<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1997
REGISTRATION NO. 333-36193
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
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
(STATE OR OTHER (PRIMARY STANDARD 52-2054952
JURISDICTIONOF INCORPORATION INDUSTRIALCLASSIFICATION (I.R.S. EMPLOYER
OR ORGANIZATION) CODE NUMBER) IDENTIFICATION NO.)
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. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY OFFERING PRICE(1) REGISTRATION FEE(2)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.001 per share....... 34,750,000 $20.00 $695,000,000 $210,607
- ------------------------------------------------------------------------------------------------
Convertible Non-Voting
Common Stock, par value
$.001 per share....... 500,000 $20.00 $10,000,000 $3,031
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
(2) Of the amounts shown in this column, $174,243 was previously paid by the
Company in connection with the initial filing of this Registration
Statement.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING
PURSUANT TO SAID SECTION 8(A) MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 5, 1997
CONSOLIDATION CAPITAL CORPORATION
30,000,000 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, 30,000,000
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 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.
- --------------------------------------------------------------------------------
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<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 (the
"FBR" or "Representative") in the form of warrants to purchase 1,411,765
shares of Common Stock (1,591,765 shares of Common Stock if the over-
allotment option described below is exercised in full) 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
4,500,000 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 30,000,000 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 the 6-for-5 split of the Common Stock to be effected
through a stock dividend to be paid immediately prior to the effective date of
the registration statement of which this Prospectus forms a part (the
"Effective Date"). The stock split is designed to ensure that Jonathan J.
Ledecky, the founder, Chairman and Chief Executive Officer of the Company,
retains 15% ownership of the Company's common equity after the Offering,
excluding shares issued in the Concurrent Offerings (as defined below) and
shares issued upon exercise of the Underwriters' over-allotment option.
Consequently, the 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.
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. USOP's revenues increased
from $134 million on a pro forma basis for the fiscal year ended April 30, 1994
to $2.8 billion for the fiscal year ended April 26, 1997; during the same
periods, USOP's operating margin increased from 3.0% on a pro forma basis to
5.3%, excluding non-recurring and restructuring costs; and USOP's assets
increased from $49 million on a pro forma basis as of April 30, 1994 to $1.8
billion as of April 26, 1997. These results are not intended to be indicative
of the results that may be achieved by the Company.
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. See "Management." The
Company will, however, have broad discretion in identifying and selecting both
the industries which it expects to consolidate and possible acquisition
candidates within those industries. 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 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 was initially
capitalized with $59,000 (supplemented by additional capital contributions of
$67,000), has generated no revenues to date and has incurred losses of $103,000
since its founding in February 1997 through September 30, 1997. See "Risk
Factors--No Present Source of Revenues" and "--Risks Associated with
Consolidation Strategy."
3
<PAGE>
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."
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." The Company believes
that another competitive advantage will be the Company's ability to deploy
rapidly its significant financial resources and/or use its publicly traded
stock as consideration in selected 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. 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. 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.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company... 30,000,000 Shares
Common Stock to be outstanding after 35,544,118 Shares (1)(2)
the Offering.........................
Use of Proceeds....................... To fund future acquisitions and general
corporate purposes, including working
capital. See "Use of Proceeds."
Proposed Nasdaq National Market BUYR
symbol...............................
</TABLE>
- --------
(1) Includes 250,000 shares which Jonathan Ledecky has expressed an interest in
purchasing in a concurrent offering (the "Concurrent Common Stock
Offering"). 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 Company's 1997 Long-Term Incentive Plan (or 3,198,971
shares at the consummation of the Offering), of which options to purchase
1,500,000 shares of Common Stock are 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; (ii) 300,000 shares of Common
Stock reserved for issuance under the Company's 1997 Non-Employee
Directors' Stock Plan, of which options to purchase 60,000 shares of Common
Stock are expected to be granted on the Effective Date at an exercise price
equal to the initial public offering price per share; (iii) 1,000,000
shares of Common Stock reserved for issuance under the Company's 1997
Employee Stock Purchase Plan; (iv) 500,000 shares of Common Stock to be
issued upon the conversion of the Convertible Non-Voting Common Stock; and
(v) 1,411,765 shares of Common Stock (1,591,765 shares of Common Stock if
the Underwriters' over-allotment option is exercised in full) issuable upon
the exercise of warrants issued to the Representative. 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."
