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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER 0-23241
CONSOLIDATION CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 52-2054952
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1747 PENNSYLVANIA AVENUE, NW, SUITE 900, 20006
WASHINGTON, D.C. (Zip Code)
(Address of principal executive offices)
202/955-5490
Registrant's telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: YES X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of March 25, 1998 was $808,083,345.
As of March 25, 1998, 35,238,049 shares of the Registrant's Common Stock,
$.001 par value per share, were outstanding and 500,000 shares of the
Registrant's Convertible Non-Voting Common Stock were outstanding.
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PART I
ITEM 1. BUSINESS
This Annual Report on Form 10-K contains forward-looking statements that
involve risks and uncertainties. When used herein, the words "anticipate,"
"believe," "estimate," "intend," "may," "will" and "expect" and similar
expressions as they relate to Consolidation Capital Corporation ("CCC" or the
"Company") or its management are intended to identify such forward-looking
statements. The Company's actual results, performance or achievements could
differ materially from the results expressed in, or implied by, these forward-
looking statements. Factors that could cause or contribute to such differences
include those discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Factors Affecting the Company's
Prospects." The Company does not undertake any obligation to revise these
forward-looking statements to reflect any future events or circumstances.
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 that have no clear market leader and could benefit from economies of
scale. Recently, the Company determined to focus exclusively on the facilities
management industry, which it believes has the appropriate consolidation
characteristics since the facilities management industry consists primarily of
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 has determined not to
simultaneously pursue consolidations in multiple, unrelated industries based on
its view that the facilities management industry is a large scale industry
offering significant opportunities to expand into and consolidate many sectors
that offer products and services intended to enhance the operating efficiency of
retail, commercial, institutional and industrial clients.
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 200
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 employs 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 is
leveraging the experience and expertise of Jonathan Ledecky, its founder,
Chairman and Chief Executive Officer, and the Company's management team
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to become a leading consolidator of the facilities management industry. 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 enhances its ability to identify, attract and
acquire desirable acquisition candidates.
The Company believes that it possesses substantial competitive advantages.
The Company believes that it benefits from its ability to deploy rapidly its
significant financial resources and to use its publicly traded stock as currency
in selected acquisitions. Because the Company has significant cash and cash
equivalents as of March 25, 1998, the Company's ability to acquire attractive
companies is not likely to be constrained at this time by the need to access the
capital markets. Furthermore, the Company believes that its corporate democracy
principles helps 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 does not have
experience managing companies in the facilities management industry. The
Company, therefore, expects to rely in part upon the management of acquired
companies or other individuals experienced in the facilities management
industry.
Since the closing of its initial public offering ("IPO") in December 1997,
the Company has acquired nine businesses offering facilities management services
(the "Recent Acquisitions"). Of the nine businesses, one operates in the
janitorial maintenance management services sector and eight operate in the
electrical installation and maintenance services sector of the facilities
management industry. In addition, the Company has signed a letter of intent
to acquire one business operating in the janitorial maintenance management
services sector of the facilities management industry (the "Pending
Acquisition"). See "Recent Developments."
INDUSTRY BACKGROUND
Facilities management companies generally provide many products and
services needed for the operation and maintenance of a building. These products
and services include, among others, janitorial maintenance management services,
electrical installation and maintenance, lighting equipment and services,
engineering services, mechanical installation and maintenance services, parking
facility management, security systems and services, fire protection equipment
and services, grounds keeping and landscaping services, pest control and general
equipment maintenance.
The Company believes that, over the last several years, there has been a
significant trend towards the outsourcing of business support services.
According to the Outsourcing Institute, approximately 80% of U.S. companies
outsource some aspect of their business support services, and spending on
outsourcing services increased approximately 100% from 1992 through 1996. The
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Company further believes that this trend will continue. The Outsourcing
Institute estimates that the demand for outsourcing services in the facilities
management industry will grow at a compound annual growth rate of approximately
20% through the year 2000.
The Company believes that the trend toward outsourcing has transformed the
traditional facilities management industry. As companies began to realize the
benefits of outsourcing non-core business functions to single source vendors,
the opportunities for facilities management companies to expand into new
business sectors and obtain new customers have increased. Facilities management
companies have expanded their businesses from providing traditional cleaning
services for commercial property managers and large corporations to performing
higher value added services for companies in the retail, commercial,
institutional and industrial sectors. Outsourcing allows companies to, among
other things, focus on their core competencies, reduce operating expenses, share
risk management responsibility and access technical expertise not available
internally.
STRATEGY
The Company's goal is to become the leading consolidator in the facilities
management industry. The Company intends to acquire established local or
regional businesses and combine and integrate them into an effective national
organization. The Company believes that its strong financial position, the
operating and acquisition expertise of its management team and its ability to
address the needs of local management will allow it to achieve its goal of being
the "consolidator of choice" of acquisition candidates.
In order to achieve its goal, the Company is focusing 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; (3) providing integrated facilities solutions; and (4)
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 Opportunity. The Company
intends to capitalize upon the consolidation opportunity in the facilities
management industry by acquiring companies 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.
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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, based on the experience of Jonathan Ledecky and
the Company's management team, it is well positioned to identify acquisition
candidates within the facilities management industry to become a national
single-source provider of facilities management services. The Company believes
that another competitive advantage is the Company's ability to deploy rapidly
its significant financial resources and/or to use its publicly traded stock as
consideration in selected acquisitions.
Differentiate Through Corporate Democracy. The Company believes that its
implementation of corporate democracy gives 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 are being 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.
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. 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 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.
Provide Integrated Facilities Solutions. The Company believes that an
attractive opportunity exists in the facilities management industry to become
the premier sole source provider of a full range of facilities management
services. These services are intended to enhance the operating efficiency of
customers' facilities while relieving the Company's customers from the
management and personnel burdens associated with non-core functions. Many
companies have increased the volume and types of services they outsource in
order to focus on their respective core competencies.
. Expanding Service Lines Through Acquisitions. Through acquisitions of
related facilities management services companies, the Company expects to
expand the range of products and services that it offers, thereby creating
opportunities, where possible, for its sales force to sell multiple product
and service lines to its customer base. Cross-selling new services to existing
customers represents a cost-effective method for the Company to achieve
revenue growth. As part of this strategy, the Company intends to focus its
efforts on increasing the proportion of its business devoted to delivering
higher value added services to its customers.
. Expanding Service Lines Through Strategic Partnering. In order to supply
seamless integrated services to a broad base of customers and facilities, the
Company intends to select, manage and integrate services provided by third
parties into the Company's overall portfolio of services.
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:
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. 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 Strategy 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. 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 that
it will be able to increase the operating margins of acquired companies by
using operating and technology systems to improve and enhance the operations
of the 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 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 providing measurement and
analysis tools that facilitate efficient operation.
. Using Volume Purchasing. The Company believes that it may achieve operating
efficiencies through volume purchasing and may benefit from favorable prices
and rebates 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 its size and scale to
negotiate attractive volume purchasing or leasing programs for goods and
services such as delivery vehicles, long distance voice and data services,
overnight delivery services, real estate services, banking and financial
services, and insurance.
. Implementing Strategic Marketing and Cross-Functional Selling. The Company
believes that 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. 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.
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SERVICES
As of the date of this Annual Report on Form 10-K, the Company operates in
the janitorial maintenance management and the electrical installation and
maintenance services sectors of the facilities management industry.
To achieve its goal of becoming a single-source provider of facilities
management services, the Company expects that it will expand the range of
products and services that it offers, primarily through acquisitions of other
facilities management businesses. In addition to janitorial maintenance
management services and electrical installation and maintenance services, the
Company may in the future seek to offer, among others, lighting equipment and
services, engineering services, mechanical installation and maintenance
services, parking facilities management, security systems and services, fire
protection equipment and services, grounds keeping and landscaping services,
pest control and general equipment maintenance.
Janitorial Maintenance Management Services. The Company's janitorial
maintenance management division offers a full range of commercial janitorial
cleaning services as well as the sale of janitorial supplies and equipment to a
variety of customers, including retail chain stores, grocery stores, office
buildings, industrial plants, banks, department stores, warehouses, educational
and health facilities, restaurants, and airport terminals throughout the United
States. The services provided by the Company include floor and carpet cleaning
and maintenance; floor stripping and refinishing; window, wall and structural
cleaning and maintenance; bathroom and other area sanitation; duct cleaning;
furniture polishing; and exterior window, wall, sidewalk, and parking lot
cleaning and maintenance. Most of the Company's janitorial arrangements can be
terminated by either party upon 30 to 90 days written notice.
This division is in a favorable position to capitalize on the growing
number of industries that are outsourcing non-core business functions. The
Company offers an extensive array of general programs and systems that free the
customer to focus on its core business activity while the support services are
being managed and performed in an efficient, cost-effective manner. The Company
believes that its depth of management expertise, breadth of services, and
presence of new technologies will attract this potential business.
The Company has acquired one company and has signed a letter of intent
to acquire another company that provide janitorial maintenance management
services. It seeks to further increase its market presence through aggressive
acquisitions of premier commercial cleaning contractors. Janitorial maintenance
is estimated to be a $50 billion industry comprised of more than 45,000
companies, most of which are small businesses with fewer than 20 employees. The
Company intends to seek out ventures that will expand its geographic regions and
augment the services currently provided. In so doing, the Company plans to
broaden its customer base and attain a larger proportion of existing national
accounts in diversified areas.
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Electrical Installation and Maintenance Services. Through its Electrical
Contracting Services Division, the Company offers a broad range of electrical
design, installation and maintenance services for industrial, commercial, retail
and institutional markets, including: lighting, power, building access, security
systems, and fire protection systems; fiber optic and other cabling for
telecommunications and computer systems; diagnostic evaluation of systems for
predictive and preventative maintenance; back up power systems; multi-media
installations; digital control integration and remote monitoring of life safety,
lighting, temperature, building access and surveillance; and manufacturing
process controls and instrumentation. The Company believes that the Recent
Acquisitions in this Division have the management depth and systems
infrastructure to serve as the platform on which to grow its business.
Specifically, the Company believes that these Recent Acquisitions will enable
the Company to attract and acquire smaller companies in their respective
geographic regions, serve national customers that are demanding a higher level
of technical expertise, provide the depth of management necessary to reduce the
vulnerability to management changes and provide the infrastructure that is
necessary for the research, development and training required to install and
maintain specialty electrical services.
Virtually all construction and renovation in the United States generates
demand for electrical installation services. Depending upon the exact scope of
work, electrical work generally accounts for approximately 8% to 12% of the
total construction cost of commercial and industrial projects. In recent years,
electrical installation and services companies have experienced a growing demand
for electrical installation services per project due to increased electrical
code requirements, demand for additional electrical capacity, including
increased capacity for computer systems, additional data cabling requirements
and the digital control of integrated services such as fire protection, security
systems and temperature controls.
The overall electrical installation industry, including commercial,
industrial and residential markets, was estimated by the U.S. Census to have
generated annual revenues in excess of $40 billion in 1992, the most recent
available U.S. Census data. This data indicates that the electrical contracting
industry is highly fragmented with more than 54,000 companies, most of which are
small, owner-operated businesses, performing various types of electrical work.
The Company believes that there are significant opportunities for a well-
capitalized national company to provide comprehensive electrical installation
and maintenance services and that the fragmented nature of the electrical
installation industry will provide significant opportunities to consolidate
commercial and industrial electrical installation and maintenance service
businesses. In addition, the Company believes that there are significant growth
opportunities in the electrical maintenance and specialized services portion of
the business and intends to focus on increasing the proportion of revenues
represented by such services. Electrical maintenance services generate a
recurring revenue stream that are less susceptible to downswings in the economy
than the more cyclical construction market. Furthermore, specialized services
typically require specific skills and equipment and provide higher margins than
general electrical installation and maintenance services.
The Company believes that growth in the commercial, industrial,
institutional and retail sectors of the electrical installation and services
market will be driven by a number of factors, including (i) higher levels of
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capital investment in new facility installation and renovation of existing
facilities; (ii) new codes for power and life safety; (iii) revised national
energy standards that dictate the use of more energy efficient lighting fixtures
and other equipment; (iv) new demands for backup power; (v) increased complexity
of systems requiring specialized technical expertise; (vi) cost savings that can
be derived from the central monitoring and control of integrated systems (e.g.,
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fire protection, security systems, temperature control); (vii) networking of
local area and wide area computer systems; and (viii) minimizing downtime
through predictive and preventative maintenance. Competitive factors in the
electrical installation and services industry include, among others, the
availability of qualified and licensed electricians, safety record, geographic
diversity, experience in specialized markets and financial resources.
RECENT ACQUISITIONS
Since the Company's IPO in December 1997, the Company has acquired one
company offering janitorial maintenance management services and eight companies
offering electrical installation and maintenance services. A description of
these acquisitions follows:
Service Management USA ("Service Management"). On February 4, 1998, the
Company completed the acquisition of Service Management. Service Management
was founded in 1984 and has become a leading facilities management company
specializing in providing janitorial maintenance management services to
retail, industrial and commercial clients in 39 states. Service Management
had revenues for the year ended December 31, 1997 of approximately $26.3
million. The consideration paid by the Company consisted of $9 million in
cash and 142,857 shares of the Company's common stock (the "Common Stock").
In addition, there is the potential for the payment of up to an additional
$13 million, consisting of 50% in cash and 50% in shares of Common Stock,
based upon the performance of Service Management and the achievement of
certain acquisition goals.
Electrical Group. On March 11, 1998, the Company completed the
simultaneous acquisition of a group of seven businesses offering electrical
installation and maintenance services (the "Electrical Group"). The
Electrical Group consists of the following businesses: Garfield Electric
Company ("Garfield"), Indecon, Inc. ("Indecon"), Riviera Electric
Construction Co. ("Riviera), SKC Electric, Inc. ("SKC"), Town & Country
Electric, Inc. ("Town & Country"), Tri-City Electrical Contractors, Inc.
("Tri-City") and Wilson Electric Company, Inc. ("Wilson"). The Electrical
Group specializes in providing electrical installation and maintenance
services for commercial, institutional, industrial and retail customers in
36 states. Each company in the Electrical Group has been a member of a
peer group that was formed in 1992 to bring together electrical companies
that are leaders in their respective markets. This peer group shared
detailed financial information, performance benchmarks, national customers
and operational best practices.
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The combined 1997 revenues of the Electrical Group were approximately
$284.2 million, of which approximately 71.6% was derived from electrical
installation services and approximately 28.4% was derived from electrical
maintenance and specialty services. The combined revenues of the
Electrical Group, which have been in business for an average of 21 years,
increased at a compound annual growth rate of approximately 22% from 1994
through 1997. The aggregate consideration (including certain fees) paid by
the Company for the Electrical Group consisted of $71.8 million in cash
and 3,423,453 shares of Common Stock. In addition, there is the potential
for the payment of up to an additional $37.0 million in cash and shares of
Common Stock based on the performance of the acquired businesses as a
group.
A description of each business acquired as part of the Electrical Group
follows:
Tri-City. Tri-City was founded in 1958 and operates from its
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headquarters in Altamonte Springs (near Orlando) and from its offices
in Tampa, Fort Myers and Pompano Beach, Florida. Tri-City had
revenues of approximately $79.5 million for the year ended December
31, 1997, primarily from commercial, institutional, industrial and
multi-family installation projects. Tri-City has approximately 1,000
employees. Heilmuth L. Eidell, Tri-City's founder and president,
signed an employment agreement to continue to serve as president of
Tri-City.
Wilson. Wilson was founded in 1988 and operates from its
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headquarters in Scottsdale and from its offices in Sierra Vista,
Prescott, Tucson and Phoenix, Arizona. Wilson had revenues of
approximately $71.0 million for the fiscal year ended December 31,
1997, consisting of 67% commercial, institutional and industrial
installation and 33% electrical maintenance services. Wilson has
approximately 700 employees. Stephen J. Gubin, Wilson's founder and
president, signed an employment contract to continue to serve as
Wilson's president.
Town & Country. Town & Country was founded in 1972 and operates from
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its headquarters in Appleton, Wisconsin and from its offices in
Madison, Sheboygan, Wauwatosa, Plover, Howard, Crivitz, Menasha and
Baraboo. Town & Country had revenues of approximately $48.7 million
for the year ended December 31, 1997, consisting of 56% commercial,
institutional and industrial installation and 44% electrical
maintenance services. Town & Country has approximately 600 employees.
Roland G. Stephenson, Town & Country's founder and president, signed
an employment contract to continue to serve as Town & Country's
president.
Riviera. Riviera was founded in 1980 and operates from its
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headquarters in Englewood, Colorado and from its offices in Avon,
Silverthorne and Colorado Springs, Colorado. Riviera had revenues of
approximately $37.0 million for the year ended December 31, 1997,
consisting of 86% commercial, institutional and industrial
installation and approximately 14% electrical maintenance services.
Riviera has
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approximately 325 employees. Donald G. White, Riviera's founder and
president, signed an employment contract to continue to serve as
Riviera's president.
Garfield and Indecon. Garfield and Indecon were founded in 1972 and
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1989, respectively, and operate under common management from their
headquarters in Cincinnati and from an office in Dayton, Ohio.
Garfield and Indecon had combined revenues of approximately $24.5
million for the year ended December 31, 1997, consisting of 63%
commercial, institutional and industrial installation and
approximately 37% electrical maintenance services. Garfield and
Indecon have 215 employees on a combined basis. Garfield W. Hartman,
Garfield's and Indecon's founder and Garfield's president, signed an
employment contract to continue to serve as president of those
companies.
SKC. SKC was founded in 1980 and operates from its headquarters in
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Lenexa, Kansas and from its offices in Colombia and Springfield,
Missouri. SKC had revenues of approximately $23.5 million for the year
ended December 31, 1997, consisting of approximately 80% commercial,
institutional and industrial installation and approximately 20%
electrical maintenance services. SKC has approximately 215 employees.
William P. Love, Jr., SKC's founder and president, signed an
employment contract to serve as the president of the Company's
Electrical Contracting Services Division and Lawrence J. Malach signed
an employment contract to serve as the president of SKC.
Walker Engineering, Inc. ("Walker") On March 25, 1998, the Company
completed the acquisition of Walker. Walker was founded in 1981 and
specializes in providing electrical installation and maintenance services
from its headquarters in Dallas and from its offices in Fort Worth and
Austin. Walker had revenues of approximately $127.7 million for the year
ended December 31, 1997, consisting of approximately 88% commercial,
institutional and industrial installation and approximately 12% electrical
maintenance services. Walker has approximately 1,100 employees. Charles
Walker, Walker's founder and president, signed an employment contract to
continue to serve as the president of Walker. The consideration paid by the
Company for Walker (including certain fees) consisted of approximately $36
million in cash and 1,521,739 shares of Common Stock. In addition, there is
the potential for the payment of up to an additional $30 million,
consisting of 50% in cash and 50% in shares of Common Stock, based upon the
performance of Walker.
PENDING ACQUISITION
Crest International LLC ("Crest"). On March 9, 1998, the Company signed a
letter of intent to acquire Crest. Crest was founded in 1995 and
specializes in providing janitorial maintenance management services to
retail, industrial and commercial clients from its headquarters in Green
Bay and from its offices in Milwaukee, Appleton, Madison, Wausau, LaCrosse,
Sheboygan and Marionette. Crest had revenues of approximately $11.9 million
for the year ended December 31, 1997. Crest has approximately 960
employees. Thomas Tess, Crest's founder and president, will sign an
employment contract to continue to serve
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as the president of Crest. The consideration to be paid by the Company for
Crest consists of approximately $3.5 million in shares of Common Stock. The
acquisition of Crest will be accounted for under the pooling-of-interests
method.
The Company is in discussions with additional acquisition candidates and
enters into letters of intent or agreements in principle with respect to the
acquisition of such businesses from time to time. No assurance can be given,
however, that the Company will complete any additional acquisitions, including
the Pending Acquisition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Factors Affecting the Company's Prospects--
Appropriate Acquisitions May Not Be Available and Full Investment of Net
Proceeds May Be Delayed."
