXHIBIT 10.10
WARRANT AGREEMENT dated as of ________ ___, 1997 between Consolidation
Capital Corporation, a Delaware corporation (the "Company"), and Jonathan J.
Ledecky, a resident of the District of Columbia ("Mr. Ledecky").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to Mr. Ledecky warrants ("Warrants")
to purchase 1,950,000 shares of common stock, par value $.001 per share ("Common
Stock"), on the closing date of the initial public offering (the shares of
Common Stock covered by the Warrants are referred to as the "Shares");
WHEREAS the Company in connection with its initial public offering has
entered into an underwriting agreement with Friedman, Billings, Ramsey & Co.,
Inc. dated November __, 1997 (the "Underwriting Agreement"); and
WHEREAS, the Warrants issued pursuant to this Agreement are being issued by
the Company to Mr. Ledecky in connection with the Company's initial public
offering and in view of his interest in having the ability to purchase
additional shares of Common Stock in the Company;
NOW, THEREFORE, in consideration of the premises and the agreements herein
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. GRANT.
Mr. Ledecky is hereby granted the right to purchase, at any time from
November __, 1997 [THE EFFECTIVE DATE] until 5:00 p.m., Washington, D.C. time,
on _______ __, 2007 [TEN YEAR ANNIVERSARY OF EFFECTIVE DATE] (the "Warrant
Exercise Term"), 1,950,000 shares of Common Stock on the closing date of the
initial public offering at an initial exercise price (subject to adjustment as
provided in Article 7 hereof) of $_____ per Share [100% OF PUBLIC OFFERING
PRICE]. Except as provided in Section 12 hereof, the Shares are in all respects
identical to the public shares being sold to the public pursuant to the terms
and provisions of the Underwriting Agreement.
2. WARRANT CERTIFICATES.
The warrant certificates (the "Warrant Certificates") delivered and to be
delivered pursuant to this Agreement shall be in the form set forth as Exhibit
A, attached hereto and made a part hereof, with such appropriate insertions,
omissions, substitutions and other variations as required or permitted by this
Agreement.
3. EXERCISE OF WARRANTS.
<PAGE>
3.1 CASH EXERCISE. The Warrants initially are exercisable at a price of
$_____ per Share purchased [100% OF PUBLIC OFFERING PRICE], payable in cash or
by check to the order of the Company, or any combination of cash or check,
subject to adjustment as provided in Article 7 hereof. Upon surrender of the
Warrant Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
Shares purchased, at the principal office of the Company (presently located at
1747 Pennsylvania Avenue, NW, Suite 900, Washington, D.C. 20006) or at the
office of its transfer agent, the registered holder(s) of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the Shares so purchased. The purchase rights represented by
each Warrant Certificate are exercisable at the option of the Holder hereof, in
whole or in part (but not as to fractional Shares). In the case of the purchase
of less than all of the Shares purchasable under any Warrant Certificate, the
Company shall cancel said Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the Shares purchasable thereunder.
4. RESTRICTION ON TRANSFER
The Holder of a Warrant Certificate, by its acceptance thereof, covenants
and agrees that the Warrants are being acquired as an investment and not with a
view to the distribution thereof, and that the Warrants may not be sold,
transferred, assigned, hypothecated or otherwise disposed of, in whole or in
part, except (i) to officers, directors or affiliates of Mr. Ledecky or (ii) to
transferees with the opinion of counsel, acceptable to the Company and the
transferor, that such transfer is exempt from registration under the Act. The
Warrant Certificate issued pursuant to (ii) above will bear a legend stating
that the Warrants may only be exercised if there is an applicable exemption
under the Securities Act of 1933, as amended (the "Act"), for the issuance of
shares of Common Stock of the Company upon the exercise of the Warrants.