(2) Includes 5,544,118 shares owned by Jonathan Ledecky, which are subject to
contractual restrictions on transfer that extend for (i) 180 days with
respect to 5,544,118 shares, (ii) two years with respect to 5,294,118
shares, (iii) four years with respect to 2,470,588 shares, and (iv) five
years with respect to 705,882 shares. Such restrictions may lapse earlier
based upon the Company's stock price performance. The Representative has
agreed to release the foregoing lock-up provisions with respect to up to
625,000 shares of Common Stock owned by Jonathan Ledecky for some or all of
the periods specified above, subject to certain conditions. See
"Underwriting and Plan of Distribution." Of the shares to be owned by
Jonathan Ledecky after the Offering, 250,000 are to be issued and sold by
the Company in the Concurrent Common Stock Offering.
5
<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.
An affiliate of FBR has indicated an interest in purchasing 500,000 shares of
Convertible Non-Voting Common Stock from the Company (the "Concurrent Non-
Voting Stock Offering" and, together with the Concurrent Common Stock Offering,
the "Concurrent Offerings"), 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 to the Company for sales to the initial purchasers in an
initial public offering, readers of this Prospectus should consider carefully
these cautionary statements in connection with the forward-looking statements
made herein.
6
<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 to the Company for sales to the initial purchasers in an initial
public offering.
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 acquisitions, after which its ability to generate revenues
and earnings (if any) will be directly dependent upon the operating results of
any acquired business 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 of USOP. As a director 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
in the capacity of a senior executive of USOP. While Jonathan Ledecky is not
to be responsible for the day-to-day oversight of USOP, his duties 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
7
<PAGE>
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 tortuously 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 US
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 15.6% of the Company's Common Stock. Assuming an initial public
offering price of $20.00 per share, the aggregate market value of the shares
of Common Stock owned beneficially by Jonathan Ledecky following the Offering
and the Concurrent Common Stock Offering would be approximately $110.9
million; Jonathan Ledecky's aggregate purchase price for such shares will have
been approximately $5.1 million. See "Principal Stockholders."
A portion of the net proceeds of the Offering and the Concurrent Offerings
will be used to repay in 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
prerequisites. See "Management--Executive Compensation; Employment
Agreements."
Jonathan Ledecky, David Ledecky, Timothy Clayton and F. Traynor Beck will
each be eligible to participate in the Company's 1997 Long-Term Incentive
Plan, which provides for, among other things, the award
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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 Company's 1997 Non-Employee Directors'
Stock 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 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 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 the members of the Company's senior management team have
substantial experience in acquiring and consolidating businesses, or effecting
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 other
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 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
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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 the floral products and distribution industry, 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 such persons have yet
been identified. See "--Conflicts of Interest," "Business--Conflicts of
Interest" and "Certain Relationships and Related Party Transactions."
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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 $572.0 million
($655.7 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 on 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.
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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 35,544,118 shares of Common Stock outstanding
(40,044,118 shares of Common Stock if the Underwriters' over-allotment option
is exercised in full). In addition, the Company will have 3,471,765 securities
outstanding that are convertible into or exercisable for 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 and (iv) 1,411,765 shares of Common Stock to be issuable upon
the exercise of warrants to be issued to the Representative (if the
Underwriters' over-allotment option is exercised in full, then the number of
shares issuable upon the exercise of the Representative's warrants and the
total number of convertible securities outstanding would both be increased by
180,000). The Company will also have (i) 1,698,970 shares reserved for
issuance pursuant to awards available to be made under the Company's 1997
Long-Term Incentive Plan (2,103,970 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 208,045,147 authorized but unissued and unreserved shares of
Common Stock (202,960,147 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 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
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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 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
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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 15.6% of the outstanding shares of Common
Stock. The Company's executive officers and directors, if acting together, may
be able to significantly influence the election of directors and matters
requiring the approval of the stockholders of the
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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 35,544,118 shares of Common Stock outstanding. The
30,000,000 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 5,544,118
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
contractual restrictions on transfer, for periods ranging from at least 180
days to five years. Specifically, subject to the provisions described below,
Jonathan Ledecky may not directly or indirectly offer, pledge, sell, contract
to sell, or otherwise transfer or dispose of ("Transfer"), or enter into any
swap or any other agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of the
Common Stock ("Swap") relating to, (i) any shares of Common Stock owned by him
during the period ending 180 days after the date of this Prospectus, (ii) more
than 250,000 shares of Common Stock owned by him during the period ending two
years after the date of this Prospectus, (iii) more than 3,073,530 shares of
Common Stock owned by him during the period ending four years after the date
of this Prospectus and (iv) more than 4,838,236 shares of Common Stock owned
by him during the period ending five years after the date of this Prospectus.