COMPETITION
The facilities management industry is highly competitive. It is
characterized by both large national and multi-national organizations providing
a wide variety of facilities management services to their customers and numerous
smaller companies providing fewer services in limited geographic areas. In
addition, property management companies and REITs are beginning to offer
facilities management services for the properties that they own or manage.
Barriers to entry to the markets for certain facilities management services,
such as janitorial maintenance management services, are low, and the Company
expects to compete against numerous smaller service providers, many of which may
have more experience in and knowledge of the local markets for such services.
Such smaller service providers may also have lower overhead cost structures and
may be able to provide their services at lower rates than the Company is able to
charge. In these same markets, the Company also expects to face large
competitors that offer multiple services and that are willing to accept lower
profit margins in order to capture market share. In addition, in certain
geographic regions, the Company may not be eligible to compete for certain
contracts because its employees are not subject to collective bargaining
arrangements. As a result of this competition, the Company may lose customers or
have difficulty acquiring new customers. As a result of competitive pressures on
the pricing of facilities management services, the Company's revenues or
margins may decline.
The Company also expects to face significant competition to acquire
facilities management businesses from larger companies that currently pursue, or
are expected to pursue, acquisitions as part of their growth strategies and as
the industry undergoes continuing consolidation. Such competition could lead to
higher prices being paid for acquired companies.
POTENTIAL ENVIRONMENTAL LIABILITY
The nature of the facilities management industry necessarily involves the
transport, storage, use and disposal of cleaning solvents, lubricants,
chemicals, gasoline and other hazardous materials by employees to, on and around
the customers' facilities or, in certain cases, facilities leased by the Company
on behalf of its customers. Such activities are subject to stringent and
changing federal, state and local regulation and present the potential for
liability of the Company for the actions of its
12
<PAGE>
employees in handling such materials. In addition, the exposure of the Company's
employees to these materials may give rise to claims by employees against the
Company. As a result, there can be no assurance that compliance with
governmental regulations or liability related to hazardous materials will not
have a material adverse effect on the Company's financial condition or results
of operations.
EMPLOYEES
As of March 25, 1998, the Company had more than 4,000 full-time employees.
In general, the Company considers its relations with its employees to be
satisfactory.
ITEM 2. PROPERTIES
As of March 25, 1998, the Company operated 45 facilities in various
states. Of these facilities 44 are leased and one is owned. The facilities
are used for warehouse and office purposes, or a combination of these functions.
At this time, the Company believes that its facilities are suitable for its
purposes, having adequate productive capacity for the Company's present and
anticipated needs.
ITEM 3. LEGAL PROCEEDINGS
As a result of the Recent Acquisitions, the Company is a party to
litigation that arises from the normal course of the business of the acquired
companies. Management believes that none of these actions will have a material
adverse effect on the financial condition, results of operations or cash flows
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Company's public stockholders for
consideration during the quarter ended December 31, 1997.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Price Range of Common Stock. The Company's Common Stock, par value
$0.001 per share, has traded on the Nasdaq National Market since November 26,
1997. On March 25, 1998, the last sale price of the common stock was $25.06
per share. The following table sets forth the range of high and low sale prices
for the Common Stock, as reported on the Nasdaq National Market, for the fourth
fiscal quarter of 1997 and through the latest practicable date in the first
fiscal quarter of 1998.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR 1997
Fourth fiscal quarter......................... $21.75 $20.25
FISCAL YEAR 1998
First fiscal quarter through March 25, 1998... $25.38 $18.56
</TABLE>
(b) Approximate Number of Equity Security Holders. The number of record
holders of the Company's Common Stock as of March 25, 1998 was 75. The
Company believes that a substantially larger number of beneficial owners hold
such shares of Common Stock in depository or nominee form.
(c) Dividends. The Company does not anticipate paying any cash dividends on
its shares of 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 things,
the Company's earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions with respect to the payment of dividends
and other factors that the Company's Board of Directors deems relevant. Further,
in the event the Company obtains a credit facility to be used for future
acquisitions or other capital requirements, it is likely that the terms of such
credit facility will prohibit or limit the payment of dividends by the Company.
(d) Recent Sales of Unregistered Securities and Uses of Proceeds from
Registered Securities.
(i) In February 1997, Jonathan J. Ledecky, the Company's Chairman
and Chief Executive Officer, founded the Company's predecessor,
Ledecky Brothers L.L.C. On September 10, 1997, Jonathan Ledecky
exchanged his 100% interest in Ledecky Brothers L.L.C. for 4,411,765
shares of Common Stock (pre stock-split), or 100% of the outstanding
shares. The issuances of securities by Ledecky Brothers L.L.C. and the
Company to
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<PAGE>
Jonathan Ledecky were made in reliance upon the exemption from
registration under the Securities Act of 1933, as amended, in Section
4(2).
(ii) Pursuant to Item 701(f) of Regulation S-K, the following
information is being furnished to disclose certain information
regarding the uses of the proceeds received by the Company in its IPO:
(1) The Registration Statement for the IPO (File No. 333-36193)
was declared effective on November 25, 1997.
(2) The offering commenced on November 25, 1997 and terminated
when all of the shares were sold in December 1997.
(3) The managing underwriter was Friedman, Billings, Ramsey &
Co., Inc.
(4) In the IPO, the Company registered and sold an aggregate of
27,850,000 shares of Common Stock, par value $.001 per share,
and 500,000 shares of Convertible Non-Voting Common Stock,
par value $.001 per share, which is convertible into Common
Stock.
(5) The aggregate offering price of the shares sold was
$567,000,000.
(6) The following expenses were incurred in connection with the
IPO:
<TABLE>
<CAPTION>
<S> <C>
Underwriting discounts and commissions $38,640,000
Expenses paid to or for underwriters 60,000
Accountants' fees 100,000
Legal fees 315,000
Printing expenses 255,000
Miscellaneous filing fees and expenses 466,000
-----------
$39,836,000
</TABLE>
Except as described under "Certain Relationships and Related
Transactions," the payments referred to above were not made directly
or indirectly to officers, directors, general partners of the issuer
or their associates, or to any person owning 10% or more of any class
of securities of the issuer, or to any officers of the issuer and were
not direct or indirect payments to others.
(7) The net offering proceeds were approximately $527 million.
(8) From the effective date of the IPO registration statement to
December 31, 1997, the amount of net offering proceeds used
for any
15
<PAGE>
purpose for which at least 5% of the offering proceeds or
$100,000 (whichever is less) was used is as follows:
<TABLE>
<S> <C>
Investments in investment grade securities
(earnings on such investments were used for
working capital purposes, including salaries
of executive officers) $526,855,000
Repayment of indebtedness owed to Jonathan
Ledecky $ 309,000
------------
TOTAL $527,164,000
============
</TABLE>
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Selected Financial Data for the year ended December 31, 1997 have been
derived from the Company's audited financial statements which are included
elsewhere in this Annual Report.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Statement of Operations Data:
Interest Income..................................................... $ 2,056
Selling, general and administrative expenses........................ 1,985
-----------------
Income before taxes................................................. 71
Provision for income taxes.......................................... 64
-----------------
Net income.......................................................... $ 7
=================
Net income per share--Basic......................................... $ -
=================
Net income per share--Diluted....................................... $ -
=================
Weighted average number of Common Shares outstanding................ 4,911,401
=================
Weighted average number of Common and Potentially Dilutive Shares
outstanding....................................................... 4,990,500
=================
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
Balance Sheet Data:
Working capital..................................................... $ 527,277
Total assets........................................................ 529,065
Long term debt, net of current maturities........................... --
Stockholders' equity................................................ 527,297
</TABLE>
ITEM 7. 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 Annual Report.
OVERVIEW AND RESULTS OF OPERATIONS
Founded in February 1997, Consolidation Capital Corporation intends to
consolidate the facilities management industry to become a national single-
source provider of facilities management services. The Company has generated no
revenues since inception other than investment earnings on the net proceeds of
the IPO and the earnings of the Recent Acquisitions since their acquisitions
17
<PAGE>
in fiscal 1998. As of December 31, 1997, the Company had incurred expenses of
$2.0 million in connection with the analysis of industry consolidations and
acquisition opportunities, efforts to refine the Company's strategy and meetings
and negotiations with potential acquisition candidates. The net proceeds from
the IPO were approximately $527 million. The proceeds are being used by the
Company primarily in its acquisition program although some are being used to
fund operations of the Company. While the Company has embarked on an active
acquisition program, until such time as additional acquisitions are consummated,
the Company's income will consist solely of interest on the investment of the
net proceeds of the IPO and the earnings of the Recent Acquisitions offset by
salaries and other operating costs of the Company.
LIQUIDITY AND CAPITAL RESOURCES
As of March 25, 1998, the Company had cash and cash equivalents of
approximately $417 million. In addition, 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 to be used by the Company for future acquisitions or other capital
requirements. This bank credit facility may, under certain conditions to be
mutually agreed upon, be increased up to a $500 million facility. The terms
and conditions of any BT debt facility, including the fee arrangements, are
subject to mutual agreement. Use of any such facility would likely be subject
to conditions customary to facilities of this type, including restrictions on
other indebtedness, mergers, acquisitions, dispositions and similar
transactions. The Company may not succeed in obtaining a facility of any size
or in negotiating terms satisfactory to the Company. Except for this proposed
bank credit facility, the Company currently has no plan or intention to obtain
additional capital through debt or equity financing in the next 12 months. If
and when the Company requires additional financing for its acquisition program
or for other capital requirements, the Company may be unable to obtain any such
financing on terms that the Company deems acceptable. The Company also
expects to utilize its Common Stock as a source of capital to provide a
portion of the consideration paid to acquire certain companies. The Company
believes that the net proceeds from the IPO, combined with the available
authorized but unissued and unreserved shares of Common Stock that may be
issued in acquisitions, will be sufficient to fund its operations and
acquisition program through the end of 1998.
INFLATION
The Company does not believe that inflation has had a material impact on
its results of operations during fiscal 1997.
NEW ACCOUNTING PRONOUNCEMENTS
Reporting Comprehensive Income. In June 1997, FASB issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. SFAS No. 130 requires that all items required to be recognized
18
<PAGE>
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. The Company intends to
adopt SFAS No. 130 in the fiscal year ending December 31, 1998.
FACTORS AFFECTING THE COMPANY'S PROSPECTS
A number of factors, including those discussed below, may affect the
Company's future operating results.
Limited Operating History. The Company was founded in February 1997 and
completed its IPO in December 1997. To date, its activities have consisted of
organizational activities, research and analysis with respect to acquisition and
consolidation opportunities, efforts to refine the Company's business strategy,
negotiations with potential acquisition candidates and completing nine
acquisitions. The Company intends to consolidate the facilities management
industry to become a single-source provider of facilities management services.
Until the Recent Acquisitions, the Company had not generated any revenues other
than interest income on the proceeds from the IPO. The Company's ability to
generate revenues and earnings (if any) will be directly dependent upon the
operating results of the acquired business and any additional acquisitions and
the successful integration and consolidation of those businesses.
Conflicts of Interest. The Company may be adversely affected by various other
activities of its Chairman and Chief Executive Officer, Jonathan Ledecky.
Jonathan Ledecky also serves as the Chairman and an executive officer of USOP
and the Non-Executive Chairman of both U.S.A. Floral Products, Inc. ("USA
Floral") and UniCapital Corporation ("UniCapital"). In addition, Jonathan
Ledecky is a prospective investor in Unison Partners, Inc. ("Unison Partners")
and is expected to serve as a director of each of the four companies that USOP
is spinning off in connection with its restructuring, although he will not serve
as a director or executive officer of USOP if the restructuring is completed.
Each of USA Floral, UniCapital and Unison Partners is, or is seeking to become,
a consolidator of businesses in one or more industries.
For so long as Jonathan Ledecky serves as a director of any of the
companies mentioned above, he will owe a duty of loyalty and a duty of care
under Delaware law to each of such companies. These duties obligate him to
present certain business opportunities to the company to which he owes the
duties before pursuing such opportunities himself. In addition, he may owe
similar duties as a minority investor in a company. There is no agreement among
Jonathan Ledecky, the Company, USOP, USA Floral, UniCapital, Unison Partners or
the companies being spun off from USOP delineating Jonathan Ledecky's duties
to each company or resolving potential conflicts between his conflicting
duties and obligations, although USOP has approved the Company's entry into the
facilities management industry.
19
<PAGE>
While Jonathan Ledecky is an executive officer of USOP, he has obligations
to USOP under his amended and restated employment agreement with USOP ("USOP
Employment Agreement"). While Jonathan Ledecky is not responsible for the day-
to-day oversight of USOP, his positions as an executive officer and Chairman of
the Board of USOP may nonetheless result in competition between USOP matters and
Company matters for his time and professional attention, and may result in or
exacerbate conflicts as to his obligations to present business opportunities to
one company or another, or to pursue such opportunities for one company or
another. For as long as the USOP Employment Agreement is in effect, Jonathan
Ledecky owes duties of loyalty and care and has contractual obligations to
both the Company and USOP simultaneously.
After completion of the restructuring of USOP, Jonathan Ledecky's
continuing role with USOP will be pursuant to a Services Agreement between USOP
and Jonathan Ledecky (the "Services Agreement"). Pursuant to the Services
Agreement, Jonathan Ledecky will provide mutually agreed advisory services to
USOP and the companies that are being spun off from USOP. (If USOP's announced
restructuring is not completed, the USOP Employment Agreement will remain in
effect.) USOP has announced that the proposed restructuring is not expected to
be completed until the second calendar quarter of 1998. Under the Services
Agreement, Jonathan Ledecky will have contractual obligations and duties of
loyalty and care to USOP and the companies that are being spun off from USOP,
and he may be unable in certain circumstances to fulfill his duties or
contractual obligations to one company without allegedly breaching them to the
others. Any alleged breach of such duties of loyalty and care or contractual
restrictions could result in litigation by or on behalf of the offended company
under any of a number of possible legal theories, including seeking damages from
Jonathan Ledecky for the purported breach or from the other such company for
tortiously interfering with the offended company's contractual relationship
with Jonathan Ledecky or for inducing him to breach his duties to the offended
company. The conduct or response to any such litigation could consume
significant management attention and resources, and the defense, settlement or
final adjudication of any such litigation could have a material adverse effect
on the Company's business, financial condition and/or results of operations.
The USOP Employment Agreement and the Services Agreement also contain
covenants not to compete with USOP (which USOP waived in part to permit one of
the Recent Acquisitions) and restrictions on Jonathan Ledecky's ability to
recruit or employ current and certain former employees of USOP. These
restrictions could present a possible conflict between Jonathan Ledecky's
actions and recommendations regarding the business of the Company and to retain
employees and his efforts to employ suitable individuals with the Company. In
addition, the USOP Employment Agreement and the Services Agreement recite 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
agreements describe 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 to USOP, 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 and the
Services Agreement, Jonathan Ledecky is not prohibited from serving as an
officer, director or
20
<PAGE>
employee of or consultant to the Company, provided that such actions do not
otherwise breach his obligations under the USOP Employment Agreement or the
Services Agreement, as applicable.
Dependence on Key Personnel. The Company believes that its success will
depend principally upon the experience of Jonathan J. Ledecky, its founder,
Chairman and Chief Executive Officer. In addition, the Company believes that its
success will depend to a significant extent upon Timothy Clayton, the Company's
Executive Vice President, Chief Financial Officer and Treasurer; F. Traynor
Beck, the Company's Executive Vice President, General Counsel and Secretary; and
David Ledecky, the Company's Executive Vice President and Chief Administrative
Officer.
Although Jonathan Ledecky has substantial experience in acquiring and
consolidating businesses and Messrs. Clayton and Beck have substantial
experience with such transactions on behalf of their prior clients, none of them
has any experience in managing companies formed for the specific purpose of
consolidating one or more industries (other than Jonathan Ledecky's experience
in managing USOP) or in managing businesses in the facilities management
industry. As a result, the Company likely will depend on the senior management
of any significant businesses 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. See "Directors and Executive
Officers of the Registrant."
Allocation of Management Time. 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 the CCC Employment Agreement, Jonathan Ledecky is required to devote
the substantial majority of his business time, attention and efforts to the
business of the Company. Pursuant to the USOP Employment Agreement, Jonathan
Ledecky is required to devote a portion of his business time, attention and
efforts to promote and further the business of USOP. Upon the effectiveness of
the Services Agreement, Jonathan Ledecky will be required to provide mutually
agreed advisory services to USOP and the companies that are being spun off from
USOP. In addition, Jonathan Ledecky anticipates devoting time to his other
directorships and professional pursuits. Although each of the other executive
officers of the Company is required by his employment agreement with the Company
to devote his full business time, attention and efforts to the business of the
Company, the efforts of these individuals and the efforts of Jonathan Ledecky
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 additional
desirable acquisition candidates, which may take considerable time. The Company
may not be successful in identifying, attracting or acquiring
21
<PAGE>
additional acquisition candidates, in integrating such candidates into the
Company or in realizing profits from any acquisition candidates, if acquired.
The failure to complete additional 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.
The Company has only recently begun its acquisition program. To date, the
Company has paid approximately $115.8 million in cash (excluding earn out
amounts) in connection with the Recent Acquisitions. The Company used a
portion of the proceeds of the IPO to pay the cash consideration for these
acquisitions. Pending their application in the acquisition of additional
businesses, the remaining net proceeds of the IPO have been invested in readily
marketable, interest-bearing, investment grade securities. Consequently, until
such time as the Company uses such proceeds to acquire acquisition candidates,
the remaining net proceeds of the IPO will yield only that rate of return earned
by such interest-bearing securities. In addition, a portion of the net proceeds
of the IPO are being used to pay corporate overhead and administrative costs,
which the Company estimates will initially be approximately $5.0 million on an
annualized basis, representing the costs of rent, salaries and employee
benefits, insurance, and other miscellaneous expenses.
Risks Associated with Consolidation Strategy. One of the Company's strategies
is to increase its revenues, the range of products and services that it offers
and the markets that it serves through the acquisition of additional facilities
management businesses. To date, the Company has completed nine acquisitions.
Investors have no basis on which to evaluate the possible merits or risks of any
future 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."
Management of the Company has virtually unrestricted flexibility in
identifying and selecting prospective acquisition candidates and broad
discretion with respect to the specific application of the remaining net
proceeds of the IPO. Management may not succeed in selecting acquisition
candidates that will be profitable or that can be integrated successfully.
Although the Company intends to scrutinize closely the management of a
prospective acquisition candidate in connection with evaluating the desirability
of effecting a business combination, the Company's assessment of management may
not prove to be correct.
One of the key elements of the Company's internal growth strategy is to
improve the profitability and increase the revenues of acquired businesses.
The Company will seek to achieve these objectives by various means, including
combining administrative functions, eliminating redundant facilities,
implementing system and technology improvements, purchasing products and
services in large quantities, developing national accounts and cross-selling
products and services. There can be no assurance that the Company's internal
growth strategies will be successful. See "Business--Strategy."
Integration of Acquisitions. The Company's business model is based upon 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
22
<PAGE>
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 other consolidators, including
USOP, have achieved.
The Company may not be able to execute successfully its consolidation
strategy or anticipate all of the changing demands that 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 implementing 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 initially 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
maintain its acquisition program. If the Company does not have sufficient
cash resources, its growth could be limited unless it is able to obtain
additional capital through debt or equity financings.
As of March 25, 1998, the Company had cash and cash equivalents of
approximately $417 million. In addition, 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 to be used by the Company for future acquisitions or other capital
requirements. This bank credit facility 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,
23
<PAGE>
are subject to mutual agreement. Use of any such facility would likely be
subject to conditions customary to facilities of this type, including
restrictions on other indebtedness, mergers, acquisitions, dispositions and
similar transactions. The Company may not succeed in obtaining a facility of any
size or in negotiating terms satisfactory to the Company. Except for this
proposed bank credit facility, the Company currently has no plan or intention to
obtain additional capital through debt or equity financing during the next 12
months. If and when the Company requires additional financing for its
acquisition program or for other capital requirements, the Company may be unable
to obtain any such financing on terms that the Company deems acceptable.
The Company currently has 250,000,000 authorized shares of Common Stock.