Additionally, upon exercise, in part or in whole, of the Warrants,
certificates representing the Shares shall bear a legend substantially similar
to the following:
"The securities represented by this certificate and the other securities
issuable upon exercise thereof have not been registered under the Act, and
may not be offered or sold except (i) pursuant to an effective registration
statement under the Act, (ii), to the extent applicable, pursuant to Rule
144 under the Act (or any similar rule under such Act relating to the
disposition of securities), or (iii) upon the delivery by the holder to the
Company of an opinion of counsel, reasonably satisfactory to counsel to the
Company, stating that an exemption from registration under such Act is
available."
- 2 -
<PAGE>
5. PRICE.
5.1 INITIAL AND ADJUSTED EXERCISE PRICE. The initial exercise price of
each Warrant shall be $_____ per Share [100% OF PUBLIC OFFERING PRICE]. The
adjusted exercise price shall be the price which shall result from time to time
from any and all adjustments of the initial exercise price in accordance with
the provisions of Article 7 hereof.
5.2 EXERCISE PRICE. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
6. REGISTRATION RIGHTS.
6.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. None of the Warrants
nor the Shares have been registered for purposes of public distribution under
the Act.
6.2 REGISTRABLE SECURITIES. As used herein the term "Registrable
Security" means each of the Shares and any Common Stock issued upon any stock
split or stock dividend in respect of such Shares; provided, however, that with
respect to any particular Registrable Security, such security shall cease to be
a Registrable Security when, as of the date of determination, (i) it has been
effectively registered under the Act and disposed of pursuant thereto, (ii)
registration under the Act is no longer required for subsequent sale of such
security or (iii) it has ceased to be outstanding. The term "Registrable
Securities" means any and/or all of the securities falling within the foregoing
definition of a "Registrable Security." In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be made in the
definition of "Registrable Security" as is appropriate in order to prevent any
dilution or enlargement of the rights granted pursuant to this Article 7.
6.3 PIGGYBACK REGISTRATION.
(a) If, at any time during the twelve years following the date of this
Agreement, the Company proposes to prepare and file one or more registration
statement(s) filed in connection with a public offering covering equity
securities of the Company, or any such securities of the Company held by its
shareholders (other than in connection with an exchange offer, a "rights"
offering to shareholders, an offering relating to an employee benefit plan,
dividend reinvestment plan, an acquisition, a merger, the conversion of any
convertible securities, an exchange of a security, or a stand-by underwriting
with respect to the call of a warrant, option, right or convertible security for
redemption), (for purposes of this Article 7, collectively, a "Registration
Statement"), it will give written notice of its intention to do so by registered
mail ("Notice"), at least thirty (30) business days prior to the filing of each
such Registration Statement, to all holders of the Registrable Securities or, in
the event that the Company has not formulated its intent to file such
Registration Statement at least thirty (30) calendar days before the anticipated
filing date of the Registration Statement, as soon as practicable upon the
formation by the Company of such intent. However, no such Notice need
- 3 -
<PAGE>
be given if the Registration Statement is for an underwritten offering of
securities other than equity securities or securities convertible into equity
securities. Upon the written request of such a holder (a "Requesting Holder"),
made within twenty (20) business days after receipt of the Notice, that the
Company include any of the Requesting Holder's Registrable Securities in the
proposed Registration Statement, the Company shall, as to each such Requesting
Holder, use its best efforts to effect the registration under the Act of the
Registrable Securities which it has been so requested to register ("Piggyback
Registration"), at the Company's sole cost and expense and at no cost or expense
to the Requesting Holders. The Company shall not be required to honor any such
request (i) if, in the opinion of counsel to the Company reasonably acceptable
to such Holder who wishes to have such Registrable Securities included in such
Registration Statement, registration under the Act is not required for the
transfer of the Registrable Securities in the manner proposed by such Holder; or
(ii) to register in the aggregate fewer than 25,000 Shares held by the Holders.