Thereafter, all of Jonathan Ledecky's shares of Common Stock will be available
for Transfer or Swap, subject to compliance with Rule 144. Notwithstanding the
foregoing, beginning 180 days after the date of this Prospectus, the
restrictions on Transfer or Swap will lapse (i) as to 50% of the shares still
subject to such restrictions if the closing price of a share of Common Stock
is equal to or exceeds 150% of the Offering Price for a period of at least 20
consecutive trading days beginning on the earlier of the date the Company
publicly announces consummation of its first acquisition of a business or 180
days after the date of this Prospectus and (ii) as to 100% of the shares still
subject to such restrictions if the closing price of a share of Common Stock
is equal to or exceeds 200% of the Offering Price for a period of at least 20
consecutive trading days beginning on the earlier of the date the Company
publicly announces consummation of its first acquisition of a business or 180
days after the date of this Prospectus. Further, upon consummation of the
Offering, 1,560,000 shares of Common Stock will be issuable upon the exercise
of stock options to be granted on the Effective Date, and an aggregate of
2,938,970 shares will be reserved for issuance pursuant to the Company's 1997
Long-Term Incentive Plan, 1997 Non-Employee Directors' Stock Plan and 1997
Employee Stock Purchase Plan (an aggregate of 3,343,970 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 1997 Long-Term 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 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. Finally, upon
completion of the Offering and the Concurrent Non-Voting Stock Offering,
1,411,765 shares of Common Stock will be reserved for issuance upon exercise
of the warrants to be issued to the Representative (1,591,765 shares if the
Underwriters' over-allotment option is exercised in full) and 500,000 shares
will be reserved for issuance upon the conversion of shares of Convertible
Non-Voting Common Stock. 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
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prior written consent of the Representative. See "Shares Eligible for Future
Sale" and "Underwriting and Plan of Distribution."
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 $4.13 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 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.
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 Amended and Restated Certificate of
Incorporation."
16
<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 $557.0 million (approximately $640.7 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 an affiliate of FBR
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.
17
<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 30,000,000 shares of Common Stock offered hereby
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, 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, 4,411,756 shares
issued and outstanding and 35,544,118 shares
issued and outstanding (as adjusted)(1)(2)........ $ 4 $ 36
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......................... 122 572,089
Accumulated deficit................................ (103) (103)
--------- ------------
Total stockholder's equity....................... 23 572,023
--------- ------------
Total capitalization........................... $ 23 $ 572,023
========= ============
</TABLE>
- --------
(1) Includes 250,000 shares which Jonathan Ledecky has expressed an interest
in purchasing in the Concurrent Common Stock Offering. 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
Company's 1997 Long-Term Incentive Plan (or 3,198,971 shares at the
consummation of the Offering), of which options to purchase 1,500,000
shares of Common Stock are 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; (ii) 300,000 shares of Common
Stock reserved for issuance under the Company's 1997 Non-Employee
Directors' Stock Plan, of which options to purchase 60,000 shares of
Common Stock are expected to be granted on the Effective Date at an
exercise price equal to the initial public offering price per share; (iii)
1,000,000 shares of Common Stock reserved for issuance under the Company's
1997 Employee Stock Purchase Plan; (iv) 500,000 shares of Common Stock to
be issued upon the conversion of the Convertible Non-Voting Common Stock;
and (v) 1,411,765 shares of Common Stock (1,591,765 shares of Common Stock
if the Underwriters' over-allotment option is exercised in full) issuable
upon the exercise of warrants issued to the Representative. 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."