As of March 25, 1998, the Company had 35,238,049 shares of Common Stock
outstanding and less than 10,000,000 shares reserved for issuance pursuant to
the terms of warrants, convertible securities, options, other employee benefit
plans and acquisition agreements providing for the payment of contingent
consideration. Accordingly, as of March 25, 1998, the Company had approximately
204,761,951 authorized but unissued and unreserved shares of Common Stock.
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 stockholder
approval of such issuances. To the extent the Company uses Common Stock for all
or a portion of the consideration to be paid for future acquisitions, dilution
may be experienced by existing stockholders. Moreover, the issuance of
additional shares of Common Stock may have a negative impact on earnings per
share and may negatively impact the market price of the Common Stock.
Competition and Industry Consolidation. The facilities management industry is
highly competitive. It is characterized by both large national and multi-
national organizations providing a wide variety of facilities management
services to their customers and numerous smaller companies providing fewer
services in limited geographic areas. In addition, property management
companies and REITs are beginning to offer facilities management services for
the properties that they own or manage. Barriers to entry to the markets for
certain facilities management services, such as janitorial and custodial
services, are low, and the Company expects to compete against numerous smaller
service providers, many of which may have more experience in and knowledge of
the local market for such services. Such smaller service providers may also have
lower overhead cost structures and may be able to provide their services at
lower rates than the Company. In these same markets, the Company also expects
to face large competitors that offer multiple services and that are willing to
accept lower profit margins in order to capture market share. In addition, in
certain geographic regions, the Company may not be eligible to compete for
certain contracts because its employees are not subject to collective bargaining
arrangements. As a result of this competition, the Company may lose customers
or have difficulty acquiring new customers. As a result of competitive
pressures on the pricing of facilities management services, the Company's
revenues or margins may decline.
The Company also expects to face significant competition to acquire
facilities management businesses from larger companies that currently pursue, or
are expected to pursue, acquisitions as part of their growth strategies and as
the industry undergoes continuing consolidation. Such competition could lead to
higher prices being paid for acquired companies.
24
<PAGE>
The Company believes that the facilities management industry will undergo
considerable consolidation during the next several years. The Company expects
that, in response to such consolidation and in light of the Company's
significant financial resources, it will consider from time to time additional
strategies to enhance stockholder value. These include, among others, strategic
alliances and joint ventures; purchase, sale and merger transactions with other
large companies; and other similar transactions. In considering any of these
strategies, the Company will evaluate the consequences of such strategies,
including, among other things, the potential for leverage that would result from
such a transaction, the tax effects of the transaction, and the accounting
consequences of the transaction. In addition, such strategies could have various
other significant consequences, including changes in management, control or
operational or acquisition strategies of the Company. There can be no assurance
that any one of these strategies will be undertaken, or that, if undertaken, any
such strategy will be completed successfully.
Dependence on Hourly Wage, Technical and Union Employees. The Company's ability
to increase productivity and profitability will depend upon its ability to
recruit, train and retain large numbers of both hourly wage and skilled
employees necessary to meet the Company's service requirements. Competition for
such employees has led to increased wage levels and employee turnover.
Inability to recruit, train and retain such employees at competitive wage rates
could increase the Company's operating costs. In addition, many companies that
require skilled employees, such as electrical installation and maintenance and
heating, ventilation and air conditioning companies, are currently experiencing
shortages of qualified employees. There can be no assurance that the Company
will be able to maintain an adequate labor force necessary to efficiently
operate its business, that the Company's labor expenses will not increase as a
result of a shortage in the supply of hourly wage or skilled employees or that
the Company will not have to curtail its planned internal growth as a result of
labor shortages. In addition, many sectors of the facilities management industry
involve unionized employees. As these union contracts expire, the Company may be
required to renegotiate them in an environment of increasing wage rates. There
can be no assurance that the Company will be able to renegotiate union contracts
on terms favorable to the Company or without experiencing a work stoppage.
Exposure to Downturns in Commercial and Industrial Construction. Approximately
71.6% of the Electrical Contracting Services Division's 1997 aggregate revenues
involved the installation of electrical systems in newly constructed
commercial, institutional, industrial and retail buildings and plants. The
extent to which this Division is able to maintain or increase revenues from new
installation services will depend on the levels of new construction starts from
time to time in the geographic markets in which the Company operates and likely
will reflect the cyclical nature of the construction industry. The level of new
commercial installation services is affected by fluctuations in the level of new
construction of commercial, institutional, industrial and retail buildings and
plants in the markets in which the Company operates, which fluctuations can be
due to local economic conditions, changes in interest rates and other related
factors. Downturns in levels of commercial, institutional, industrial or retail
buildings and plants construction would have a material adverse effect on the
Company's business, financial condition and results of operations.
25
<PAGE>
Risks of Fixed Price Contracts; Bid and Performance Bonds. A substantial
portion of the Company's electrical installation contracts are fixed price
contracts. The terms of these contracts require the Company to guarantee the
price of its services and assume the risk that the costs associated with its
performance will be greater than anticipated. The Company's profitability in
this market is therefore dependent on its ability to predict accurately the
costs associated with its services. These costs may be affected by a variety of
factors, some of which may be beyond the Company's control. If the Company is
unable to accurately predict the costs of fixed price contracts, certain
projects could have lower margins than anticipated, which could have a material
adverse effect on the Company's combined results of operations or financial
condition.
Institutional and public works projects are frequently long-term, complex
projects requiring significant technical and management skills and financial
strength to, among other things, obtain bid and performance bonds, which are
often a condition to bidding for, and the awarding of, contracts for such
projects. There can be no assurance that the Company will be able to obtain bid
and performance bonds in the future and the inability to procure such bonds
could have a material adverse effect on the Company's business, operating
results and financial condition.
Dependence on Subcontractors. Many businesses in the facilities management
industry are largely dependent on subcontractors to provide optimum service to
their customers. Such reliance reduces the ability of a facilities management
business to directly control both its workforce and the quality of services
provided. There can be no assurance that the Company, to the extent that the
facilities management businesses it acquires are heavily dependent on
subcontractors, will be able to control its workforce and the quality of
services provided in a satisfactory manner.
Length of Contracts. Many businesses in the facilities management industry
perform the majority of their work for customers under contracts with
termination clauses permitting the customer to cancel the contract on 30 to 90
days' notice. While many businesses in the facilities management industry
maintain long-standing relationships with many of their customers and experience
a low customer turnover rate, there can be no assurance that the Company will
retain customers, that customers of acquired companies will not exercise their
rights to terminate their contracts prior to expiration or that the Company will
be successful in negotiating new contracts with customers as such contracts
expire.
Potential Environmental Liability; Government Regulation. The nature of the
facilities management industry often involves the transport, storage, use and
disposal of cleaning solvents, lubricants, chemicals, gasoline and other
hazardous materials by employees to, on and around the facilities of the
facilities management company and its customers. Such activities are subject to
stringent and changing federal, state and local regulation and present the
potential for liability of the Company for the actions of its employees in
handling such materials. In addition, the exposure of any employees to these
materials may give rise to claims by employees against the Company. There can be
no assurance that compliance with governmental regulations or liability related
to hazardous materials will not have a material adverse effect on the Company's
financial condition or results of operations.
26
<PAGE>
Due to the nature of the facilities management industry, the Company's
operations will be subject to a variety of federal, state, county and municipal
laws, regulations and licensing requirements, including labor, employment,
immigration, health and safety, consumer protection and environmental
regulations. The failure of the Company to comply with applicable regulations
could result in substantial fines or revocation of the Company's licenses.
Changes in such laws, regulations and licensing requirements may constrain the
Company's ability to provide services to customers or increase the costs of such
services. In addition, competitive pricing conditions in the industry may
constrain the Company's ability to adjust its billing rates to reflect any such
increased costs.
Liability Claims and Insurance Coverage. The nature of the facilities
management industry may expose the Company to liability for employee negligence
and harassment, injuries, including workers' compensation claims, and omissions.
Facilities management companies generally carry insurance of various types,
including workers' compensation, employment practices, vehicle and general
liability coverage. While the Company will seek to maintain appropriate levels
of insurance, there can be no assurance that the Company will avoid material
claims or adverse publicity related thereto. There can also be no assurance that
the Company's insurance will be adequate to cover the Company's liabilities or
that such insurance coverage will remain available at acceptable costs. A
successful claim brought against the Company for which coverage is denied or
which is in excess of its insurance coverage could have a material adverse
effect on the Company's financial condition or results of operations.
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 will be established 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. 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
27
<PAGE>
of an investment company. The Company believes that its principal activities,
which involves acquiring control of operating companies, do not subject the
Company to registration and regulation under the Investment Company Act.
Nonetheless, since the Company currently falls within the Investment Company
Act's definition of an investment company, it will rely on a safe harbor rule
that exempts the Company from the Investment Company Act for a period of one
year from the date of the IPO, provided certain conditions are met. Thereafter,
the Company intends to remain exempt from investment company regulation either
by not engaging in investment company activities or by qualifying for the
exemption from investment company regulation available to any company that has
no more than 45% of its total assets invested in, and no more than 45% of its
income derived from, investment securities, as defined in the Investment Company
Act.
There can be no assurance that the Company will be able to avoid
registration and regulation as an investment company. In the event the Company
is unable to avail itself of an exemption or safe harbor from the Investment
Company Act, the Company may become subject to certain restrictions relating to
the Company's activities, as noted below, and contracts entered into by the
Company at such time that it was an unregistered investment company may be
unenforceable. The Investment Company Act imposes substantive requirements on
registered investment companies including limitations on capital structure,
restrictions on certain investments, 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; Seasonality. The Company's success will be 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. To the
extent the Company targets owners of office buildings as potential clients, the
Company's success will be dependent upon occupancy levels at such buildings.
Lower occupancy rates could have a material adverse affect on, among other
sectors of the facilities management industry, janitorial maintenance management
services and parking facility management services. In addition, the electrical
installation and service sector of the facilities management industry can be
subject to seasonal variations in operations and demand that affect the
construction business. Specifically, the demand for construction services is
lower during the winter months as a result of inclement weather conditions.
Accordingly, the Company's revenues and operating results may be lower in the
first and second quarters. See also, "--Exposure to Downturns in Commercial and
Industrial Construction."
Potential Regulatory Requirements. Many of the Company's acquisitions will 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
28
<PAGE>
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 Stockholders. As of March 25, 1998, executive
officers and directors of the Company owned beneficially approximately
14.1% of the outstanding shares of Common Stock. In addition, many of the
officers of the Company's subsidiaries received shares of Common Stock in
connection with the sale of their businesses to the Company. The Company's
officers and directors, if acting together, may be able to significantly
influence the election of directors and matters requiring the approval of the
stockholders of the Company. This concentration of ownership may also have the
effect of delaying or preventing a change in control of the Company. See
"Security Ownership of Certain Beneficial Owners and Management."
Potential Effect of Shares Eligible for Future Sale on the Price of Common
Stock. As of March 25, 1998, the Company had 35,238,049 shares of Common Stock
outstanding. Of the shares of Common Stock sold in the IPO, 27,600,000 shares
are freely tradeable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), except that any
shares purchased by an "affiliate" of the Company, as that term is defined in
Rule 144 ("Rule 144") promulgated under the Securities Act, may generally be
sold only in compliance with Rule 144, as described below. Of the remaining
7,638,049 outstanding shares of Common Stock, 2,550,000 shares are owned by
Jonathan Ledecky. Of such 2,550,000 shares, 250,000 shares may not be
transferred until May 26, 1998 and 2,300,000 shares may not be transferred until
November 26, 1998. Any sales of shares owned by Jonathan Ledecky will also be
subject to compliance with Rule 144.
Further, as of March 25, 1998, 1,950,000 shares were reserved for issuance
upon the exercise of a warrant issued to Jonathan Ledecky in connection with the
IPO (the "Ledecky Warrant") at an exercise price equal to $20.00 per share,
2,315,000 shares of Common Stock were reserved for issuance upon the exercise of
outstanding stock options, and an aggregate of 2,096,424 shares were reserved
for issuance pursuant to the Consolidation Capital Corporation 1997 Long-Term
Incentive Plan (the "Incentive Plan"), the Consolidation Capital Corporation
1997 Non-Employee Directors' Plan (the "Directors' Plan") and the Consolidation
Capital Corporation 1997 Employee Stock
29
<PAGE>
Purchase Plan (the "Purchase Plan"). Because the number of shares reserved for
issuance upon the exercise of awards made or to be made under the Incentive Plan
is 9% of the aggregate number of shares of Common Stock outstanding from time to
time, future issuances of Common Stock, whether in acquisitions or otherwise,
will result in an increase in the number of awards available to be made. The
Company has filed a registration statement on Form S-8 with respect to the
shares of Common Stock issuable upon exercise of options. In addition, the
Company has registered 24,000,000 shares of Common Stock for issuance in
acquisitions, of which 5,088,049 shares have been issued in connection with the
Recent Acquisitions. The Company has agreed that, at Jonathan Ledecky's request,
it will file a registration statement under the Securities Act for an offering
of the shares underlying the Ledecky Warrant during a ten-year period beginning
on November 25, 1998, the first anniversary of the effective date of the
registration statement (the "Effective Date") filed with the Commission in
connection with the IPO. In addition, the Company has agreed to give Jonathan
Ledecky the right to request that the Company include the shares underlying his
warrant on a registration statement filed by the Company during a twelve-year
period beginning on the Effective Date.
Finally, 1,130,000 shares of Common Stock are reserved for issuance upon
exercise of the warrants issued to Friedman, Billings, Ramsey & Co., Inc. (the
"Representative") in connection with the IPO (which will have the right,
beginning one year after the Effective Date, to require the Company to register
such shares for sale under the Securities Act) and 500,000 shares were reserved
for issuance upon the conversion of shares of Convertible Non-Voting Common
Stock (which shares will be eligible for resale beginning on November 25, 1998,
the first anniversary of the Effective Date). Sales of substantial amounts of
Common Stock, or the perception that such sales could occur, could adversely
affect the prevailing market price of the Common Stock and impair the Company's
ability to raise additional capital through the sale of equity securities. Each
of the Company and its executive officers and directors as of the Effective Date
has generally agreed not to offer, pledge, sell, contract to sell, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
during the period ending 180 days after the Effective Date without the prior
written consent of the Representative.
The Company has an aggressive acquisition program under which it issues
shares of Common Stock. As of March 25, 1998, approximately 5,050,000 of the
35,238,049 shares outstanding were issued in connection with acquisitions and
were subject to contractual restrictions on the transfer thereof. The
contractual restrictions expire at various times, generally up to two years from
the date of issuance of the shares. Shares issued in acquisitions accounted for
under the pooling-of-interests method of accounting cannot be issued subject to
contractual restrictions on transfer. Under the pooling-of-interests method of
accounting, the affiliates of acquired companies, which are expected to be in
many, if not most, cases all of the stockholders of the companies acquired by
the Company, must be free to sell or otherwise transfer shares of Common Stock
received in the acquisition, subject to their compliance with the federal
securities laws, as soon as the Company releases results of operations that
reflect the combined post-acquisition operations of the Company and the acquired
company for a minimum of 30 days. If a significant number of shares of Common
Stock are issued in acquisitions that are completed in close proximity to each
other, such shares will become freely tradeable at the same time. If a large
number of shares
30
<PAGE>
are sold in the market by stockholders as soon as their shares become freely
transferable, the price of shares of Common Stock could be adversely affected.
No Prior Market for the Common Stock; Possible Volatility of Stock Price. Prior
to the IPO, there was no public market for the Company's Common Stock. An
active public market for the Common Stock may not develop or be sustained. The
trading price of the Common Stock could be subject to significant fluctuations
in response to activities of the Company's competitors, variations in quarterly
operating results, changes in estimates by securities analysts or the failure of
the Company or its competitor to meet such estimates, announcements by the
Company or its competitors and other events or factors. The market price of the
Company's Common Stock could also be adversely affected by confusion or
uncertainty as to the pace of the Company's consolidation activities, the
ability of the Company to integrate effectively different sectors of the
facilities management industry and the difficulty for securities analysts and
investors to analyze the Company's financial and operational performance when
it operates in more than one sector of the facilities management industry.
Moreover, the stock market in recent years has experienced extreme price and
volume fluctuations that often have been unrelated or disproportionate to the
operating performance of publicly traded companies. These broad fluctuations
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.
Dilution to New Investors. If the Company issues additional shares of Common
Stock in the future, including shares which may be issued pursuant to earn-out
arrangements, option grants, the Ledecky Warrant, the Representative's warrants
and future acquisitions, purchasers of Common Stock may experience dilution in
the net tangible book value per share of the Common Stock. Since the holders of
Common Stock do not have any preemptive right to purchase shares of Common Stock
issued by the Company in the future, their voting power will be diluted by
future issuances of shares of Common Stock by the Company.
Certain Anti-takeover 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.
Year 2000 Issue. The Company has begun to assess whether its business systems
and products could be affected by the Year 2000 issue. The Year 2000 issue
refers to a number of date-related problems that may affect software
applications, including codes imbedded in chips and other hardware devices.
These problems include software programs that identify a year by two digits and
not four so that a date using "00" would be recognized as the year "1900" rather
than the year "2000."
The Company plans to complete the assessment of the impact of the year 2000,
formalize its plan to resolve the issues and begin to implement the plan by
December 1998. At this time, the Company cannot assess the extent to which it
will be dependent upon third parties to identify or address such issues and does
not have an estimate of the cost of compliance. Any failure by the Company to
ensure that its computer systems are year 2000 compliant could have a material
adverse effect on the Company's operations. Any failure of the Company's
business systems or products to perform could result in claims against the
Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
31
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Report of Independent Accountants.......................................... 33
Balance Sheet as of December 31, 1997...................................... 34
Statement of Income for a period from inception
(February 27, 1997) to December 31, 1997................................... 35
Statement of Stockholders' Equity for a period from
inception (February 27, 1997) to December 31, 1997......................... 36
Statement of Cash Flows for a period from
inception (February 27, 1997) to December 31, 1997......................... 37
Notes to Financial Statements.............................................. 38
32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Consolidation Capital Corporation
In our opinion, the accompanying balance sheet and the related statements
of income, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Consolidation Capital Corporation
at December 31, 1997, and the results of its operations and its cash flows for
the period from inception (February 27, 1997) through December 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
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
February 27, 1998
33
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
ASSETS
- ------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents............................................................... $528,392
Prepaid expenses........................................................................ 434
Deferred tax asset...................................................................... 219
--------
Total current assets................................................................. 529,045
Property and equipment, net............................................................... 20
--------
Total assets......................................................................... $529,065
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 156
Income taxes payable.................................................................... 283
Accrued compensation.................................................................... 1,042
Accrued professional fees............................................................... 194
Other................................................................................... 93
--------
Total current liabilities............................................................ 1,768
--------
Stockholders' equity:
Common Stock, $.001 par, 250,000,000 shares authorized, 30,150,000 shares issued and
outstanding........................................................................... 30
Convertible Non-Voting Common Stock, $.001 par, 500,000 shares authorized, issued
and outstanding....................................................................... 1
Additional paid-in capital.............................................................. 527,259
Retained earnings....................................................................... 7
--------
Total stockholders' equity........................................................... 527,297
--------
Total liabilities and stockholders' equity........................................... $529,065
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
STATEMENT OF INCOME
FOR A PERIOD FROM INCEPTION (FEBRUARY 27, 1997) TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C>
Interest income.................................................... $ 2,056
Selling, general, and administrative expenses...................... 1,985
----------
Income before taxes................................................ 71
Provision for income taxes......................................... 64
----------
Net income......................................................... $ 7
==========
Net income per Common Share--Basic................................. $ --
==========
Net income per Common Share--Assuming dilution..................... $ --
==========
Weighted average number of Common Shares outstanding............... 4,911,401
==========
Weighted average number of Common and Potentially Dilutive Shares
outstanding....................................................... 4,990,500
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (FEBRUARY 27, 1997) TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
CONVERTIBLE NON-VOTING PAID-IN- RETAINED STOCKHOLDERS'
COMMON STOCK COMMON STOCK CAPITAL EARNINGS EQUITY
---------------------------------------------------------------------------------------------------
SHARES SHARES
OUTSTANDING AMOUNT OUTSTANDING AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at inception........... -- $ -- -- $ -- $ -- $ -- $ --
Capital contribution......... 2,300,000 2 124 126
Issuance of common stock..... 27,850,000 28 500,000 1 527,135 527,164
Net income................... 7 7
----------- ------------ ----------- ------------ ----------- ----------- -------------
Balance, December 31, 1997..... 30,150,000 $ 30 500,000 $ 1 $ 527,259 $ 7 $ 527,297
=========== ============ =========== ============ =========== =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (FEBRUARY 27, 1997) TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
Cash flow from operating activities:
Net income.......................................................... $ 7
Changes in assets and liabilities:
Prepaid expenses............................................... (434)
Other current assets........................................... (219)
Income taxes payable........................................... 283
Accounts payable............................................... 156
Accrued liabilities............................................ 1,329
--------
Net cash provided by operating activities........................... 1,122
--------
Cash flows from investing activities:
Purchases of property and equipment............................... (20)
--------
Net cash used in investing activities............................... (20)
--------
Cash flows from financing activities:
Proceeds from initial public offering, net......................... 527,164
Contributions by founding stockholder.............................. 126
--------
Net cash provided by financing activities........................... 527,290
--------
Net increase in cash and cash equivalents........................... 528,392
Cash and cash equivalents, beginning of period...................... --
--------
Cash and cash equivalents, end of period............................ $528,392
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 formed in February 1997, merged with
and into the Company in September 1997 (the "Merger"). The sole member of LLC
received, in connection with the Merger, 2,300,000 shares of Common Stock of the
Company which represents all of its issued and outstanding Common Stock, in
exchange for 100% of his ownership interest in the LLC. The Merger was
implemented to facilitate a public offering of securities. Because both of the
organizations were under control of the one sole owner, the Merger has been
accounted for on a historical cost basis.