The Company shall permit, or shall use its best efforts to cause the managing
underwriter of a proposed offering to permit, the Holders of Registrable
Securities requested to be included in the registration (the "Piggy-Back
Shares") to include such Piggy-Back Shares in the proposed offering on the same
terms and conditions as applicable to the shares of Common Stock offered by the
Company and for the account of any person other than the Company, as the case
may be.
(b) Notwithstanding the foregoing, if any such managing underwriter
shall advise the Company in writing that, in its opinion, the distribution of
all or a portion of the Registrable Securities requested to be included in the
Registration Statement concurrently with the shares of Common Stock being
registered by the Company would materially adversely affect the distribution of
such securities by the Company for its own account, or for the account of any
person or persons other than the Company that have asserted, with respect to
such registration, demand registration rights under any other agreement, then
such inclusion of Registrable Securities shall be made pro rata among the
--- ----
aggregate of the Registrable Securities for which a proper request was made
under this subsection 6.3 and any other securities properly requested to be
included in the registration by other holders pursuant to piggy-back or
incidental registration rights under any other agreement.
6.4 DEMAND REGISTRATION.
(a) At any time during the Warrant Exercise Term, any "Majority
Holder" (as such term is defined in Section 6.4(c) below) of the Registrable
Securities shall have the right (which right is in addition to the piggyback
registration rights provided for under Section 6.3 hereof), exercisable by
written notice to the Company (the "Demand Registration Request"), to have the
Company prepare and file with the Securities and Exchange Commission (the
"Commission"), on one occasion, at the sole expense of the Company, a
Registration Statement and such other documents, including a prospectus, as may
be necessary (in the opinion of both counsel for the Company and counsel for
such Majority Holder), in order to comply with the provisions of the Act, so as
to permit a public offering and sale of the Registrable Securities by the
holders thereof, for twelve (12) consecutive months. The Company shall not be
required to file any amendments to the Registration Statement required by this
subsection 6.4(a) except as is necessary to keep the disclosure about the
Company current.
- 4 -
<PAGE>
(b) The Company covenants and agrees to give written notice of any
Demand Registration Request to all holders of the Registrable Securities within
ten (10) days from the date of the Company's receipt of any such Demand
Registration Request. After receiving notice from the Company as provided in
this Section 6.4(b), holders of Registrable Securities may request the Company
to include their Registrable Securities in the Registration Statement to be
filed pursuant to Section 6.4(a) hereof by notifying the Company of their
decision to include such securities within ten (10) days of their receipt of the
Company's notice.
(c) The term "Majority Holder" as used in this Section 6.4 shall mean
any holder or any combination of holders of Registrable Securities, if included
in such holders' Registrable Securities are that aggregate number of Shares
(including Shares already issued and Shares issuable pursuant to the exercise of
outstanding Warrants) as would constitute a majority of the aggregate number of
Shares (including Shares already issued and Shares issuable pursuant to the
exercise of outstanding Warrants) included in all of the Registrable Securities.
6.5 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. The Company
covenants and agrees as follows:
(a) In connection with any registration under Section 6.4 hereof, the
Company shall file the Registration Statement as expeditiously as possible, but
in no event later than thirty (30) days following receipt of any demand
therefor, shall use its best efforts to have any such Registration Statement
declared effective at the earliest possible time. If a written request,
however, is received by the Company that would require the filing of a
Registration Statement between 45 and 105 days after the end of its fiscal year,
the deadline for the filing of the Registration Statement shall be extended
until the 106th day of such fiscal year. The Company shall furnish each holder
of Registrable Securities such number of prospectuses as shall reasonably be
requested. However, in connection with any registration under Sections 6.3 and
6.4 hereof, the Company shall have sole control in connection with the
preparation, filing, amending and supplementing of the Registration Statement,
including the right to withdraw the same or delay the filing or effectiveness
thereof when, in the sole judgment of the Board of Directors of the Company, the
filing or pendency of such registration statement or the effectiveness thereof
would impose an undue burden upon the ability by the Company to proceed with any
other material financing for its own account or any material corporate
transaction, including, but not limited to, a reorganization, recapitalization,
merger, consolidation or material acquisition of the securities or assets of
another firm or corporation; provided, however, that the Company's exercise of
-------- -------
any such right of withdrawal or delay shall not be deemed a waiver of the rights
of the Holders, and the Company shall be required to file a new Registration
Statement or to proceed with such actions as reasonably may be required to cause
the Registration Statement to become effective within a reasonable time after
the consummation of the event or transaction which required such withdrawal or
delay.