(2) Includes 5,544,118 shares owned by Jonathan Ledecky, which are subject to
contractual restrictions on transfer that extend for (i) 180 days with
respect to 5,544,118 shares, (ii) two years with respect to 5,294,118
shares, (iii) four years with respect to 2,470,588 shares, and (iv) five
years with respect to 705,882 shares. Such restrictions may lapse earlier
based upon the Company's stock price performance. The Representative has
agreed to release the foregoing lock-up provisions with respect to up to
625,000 shares of Common Stock owned by Jonathan Ledecky for some or all
of the periods specified above, subject to certain conditions. See
"Underwriting and Plan of Distribution." Of the shares to be owned by
Jonathan Ledecky after the Offering, 250,000 are to be issued and sold by
the Company in the Concurrent Common Stock Offering.
18
<PAGE>
DILUTION
The Company had a net tangible book value deficit at September 30, 1997, of
$292,000, or a deficit of $.06 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 30,000,000 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 $572,023,000, or $15.87 per share. This amount
represents an immediate dilution to new investors of $4.13 per share and an
immediate increase in pro forma as adjusted net tangible book value per share
to existing stockholders of $15.93 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....... $(0.06)
Increase in net tangible book value per share resulting from
the Offering and the Concurrent Offerings.................... 15.93
------
Pro forma net tangible book value per share after the Offering
and the Concurrent Offerings................................... 15.87
------
Pro forma dilution to new investors............................. $ 4.13
======
</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 $16.23, $16.17 and $3.83, 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 TOTAL CONSIDERATION AVERAGE
------------------ -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholder
(1).................... 5,544,118 15.4% $ 5,126,000 .8% $ .92
New investors (2)....... 30,500,000 84.6% 610,000,000 99.2% $20.00
---------- ----- ------------ -----
Total................. 36,044,118 100.0% $615,126,000 100.0%
========== ===== ============ =====
</TABLE>
- --------
(1) Includes 250,000 shares which Jonathan Ledecky has expressed an interest
in purchasing in the Concurrent Common Stock Offering. 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
Company's 1997 Long-Term Incentive Plan (3,198,970 shares on the Effective
Date, or 3,603,970 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
Company's 1997 Non-Employee Directors' Stock 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
19
<PAGE>
offering price per share; and (iii) 1,000,000 shares of Common Stock
reserved for issuance under the Company's 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
Stock Offering.
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
30,000,000 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
$572.0 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 $572.0 million
($655.7 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 on 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.
20
<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 significant 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,
however, 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. 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
21
<PAGE>
interest in dealing with large distributors, which has enabled manufacturers
to generate efficiency gains due to streamlined production, distribution and
marketing operations. As the consolidation model has been successfully
implemented by consolidators, their access to the capital markets,
particularly the public equity markets, has increased.
USOP is an example of a company formed to consolidate businesses. USOP was
formed in October 1994 by the Company's founder, Chairman and Chief Executive
Officer, Jonathan Ledecky. Under Jonathan Ledecky's leadership, USOP acquired
over 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. USOP's
revenues increased from $134 million on a pro forma basis for the fiscal year
ended April 30, 1994 to $2.8 billion for the fiscal year ended April 26, 1997;
during the same periods, USOP's operating margin increased from 3.0% on a pro
forma basis to 5.3%, excluding non-recurring and restructuring costs; and
USOP's assets increased from $49 million on a pro forma basis as of April 30,
1994 to $1.8 billion as of April 26, 1997. USOP's net income for the year
ended April 27, 1997 was approximately $57.3 million and, as of April 27,
1997, USOP's stockholders' equity and net intangible assets were approximately
$921.1 million and $643.6 million, respectively. These results are not
intended to be indicative of the results that might be achieved by the
Company.
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.
22
<PAGE>
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 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; real estate
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 the floral products and distribution industry.
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.
23
<PAGE>
. 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 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
24
<PAGE>
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 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 of USOP. As a director 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 in the capacity of a
senior executive of USOP. While Jonathan Ledecky is not to be responsible for
the day-to-day oversight of USOP, his duties 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
25
<PAGE>
be held wrongfully to have disclose 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 tortuously 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 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.
26
<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. 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
and Chief Financial Officer 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.
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 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.
27
<PAGE>
F. Traynor Beck has been designated to become Executive Vice President and
General Counsel of the Company on the Effective Date. Since 1987, 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.