The Company intends to consolidate the facilities management industry to
become a national single-source provider of facilities management services.
Through December 31, 1997, the Company's operations consisted of organizational
activities, research and analysis with respect to industry consolidations and
acquisition opportunities, efforts to refine the Company's business strategy and
meetings and negotiations with potential acquisition candidates.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers temporary cash investments with original maturities
of three months or less from the date of purchase to be cash equivalents.
38
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments.
The Company has invested in financial instruments of a nature which should
reduce the risk of loss.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents approximate fair value.
The Company's cash equivalents are comprised of readily marketable, interest-
bearing, investment grade securities.
Income Taxes
Income taxes have been computed utilizing the asset and liability approach
which requires the recognition of deferred tax assets and liabilities for the
tax consequences of temporary differences by applying the enacted statutory tax
rates applicable to future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities. During
1997, the primary difference between the U.S. federal statutory rate and the
Company's effective income tax rate related to the exclusion from taxable income
of the accumulated losses of LLC during the period preceding the Merger. LLC was
a nontaxable entity and the tax benefits associated with its losses flowed
through to the member.
Net Income Per Share
Basic net income per share is determined by dividing income available to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted net income per share reflects the potential dilution
that could occur if securities and other contracts to issue Common Stock were
exercised or converted into Common Stock at their date of grant.
39
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3--STOCKHOLDERS' EQUITY
Common Stock
On November 25, 1997, the Company effected a one-for-1.918159 reverse stock
split of the Company's Common Stock. Accordingly, all share data reflected in
these financial statements have been retroactively restated.
On September 19, 1997, the sole member of LLC received 2,300,000 shares of
Common Stock of the Company in connection with the Merger in exchange for his
100% ownership interest in LLC. The sole member made contributions to LLC from
time to time to fund expenses in the aggregate amount of $126. These
contributions were included in common stock and additional paid-in capital.
The Company completed its initial public offering ("IPO") in December
1997, selling 27,850,000 shares of Common Stock and 500,000 shares of
Convertible Non-Voting Common Stock and raising net proceeds of approximately
$527,000. Proceeds from the IPO, net of underwriting fees and other stock
issuance costs, were included in common stock and additional paid-in capital.
Convertible Non-Voting Common Stock
In connection with the IPO, the Company sold 500,000 shares of Convertible
Non-Voting Common Stock to Friedman, Billings, Ramsey & Co., Inc. ("FBR"), the
representative of the underwriters in the Company's IPO, for $20 per share.
After one year, the shares on Convertible Non-Voting Common Stock will
automatically convert into an equivalent number of shares of Common Stock.
Accordingly, 500,000 shares of Common Stock have been reserved for issuance upon
the conversion of these securities, which shares will be eligible for resale
beginning on November 25, 1998.
Common Stock Warrants
There are 1,130,000 shares of Common Stock reserved for issuance upon
exercise of warrants issued to FBR. The warrants have an exercise price per
share equal to the IPO price per share ($20). These warrants will be exercisable
on or after the first anniversary and until the fifth anniversary of the IPO.
FBR will have the right, beginning November 25, 1998, to require the Company to
register such shares for sale.
40
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Additionally, 1,950,000 shares of Common Stock have been reserved for
issuance upon the exercise of warrants issued to Jonathan Ledecky at the time of
the IPO. These warrants are exercisable for a period of ten years at an exercise
price equal to the IPO price ($20). The Company has agreed that, at Jonathan
Ledecky's request, it will register the shares underlying his warrants for a
ten-year period following the IPO. In addition, the Company has agreed to give
Jonathan Ledecky the right to request that the Company include the shares
underlying his warrants on a registration statement filed by the Company during
a twelve-year period following the IPO.
1997 Long-Term Incentive Plan
The Company's Board of Directors has adopted, and the Company's stockholder
has approved, the Company's 1997 Long-Term Incentive Plan (the "Incentive
Plan"). The terms of the option awards will be established by the Compensation
Committee of the Company's Board of Directors. The Company has filed a
registration statement on Form S-8 under the Securities Act of 1933 with respect
to the shares of Common Stock issuable pursuant to such plan. 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 were granted at the time of the IPO at an exercise price equal to the IPO
price per share ($20). These options will vest 25% each on the first four
anniversaries of the date of grant and will expire on the tenth anniversary of
the grant date. In the event of a change in control of the Company prior to
normal vesting, all options not already exercisable will become fully vested and
exercisable.
1997 Non-Employee Directors' Stock Plan
The Company's Board of Directors has adopted, and the Company's stockholder
has approved, the 1997 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which provides for the automatic grant to each nonemployee director of
an option to purchase 20,000 shares on the later of the effective date of the
registration statement for the initial public offering of the Company's Common
Stock or the date that such person commences services as a director. Thereafter,
each non-employee director will be entitled to receive, on the day after each
annual meeting of the Company's stockholders, an option to purchase 5,000 shares
of Common Stock. A maximum of 300,000 shares of Common Stock may be issued under
the Directors' Plan. Options to purchase 60,000 shares of Common Stock under the
Directors' Plan were granted at the time of the IPO at an exercise price equal
to the IPO price per share ($20).
41
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Options granted under the Directors' Plan will have an exercise price per
share equal to the fair market value of a share at the date of grant. Options
will expire at the earlier of 10 years from the date of grant or 90 days after
termination of service as a director. Options will vest and become exercisable
ratably as to 50% of the shares underlying the option on the first and second
anniversaries of the date of grant, subject to acceleration by the Board. In the
event of a change in control of the Company prior to normal vesting, all options
not already exercisable will become fully vested and exercisable.
1997 Employee Stock Purchase Plan
The Company has adopted, and the Company's stockholder has approved, the
1997 Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan
permits eligible employees of the Company and its subsidiaries (generally all
full-time employees who have completed one year of service) to purchase shares
of Common Stock at a discount. Employees who elect to participate will have
amounts withheld through payroll deduction during purchase periods. At the end
of each purchase period, accumulated payroll deductions will be used to purchase
stock at a price equal to 85% of the market price at the beginning of the period
or the end of the period, whichever is lower. Stock purchased under the Purchase
Plan will be subject to a one-year holding period. The Company has reserved
1,000,000 shares of Common Stock for issuance under the Purchase Plan.
NOTE 4--STOCK PURCHASE AND AWARDS PLAN
In connection with the IPO and under the provisions of the Incentive Plan
and the Directors' Plan, stock warrants and options were granted to officers and
directors of the Company. None of the warrants or options were exercised during
1997.
At December 31, 1997, warrants and options granted to officers and
directors were outstand ing as follows:
<TABLE>
<CAPTION>
Price Number of Expiration
Per Share Shares Date
--------- --------- ----------
<S> <C> <C> <C>
Outstanding at December 31, 1997................ $20.00 3,510,000 2002-2007
</TABLE>
42
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The 3,510,000 shares outstanding consists of options to purchase 1,560,000
shares of Common Stock and 1,950,000 shares of Common Stock reserved for
issuance upon exercise of warrants.
In 1997, the Company adopted the Statement of Financial Accounting
Standards ("SFAS") No. 123 "Accounting for Stock-Based Compensation" which
encourages, but does not require com panies to recognize compensation cost for
stock-based compensation plans over the vesting period based upon the fair value
of awards on the date of the grant. However, the statement allows the
alternative of the continued use of the intrinsic value method as prescribed in
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees." Therefore, as permitted, the Company has applied APB No. 25, and
related interpretations in accounting for its stock based compensation plans.
Accordingly, no compensation expense has been recognized by the Company for
warrants granted in connection with the IPO or for options granted under the
Incentive Plan and the Directors' Plan.
Had compensation expense for the Company's stock-based compensation plans
been determined based on the fair value at the grant dates consistent with the
method of SFAS No. 123, the Company's net income and net income per share would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Net Income (Loss)
As reported.................................................. $ 7
Pro forma.................................................... $ (9,379)
========
Net Income (Loss) Per Share --Basic
As reported.................................................. $ -
Pro forma.................................................... $ (1.91)
========
Net Income (Loss) Per Share--Diluted
As reported.................................................. $ -
Pro forma.................................................... $ (1.88)
========
</TABLE>
The weighted average fair value per option and warrant at the date of grant
for options granted in 1997 was $7.46. The fair value of options and warrants
granted (which is amortized to expense over the option vesting period in
determining the pro forma impact) is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for 1997:
43
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997
------------------
OPTIONS WARRANTS
------- --------
<S> <C> <C>
Expected life of option................................. 5 years 2 years
Risk-free interest rate................................. 5.76% 5.69%
Expected volatility factor.............................. 45.0% 45.0%
</TABLE>
NOTE 5--NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. SFAS No. 130 requires that all items required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Accordingly, the Company will adopt this new standard during
1998.
NOTE 6--SUBSEQUENT EVENTS
Service Management Acquisition
On February 4, 1998, the Company completed the acquisition of Service
Management. Service Management is a Sterling, Virginia based provider of
facilities management services specializing in providing janitorial
maintenance management services to retailers and industrial and commercial
clients in 39 states. The total consideration paid by the Company consisted of
$9,000 in cash and 142,857 shares of Common Stock, with the potential for the
payment of up to an additional $13,000 in cash and shares of Common Stock based
on the performance of Service Management and the achievement of certain
acquisition goals.
Other Acquisitions (Unaudited)
On March 11, 1998, the Company completed the simultaneous acquisition of a
group of seven facilities management businesses specializing in providing
electrical installation and maintenance services (the "Electrical Group"). The
Electrical Group consists of the following businesses: Garfield Electric
Company, Indecon, Inc., Riviera Electric Construction Co., SKC Electric, Inc.
44
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Town & Country Electric, Inc., Tri-City Electrical Contractors, Inc., and Wilson
Electric Company, Inc. The aggregate consideration paid by the Company in the
Electrical Group consisted of $71,788 in cash and 3,423,453 in shares of Common
Stock. In addition, there is the potential for the payment of up to an
additional $37,000 in cash and shares of Common Stock based on the performance
of the acquired businesses as a group.
On March 25, 1998, the Company completed the acquisition of Walker
Engineering, Inc. ("Walker"). Walker specializes in providing electrical
installation and maintenance services. The consideration paid by the Company for
Walker (including certain fees) consisted of $36,050 in cash and 1,521,739
shares of Common Stock. In addition, there is the potential for the payment of
up to an additional $30,000 in cash and in shares of Common Stock based on the
performance of Walker.
45
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning each of the
executive officers and directors of the Company as of March 25, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ----------------------- --- ---------------------------------------------------
<S> <C> <C>
Jonathan J. Ledecky 40 Chairman and Chief Executive Officer
Timothy C. Clayton 43 Executive Vice president, Chief Financial
Officer and Treasurer
F. Traynor Beck 42 Executive Vice President, General Counsel and
Secretary
David Ledecky 37 Executive Vice President and Chief
Administrative Officer; Director
William P. Love, Jr. 39 Director; President -- Electrical Contracting
Services Division
Vincent W. Eades 38 Director
W. Russell Ramsey 37 Director
M. Jude Reyes 42 Director
</TABLE>
Jonathan J. Ledecky founded the Company in February 1997 and serves as its
Chairman and Chief Executive Officer. Jonathan Ledecky founded U.S. Office
Products Company, a company engaged in providing office and educational products
and business services, in October 1994 and has served as its Chairman of the
Board and, until November 5, 1997, its Chief Executive Officer. Since its
inception, USOP has acquired over 205 companies. Jonathan Ledecky has also
served as the Non-Executive Chairman of the Board of USA Floral since April 1997
and as the Non-Executive Chair man of the Board of UniCapital since October
1997. Prior to founding USOP, Jonathan Ledecky served from 1989 to 1991 as the
President of The Legacy Fund, Inc., and from 1991 to September 1994 as President
and Chief Executive Officer of Legacy Dealer Capital Fund, Inc., a wholly owned
subsidiary of Steelcase Inc. ("Steelcase"), the nation's largest manufacturer of
office furniture products. While at Legacy Dealer Capital Fund, Inc., Jonathan
Ledecky was responsible for providing corporate advisory services for
Steelcase's network of office products distributors. In addition, Jonathan
Ledecky has served as a director of, or corporate adviser and consultant to,
several office products companies. Prior to his tenure at The Legacy Fund, Inc.,
Jonathan Ledecky was a partner at Adler and Company and a Senior Vice President
at publicly traded Allied Capital Corporation, an investment management company.
Jonathan Ledecky also is expected to serve as a director of the
46
<PAGE>
companies being spun off from USOP. Jonathan Ledecky is a graduate of Harvard
College and Harvard Business School. Jonathan Ledecky is the brother of David
Ledecky.
Timothy C. Clayton has served as Executive Vice President, Chief Financial
Officer and Treasurer of the Company since November 25, 1997. Between August
1976 and October 1997, Mr. Clayton was associated with Price Waterhouse LLP,
most recently as a partner since July 1988. In his capacity as Partner, Mr.
Clayton focused his practice on, among others, distribution, technology,
financial services, business services and manufacturing industries, and was
responsible for providing audit and business advisory services to clients active
in consolidating a variety of industries. Mr. Clayton is a graduate of Michigan
State University.
F. Traynor Beck has served as Executive Vice President, General Counsel and
Secretary of the Company since November 25, 1997. Between January 1988 and
November 25, 1997, Mr. Beck was associated with Morgan, Lewis and Bockius LLP,
most recently as a partner since October 1994. Mr. Beck's practice was focused
on mergers, acquisitions and general corporate matters, including consolidation
transactions. Mr. Beck is a graduate of the University of Pennsylvania, Oxford
University and Stanford Law School.
David Ledecky joined the Company as Senior Vice President, Secretary and
Treasurer in September 1997 and was appointed Executive Vice President and Chief
Administrative Officer on November 25, 1997. David Ledecky has also served as a
director since November 25, 1997. Prior thereto, he operated Ledecky Brothers
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.
William P. Love, Jr. has served as the President of the Electrical
Contracting Services Division of the Company and has been a director of the
Company since March 11, 1998. From September 1980 to March 11, 1998, Mr. Love
served as the President and Chief Executive Officer of SKC Electric, Inc., an
electrical installation and maintenance services company that Mr. Love founded
and that has been a wholly owned subsidiary of the Company since its
acquisiton by the Company on March 11, 1998. Mr. Love is a director designee
of the Electrical Group pursuant to the agreements between the Company and
each company in the Electrical Group.
Vincent W. Eades has been a director of the Company since November 25,
1997. Mr. Eades has served as the Senior Vice President of Sales and Marketing
for Starbucks Coffee Co. Inc. since May 1995. Mr. Eades was employed by
Hallmark Cards Inc., most recently as a General Manager from November 1985
through April 1995. Additionally, he serves as a director of USA Floral.
47
<PAGE>
W. Russell Ramsey has been a director of the Company since November 25,
1997. Mr. Ramsey is President, co-founder and a director of Friedman, Billings,
Ramsey Group, Inc. ("FBR Group"), a holding company engaged in brokerage,
investment banking, corporate finance and asset management activities in the
Washington, D.C. area. He has continuously served as President of FBR Group and
its predecessors since co-founding FBR Group in 1989. FBR, the Representative
in the IPO, is a wholly owned indirect subsidiary of FBR Group. Mr. Ramsey is a
graduate of The George Washington University. Mr. Ramsey is a director designee
of FBR pursuant to an agreement between the Company and FBR.
M. Jude Reyes has been a director of the Company since November 25, 1997.
Mr. Reyes has served as Chairman and President of Premium Distributors of
Virginia, L.L.C., a beverage distributor, since 1992. Between 1989 and 1992,
Mr. Reyes served as President and Chairman of Harbor Distributing Company in
Los Angeles, California. He also is a director and investor in three other
beverage distributors and two wholesale food service distributors. Mr. Reyes is
a director designee of FBR pursuant to an agreement between the Company and FBR.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
persons who own more than 10% of the Company's outstanding common stock to file
with the Securities and Exchange Commission (the "SEC") initial reports of
ownership, reports of changes in ownership and annual reports of ownership of
common stock and other equity securities of the Company. Specific due dates for
these reports have been established and the Company is required to report in
this Annual Report any failure to file by these dates in fiscal 1997. Timothy
C. Clayton and M. Jude Reyes were late in reporting their acquisition of shares
on November 26, 1997.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides for fiscal 1997 certain summary information
concerning the cash and non-cash compensation earned by or awarded to (i) the
Company's Chief Executive Officer and (ii) each of the Company's other executive
officers (collectively, the "named executive officers"). The Company was
organized in February 1997, with David Ledecky as its sole employee. All other
named executive officers were employed by the Company as of November 25, 1997.
48
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
--------------
AWARDS
------------
SECURITIES
UNDER-
FISCAL SALARY LYING OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($)(1) SARS (#)(2) COMPENSATION
- ------------------------------------------------------------------------- ------ -------- -------------- ------------
<S> <C> <C> <C> <C>
Jonathan J. Ledecky,
Chief Executive Officer and Chairman of the Board....................... 1997 $125,000 -- --
Timothy C. Clayton,
Executive Vice President, Chief Financial Officer and Treasurer......... 1997 $223,000 500,000 25,000(3)
F. Traynor Beck,
Executive Vice President, General Counsel and Secretary................. 1997 $223,000 500,000 --
David Ledecky,
Executive Vice President and Chief Administrative Officer, Director..... 1997 $327,994(4) 500,000 --
</TABLE>
- -------------
(1) Includes guaranteed bonus payments of $200,000 for Mr. Clayton, Mr. Beck and
David Ledecky, which were declared in December 1997 and paid in January
1998.
(2) Represents options granted in 1997 with respect to the Company's Common
Stock, each option to vest ratably on November 25, 1998, 1999, 2000 and
2001, unless accelerated under certain conditions.
(3) Represents amount paid to Mr. Clayton for consulting services during
November 1997.
(4) Includes also payments made to David Ledecky by Ledecky Brothers LLC,
predecessor to the Company.