(b) The Company shall pay all costs, fees and expenses in connection
with all Registration Statements filed pursuant to Sections 6.3 and 6.4(a)
hereof including, without limitation, the Company's legal and accounting fees,
printing expenses, and blue sky fees and
- 5 -
<PAGE>
expenses. Each Holder, however, shall pay the underwriting discount attributable
to such Holder's Registrable Securities, any transfer tax payable with respect
thereto and the fees and expenses of such Holder's counsel.
(c) The Company will take all necessary action which may be required
in qualifying or registering the Registrable Securities included in a
Registration Statement for offering and sale under the securities or blue sky
laws of such states as are requested by the holders of such securities, provided
that the Company shall not be obligated to execute or file any general consent
to service of process or to qualify as a foreign corporation to do business
under the laws of any such jurisdiction.
(d) The Company shall indemnify any holder of the Registrable
Securities to be sold pursuant to any Registration Statement and any underwriter
or person deemed to be an underwriter under the Act and each person, if any, who
controls such holder or underwriter or person deemed to be an underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange
Act of 1934, as amended ("Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise, arising
from such Registration Statement to the same extent and with the same effect as
the provisions pursuant to which the Company has agreed to indemnify the
underwriters contained in Section 8 of the Underwriting Agreement and shall
provide for just and equitable contribution as set forth in Section 8 of the
Underwriting Agreement.
(e) Any holder of Registrable Securities to be sold pursuant to a
Registration Statement, and its successors and assigns, shall severally, and not
jointly, indemnify the Company, its officers and directors and each person, if
any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished in writing by or on behalf of such holder, or its successors or
assigns, for specific inclusion in such Registration Statement to the same
extent and with the same effect as the provisions contained in Section 8 of the
Underwriting Agreement pursuant to which the underwriters have agreed to
indemnify the Company and shall provide for just and equitable contribution as
set forth in Section 8 of the Underwriting Agreement.
(f) Nothing contained in this Agreement shall be construed as
requiring any Holder to exercise his Warrants prior to the initial filing of any
Registration Statement or the effectiveness thereof.
(g) If the Company shall fail to comply with the provisions of this
Article 6, the Company shall, in addition to any other equitable or other relief
available to the holders of Registrable Securities, be liable for any or all
incidental, special and consequential damages
- 6 -
<PAGE>
sustained by the holders of Registrable Securities that request registration of
their Registrable Securities.
(h) Except as set forth in Section 6.5(j) hereof, the Company shall
not permit the inclusion of any securities other than the Registrable Securities
to be included in any Registration Statement filed pursuant to Section 6.4
hereof, or permit a Registration Statement relating to an underwritten offering
of the same securities as the Registrable Securities to be filed during an
underwritten offering of the Registrable Securities covered by a Registration
Statement filed pursuant to Section 7.4 hereof, without the prior written
consent of the Majority Holders, which consent shall not be unreasonably
withheld.
(i) The Company shall deliver promptly to each holder of Registrable
Securities participating in the offering in which such Holder's shares are being
registered pursuant to Section 6.3 hereof and requesting the correspondence and
memoranda described in this Section 6.5(i) and to the managing underwriter, if
any, copies of all correspondence between the Commission and the Company, its
counsel or auditors and all memoranda relating to discussions with the
Commission or its staff with respect to the Registration Statement and permit
each holder of Registrable Securities and underwriters to do such investigation,
upon reasonable advance notice, with respect to information contained in or
omitted from the Registration Statement as it deems reasonably necessary to
comply with applicable securities laws or rules of the National Association of
Securities Dealers, Inc. Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as any such holder of Registrable Securities
or underwriter shall reasonably request.