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 1997 Long-Term Incentive 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
28
<PAGE>
Directors' Stock Plan, each 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 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
two-year term and is automatically renewable for one-year terms thereafter
unless either party gives notice of non-renewal at least 6 months 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 intends to adopt, and the sole stockholder intends to approve,
the 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 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
29
<PAGE>
extraordinary corporate events. The Company anticipates that any material
amendments to the Incentive Plan will be subject to stockholder approval.
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 1997 Long-Term 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 intends to adopt, and the sole stockholder intends to approve,
the 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.
30
<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 (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 EMPLOYEE STOCK PURCHASE PLAN
The Company intends to adopt, and the sole stockholder intends to approve,
the 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.
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.
31
<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.
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.
Jonathan Ledecky, the Company's Chairman, Chief Executive Officer and
founder, is the brother of David Ledecky, the Company's Senior Vice President
and a director nominee of the Company.
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."
32
<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, 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 --------------------
SHARES OF NUMBER OF BEFORE THE AFTER THE
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK SHARES PURCHASED(1) OFFERINGS OFFERINGS
- ------------------------------------ ------------ ------------------- ---------- ---------
<S> <C> <C> <C> <C>
Jonathan J. Ledecky..... 5,294,118(2) 250,000 100% 15.6%
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)...... 5,294,118 250,000 100% 15.6%
</TABLE>
- --------
(1) Constitutes shares purchased in the Concurrent Common Stock Offering.
(2) The shares of Common Stock owned by Jonathan Ledecky will be subject to
contractual restrictions following the Offering. See "Underwriting and
Plan of Distribution."
An affiliate of FBR 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.
33
<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
35,544,118 shares of Common Stock (40,044,118 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
Amended and Restated Certificate of Incorporation and 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 Amended and 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. 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 AMENDED AND 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 Amended and Restated Certificate 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.
34
<PAGE>
Additionally, the Company's Bylaws provide for the indemnification of any
person who was or is an officer or director of the Company 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 officer or director of the
Company against any expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
35
<PAGE>
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 35,544,118 shares of Common Stock outstanding. The
30,000,000 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 5,544,118 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 contractual restrictions on transfer, for periods
ranging from at least 180 days to five years. Specifically, subject to the
provisions described below, Jonathan Ledecky may not Transfer or Swap (i) any
shares of Common Stock owned by him during the period ending 180 days after
the date of this Prospectus, (ii) more than 250,000 shares of Common Stock
owned by him during the period ending two years after the date of this
Prospectus, (iii) more than 3,073,530 shares of Common Stock owned by him
during the period ending four years after the date of this Prospectus and (iv)
more than 4,838,236 shares of Common Stock owned by him during the period
ending five years after the date of this Prospectus. Thereafter, all of
Jonathan Ledecky's shares of Common Stock will be available for Transfer or
Swap, subject to compliance with Rule 144. Notwithstanding the foregoing,
beginning 180 days after the date of this Prospectus, the restrictions on
Transfer or Swap will lapse (i) as to 50% of the shares still subject to such
restrictions if the closing price of a share of Common Stock is equal to or
exceeds 150% of the Offering Price for a period of at least 20 consecutive
trading days beginning on the earlier of the date the Company publicly
announces consummation of its first acquisition of a business or 180 days
after the date of this Prospectus and (ii) as to 100% of the shares still
subject to such restrictions if the closing price of a share of Common Stock
is equal to or exceeds 200% of the Offering Price for a period of at least 20
consecutive trading days beginning on the earlier of the date the Company
publicly announces consummation of its first acquisition of a business or 180
days after the date of this Prospectus.
Further, upon consummation of the Offering, 1,560,000 shares of Common Stock
will be issuable upon the exercise of stock options to be granted on the
Effective Date, and an aggregate of 2,938,970 shares will be reserved for
issuance pursuant to the Company's 1997 Long-Term Incentive Plan, 1997 Non-
Employee Directors' Stock Plan and 1997 Employee Stock Purchase Plan (an
aggregate of 3,343,970 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 1997
Long-Term 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.
Finally, upon completion of the Offering and the Concurrent Non-Voting Stock
Offering, 1,411,765 shares of Common Stock will be reserved for issuance upon
exercise of the warrants to be issued to the Representative (1,591,765 shares
if the Underwriters' over-allotment option is exercised in full) and 500,000
shares will be reserved for issuance upon the conversion of shares of
Convertible Non-Voting Common Stock. 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.