Employment Agreements. The Company has entered into an employment
agreement with Jonathan Ledecky. The agreement has a one-year term and is
automatically renewable for one-year terms thereafter unless either party gives
notice of non-renewal at least 90 days prior to the end of the term. Pursuant to
the terms of the agreement, Jonathan Ledecky is obligated to devote the
substantial majority of his business time, attention and efforts to his duties
thereunder, except when necessary to fulfill his fiduciary obligations to USOP
and the provisions of his employment agreement with USOP, as well as his
fiduciary obligations to USA Floral, UniCapital and Unison Partners, a private
company of which he intends to be a minority investor. The agreement provides
for an annual salary of $750,000 and a discretionary bonus in an amount up to
100% of the employee's base salary. If the agreement is terminated by the
Company other than for Cause (as defined), Jonathan Ledecky is entitled to
receive an amount equal to twice his base salary and one times the bonus he
received in the prior year. The agreement prohibits Jonathan Ledecky from
competing with the Company during the term of his employment and for a period of
one year thereafter. The agreement also provides for certain specified executive
perquisites.
49
<PAGE>
The Company has entered into employment agreements with each of F. Traynor
Beck, Timothy Clayton and David Ledecky, the terms of which are substantially
identical. Each of the agreements has a two-year term and is automatically
renewable for one-year terms thereafter, unless either party gives notice of
non-renewal at least six months prior to the end of the term. Pursuant to the
terms of the agreements, each of F. Traynor Beck, Timothy Clayton and David
Ledecky is obligated to devote his full business time, attention and efforts to
his duties thereunder. Each of the agreements provides for an annual salary of
$300,000, a guaranteed bonus of $200,000 for the first year of the term and a
discretionary bonus in an amount of up to 100% of the employee's base salary
each year thereafter. On the Effective Date, each of these executive officers
received a grant of an option to purchase 500,000 shares of Common Stock at an
exercise price equal to the initial public offering price per share ($20.00),
which option will vest ratably on the first, second, third and fourth
anniversaries of the date of grant, unless accelerated under certain conditions.
If the agreement is terminated by the Company other than for Cause (as defined),
the executive officer will be entitled to receive amounts equal to twice his
base salary and one times the bonus he received in the prior year. The
agreements prohibit the executive officer from competing with the Company during
the term of his employment and for a period of one year thereafter. The
agreements also provide for certain specified executive benefits and
perquisites, including, in the case of Timothy Clayton, the purchase of an
annuity contract to be placed in a deferred compensation plan that will provide
him with an annual payout of $100,000 for each year of his life between age 55
and age 75.
The Company has entered into an employment agreement with William P. Love,
the President of the Company's Electrical Contracting Services Division and a
Director of the Company. The agreement has a two-year term and may be extended
on such terms and conditions as the Company and Mr. Love may mutually agree.
The agreement provides for an annual salary of $200,000 and a performance-based
incentive bonus payable in cash, stock options or other non-cash awards as
determined by the Compensation Committee of the Board of Directors for each
calendar year during the term of the agreement beginning on January 1, 1999. If
the agreement is terminated for other than Cause (as defined), Mr. Love will
receive his base salary and group health benefits, as then in effect, for the
longer of one year from the date of termination or whatever time period is
remaining under the term of the agreement. The agreement prohibits Mr. Love from
competing with the Company during the term of his employment and, depending on
the nature of his termination of employment, for a period of up to two years
from the date of termination.
OPTION GRANTS IN FISCAL 1997
The following table sets forth certain information concerning the grant of
options to purchase Common Stock of the Company during Fiscal 1997 to each of
the named executive officers.
50
<PAGE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(2)
- -----------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED(1) FISCAL YEAR PRICE DATE 0% 5% 10%
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jonathan J. Ledecky..... -- -- --
Timothy C. Clayton...... 500,000 33.3% $20.00 11/25/07 0 $5,515,000 $13,580,000
F. Traynor Beck......... 500,000 33.3% $20.00 11/25/07 0 $5,515,000 $13,580,000
David Ledecky........... 500,000 33.3% $20.00 11/25/07 0 $5,515,000 $13,580,000
</TABLE>
- -------------
(1) The options granted are non-qualified options, which are exercisable at the
market price on the date of grant beginning one year from the date of grant
in cumulative yearly amounts of 25% of the shares and expire ten years from
the date of grant. The options became fully exercisable upon a change in
control, as defined in the Incentive Plan.
(2) The dollar amounts under these columns are the results of calculations at
assumed annual rates of stock appreciation of zero percent (0%), five
percent (5%) and ten percent (10%). These assumed rates of growth were
selected by the Commission for illustration purposes only. They are not
intended to forecast possible future appreciation, if any, of the Company's
stock price. No gain to the optionees is possible without an increase in
stock prices, which will benefit all stockholders. A zero percent (0%) gain
in stock price will result in a zero percent (0%) benefit to optionees.
DIRECTOR COMPENSATION
Directors who are not receiving compensation as officers, employees or
consultants of the Company are entitled to receive an annual retainer fee of
$25,000. In addition, pursuant to the Directors' Plan, each non-employee
director receives an automatic initial grant of options to purchase 20,000
shares of Common Stock on the date of their initial election to the Board of
Directors, and an automatic 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 25, 1998 by: (i) each person (or
group of affiliated persons) known by the Company to be the beneficial owner of
more than five percent of the outstanding Common Stock; (ii) each director of
the Company; (iii) each executive officer of the Company; and (iv) all of the
Company's directors and executive officers as a group. Each stockholder
possesses sole voting and investment power with respect to the shares listed,
unless otherwise noted.
51
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OF CONVERTIBLE
NUMBER OF CONVERTIBLE PERCENTAGE OF NON-VOTING
SHARES OF NON-VOTING COMMON STOCK COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK OWNED OWNED
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Executive Officers and Directors
Jonathan J. Ledecky.......................... 4,500,000(1) 0 12.8% 0
c/o Consolidation Capital Corporation
1747 Pennsylvania Avenue, NW,
Suite 900
Washington, DC 20006
David Ledecky................................ 0 0 0 0
F. Traynor Beck.............................. 0 0 0 0
Timothy C. Clayton........................... 2,000 0 * 0
William P. Love(2)........................... 423,322 0 1.2 0
Vincent W. Eades(3).......................... 10,000 0 0 0
W. Russell Ramsey(4)......................... 10,000 500,000 * 100%
M. Jude Reyes(5)............................. 30,000 0 * 0
All directors and executive officers as a
group (8 persons)........................... 4,975,322 500,000 14.1% 100%
5% Stockholders
Massachusetts Financial Services Company..... 2,448,500 0 6.9 0
500 Boylston Street, 15th Floor
Boston, MA 02116(6)
</TABLE>
________________________________
* Less than one percent
(1) Includes: (i) 1,950,000 shares underlying the Ledecky Warrant and (ii) the
2,300,000 shares of Common Stock subject to a contractual restriction on
transfer for one year following the Effective Date. The Company has agreed
that, at Jonathan Ledecky's request, it will file a registration statement
under the Securities Act for an offering of the shares underlying the
Ledecky Warrant during a ten-year period beginning on the Effective Date. In
addition, the Company has agreed to give Jonathan Ledecky the right to
request that the Company include the shares underlying the Ledecky Warrant
on a registration statement filed by the Company during a twelve-year period
beginning on the Effective Date.
(2) Includes 207,428 shares owned by Mr. Love's wife. Mr. Love serves as one of
four trustees of the SKC Electric, Inc. Profit Sharing Plan (the "Plan").
The number of shares shown as beneficially owned by Mr. Love excludes shares
that may be deemed to be beneficially owned by the Plan.
(3) Represents shares which may be acquired upon the exercise of options that
will be exercisable within 60 days.
(4) The number of shares of Common Stock beneficially owned by Mr. Ramsey
represents shares which may be acquired upon the exercise of options that
will become exercisable within 60 days. The number of Shares of Convertible
Non-Voting Common Stock represents the shares of Convertible Non-Voting
Common Stock owned by FBR Asset Investment Corporation, Inc., an affiliate
of FBR Group. Mr. Ramsey is President, co-founder and a director of FBR
Group. Mr. Ramsey disclaims beneficial ownership of such shares.
Mr. Ramsey's address is c/o FBR Group, 1001 North 19th Street, Arlington,
VA 22209.
(5) Includes 10,000 shares which may be acquired upon the exercise of options
that will be exercisable within 60 days.
(6) Based upon a Schedule 13G filed with the Securities and Exchange Commission
on February 17, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is a description of certain transactions and relationships
between the Company and certain persons who are officers, directors and
principal stockholders of the Company.
52
<PAGE>
Jonathan Ledecky, the Company's Chairman, Chief Executive Officer and
founder, is the brother of David Ledecky, Executive Vice President, Chief
Administrative Officer and a director of the Company.
Jonathan Ledecky advanced to the Company $305,000, at an annual interest
rate equal to 6.75%, to pay the expenses incurred in connection with the IPO.
The Company repaid Jonathan Ledecky's loans to the Company, including accrued
interest of approximately $4,000, using the proceeds of the IPO.
W. Russell Ramsey, a director of the Company, is President and a principal
stockholder of FBR. FBR rendered investment banking services to the Company in
connection with the IPO.
Timothy C. Clayton, Executive Vice President, Chief Financial Officer and
Treasurer of the Company, was, through October 1997, a Partner at Price
Waterhouse LLP, the Company's independent accountants.
F. Traynor Beck, Executive Vice President, General Counsel and Secretary of
the Company, was, until the Effective Date, a partner at Morgan, Lewis & Bockius
LLP, the Company's legal counsel.
On March 11, 1998, the Company completed the acquisition of SKC. SKC leases
office, warehouse and storage space from SKC Properties, L.L.C. a principal
member of which is William B. Love, Jr., one of the former owners of SKC and a
director of the Company and the President of the Company's Electrical
Contracting Services Division. The lease provides for lease payments in the
amount of $8,095 per month, or $97,140 annually.
For information with respect to certain conflicts of interest, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors Affecting the Company's Prospects--Conflicts of Interest."
53
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements, Schedules and Exhibits.
1. Financial Statements (See Item 8 hereof.)
Report of Independent Accountants
Balance Sheet as of December 31, 1997
Statement of Income for a period from inception (February 27, 1997) to
December 31, 1997
Statement of Stockholders' Equity for a period from inception
(February 27, 1997) to December 31, 1997
Statement of Cash Flows for a period from inception (February 27,
1997) to December 31, 1997
Notes to Financial Statements
2. Financial Statement Schedules (See Item 8 hereof.)
All schedules are omitted as the information is not required or is
otherwise furnished.
3. Exhibits
2.01 Agreement and Plan of Reorganization, dated February 27, 1998,
by and among the Company, CCC2 Acquisition Co., SKC Electric,
Inc. and the stockholders named therein (Exhibit 2.01 of the
Company's Registration Statement on Form S-1 (File No. 333-42317)
is hereby incorporated by reference).
2.02 Agreement and Plan of Reorganization, dated February 27, 1998,
by and among the Company, CCC3 Acquisition Co., Riviera Electric,
Inc. and the stockholders named therein (Exhibit 2.02 of the
Company's Registration Statement on Form S-1 (File No. 333-42317)
is hereby incorporated by reference).
2.03 Agreement and Plan of Reorganization, dated February 27, 1998,
by and among the Company, CCC4 Acquisition Co., Garfield Electric
Company and the stockholders named therein (Exhibit 2.03 of the
Company's Registration
54
<PAGE>
Statement on Form S-1 (File No. 333-42317) is hereby incorporated
by reference).
2.04 Agreement and Plan of Reorganization, dated February 27, 1998,
by and among the Company, CCC5 Acquisition Co., Indecon, Inc. and
the stockholders named therein (Exhibit 2.04 of the Company's
Registration Statement on Form S-1 (File No. 333-42317) is hereby
incorporated by reference).
2.05 Agreement and Plan of Reorganization, dated February 27, 1998,
by and among the Company, CCC6 Acquisition Co., Tri-City
Electrical Contractors, Inc. and the stockholders named therein
(Exhibit 2.05 of the Company's Registration Statement on Form S-1
(File No. 333-42317) is hereby incorporated by reference).
2.06 Agreement and Plan of Reorganization, dated February 27, 1998,
by and among the Company, CCC Acquisition Co. 6, Town & Country
Electric, Inc. and the stockholders named therein (Exhibit 2.06
of the Company's Registration Statement on Form S-1 (File No.
333-42317) is hereby incorporated by reference).
2.07 Agreement and Plan of Reorganization, dated February 27, 1998,
by and among the Company, CCC 8 Acquisition Co., Wilson Electric,
Inc. and the stockholders named therein (Exhibit 2.07 of the
Company's Registration Statement on Form S-1 (File No. 333-42317)
is hereby incorporated by reference).
2.08 Agreement and Plan of Reorganization, dated January 29, 1998, by
and among the Company, CCC Acquisition Corp. 1., Service
Management USA and the stockholder named therein (Exhibit 2.1 of
the Company's Current Report on Form 8-K dated February 4, 1997
is hereby incorporated by reference).
2.09 Agreement and Plan of Reorganization, dated March 15, 1998, by
and among the Company, CCC Acquiring Co., No. 10, Walker
Engineering, Inc. and the shareholders named therein.
3.01 Restated Certificate of Incorporation of Consolidation Capital
Corporation (Exhibit 3.01 of the Company's Registration Statement
on Form S-1 (File No. 333-36193) is hereby incorporated by
reference).
3.02 Amended and Restated Bylaws of Consolidation Capital Corporation
(Exhibit 3.02 of the Company's Registration Statement on Form S-1
(File No. 333-36193) is hereby incorporated by reference).
*10.01 Consolidation Capital Corporation 1997 Long-Term Incentive Plan
(Exhibit 10.01 of the Company's Registration Statement on
Form S-1 (File No. 333-42317) is hereby incorporated by
reference).
*10.02 Consolidation Capital Corporation 1997 Non-Employee Directors'
Stock Plan.
55
<PAGE>
*10.03 Consolidation Capital Corporation 1997 Employee Stock Purchase
Plan (Exhibit 10.03 of the Company's Registration Statement on
Form S-1 (File No. 333-36193) is hereby incorporated by
reference).
*10.04 Consolidation Capital Corporation 1997 Section 162(m) Bonus Plan
(Exhibit 10.04 of the Company's Registration Statement on
Form S-1 (File No. 333-36193) is hereby incorporated by
reference).
*10.05 Consolidation Capital Corporation Executive Deferred Compensation
Plan (Exhibit 10.05 of the Company's Registration Statement on
Form S-1 (File No. 333-36193) is hereby incorporated by
reference).
*10.06 Employment Agreement between the Company and Jonathan J. Ledecky
(Exhibit 10.05 of the Company's Registration Statement on
Form S-1 (File No. 333-36193) is hereby incorporated by
reference).
*10.07 Employment Agreement between the Company and Timothy C. Clayton
(Exhibit 10.06 of the Company's Registration Statement on
Form S-1 (File No. 333-36193) is hereby incorporated by
reference).
*10.08 Employment Agreement between the Company and F. Traynor Beck
(Exhibit 10.07 of the Company's Registration Statement on
Form S-1 (File No. 333-36193) is hereby incorporated by
reference).
*10.09 Employment Agreement between the Company and David Ledecky
(Exhibit 10.08 of the Company's Registration Statement on
Form S-1 (File No. 333-36193) is hereby incorporated by
reference).
*10.10 Form of Indemnity Agreement for Executive Officers and Directors
of the Company (Exhibit 10.09 of the Company's Registration
Statement on Form S-1 (File No. 333-36193) is hereby
incorporated by reference).
*10.11 Employment Agreement between the Company and William P.
Love.
10.12 Form of Warrant Agreement, dated November 25, 1997, between
Consolidation Capital Corporation and Friedman, Billings, Ramsey
& Co., Inc. (Exhibit 4.01 of the Company's Registration Statement
on Form S-1 (File No. 333-36193) is hereby incorporated by
reference).
10.13 Form of Warrant Agreement, dated November 25, 1997, between
Consolidation Capital Corporation and Jonathan J. Ledecky
(Exhibit 10.10 of the Company's Registration Statement on
Form S-1 (File No. 333-36193) is hereby incorporated by
reference).
11.01 Statement Regarding Computation of Net Income Per Share.
21.01 List of Subsidiaries of Consolidation Capital Corporation.
23.01 Consent of Price Waterhouse LLP.
27.01 Financial Data Schedule.
____________________
*Management contract or compensatory plan or arrangement
(b) Reports on Form 8-K. The Company did not file any Current Reports on
Form 8-K during the last quarter of the fiscal year covered by this report.
56
<PAGE>
SIGNATURES
Pursuant to the requirements Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Washington,
District of Columbia, on March 30, 1997.
Consolidation Capital Corporation
By: /s/ Jonathan J. Ledecky
------------------------------
Name: Jonathan J. Ledecky
Title: Chief Executive Officer
Each person whose signature appears below hereby appoints Jonathan J.
Ledecky and F. Traynor Beck, and both of them, either of whom may act without
the joinder of the other, as his true and lawful attorneys- in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Annual Report on Form 10-K, and to file the same, with all exhibits thereto
and all other documents in connection therewith, with the Commission, granting
unto said attorneys-in-fact and agents full power and authority to perform each
and every act and thing appropriate or necessary to be done, as fully and for
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------- -------------------------------- --------------
<S> <C> <C>
/s/ Jonathan J. Ledecky Chairman and Chief Executive March 30, 1998
- --------------------------
Jonathan J. Ledecky Officer (Principal Executive
Officer)
/s/ Timothy C. Clayton Executive Vice President, Chief March 30, 1998
- --------------------------
Timothy C. Clayton Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ David Ledecky Executive Vice President, Chief March 30, 1998
- --------------------------
David Ledecky Administrative Officer and
Director
/s/ Vincent E. Eades Director March 30, 1998
- --------------------------
Vincent E. Eades
/s/ W. Russell Ramsey Director March 30, 1998
- --------------------------
W. Russell Ramsey
/s/ M. Jude Reyes Director March 30, 1998
- --------------------------
M. Jude Reyes
/s/ William P. Love, Jr. Director March 30, 1998
- --------------------------
William P. Love, Jr.
</TABLE>
58
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<S> <C>
2.01 Agreement and Plan of Reorganization, dated February 27, 1998, by and among
the Company, CCC2 Acquisition Co., SKC Electric, Inc. and the stockholders
named therein (Exhibit 2.01 of the Company's Registration Statement on Form S-1
(File No. 333-42317) is hereby incorporated by reference).
2.02 Agreement and Plan of Reorganization, dated February 27, 1998, by and among
the Company, CCC3 Acquisition Co., Riviera Electric, Inc. and the stockholders
named therein (Exhibit 2.02 of the Company's Registration Statement on Form S-1
(File No. 333-42317) is hereby incorporated by reference).
2.03 Agreement and Plan of Reorganization, dated February 27, 1998, by and among
the Company, CCC4 Acquisition Co., Garfield Electric Company and the stock
holders named therein (Exhibit 2.03 of the Company's Registration Statement on
Form S-1 (File No. 333-42317) is hereby incorporated by reference).
2.04 Agreement and Plan of Reorganization, dated February 27, 1998, by and among
the Company, CCC5 Acquisition Co., Indecon, Inc. and the stockholders named
therein (Exhibit 2.04 of the Company's Registration Statement on Form S-1 (File
No. 333-42317) is hereby incorporated by reference).
2.05 Agreement and Plan of Reorganization, dated February 27, 1998, by and among
the Company, CCC6 Acquisition Co., Tri-City Electrical Contractors, Inc. and the
stockholders named therein (Exhibit 2.05 of the Company's Registration Statement
on Form S-1 (File No. 333-42317) is hereby incorporated by reference).
2.06 Agreement and Plan of Reorganization, dated February 27, 1998, by and among
the Company, CCC Acquisition Co. 6, Town & Country Electric, Inc. and the
stockholders named therein (Exhibit 2.06 of the Company's Registration Statement
on Form S-1 (File No. 333-42317) is hereby incorporated by reference).
2.07 Agreement and Plan of Reorganization, dated February 27, 1998, by and among
the Company, CCC 8 Acquisition Co., Wilson Electric, Inc. and the stockholders
named therein (Exhibit 2.07 of the Company's Registration Statement on Form S-1
(File No. 333-42317) is hereby incorporated by reference).