(j) Upon the written request therefor by any holders of Registrable
Securities, the Company shall include in the Registration Statement filed for an
underwritten offering covering any such holders Registrable Securities, any
additional shares of Common Stock of the Company, or, with the approval of the
managing underwriter, any additional securities, held by such holders as of the
date of filing of such Registration Statement. The holders shall pay any
additional costs, fees and expenses associated with the inclusion on such
Registration Statement of any of such holders shares of Common Stock or other
securities that are not Registerable Securities that are included on the
Registration Statement. Notwithstanding the foregoing, if any such managing
underwriter shall advise the Company in writing that, in its opinion, the
distribution of all or a portion of the Common Stock that are not Registrable
Securities requested to be included in the Registration Statement concurrently
with the Registrable Securities being registered by such holders would
materially adversely affect the distribution of such offering then such
additional shares of Common Stock shall be excluded from the Registration
Statement.
(k) Upon the written request therefor by any holders of Registrable
Securities, the Company shall include in the Registration Statement filed for a
non-underwritten offering covering any of the Registrable Securities, any other
securities of the Company held by such holders as of the date of filing of such
Registration Statement, including, without limitation, restricted shares of
- 7 -
<PAGE>
Common Stock, options, warrants or any other securities convertible into shares
of Common Stock. The holders shall pay any additional costs, fees and expenses
associated with the inclusion on such Registration Statement of any of such
holders other securities of the Company that are not Registerable Securities
that are included on the Registration Statement.
7. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF SECURITIES. The following
adjustments apply to the Exercise Price of the Warrants with respect to the
Shares and the number of Shares purchasable upon exercise of the Warrants.
7.1 COMPUTATION OF ADJUSTED PRICE. In case the Company shall at any time
after the date hereof pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock to its stockholders, then upon such
dividend or distribution the Exercise Price in effect immediately prior to such
dividend or distribution shall forthwith be reduced to a price determined by
dividing:
(a) an amount equal to the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution multiplied by the
Exercise Price in effect immediately prior to such dividend or distribution, by
(b) the total number of shares of Common Stock outstanding immediately
after such issuance or sale.
For the purposes of any computation to be made in accordance with the
provisions of this Section 7.1, the shares of Common Stock issuable by way of a
dividend or other distribution on any shares of Common Stock of the Company
shall be deemed to have been issued immediately after the opening of business on
the date following the date fixed for the determination of stockholders entitled
to receive such dividend or other distribution.
7.2 SUBDIVISION AND COMBINATION. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of a subdivision or
increased in the case of a combination.
7.3 ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Article 7, the number of
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full Share by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of Shares issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
7.4 RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company
- 8 -
<PAGE>
into, another corporation (other than a consolidation or merger in which the
Company is the surviving corporation and which does not result in any
reclassification or change of the outstanding shares of Common Stock, except a
change as a result of a subdivision or combination of such shares or a change in
par value, as aforesaid), or in the case of a sale or conveyance to another
corporation of the property of the Company as an entirety, the Holders shall
thereafter have the right to purchase the kind and number of shares of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance as if the Holders were the owners of
the Shares immediately prior to any such events and at an aggregate price equal
to the product of (x) the number of shares of Common Stock issuable upon
exercise of the Holders' Warrants and (y) the Exercise Price in effect
immediately prior to the record date for such reclassification, change,
consolidation, merger, sale or conveyance as if such Holders had exercised the
Warrants.
7.5 DETERMINATION OF OUTSTANDING COMMON STOCK. The number of shares of
Common Stock at any one time outstanding shall include the aggregate number of
shares issued or issuable upon the exercise of options, rights, warrants and
upon the conversion or exchange of convertible or exchangeable securities.