36
<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 355,441 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.
37
<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....................................................... 30,000,000
==========
</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 4,500,000 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 1,411,765 shares of
Common Stock (1,591,765 shares of Common Stock if the over-allotment option
described above is exercised in full). 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 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.
At the request of the Company, the Underwriters have reserved up to 900,000
shares of Common Stock offered hereby for sale at the initial public offering
price to certain employees of the Company and to certain other persons. The
number of shares available for sale to the general public will be reduced to
the extent that
38
<PAGE>
such persons purchase such reserved shares. Any reserved shares not so
purchased will be offered by the Underwriters to the general public on the
same basis as the other shares of Common Stock offered hereby.
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.
Subject to the following paragraph 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,
directly or indirectly, of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or enter
into any swap or any other agreement or any transactions that transfers, in
whole or in part, directly or indirectly, the economic consequence of
ownership of the Common Stock, during the period ending 180 days after the
date of this Prospectus without the prior consent of the Representative.
Pursuant to the Underwriting Agreement, the 5,544,118 shares of Common Stock
to be owned by Jonathan Ledecky following the Offering and the Concurrent
Common Stock Offering will be subject to restrictions on transfer for periods
ranging from at least 180 days to five years. Specifically, subject to the
provisions described below, Jonathan Ledecky may not Transfer or Swap (i) any
of the 5,544,118 shares of Common Stock owned by him during the period ending
180 days after the date of this Prospectus, (ii) 5,294,118 shares of Common
Stock
39
<PAGE>
owned by him during the period ending two years after the date of this
Prospectus, (iii) 2,470,588 shares of Common Stock owned by him during the
period ending four years after the date of this Prospectus and (iv) 705,882
shares of Common Stock owned by him during the period ending five years after
the date of this Prospectus. Notwithstanding the preceding sentence, beginning
180 days after the date of this Prospectus, the restrictions on Transfer or
Swap will lapse (i) as to 50% of the shares still subject to such restrictions
if the closing price of a share of Common Stock is equal to or exceeds 150% of
the Offering Price for a period of at least 20 consecutive trading days
beginning on the earlier of the date the Company publicly announces
consummation of its first acquisition of a business or 180 days after the date
of this Prospectus and (ii) as to 100% of the shares still subject to such
restrictions if the closing price of a share of Common Stock is equal to or
exceeds 200% of the Offering Price for a period of at least 20 consecutive
trading days on the earlier of the date the Company publicly announces
consummation of its first acquisition of a business or 180 days after the date
of this Prospectus.
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 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. The affiliate of the
Representative has agreed not to 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.
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.
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
40
<PAGE>
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.
41
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................................... F-2
Balance Sheet as of September 30, 1997 ..................................... F-3
Notes to Balance Sheet...................................................... F-4
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of Consolidation Capital Corporation
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Consolidation Capital Corporation
at September 30, 1997, in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the Company's
management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this statement in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
November 4, 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,
4,411,765 shares issued and outstanding.................. 4
Additional paid-in capital................................ 122
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, 4,411,765 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
On September 19, 1997, the sole member of LLC received 4,411,765 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 1,411,765 shares of
Common Stock (1,591,765 shares of Common Stock if the over-allotment option is
exercised in full) 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.
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 intends to adopt, and the Company's
stockholder intends to approve, 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 intends to adopt, and the Company's
stockholder intends to approve, the 1997 Non-Employee Directors' Stock Plan
(the "Directors' Plan"), which will provide 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 intends to adopt, and the Company's stockholder intends to
approve, the 1997 Employee Stock Purchase Plan (the "Purchase Plan"). The
Purchase Plan will permit 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............................................................. 7
Use of Proceeds.......................................................... 17
Determination of Offering Price.......................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 21
Management............................................................... 27
Certain Relationships and Related Party Transactions..................... 32
Principal Stockholders................................................... 33
Description of Capital Stock............................................. 34
Shares Eligible for Future Sale.......................................... 36
Underwriting and Plan of Distribution.................................... 38
Legal Matters............................................................ 40
Experts.................................................................. 40
Additional Information................................................... 40
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
30,000,000 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.................................. 400,000
Accounting Fees and Expenses..................................... *
Legal Fees and Expenses.......................................... 250,000
Directors and Officers Insurance................................. *
Transfer Agent Fees and Expenses................................. *
Miscellaneous.................................................... *
----------
Total.......................................................... $1,000,000
==========
</TABLE>
- --------
* To be supplied by amendment
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 registrant's Certificate of Incorporation provides that the
personal liability of directors of the registrant is eliminated as provided by
extent permitted by Section 102(b)(7) of the DGCL.