2.08 Agreement and Plan of Reorganization, dated January 29, 1998, by and among the
Company, CCC Acquisition Corp. 1., Service Management USA and the stock
holder named therein (Exhibit 2.1 of the Company's Current Report on Form 8-K
dated February 4, 1997 is hereby incorporated by reference).
</TABLE>
59
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<S> <C>
*2.09 Agreement and Plan of Reorganization, dated March 15, 1998, by and among the
Company, CCC Acquiring Co., No. 10, Walker Engineering, Inc. and the share
holders named therein.
3.01 Restated Certificate of Incorporation of Consolidation Capital Corporation (Exhi
bit 3.01 of the Company's Registration Statement on Form S-1 (File No. 333-
36193) is hereby incorporated by reference).
3.02 Amended and Restated Bylaws of Consolidation Capital Corporation (Exhibit 3.02
of the Company's Registration Statement on Form S-1 (File No. 333-36193) is
hereby incorporated by reference).
10.01 Consolidation Capital Corporation 1997 Long-Term Incentive Plan (Exhibit 10.01
of the Company's Registration Statement on Form S-1 (File No. 333-42317) is
hereby incorporated by reference).
*10.02 Consolidation Capital Corporation 1997 Non-Employee Directors' Stock Plan.
10.03 Consolidation Capital Corporation 1997 Employee Stock Purchase Plan (Exhibit
10.03 of the Company's Registration Statement on Form S-1 (File No. 333-36193)
is hereby incorporated by reference).
10.04 Consolidation Capital Corporation 1997 Section 162(m) Bonus Plan (Exhibit
10.04 of the Company's Registration Statement on Form S-1 (File No. 333-36193)
is hereby incorporated by reference).
10.05 Consolidation Capital Corporation Executive Deferred Compensation Plan (Exhibit
10.05 of the Company's Registration Statement on Form S-1 (File No. 333-36193)
is hereby incorporated by reference).
10.06 Employment Agreement between the Company and Jonathan J. Ledecky (Exhibit
10.05 of the Company's Registration Statement on Form S-1 (File No. 333-36193)
is hereby incorporated by reference).
</TABLE>
60
s
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<S> <C>
10.07 Employment Agreement between the Company and Timothy C. Clayton (Exhibit
10.06 of the Company's Registration Statement on Form S-1 (File No. 333-36193)
is hereby incorporated by reference).
10.08 Employment Agreement between the Company and F. Traynor Beck (Exhibit
10.07 of the Company's Registration Statement on Form S-1 (File No. 333-36193)
is hereby incorporated by reference).
10.09 Employment Agreement between the Company and David Ledecky (Exhibit 10.08
of the Company's Registration Statement on Form S-1 (File No. 333-36193) is
hereby incorporated by reference).
10.10 Form of Indemnity Agreement for Executive Officers and Directors of the
Company (Exhibit 10.09 of the Company's Registration Statement on Form S-1
(File No. 333-36193) is hereby incorporated by reference).
*10.11 Employment Agreement between the Company and William P. Love.
10.12 Form of Warrant Agreement, dated November 25, 1997, between Consolidation
Capital Corporation and Friedman, Billings, Ramsey & Co., Inc. (Exhibit 4.01 of
the Company's Registration Statement on Form S-1 (File No. 333-36193) is
hereby incorporated by reference).
10.13 Form of Warrant Agreement, dated November 25, 1997, between Consolidation
Capital Corporation and Jonathan J. Ledecky (Exhibit 10.10 of the Company's
Registration Statement on Form S-1 (File No. 333-36193) is hereby incorporated
by reference).
*11.01 Statement Regarding Computation of Net Income Per Share.
*21.01 List of Subsidiaries of Consolidation Capital Corporation.
*23.01 Consent of Price Waterhouse LLP.
*27.01 Financial Data Schedule.
</TABLE>
- ----------------------
* Filed herewith.
61
<PAGE>
EXHIBIT 2.09
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CONSOLIDATION CAPITAL CORPORATION,
CCC ACQUIRING CO. NO. 10,
WALKER ENGINEERING, INC.
AND
THE SHAREHOLDERS NAMED HEREIN
MADE EFFECTIVE AS OF MARCH 15, 1998.
================================================================================
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. THE MERGER 1................................................... 1
1.1 The Merger................................................. 1
1.2 Articles of Incorporation; Bylaws, Directors and Officers.. 1
1.3 Effects of the Merger...................................... 2
2. CONVERSION AND EXCHANGE OF STOCK................................ 2
2.1 Manner of Conversion....................................... 2
2.2 Base Merger Consideration.................................. 3
2.3 Contingent Merger Consideration............................ 4
2.4 Exchange of Certificates and Payment of Cash............... 6
3. PLEDGED ASSETS.................................................. 7
3.1 Pledged Assets........................................... 7
4. CLOSING......................................................... 8
4.1 Location and Date.......................................... 8
4.2 Effect..................................................... 8
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE SHAREHOLDERS................................................ 9
5.1 Due Organization.......................................... 9
5.2 Authorization; Validity................................... 9
5.3 No Conflicts.............................................. 9
5.4 Capital Stock of the Company.............................. 10
5.5 Transactions in Capital Stock............................. 10
5.6 Subsidiaries, Stock, and Notes............................ 10
5.7 Predecessor Status........................................ 11
5.8 Absence of Claims Against the Company..................... 11
5.9 Company Financial Condition............................... 11
5.10 Financial Statements...................................... 11
5.11 Liabilities and Obligations............................... 11
5.12 Accounts and Notes Receivable............................. 12
5.13 Books and Records......................................... 12
5.14 Permits................................................... 12
5.15 Real Property............................................. 13
5.16 Personal Property......................................... 14
5.17 Intellectual Property..................................... 14
5.18 Material Contracts and Commitments........................ 15
5.19 Government Contracts...................................... 16
5.20 Insurance................................................. 17
5.21 Labor and Employment Matters.............................. 17
5.22 Employee Benefit Plans.................................... 18
5.23 Conformity with Law; Litigation........................... 20
5.24 Taxes..................................................... 20
5.25 Absence of Changes........................................ 22
5.26 Deposit Accounts; Powers of Attorney...................... 23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
5.27 Environmental Matters..................................... 24
5.28 Relations with Governments................................ 25
5.29 Disclosure................................................ 25
5.30 CCC Prospectus; Securities Representations................ 25
5.31 Affiliates................................................ 25
5.32 Location of Chief Executive Offices....................... 25
5.33 Location of Equipment and Inventory....................... 25
6. REPRESENTATIONS OF CCC AND NEWCO................................ 26
6.1 Due Organization.......................................... 26
6.2 CCC Common Stock.......................................... 26
6.3 Authorization; Validity of Obligations.................... 26
6.4 No Conflicts.............................................. 26
6.5 Capitalization of CCC and Ownership of CCC Stock.......... 27
6.6 Conformity with Law; Litigation........................... 27
6.7 Disclosure................................................ 28
6.8 CCC Prospectus............................................ 28
6.9 Registration Statement.................................... 28
6.10 Investment Intent......................................... 28
7. COVENANTS....................................................... 28
7.1 Tax Matters............................................... 28
7.2 Accounts Receivable....................................... 30
7.3 [intentionally omitted]................................... 30
7.4 Related Party Agreements.................................. 30
7.5 Cooperation............................................... 30
7.6 Conduct of Business Pending Closing....................... 31
7.7 Access to Information..................................... 32
7.8 Prohibited Activities..................................... 32
7.9 Notice to Bargaining Agents............................... 33
7.10 Sales of CCC Common Stock................................. 34
7.11 CCC Stock Options......................................... 35
7.12 Tax Covenant.............................................. 35
7.13 Tax Free Reorganization Protection........................ 35
7.14 D&O Insurance and Indemnification of Directors
and Officers............................................ 36
7.15 Government Contracts...................................... 36
7.16 CCC Stock................................................. 36
7.17 Employee Benefits Matters................................. 36
7.18 Guaranteed Debt........................................... 36
7.19 Repayment of Receivable................................... 37
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CCC AND NEWCO........ 37
8.1 Representations and Warranties; Performance
of Obligations.......................................... 37
8.2 No Litigation............................................. 37
8.3 No Material Adverse Change................................ 37
8.4 Consents and Approvals.................................... 38
8.5 Opinion of Counsel........................................ 38
8.6 Charter Documents......................................... 38
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
8.7 Quarterly Financial Statements............................ 38
8.8 FIRPTA Compliance......................................... 38
8.9 Employment Agreements..................................... 38
8.10 Affiliate Agreements...................................... 38
8.11 Shareholders' Release..................................... 38
8.12 Related Party Receivables and Agreements.................. 38
8.13 Closing Net Worth......................................... 38
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDERS.................................................... 39
9.1 Representations and Warranties; Performance
of Obligations.......................................... 39
9.2 No Litigation............................................. 39
9.3 Consents and Approvals.................................... 39
9.4 Employment Agreements..................................... 39
9.5 Registration Statement.................................... 39
9.6 No Material Adverse Change................................ 39
9.7 Officers and Directors of Surviving Corporation........... 40
10. INDEMNIFICATION................................................. 40
10.1 General Indemnification by the Shareholders............... 40
10.2 General Indemnification by CCC and Newco.................. 41
10.3 Limitation and Expiration................................. 41
10.4 Indemnification Procedures................................ 42
10.5 Survival of Representations Warranties.................... 44
10.6 Right to Set Off.......................................... 44
11. NONCOMPETITION.................................................. 44
11.1 Prohibited Activities..................................... 44
11.2 Damages................................................... 45
11.3 Reasonable Restraint...................................... 45
11.4 Severability; Reformation................................. 45
11.5 Independent Covenant...................................... 45
11.6 Materiality............................................... 45
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION....................... 46
12.1 Confidentiality........................................... 46
12.2 Damages................................................... 46
13. GENERAL......................................................... 47
13.1 Termination............................................... 47
13.2 Effect of Termination..................................... 47
13.3 Successors and Assigns.................................... 48
13.4 Entire Agreement; Amendment; Waiver....................... 48
13.5 Counterparts.............................................. 48
13.6 Brokers and Agents........................................ 48
13.7 Expenses.................................................. 48
13.8 Specific Performance; Remedies............................ 49
13.9 Notices................................................... 49
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
13.10 Governing Law............................................ 50
13.11 Severability............................................. 50
13.12 Absence of Third Party Beneficiary Rights................ 50
13.13 Further Representations.................................. 50
13.14 Representative........................................... 50
13.15 Unanimous Written Consent of Shareholders................ 51
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
---------
entered into as of the 15th day of March, 1998, by and among Consolidation
Capital Corporation, a Delaware corporation ("CCC"), CCC Acquiring Co. No. 10,
---
a Texas corporation and a newly-formed, wholly-owned subsidiary of CCC
("Newco"), and Walker Engineering, Inc., a Texas corporation (the "Company"),
----- -------
and Charlie Walker, Ray Naizer, Sam Gioldasis and Jerry Harrington (each a
"Shareholder" and collectively, the "Shareholders").
- ------------ ------------
BACKGROUND
WHEREAS, the Shareholders own all of the issued and outstanding capital
stock of the Company (the "Company Common Stock");
--------------------
WHEREAS, the respective Boards of Directors of Newco and the Company deem
it advisable and in the best interests of Newco and the Company (each of which
are sometimes herein referred to as the "Constituent Corporations") and their
------------------------
respective shareholders that the Company merge with and into Newco (the
"Merger") pursuant to this Agreement, the Articles of Merger (defined below) and
------
the applicable provisions of the laws of the State of Texas; and
WHEREAS, the Boards of Directors of each of the Constituent Corporations
have approved and adopted this Agreement as a plan of reorganization (a "tax-
---
free reorganization") within the provisions of Sections 368(a)(1)(A) and
- -------------------
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code").
----
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 4.2), the
Company shall be merged with and into Newco pursuant to this Agreement and
Articles of Merger (the "Articles of Merger") substantially in the form attached
------------------
as SCHEDULE 1.1 hereto, and the separate corporate existence of the Company
shall cease. Newco, as it exists from and after the Effective Time, is
sometimes referred to as the "Surviving Corporation." The Surviving
---------------------
Corporation's name will be changed to that of the Company immediately after the
Effective Time.
1.2 ARTICLES OF INCORPORATION; BYLAWS, DIRECTORS AND OFFICERS. At the
Effective Time:
(a) The Articles of Incorporation of Newco, as in effect immediately
prior to the Effective Time, which are attached as EXHIBIT 1.2(A), shall be the
Articles of Incorporation of the Surviving Corporation unless and until
thereafter amended as provided therein and under the laws of the State of Texas
(the "State Corporate Laws"), provided, that the provisions relating to the
--------------------
indemnification of officers and directors contained therein as amended at the
Effective Time shall not be amended until the sixth (6th) anniversary of the
Closing Date (as defined in Section 4.1).
(b) The Bylaws of Newco, as in effect immediately prior to the
Effective Time, which are attached as EXHIBIT 1.2(B), shall be the Bylaws of the
Surviving Corporation unless and until thereafter amended as provided therein
and under the State Corporate Laws; provided, that the provisions
1
<PAGE>
relating to the indemnification of officers and directors contained therein
shall not be amended until the sixth (6th) anniversary of the Closing Date.
(c) The directors of the Surviving Corporation shall be as set forth
on SCHEDULE 1.2(C) until their successors are elected and qualified, and the
initial officers of the Surviving Cor poration shall be as set forth on SCHEDULE
1.2(C) until their successors are elected and qualified.
1.3 EFFECTS OF THE MERGER. The Merger shall have the effects provided
therefor by the State Corporate Laws. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time (i) all the rights,
privileges, immunities, powers and franchises, of a public as well as of a
private nature, and all property, real, personal and mixed, and all debts due on
whatever account, including without limitation subscriptions to shares, and all
other choses in action, and all and every other interest of or belonging to or
due to the Company or Newco shall be taken and deemed to be transferred to, and
vested in, the Surviving Corporation without further act or deed; and all
property, rights and privileges, immunities, powers and franchises and all and
every other interest shall be thereafter as effectually the property of the
Surviving Corporation, as they were of the Company and Newco, and (ii) all
debts, liabilities, duties and obligations of the Company and Newco shall become
the debts, liabilities, duties and obligations of the Surviving Corporation and
the Surviving Corporation shall thenceforth be responsible and liable for all
the debts, liabilities, duties and obligations of the Company and Newco and
neither the rights of creditors nor any liens upon the property of the Company
or Newco shall be impaired by the Merger, and may be enforced against the
Surviving Corporation.
2. CONVERSION AND EXCHANGE OF STOCK
2.1 MANNER OF CONVERSION. At the Effective Time, by virtue of the Merger
and without any action on the part of CCC, Newco, the Company or the
Shareholders, the shares of capital stock of each of the Constituent
Corporations shall be converted as follows:
(a) Capital Stock of Newco. Each issued and outstanding share of
----------------------
capital stock of Newco shall continue to be issued and outstanding and shall
represent shares of stock of the Surviving Corporation. Each stock certificate
of Newco evidencing ownership of any such shares shall continue to evidence
ownership of such shares of capital stock of the Surviving Corporation.
(b) Cancellation of Certain Shares of Capital Stock of the Company.
--------------------------------------------------------------
All shares of capital stock of the Company that are owned directly or indirectly
by the Company shall be canceled and no stock of CCC or other consideration
shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of the Company. Subject to Section
------------------------------------------
2.1(d), and Sections 2.2, 2.3, 2.4, and 3.1, each issued and outstanding share
of Company Common Stock (other than shares to be canceled pursuant to Section
2.1(b)), that is issued and outstanding immediately prior to the Effective Time
shall automatically be canceled and extinguished and converted, without any
action on the part of the holder thereof, into the right to receive at the time
and in the amounts described in this Agreement (i) an amount of cash equal to
the cash portion of the Base Merger Consideration (as described in Section
2.2(a)) divided by the number of shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares to be
canceled pursuant to Section 2.1(b)), (ii) that number of shares of CCC common
stock, $.001 par value ("CCC Common Stock"), valued at the Merger Price (as
----------------
described in Section 2.2(a)), that is equal in value to the CCC Common Stock
portion of the Base Merger Consideration (as defined in Section 2.2(a)) divided
by the number of shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time
2
<PAGE>
(other than shares to be canceled pursuant to Section 2.1(b)), (iii) an amount
of cash equal to 50% of the Contingent Merger Consideration (as defined in
Section 2.3(a)) divided by the number of shares of Company Common Stock issued
and outstanding immediately prior to the Effective Time (other than shares to be
canceled pursuant to Section 2.1(b)), and (iv) that number of shares of CCC
Common Stock, valued at the Earn Out Period Average Price (as defined in Section
2.3(d)), that is equal in value to 50% of the Contingent Merger Consideration
divided by the number of shares of Company Common Stock outstanding immediately
prior to the Effective Time (other than shares to be canceled pursuant to
Section 2.1(b)). All such shares of Company Common Stock, when so converted,
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the right to
receive the consideration therefor upon the surrender of such certificate in
accordance with Sections 2.2, 2.3 and 2.4 of this Agreement.
(d) Fractional Shares. No fractional shares of CCC Common Stock
-----------------
shall be issued pursuant to this Agreement, but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to receive a
fraction of a share of CCC Common Stock shall receive from CCC an amount of cash
equal to the Merger Price or the Earn Out Period Average Price, as applicable,
multiplied by the fraction of a share of CCC Common Stock to which such holder
would otherwise be entitled. The fractional share interests of each Shareholder
shall be aggregated, so that no Shareholder shall receive cash in an amount
greater than the value of one full share of CCC Common Stock.
2.2 BASE MERGER CONSIDERATION.
(a) For purposes of this Agreement, the "Base Merger Consideration"
-------------------------
shall be $70,000,000. Of the Base Merger Consideration, $35,000,000 shall be
paid in cash at Closing (as defined in Section 4.1) in immediately available
funds. The remaining $35,000,000 of the Base Merger Consideration shall be paid
at Closing in shares of CCC Common Stock valued at a price per share of $23.00
(the "Merger Price") which the parties hereto irrevocably agree is equal to
------------
the sum of (i) the closing price of CCC Common Stock on February 19, 1998, plus
(ii) the closing price of CCC Common Stock on March 5, 1998, plus (iii) the
"Interim Period Average" (as such term is defined below), divided by 3.
----------------------
Interim Period Average means the sum of the closing prices of CCC Common Stock
on every trading day from and including the date referenced in clause (i) above
and through and including the date referenced in clause (ii) above, divided by
the number of trading days included in such period. The closing price of CCC
Common Stock on a trading day, for purposes of this calculation, shall be the
day's last trade price as reported on the Nasdaq National Market (or if no trade
price is reported for any such day, the average of the last bid and ask prices
for the CCC Common Stock). The shares of CCC Common Stock to be issued in
respect of the Base Merger Consideration shall be registered under the
Securities Act of 1933, as amended (the "1933 Act"), and approved for quotation
--------
on the Nasdaq National Market .
(b) If, on or prior to the Effective Time, CCC should split or
combine the CCC Common Stock, or pay a stock dividend or other stock
distribution in CCC Common Stock, or otherwise change the CCC Common Stock into
any other securities, or make any other dividend or distribution on the CCC
Common Stock (other than normal quarterly dividends, as the same may be adjusted
from time to time and in the ordinary course), then the number of shares of CCC
Common Stock issuable as the Base Merger Consideration will be appropriately
adjusted to reflect such split, combination, dividend or other distribution or
change.
3
<PAGE>
2.3 CONTINGENT MERGER CONSIDERATION.
(a) For purposes of this Agreement, but subject to the provisions of
subsections (i), (ii), and (iii) below, the "Contingent Merger Consideration"
-------------------------------
shall mean the sum of the First Year Earn Out Amount and the Second Year Earn
Out Amount, provided however that in no event shall the Contingent Merger
Consideration exceed $30,000,000 (the "Maximum Earn Out Amount").
-----------------------
(i) The "First Year Earn Out Amount" shall mean the lesser of
--------------------------
(A) the Actual Earn Out EBIT (hereinafter defined) of the Surviving Corporation
for the twelve month period ending on the last day of the month of the first
anniversary of the Closing, or (B) $15,000,000.