7.6 SUBSCRIPTION RIGHTS FOR COMMON STOCK OR OTHER SECURITIES. In the case
that the Company or an affiliate of the Company shall at any time after the date
hereof and prior to the exercise of all of the Warrants issue any rights to
subscribe for shares of Common Stock or any other securities of the Company or
of such affiliate to all of the shareholders of the Company, the Holders of the
unexercised Warrants shall be entitled, in addition to the shares of Common
Stock or other securities receivable upon the exercise of the Warrants, to
receive at the time such rights as are distributed to the other shareholders of
the Company.
8. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES.
Each Warrant Certificate is exchangeable without expense, upon the
surrender hereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of Shares in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
9. ELIMINATION OF FRACTIONAL INTERESTS.
The Company shall not be required to issue certificates representing
fractions of Shares upon the exercise of the Warrants nor shall it be required
to issue scrip or pay cash in lieu of fractional
- 9 -
<PAGE>
interests, it being the intent of the parties that all fractional interests
shall be eliminated by rounding any fraction up to the nearest whole number of
Shares.
10. RESERVATION AND LISTING OF SECURITIES.
The Company shall at all times reserve and keep available out of its
authorized Common Stock, solely for the purpose of issuance upon the exercise of
the Warrants, such number of shares of Common Stock as shall be issuable upon
the exercise thereof. The Company covenants and agrees that, upon exercise of
the Warrants and payment of the Exercise Price therefor, all Shares issuable
upon such exercise shall be duly and validly issued, fully paid, non-assessable
and not subject to the preemptive rights of any shareholder. As long as the
Warrants shall be outstanding, the Company shall use its best efforts to cause
all shares of Common Stock issuable upon the exercise of the Warrants to be
listed on or quoted by the Nasdaq National Market, or listed on such national
securities exchanges as requested by the Underwriter.
11. NOTICES TO WARRANT HOLDERS.
Nothing contained in this Agreement shall be construed as conferring upon
the Holder or Holders the right to vote or to consent or to receive notice as a
stockholder in respect of any meetings of stockholders for the election of
directors or any other matter, or as having any rights whatsoever as a
stockholder of the Company. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:
(a) the Company shall take a record of all of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash dividend
or distribution payable otherwise than out of current or retained earnings,
as indicated by the accounting treatment of such dividend or distribution
on the books of the Company; or
(b) the Company shall offer to all of the holders of its shares of
Common Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock of
the Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed; or
(d) reclassification or change of the outstanding shares of Common
Stock (other than a change in par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination),
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is
the surviving corporation and which does not result in any reclassification
or change of the
- 10 -
<PAGE>
shares of outstanding Common Stock, except a change as a result of a
subdivision or combination of such shares or a change in par value, as
aforesaid), or a sale or conveyance to another corporation of the property
of the Company as an entirety is proposed; or
(e) the Company or an affiliate of the Company shall propose to issue
any rights to subscribe for shares of Common Stock or any other securities
of the Company or of such affiliate to all the stockholders of the Company;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or the issuance of any convertible
or exchangeable securities or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
12. NOTICES.
All of notices, requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been duly made when delivered, or
mailed by registered or certified mail, return receipt requested:
(a) If to a registered Holder of the Warrants, to the address of such
Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 of this
Agreement or to such other address as the Company may designate by notice
to the Holders.
13. SUPPLEMENTS AND AMENDMENTS.
The Company and Mr. Ledecky may from time to time supplement or amend this
Agreement without the approval of any Holders of Warrant Certificates in order
to cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any provisions herein, or to make
any other provisions in regard to matters or questions arising hereunder which
the Company and Mr. Ledecky may deem necessary or desirable and which the
Company and Mr. Ledecky deem not to adversely affect the interests of the
Holders of Warrant Certificates.