Under Section 145 of the DGCL, a corporation has the power to indemnify
directors and officers under certain prescribed circumstances and subject to
certain limitations against certain costs and expenses, including attorneys'
fees actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of being a director or officer of the
corporation if it is determined that the director or officer acted in
accordance with the applicable standard of conduct set forth in such statutory
provision. Article 7 of the registrant's Bylaws provides that the registrant
will indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding by
reason of the fact that he is or was a director, officer, employee or agent of
the registrant, or is or was serving at the request of the registrant as a
director, officer, employee or agent of another entity, against certain
liabilities, costs and expenses. Article 7 further permits the registrant to
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the registrant, or is or was serving at the request of
the registrant as a director, officer, employee or agent of another entity,
against any liability asserted against such person and incurred by such person
in any such capacity or arising out of his status as such, whether or not the
registrant would have the power to indemnify such person against such
liability under the DGCL.
II-1
<PAGE>
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).
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.*
Amended and Restated Certificate of Incorporation of Consolidation
3.01 Capital Corporation.*
3.02 Bylaws of Consolidation Capital Corporation.*
4.01 Form of Warrant Agreement.*
Opinion of Morgan, Lewis & Bockius LLP as to the legality of the
5.01 securities being registered.*
10.01 Consolidation Capital Corporation 1997 Long-Term Incentive Plan.*
Consolidation Capital Corporation 1997 Non-Employee Directors' Stock
10.02 Plan.*
10.03 Consolidation Capital Corporation 1997 Employee Stock Purchase Plan.*
Form of Employment Agreement between the Company and Jonathan J.
10.04 Ledecky.*
Form of Employment Agreement between the Company and Timothy C.
10.05 Clayton.*
10.06 Form of Employment Agreement between the Company and F. Traynor Beck.*
10.07 Form of Employment Agreement between the Company and David Ledecky.*
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.**
Consent of David Ledecky (Director Nominee) (previously filed as
99.1 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>
- --------
* To be filed by amendment
** 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-2
<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-3
<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 5, 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 5, 1997
Executive Officer
- --------------------------------- (principal
JONATHAN J. LEDECKY executive officer)
/s/ David Ledecky
- --------------------------------- Senior Vice November 5, 1997
DAVID LEDECKY President,
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 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 4, 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 4, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Consolidation Capital Corporations financial statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> FEB-27-1997
<PERIOD-END> SEP-30-1997
<CASH> 16
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 315
<PP&E> 8
<DEPRECIATION> 0
<TOTAL-ASSETS> 339
<CURRENT-LIABILITIES> 316
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 19
<TOTAL-LIABILITY-AND-EQUITY> 339
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
Exhibit 99.2
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, Vincent W. Eades, hereby consent to the use, in the Registration
Statement on Form S-1 of Consolidation Capital Corporation, a Delaware
corporation (the "Company"), to which this consent is filed as an exhibit
included therein, of my name as a person about to become a Director of the
Company.
/s/ Vincent W. Eades
---------------------------------
Vincent W. Eades
November 3, 1997
<PAGE>
Exhibit 99.3
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, W. Russell Ramsey, hereby consent to the use, in the Registration
Statement on Form S-1 of Consolidation Capital Corporation, a Delaware
corporation (the "Company"), to which this consent is filed as an exhibit
included therein, of my name as a person about to become a Director of the
Company.
/s/ W. Russell Ramsey
---------------------------------
W. Russell Ramsey
November 3, 1997
<PAGE>
Exhibit 99.4
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, M. Jude Reyes, hereby consent to the use, in the Registration Statement
on Form S-1 of Consolidation Capital Corporation, a Delaware corporation (the
"Company"), to which this consent is filed as an exhibit included therein, of my
name as a person about to become a Director of the Company.
/s/ M. Jude Reyes
---------------------------------
M. Jude Reyes
November 3, 1997