(ii) The "Second Year Earn Out Amount" shall mean the lesser of (A)
---------------------------
the Actual Earn Out EBIT of the Surviving Corporation for the twelve month
period ending on the last day of the month of the second anniversary of the
Closing, or (B) the sum of $15,000,000 plus the amount by which $15,000,000
exceeds the greater of $14,000,000 or the First Year Earn Out Amount.
(iii) For purposes of this Section 2.3, "Actual Earn Out EBIT" for any
--------------------
period is equal to the following for such period: the net income of the
Surviving Corporation (A) plus interest expense, income taxes, extraordinary
items, cumulative effect of accounting changes and discontinued operations and
(B) less interest income calculated in accordance with generally accepted
accounting principles ("GAAP") consistently applied; provided however, that in
----
any event Actual Earn Out EBIT shall (1) exclude any increases in intangible
assets of the Surviving Corporation, (2) exclude the amortization of goodwill
and other intangibles recognized by CCC in connection with the acquisition of
the Company or any future acquisitions, (3) exclude expenses (including
corporate overhead) of CCC other than those expenses incurred for the benefit of
the Surviving Corporation that do not duplicate expenses incurred by the
Surviving Corporation nor exceed the amounts of similar expenses incurred in the
most recently ended fiscal year by the Company prior to the Closing, and (4)
include depreciation and amortization of assets of the Surviving Corporation
except to the extent such amounts result from an increase in the book value of
the assets resulting from the Merger. CCC's Accountant (hereinafter defined)
will calculate the Contingent Merger Consideration and the Actual Earn Out EBIT
applying the same accounting principles applied by the Company, with all such
computations made (and definitions used) in the same way the computations were
made (and definitions were used) by the Company prior to the Closing and will
conform to the methods of accounting utilized consistently during the calendar
years 1996 and 1997 for the Company, provided in each case that such
computations were in accordance with GAAP.
(b) Price Waterhouse LLP, CCC's independent accountant ("CCC's
------
Accountant"), will determine the Actual Earn Out EBIT for each of the years
ending March 31, 1999 and 2000 and deliver prompt notice of such amount to the
Shareholders (the "Earn Out EBIT Notice") with supporting documentation. The
--------------------
Shareholders (through the Representative as defined in Section 13.14(a)) shall
have the right to inspect, audit and make extracts from all of the records,
files and books of account of CCC relating to the Actual Earn Out EBIT for
purposes of verifying the amount of the consideration payable pursuant to
Section 2.3, at reasonable times during business hours, upon advance notice to
CCC.
(c) The Shareholders (through the Representative) shall have thirty
(30) days from the receipt of the Earn Out EBIT Notice to notify CCC if they
dispute the amount of the Actual Earn Out EBIT. If CCC has not received notice
of any such dispute within such 30-day period, the Actual Earn Out EBIT
contained in the Earn Out EBIT Notice shall be final. If, however, the
Shareholders (through the Representative) have delivered notice of such a
dispute to CCC within such 30-day period, then CCC
4
<PAGE>
shall, pursuant to Section 2.3(d) below, pay such amount of the Contingent
Merger Consideration that is not subject to any dispute and CCC's Accountant
shall select an independent accounting firm that has not represented any of the
parties hereto within the preceding two (2) years and is one of the six largest
accounting firms in the United States (each, a "New Accounting Firm") to review
-------------------
the amount of the disputed Actual Earn Out EBIT, the books of the Surviving
Corporation, and the Earn Out EBIT Notice (and related information) to determine
the amount, if any, that the Actual Earn Out EBIT is in error. Such New
Accounting Firm shall be confirmed by the Shareholders through the
Representative and CCC within five (5) days of its selection, unless there is an
actual conflict of interest. The New Accounting Firm shall make its
determination of the Actual Earn Out EBIT (the "Revised Earn Out EBIT") if any,
---------------------
within thirty (30) days of its selection. The Revised Earn Out EBIT shall be
final and binding on the parties hereto, and, upon such determination, CCC shall
be entitled or required to adjust the First Year Earn Out Amount or the Second
Year Earn Out Amount accordingly. If the Revised Earn Out EBIT is higher than
the Actual Earn Out EBIT, CCC shall pay to the Shareholders interest, at the
Prime Rate (defined below), on the deficiency from the date that is three months
after the end of the period with respect to which the disputed Actual Earn Out
EBIT is calculated. The costs of the New Accounting Firm shall be borne by CCC
if the Revised Earn Out EBIT is higher than the Actual Earn Out EBIT and by the
Shareholders in all other cases. For purposes of this Section, the term "Prime
-----
Rate" shall mean the annual rate of interest announced by Citibank, N.A. in New
- ----
York, New York as its prime rate in effect on the Contingent Merger
Consideration Payment Date.
(d) The Contingent Merger Consideration described in Section 2.3 (a),
will be paid 50% in cash and 50% in shares of CCC Common Stock and will be paid
in a single lump payment by federal wire transfer of same day funds promptly
following the determination of the Actual Earn Out EBIT for the applicable
period by CCC's Accountant, which shall be made not later than the date that is
three months after the end of the period with respect to which the Actual Earn
Out EBIT is calculated unless the Shareholders dispute the Actual Earn Out EBIT
in accordance herewith. For purposes of determining the number of shares of CCC
Common Stock that are issuable as part of the Contingent Merger Consideration,
the value of each such share shall be equal to the Earn Out Period Average
Prices for the thirty (30) trading days prior to and including the last day of
March 1999, in the case of the First Year Earn Out Amount, and March 2000, in
the case of the Second Year Earn Out Amount. The "Earn Out Period Average
-----------------------
Price"
- -----
means the quotient of (i) the sum of the closing price of a share of CCC
Common Stock on the Nasdaq National Market on each trading day from and
including the date that is thirty (30) trading days prior to and including the
last day of March 1999, in the case of CCC Common Stock deliverable with respect
to the First Year Earn Out Amount, and March 2000 in the case of CCC Common
Stock deliverable with respect to the Second Year Earn Out Amount, (or if no
trade price is reported for any such day, the average of the last bid and ask
prices for the CCC Common Stock), divided by (ii) 30. The date or dates on which
the Contingent Merger Consideration is paid to the Shareholders is hereinafter
referred to as the "Contingent Merger Consideration Payment Date." The
certificates evidencing CCC Common Stock received as part of the Merger
Consideration shall be issued in the denominations and names of the Shareholders
as set forth in written instructions delivered by the Shareholders to CCC at
least five (5) business days prior to the Closing Date and the Contingent Merger
Consideration Payment Date or Dates, as applicable. The shares of CCC Common
Stock to be issued in respect of the Contingent Merger Consideration shall be
registered under the 1933 Act and approved for quotation on the Nasdaq National
Market.
(e) If, on or prior to a Contingent Merger Consideration Payment
Date but after calculation of the Earn Out Period Average Price with respect
thereto, CCC should split or combine the CCC Common Stock, or pay a stock
dividend or other stock distribution in CCC Common Stock, or otherwise change
the CCC Common Stock into any other securities, or make any other dividend or
5
<PAGE>
distribution on the CCC Common Stock (other than normal quarterly dividends, as
the same may be adjusted from time to time and in the ordinary course), then the
number of shares of CCC Common stock issuable as the Contingent Merger
Consideration will be appropriately adjusted to reflect such split, combination,
dividend or other distribution or change.
(f) In the event CCC or any of its subsidiaries takes any action or
omits to take any action which is not commercially reasonable in the
circumstances for the conduct of the business of CCC and its subsidiaries taken
as a whole and which has a direct, quantifiable, negative impact on the
Contingent Merger Consideration; then, in any such event, the parties, in good
faith, shall make reasonable adjustments in the calculation of the Actual Earn
Out EBIT as may be necessary to neutralize the impact of any such action or
omission.
(g) CCC and Newco agree that separate books and records will be kept
for the Surviving Corporation during the period from the Closing through March
31, 2000.
2.4 EXCHANGE OF CERTIFICATES AND PAYMENT OF CASH.
(a) Delivery of Consideration. At Closing, in exchange for the
-------------------------
outstanding shares of capital stock of the Company, CCC shall cause to be made
available to the Shareholders the Base Merger Consideration (including cash in
an amount sufficient for payment in lieu of fractional shares pursuant to
Section 2.1(d)), with all cash payments to be made by federal wire transfer of
immediately available funds pursuant to wire transfer instructions provided by
the Shareholders at least two business days prior to Closing. The certificates
evidencing the CCC Common Stock component of the Base Merger Consideration and
the Contingent Merger Consideration (the cash and the CCC Common Stock
components of the Base Merger Consideration and the Contingent Merger
Consideration are referred to together as the "Merger Consideration") shall bear
--------------------
appropriate legends pursuant to the terms of this Agreement and any applicable
Affiliate Agreement (as described in Section 8.10), and CCC shall be entitled to
issue appropriate stop transfer instructions to its transfer agent consistent
with the terms of this Agreement and any applicable Affiliate Agreement.
(b) Certificate Delivery Requirements. At the Effective Time, the
---------------------------------
Shareholders shall deliver to CCC the certificates (the "Certificates")
------------
representing Company Common Stock owned by them, accompanied by blank stock
powers duly executed by each respective Shareholder and with all necessary
transfer tax and other revenue stamps, acquired at the Shareholder's expense,
affixed and canceled. Each Shareholder shall promptly cure any deficiencies
with respect to the stock powers accompanying such Certificates. The
Certificates so delivered shall forthwith be canceled. Until delivered as
contemplated by this Section 2.4(b), each Certificate shall be deemed at any
time after the Effective Time to represent the right to receive upon such
surrender the number of shares of CCC Common Stock and the amount of cash as
provided by this Article 2 and the applicable provisions of the State Corporate
Laws.
(c) No Further Ownership Rights in Capital Stock of the Company.
-----------------------------------------------------------
All CCC Common Stock and cash to be delivered (including CCC Common Stock
delivered but withheld pursuant to Section 3.1(a)) upon the surrender for
exchange of shares of Company Common Stock in accordance with the terms hereof
shall be deemed to have been delivered in full satisfaction of all rights
pertaining to such shares of Company Common Stock, and, following the Effective
Time, the Shareholders shall have no further rights to, or ownership in, shares
of capital stock of the Company. There shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the shares
of Company Common Stock which were issued and outstanding immediately prior to
the Effective Time.
6
<PAGE>
If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Section 2.4.
(d) Lost, Stolen or Destroyed Certificates. If any certificates
--------------------------------------
evidencing shares of Company Common Stock shall have been lost, stolen or
destroyed, then CCC shall cause payment to be made in exchange for such lost,
stolen or destroyed certificates, upon the delivery to CCC of an affidavit of
that fact by the holder thereof, of such shares of CCC Common Stock and cash as
provided in Section 2.1; provided, however that CCC may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against CCC
with respect to the certificates alleged to have been lost, stolen or destroyed.
(e) No Liability. Notwithstanding anything to the contrary in this
------------
Section 2.4, none of the Surviving Corporation or any party hereto shall be
liable to a holder of shares of Company Common Stock for any amount paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
3. PLEDGED ASSETS
3.1 PLEDGED ASSETS.
(a) As collateral security for the payment of any indemnification
obligations of the Shareholders pursuant to (and subject to the limitations of)
Article 10, the Shareholders (other than the Shareholders set forth on SCHEDULE
5) shall, and by execution hereof do hereby, transfer, pledge and assign to CCC,
for the benefit of CCC, a security interest in the following assets
(collectively, with respect to all of the Shareholders, the "Pledged Assets"):
--------------
(i) such Shareholders' pro rata portion of shares of CCC
Common Stock with a value, based on the Merger Price, equal to ten percent (10%)
of the Base Merger Consideration, and the certificates and instruments, if any,
representing or evidencing such Shareholder's Pledged Assets;
(ii) all securities hereafter delivered to any Shareholder
with respect to or in substitution for the Shareholder's Pledged Assets, all
certificates and instruments representing or evidencing such securities, and all
cash and non-cash dividends and other property at any time received, receivable
or otherwise distributed in respect of or in exchange for any or all thereof;
and in the event such Shareholder receives any such property, such Shareholder
shall hold such property in trust for CCC and shall immediately deliver such
property to CCC to be held hereunder as Pledged Assets; and
(iii) all cash and non-cash proceeds of all of the foregoing
property and all rights, titles, interests, privileges and preferences
appertaining or incident to the foregoing property.
(b) Each certificate, if any, evidencing a Shareholder's Pledged
Assets issued in his or her name in the Merger shall be delivered to CCC
directly by the transfer agent, such certificate bear ing no restrictive or
cautionary legend other than those imprinted by the transfer agent at CCC's
request in accordance with the terms and provisions of this Agreement. Each
Shareholder shall, at the Closing, deliver to CCC, for each such certificate, a
stock power duly signed in blank by him. All shares of CCC
7
<PAGE>
Common Stock comprising a Shareholder's Pledged Assets shall not be commingled
with the assets of CCC or any of its subsidiaries.
(c) The Pledged Assets shall be available to satisfy any
indemnification obligations of each Shareholder pursuant to (and subject to the
limitations of) Article 10 until the date which is one year after the Effective
Time (the "Release Date"). On the Release Date, CCC shall release such pledge
--------------
and return or cause to be returned to the Shareholders the Pledged Assets
(including dividends and distri butions with respect to shares of CCC Common
Stock subject to pledge), less Pledged Assets having an aggregate value equal to
the amount of (i) any finally adjudicated claim (to the extent not fully
satisfied) or any pending claim for indemnification made by any Indemnified
Party (as defined in Article 10) subject to the limitations of Article 10, and
(ii) any indemnification obligations of any Shareholder pursuant to Article 10
subject to the limitations of Article 10 to the extent previously paid from the
Pledged Assets. For purposes of the preceding sentence and Article 10, the CCC
Common Stock held as Pledged Assets shall be valued at the average of the
closing price per share on the Nasdaq National Market of CCC Common Stock for
the five trading days prior to the satisfaction of an indemnification obligation
(or if no trade price is reported for any such day, the average of the last bid
and ask prices for the CCC Common Stock) with respect to indemnification
obligations pursuant to Article 10. Notwith standing the foregoing or anything
to the contrary herein, the Shareholders shall be entitled to satisfy any claims
relating to the Pledged Assets, including but not limited to any indemnification
pursuant to Article 10 hereof, with cash, in lieu of shares of CCC Common Stock
constituting Pledged Assets.
(d) While any shares of CCC Common Stock remain subject to the
pledge set forth herein, and pending the disbursement thereof in accordance with
this Section 3.1, the Shareholders shall have all the rights of shareholders of
CCC with respect to such shares (including without limitation the right to vote
such shares in accordance with their respective interest therein and the right
to receive dividends and distributions thereon), except (i) the right of
possession thereof, (ii) the right to sell, assign, pledge, hypothecate or
otherwise dispose of such shares or any interest therein and (iii) the right to
possession of any dividends or other distributions received in respect thereof.
4. CLOSING
4.1 LOCATION AND DATE. The consummation of the Merger and the other
transactions con templated by this Agreement (the "Closing") shall take place
-------
at the offices of Morgan, Lewis & Bockius LLP, 1800 M Street, NW, Washington,
D.C. 20036, on March 31, 1998, providing that all conditions to Closing shall
have been satisfied or waived, or at such other time, place and date as CCC, the
Company and the Shareholders may mutually agree, which date shall be referred to
as the "Closing Date."
------------
4.2 EFFECT. On the Closing Date, the articles of merger, or other
appropriate documents executed in accordance with the State Corporate Laws (the
"Merger Documents"), together with any required officers' certificates, shall be
----------------
filed in accordance with the provisions of the State Corporate Laws. The Merger
shall become effective upon such filings or at such later time as may be
specified in such filings (the "Effective Time").
--------------
8
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
To induce CCC and Newco to enter into this Agreement and consummate the
transactions con templated hereby, each of the Company (with respect to
representations relating to the Company only) and the Shareholders (other than
those Shareholders set forth on SCHEDULE 5 who shall not be deemed to be making
any representations or warranties under this Agreement, except the
representations and warranties, with respect to themselves set forth in
Sections, 5.2, 5.3, 5.4, 5.8 and 5.30 ), jointly and severally, represent and
warrant to CCC and Newco, as follows (for purposes of this Agreement, the
phrases "knowledge of the Company" or the "Company's knowledge," or
------------------------ -------------------
words of similar import, mean the actual knowledge of the directors and officers
of the Company.
5.1 DUE ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own,
operate and lease its properties and to carry on its business in the places and
in the manner as now conducted except where the failure to be so authorized,
qualified or licensed would not have a material adverse effect on the business,
operations, properties, assets or condition, financial or otherwise, of the
Company taken as a whole, provided that the foregoing shall not include any
material adverse effect attributable to (a) factors affecting the electrical
contracting industry generally, (b) general national, regional or local economic
or financial conditions, (c) changes in governmental or legislative laws, rules
or regulations, or (d) actions taken by CCC or any affiliate of CCC ("Material
--------
Adverse Effect"). SCHEDULE 5.L hereto contains (i) a list of all jurisdictions
- --------------
in which the Company conducts business and (ii) a list of all jurisdictions in
which the Company is authorized or qualified to do business as a foreign
corporation. The Company is in good standing in all jurisdictions where the
failure to be in good standing would have a Material Adverse Effect. The
Company has delivered to CCC or given CCC access to true, complete and correct
copies of the Articles of Incorporation and Bylaws of the Company. Such
Articles of Incorporation and Bylaws are collectively referred to as the
"Charter Documents." The Company is not in violation of any Charter Documents.
- ------------------
The minute books, original stock ledger and corporate seal of the Company have
been made available to CCC and are correct and, except as set forth in SCHEDULE
5.1, complete in all material respects.
5.2 AUTHORIZATION; VALIDITY. The Company has the requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. Each Shareholder has the full legal right and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Company and the performance by the Company of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
Company and the Shareholders and this Agreement has been duly and validly
authorized by all necessary corporate action. This Agreement is a legal, valid
and binding obligation of the Company and the Shareholders, enforceable against
the Company and the Shareholders in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
5.3 NO CONFLICTS. Except as set forth on SCHEDULES 5.3 OR 5.14, the
execution, delivery and performance of this Agreement, the consummation of the
transactions contemplated hereby, and the fulfillment of the terms hereof will
not:
(a) conflict with, or result in a breach or violation of, any of the
Charter Documents;
9
<PAGE>
(b) other than such as would not, individually or in the aggregate,
have a Material Adverse Effect, conflict with, or result in a default (or an
event that would constitute a default but for the requirement of notice or lapse
of time or both) under, any document, agreement or other instrument to
which the Company or any Shareholder is a party or by which the Company or any
Shareholder is bound, or result in the creation or imposition of any lien,
charge or encumbrance on any of the Company's properties pursuant to (i) any law
or regulation to which the Company or any Shareholder or any of their respective
property is subject, or (ii) any judgment, order or decree to which the Company
or any Shareholder is bound or any of their respective property is subject;
(c) result in termination or any impairment of any material permit,
license, fran chise, surety bond, insurance coverage, contractual right or
other authorization of the Company;
(d) violate any material law, order, judgment, rule, regulation,
decree or ordinance to which the Company or any Shareholder is subject or by
which the Company or any Shareholder is bound; or
(e) require the consent of any third party.
5.4 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company consists of 1,000,000 shares of Common Stock, no par value per share, of
which 116,452 shares are issued and outstanding. No shares are held as treasury
stock. Except as disclosed in SCHEDULE 5.4, all of the issued and outstanding
shares of the capital stock of the Company have been duly authorized and validly
issued, are fully paid and nonassessable and are owned of record and
beneficially by the Shareholders in the respective amounts set forth on SCHEDULE
5.4, free and clear of all Liens (defined below). All of the issued and
outstanding shares of the capital stock of the Company were offered, issued,
sold and delivered by the Company in compliance with all applicable state and
federal laws concerning the issuance of securities. Further, none of such
shares was issued in violation of any preemptive rights. There are no voting
agreements or voting trusts with respect to any of the outstanding shares of the
capital stock of the Company. For purposes of this Agreement, "Lien" means any
----
mortgage, security interest, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or otherwise), charge, preference,
priority or other security agreement, option, warrant, attachment, right of
first refusal, preemptive, conversion, put, call or other claim or right,
restriction on transfer (other than restrictions imposed by federal and state
securities laws), or preferential arrangement of any kind or nature whatsoever
(including any restriction on the transfer of any assets, any conditional sale
or other title retention agreement, any financing lease involving substantially
the same economic effect as any of the foregoing and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction).