- 11 -
<PAGE>
14. SUCCESSORS.
All of the covenants and provisions of this Agreement by or for the benefit
of the Company and the Holders inure to the benefit of their respective
successors and assigns hereunder.
15. TERMINATION.
This Agreement shall terminate at the close of business on __________, 2005
[THREE YEARS AFTER LAST DATE OF EXERCISE OF WARRANTS TO GIVE SUFFICIENT COVERAGE
FOR REGISTRATION OF THE SECURITIES AND PERIOD OF SALE]. Notwithstanding the
foregoing, this Agreement will terminate on any earlier date when all Warrants
have been exercised and all Shares have been resold to the public.
16. GOVERNING LAW.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Delaware and for all
purposes shall be construed in accordance with the laws of said State.
17. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and Mr. Ledecky and any other registered
holder or holders of the Warrant Certificates, or Shares any legal or equitable
right, remedy or claim under this Agreement; and this Agreement shall be for the
sole and exclusive benefit of the Company and Mr. Ledecky and any other holder
or holders of the Warrant Certificates, Warrants or the Shares.
19. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and such
counterparts shall together constitute but one and the same instrument.
- 12 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
CONSOLIDATION CAPITAL CORPORATION
By:
------------------------------------
Name:
Title:
Attest:
- --------------------------
----------------------------------------
Jonathan J. Ledecky
- 13 -
<PAGE>
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE 5:00 P.M., WASHINGTON, D.C. TIME, _________, 2007
No. W-____ 1,950,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that Jonathan J. Ledecky or registered
assigns, is the registered holder of _______ Warrants to purchase, at any time
from _______, 1997 until 5:00 p.m. Washington, D.C. time on ________, 2007
("Expiration Date"), 1,950,000 fully paid and non-assessable shares ("Shares")
of the Common Stock, par value $.001 per share ("Common Stock"), of
Consolidation Capital Corporation, a Delaware corporation (the "Company"), at
the initial exercise price, subject to adjustment in certain events (the
"Exercise Price"), of $_____ per Share, upon surrender of this Warrant
Certificate and payment of the Exercise Price at an office or agency of the
Company, but subject to the conditions set forth herein and in the warrant
agreement dated as of __________ __, 1997 between the Company and Jonathan J.
Ledecky (the "Warrant Agreement"). Payment of the Exercise Price may be made in
cash, or by check payable to the order of the Company, or any combination of
cash or check.
No Warrant may be exercised after 5:00 p.m., Washington, D.C. time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to in a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the
<PAGE>
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events,
the Exercise Price and/or number of the Company's securities issuable thereupon
may, subject to certain conditions, be adjusted. In such event, the Company
will, at the request of the holder, issue a new Warrant Certificate evidencing
the adjustment in the Exercise Price and the number and/or type of securities
issuable upon the exercise of the Warrants; provided, however, that the failure
of the Company to issue such new Warrant Certificates shall not in any way
change, alter, or otherwise impair, the rights of the holder as set forth in the
Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated: ___________, 199_ CONSOLIDATION CAPITAL CORPORATION
[SEAL] By:
------------------------------
Name:
Title:
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _________ Shares and
herewith tenders in payment for such Shares cash or a certified or official bank
check payable in New York Clearing House Funds to the order of CONSOLIDATION
CAPITAL CORPORATION in the amount of $__________, all in accordance with the
terms hereof. The undersigned requests that a certificate for such Shares be
registered in the name of ___________________, whose address is
__________________, and that such Certificate be delivered to
__________________, whose address is _____________.
Dated: Signature:
-------------------------------------
(Signature must conform in all respects to name
of holder as specified on the face of the
Warrant Certificate.)
---------------------------------
---------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED
-------------------------------------------------
hereby sells, assigns and transfers unto
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________, Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:
--------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate)
- -------------------------------
- -------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
<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
November 24, 1997