5.5 TRANSACTIONS IN CAPITAL STOCK. Except as disclosed in SCHEDULE 5.5,
no option, warrant, call, subscription right, conversion right or other contract
or commitment of any kind exists of any character, written or oral, which may
obligate the Company to issue, sell or otherwise cause to become outstanding any
shares of capital stock. Except as disclosed in SCHEDULE 5.5, the Company has
no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interests therein or to pay any dividend or
make any distribution in respect thereof.
5.6 SUBSIDIARIES, STOCK, AND NOTES.
(a) Except as set forth on SCHEDULE 5.6(A), the Company has no
subsidiaries.
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(b) Except as set forth on SCHEDULE 5.6(B), the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity, nor is the
Company, directly or indirectly, a participant in any joint venture, partnership
or other noncorporate entity.
(c) Except as set forth on SCHEDULE 5.6(C), there are no promissory
notes that have been issued to, or are held by, the Company.
5.7 PREDECESSOR STATUS. SCHEDULE 5.7 sets forth a list of all
names of all predecessor com panies of the Company, including the names of any
entities from which the Company previously acquired substantially all of the
assets. Except as set forth in SCHEDULE 5.7, the Company has never been a
subsidiary or division of another corporation.
5.8 ABSENCE OF CLAIMS AGAINST THE COMPANY. Except as set forth in
SCHEDULE 5.8, no Shareholder has any claims against the Company.
5.9 COMPANY FINANCIAL CONDITION. The Company's net worth calculated
in accordance with GAAP, consistently applied, including intangible assets, as
of the Closing (the "Year-End Net Worth") was not less than $6,000,000.
------------------
5.10 FINANCIAL STATEMENTS. SCHEDULE 5.10 includes (a) true, complete
and correct copies of the Company's audited balance sheet as of December 31,
1997 (the "Balance Sheet Date") and 1996 (December 31, 1997 being the end of its
------------------
most recently completed fiscal year), and income statements and statements of
cash flows for the years ended December 31, 1997, 1996 and 1995 (collectively,
the "Audited Financials") and (b) true, complete and correct copies of the
------------------
Company's unaudited balance sheet as of February 28, 1998 for the two-months
period then ended (the "Interim Balance Sheet," and together with the Audited
---------------------
Financials, the "Company Financial Statements"). Except as noted on the
----------------------------
auditors' report accompanying the Audited Financials, the Company Financial
Statements have been prepared in accordance with GAAP consistently applied,
subject to, in the case of the Interim Financials, (i) the exceptions stated on
SCHEDULE 5.10, and (ii) the omission of footnote information. Except as set
forth in SCHEDULE 5.10 or as noted on the accompanying auditor's report, each
balance sheet included in the Company Financial Statements presents fairly the
financial condition of the Company as of the date indicated thereon, and each of
the income statements included in the Company Financial Statements presents
fairly the results of its operations for the periods indicated thereon, in each
case in accordance with GAAP.
5.11 LIABILITIES AND OBLIGATIONS.
(a) The Company is not liable for or subject to any liabilities
except for:
(i) those liabilities reflected on the Interim Balance Sheet
and not pre viously paid or discharged;
(ii) those liabilities arising in the ordinary course of its
business consistent with past practice under any contract, commitment or
agreement that is not required to be listed on SCHE DULE 5.18(A) and those
liabilities under any contract, commitment or agreement specifically disclosed
on any Schedule to this Agreement.
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<PAGE>
(iii) those liabilities incurred since the Balance Sheet Date
in the ordinary course of business consistent with past practice, which
liabilities are not, individually or in the aggregate, material; and
(iv) those liabilities set forth on SCHEDULE 5.11.
(b) The Company has provided to CCC, in the case of those liabilities
which are not fixed or are contested, its good faith estimate of the maximum
amount which may be payable.
(c) SCHEDULE 5.11 also includes a summary description of all plans or
projects involving the opening of new operations, expansion of any existing
operations or the acquisition of any real property or existing business, to
which management of the Company has made any material expenditure in the two-
year period prior to the date of this Agreement, which if pursued by the Company
or the Surviving Corporation would require additional material expenditures of
capital.
(d) For purposes of this Section 5.11, the term "liabilities" shall
-----------
include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmatured or otherwise and whether known or unknown, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured. SCHEDULE 5.11
contains a complete list of all indebtedness of the Company as of the Balance
Sheet Date.
5.12 ACCOUNTS AND NOTES RECEIVABLE. Attached hereto as SCHEDULE 5.12
is an accurate list, as of a date not more than five (5) business days prior to
the date hereof, of the accounts and notes receivable of the Company (including
without limitation receivables from and advances to employees, former employees,
and the Shareholders), which includes an aging of all accounts and notes
receivable showing amounts due in 30-day aging categories (collectively, the
"Accounts Receivable"). On the Closing Date, the Company will deliver to CCC an
- --------------------
accurate list, as of a date not more than five (5) business days prior to the
Closing Date, of the Accounts Receivable. All Accounts Receivable represent
valid obligations arising from sales actually made or services actually
performed in the ordinary course of business or such other valid obligations
arising from receivables from and advances to employees, former employees or the
Shareholders. The Accounts Receivable are current and collectible net of any
respective reserves shown on the Company's books and records (which reserves are
adequate and calculated consistent with past practice). Subject to such
reserves and except for retainage, each of the Accounts Receivable will be
collected in full, without any set-off, within 180 days after the Closing Date
(or with respect to those Accounts Receivable specified on SCHEDULE 5.12, within
the number of days after the Closing specified for each such Account
Receivable). To the Company's knowledge, there is no contest, claim, or right
of set-of, other than rebates and returns in the ordinary course of business,
under any contract with any obligor of an Account Receivable relating to the
amount or validity of such Account Receivable.
5.13 BOOKS AND RECORDS. The Company has made and kept books and
records and accounts, which, in reasonable detail, accurately and fairly reflect
the activities of the Company.
5.14 PERMITS. Except as set forth on SCHEDULE 5.14, the Company owns
or holds all material licenses, franchises, permits and other governmental
authorizations, including without limitation permits, titles (including without
limitation motor vehicle titles and current registrations), fuel permits,
licenses and franchises necessary for the continued operation of its business as
it is currently being conducted (the "Permits"). The Permits are valid, and the
-------
Company has not received any notice that any governmental
12
<PAGE>
authority intends to modify, cancel, terminate or fail to renew any Permit.
Except as set forth on SCHEDULE 5.14, no present or former officer, manager,
member or employee of the Company or any affiliate thereof, or any other person,
firm, corporation or other entity, owns or has any proprietary, financial or
other interest (direct or indirect) in any Permits. The Company has conducted
and is conducting its business in compliance with the requirements, standards,
criteria and conditions set forth in the Permits and other applicable orders,
approvals, variances, rules and regulations and is not in violation of any of
the foregoing, except where such non-compliance or violation would not have a
Material Adverse Effect. Except as set forth on SCHEDULES 5.3 or 5.14, the
transactions contemplated by this Agreement will not result in a default under,
or a breach or violation of, or adversely affect the rights and benefits
afforded to the Company by, any Permit.
5.15 REAL PROPERTY.
(a) For purposes of this Agreement, "Real Property" means all of the
-------------
Company's interest in real property, without limitation, fee estates, leaseholds
and subleaseholds, purchase options, easements, licenses, rights to access, and
rights of way, and all buildings and other improvements thereon, owned or used
by the Company, together with any additions thereto or replacements thereof.
(b) The Company has no fee ownership in any Real Property.
(c) SCHEDULE 5.15(C) contains an accurate description as of the date
of this Agreement of all Real Property (including street address, legal
description (where known), owner and Company's use thereof) and, to the
Company's knowledge, any Liens other than for: (A) liens for current taxes not
yet due and payable, (B) easements, covenants, conditions, restrictions, rights
of way and title defects reflected in the public records, and any matters which
would be reflected in a current, accurate survey of the owned Real Property and
which do not individually, or in the aggregate, materially interfere with the
right or ability of CCC to use or operate the owned Real Property as the owned
Real Property is currently used by the Company, (C) liens securing indebtedness
for borrowed money that CCC or one of its affiliates has agreed to assume at
Closing, as set forth on SCHEDULE 5.15(C)(I), (D) landlord's liens and liens for
property taxes not delinquent, (E) statutory liens that were created in the
ordinary course of business not delinquent, (F) restrictions or rights granted
to governmental authorities under applicable law, (G) zoning, building, or
similar restrictions relating to or affecting property, and (H) all matters of
record, including leasehold interests in real property owned by others and
operating leases for personal property and leased interests in property leased
to others (collectively, "Permitted Encumbrances").
----------------------
(d) The Company: (i) holds no interest as landlord in any Real
Property; (ii) has a valid leasehold interest in all the Real Property listed as
leased by the Company on SCHEDULE 5.15(C) (the "leased Real Property"); (iii) is
--------------------
not in default of any of its obligations under any lease relating to the leased
Real Property, nor has an event occurred which, with the giving of notice or the
passage of time, could become an event of default; (iv) has no knowledge of any
default by the landlord under any lease relating to the leased Real Property;
(v) has paid all rent under each lease relating to the leased Real Property with
respect to the period through the Closing Date; and (vi) has not exercised any
renewal or extension (other than renewals or extensions that have been disclosed
to CCC), termination, purchase or other option under any lease relating to the
leased Real Property.
(e) The Company has provided CCC with true and complete copies of
each lease relating to the leased Real Property and all amendments, renewals,
extensions, modifications or supplements thereto, and all correspondence
pursuant to which any party to any of such leases declared a
13
<PAGE>
default thereunder or provided notice of the exercise of any option granted to
such party under such lease.
(f) Except as provided on SCHEDULE 5.3, none of the leases relating
to the leased Real Property requires the consent or approval of any party
thereto in connection with the consummation of the transactions contemplated
hereby.
5.16 PERSONAL PROPERTY.
(a) SCHEDULE 5.16(A) sets forth a complete and accurate list of all
personal property included on the Interim Balance Sheet and all other personal
property owned or leased by the Company with a current book value for any one
item in excess of $10,000 both (i) as of the Balance Sheet Date and (ii)
acquired since the Balance Sheet Date, including in each case true, complete and
correct copies of leases for material equipment and an indication as to which
assets are currently owned, or were formerly owned, by any Shareholder or
business or personal affiliates of any Shareholder or of the Company.
(b) The Company currently owns or leases all personal property
necessary to conduct the business and operations of the Company as they are
currently being conducted.
(c) All of the trucks and other material machinery and equipment of
the Company, including those listed on SCHEDULE 5.16(A), are in good working
order and condition, ordinary wear and tear excepted. All leases set forth on
SCHEDULE 5.16(A) are in full force and effect and constitute valid and binding
agreements of the Company, and the Company is not in breach of any of their
material terms. All fixed assets used by the Company that are material to the
operation of its business are either owned by the Company or leased under an
agreement listed on SCHEDULE 5.16(A).
5.17 INTELLECTUAL PROPERTY.
(a) The Company and its subsidiaries own or possess adequate and
enforceable licenses or other rights to use (including foreign rights), all
copyrights, patents, trade names, trade secrets, registered and unregistered
trademarks, service marks, trade dress, franchises, domain names and similar
rights now used or employed in the business of the Company and its subsidiaries
(the "Intellectual Property") and such rights will not cease to be valid rights
---------------------
of the Company and its subsidiaries by reason of the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby.
(b) SCHEDULE 5.17 sets forth a list of all of the Intellectual
Property of the Company and its subsidiaries. SCHEDULE 5.17 also sets forth:
(i) for each patent, the number, normal expiration date and subject matter for
each country in which such patent has been issued, or, if applicable, the
application number, date of filing and subject matter for each country; (ii) for
each trademark and service mark, the application serial number or registration
number, the classes of goods and services covered and the expiration date for
each country in which a trademark or service mark has been registered; and (iii)
for each copyright, the number and date of filing for each country in which a
copyright has been filed. SCHEDULE 5.17 includes all unregistered and common
law rights to Intellectual Property that are material to the Company. The
Intellectual Property listed on SCHEDULE 5.17 is all such property used by the
Company or any of its subsidiaries in connection with their businesses. True,
correct and complete copies of all patents (including all pending applications),
trademark and service mark registrations and pending applications, and copyright
registrations and pending applications, owned, controlled, created or used by or
on behalf of the Company and its subsidiaries have been provided to CCC. All
pending patent applications have been duly filed.
14
<PAGE>
(c) Neither the Company nor any of its subsidiaries has any
obligation to compensate any person for the use of any Intellectual Property,
and neither the Company nor any of its Subsidiaries has granted to any person
any license, option, or other rights to use in any manner any of its
Intellectual Property, whether requiring the payment of royalties or not, other
than licenses to the Company of franchises or licenses in the ordinary course of
business.
(d) Neither the Company nor any of its subsidiaries has received any
notice of invalidity or infringement of any rights of others with respect to the
Intellectual Property. No person has notified the Company or any of its
subsidiaries that it is claiming any ownership of or right to use such
Intellectual Property. No person, to the knowledge of the Company, is
infringing upon any such Intellectual Property in any way, except where such use
would not have a Material Adverse Effect on the Company. To the knowledge of
the Company after reasonable investigation, the use of the Intellectual Property
by the Company and its subsidiaries does not and will not conflict with,
infringe upon or otherwise violate the valid rights of any third party in or to
such Intellectual Property, and no action has been instituted against or notices
received by the Company or any subsidiary that are presently outstanding
alleging that the use of the Intellectual Property infringes upon or otherwise
violates any rights of a third party in or to such Intellectual Property.
5.18 MATERIAL CONTRACTS AND COMMITMENTS.
(a) As of the date of this Agreement, SCHEDULE 5.18(A) contains a
complete and accurate list of each contract, commitment, lease, instrument,
agreement, license or permit, written or oral, to which the Company is a party
or by which it or its properties are bound (including without limitation, joint
venture or partnership agreements, contracts with any labor organizations,
employment agreements, consulting agreements, loan agreements, indemnity or
guaranty agreements, bonds, mortgages, options to purchase land, liens, pledges
or other security agreements) (i) to which the Company on the one hand and on
the other hand any affiliate of the Company or any officer, director or
shareholder of the Company are parties ("Related Party Agreements"); (ii) that
------------------------
may give rise to obligations or liabilities exceeding, during the current term
thereof, $2,000,000 individually, or that may generate revenues or income
exceeding, during the current term thereof, $2,000,000 individually
(collectively with the Related Party Agreements, the "Material Contracts"); or
------------------
(iii) that provides rights to indemnification to any current or former
directors, officers, employees or agents of the Company. The Company has
provided CCC with access to true, complete and correct copies of the Material
Contracts. Other than as disclosed on SCHEDULE 5.18(A) the Company has complied
with all of its material commitments and obligations, is not in default under
any of the Material Contracts, has no contracts under which the work has been
substantially delayed or changed for which proper compensation is not expected,
has no pending or expected claims in excess of $50,000 against a prime
contractor or owner in connection with completed work or work in progress, and
has no notice of default has been received with respect to any thereof, and
there are no Material Contracts that were not negotiated at arm's length.
(b) Each Material Contract, except those terminated pursuant to
Section 7.4, is valid and binding on the Company and is in full force and effect
and, to the knowledge of the Company and the Shareholders, is not subject to any
default thereunder by any party obligated to the Company pursuant thereto.
15
<PAGE>
(c) The outstanding balance on all loans or credit agreements either
(i) between the Company and any Person in which any Shareholder owns a material
interest, or (ii) guaranteed by the Company for the benefit of any Person in
which any Shareholder owns a material interest, are set forth in SCHEDULE
5.18(C) as of the date indicated therein.
(d) The pledge, hypothecation or mortgage of all or substantially all
of the Company's assets (including, without limitation, a pledge of the
Company's contract rights under any Material Contract) will not, except as set
forth on SCHEDULE 5.18(D), (i) result in the breach or violation of,
(ii) constitute a default under, (iii) create a right of termination under, or
(iv) result in the creation or imposition of (or the obligation to create or
impose) any lien upon any of the assets of the Company (other than a lien
created pursuant to the pledge, hypothecation or mortgage described at the start
of this Section 5.18(d)) pursuant to any of the terms and provisions of, any
Material Contract to which the Company is a party or by which the property of
the Company is bound.
5.19 GOVERNMENT CONTRACTS.
(a) Except as set forth on SCHEDULE 5.19, the Company is not a party
to any government contracts (i) with any local government agency or
instrumentality that may give rise to obligations or liabilities exceeding,
prior to any renewal thereof, $50,000 individually, or that may generate
revenues or income exceeding, prior to any renewal thereof, $50,000
individually, or (ii) with any agency or instrumentality of the United States
Government or any state government.
(b) The Company has not been suspended or debarred from bidding on
contracts or subcontracts for any agency or instrumentality of the United States
Government or any state or local government, nor, to the knowledge of the
Company and the Shareholders, has any suspension or debarment action been
threatened or commenced. To the knowledge of the Company and the Shareholders,
there is no valid basis for the Company's suspension or debarment from bidding
on contracts or subcontracts for any agency of the United States Government or
any state or local government.
(c) Except as set forth on SCHEDULE 5.19, as of the date of this
Agreement, the Company has not been, nor is it now being, audited, or
investigated by any government agency, or the inspector general or auditor
general or similar functionary of any agency or instrumentality, nor, to the
knowledge of the Company and the Shareholders, has such audit or investigation
been threatened.
(d) Except as set forth on SCHEDULE 5.19, as of the date of this
Agreement, the Company has no material dispute pending before a contracting
office of, nor any current claim (other than the Accounts Receivable) pending
against, any agency or instrumentality of the United States Government or any
state or local government, relating to a contract.
(e) As of the date of this Agreement, the Company has not, with
respect to any government contract, received a cure notice advising the Company
that it is or was in default or would, if it failed to take remedial action, be
in default under such contract.
(f) The Company has not submitted any inaccurate, untruthful, or
misleading cost or pricing data, certification, bid, proposal, report, claim, or
any other information relating to a contract to any agency or instrumentality of
the United States Government or any state or local government that would be
contrary to any current rules and regulations.
16
<PAGE>
(g) To the knowledge of the Company and the Shareholders, no
employee, agent, consultant, representative, or affiliate of the Company is in
receipt or possession of any competitor or government proprietary or procurement
sensitive information related to the Company's business under circumstances
where there is reason to believe that such receipt or possession is unlawful or
unauthorized.
(h) Each of the Company's government contracts has been issued,
awarded or novated to the Company in the Company's name.
(i) Except as set forth on SCHEDULE 5.19, the Company's cost
accounting records are presently in conformance with the requirements of the
Federal Acquisition Regulations to the extent applicable.
5.20 INSURANCE. SCHEDULE 5.20 sets forth, as of the date of this
Agreement, an accurate list of all insurance policies carried by the Company and
all insurance loss runs or workers' compensation claims received for the past
two policy years. The Company has delivered to CCC or given CCC access to true,
complete and correct copies of all current insurance policies, all of which are
in full force and effect. All premiums payable under all such policies have
been paid and the Company is otherwise in full compliance with the terms of such
policies. Such policies of insurance are of the type and in amounts that to the
knowledge of the Company, are customarily carried by persons conducting
businesses similar to that of the Company. The insurance carried by the Company
with respect to its properties, assets and business is, to the Company's
knowledge, with financially sound insurers. To the knowledge of the Company,
there have been no threatened terminations of, or material premium increases
with respect to, any of such policies.
5.21 LABOR AND EMPLOYMENT MATTERS. Except as set forth in SCHEDULE
5.21, as of the date of this Agreement, with respect to employees of and service
providers to the Company:
(a) the Company is and has been in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting minimum wage and overtime payments,
employment discrimination, workers' compensation, family and medical leave, the
Immigration Reform and Control Act, and occupational safety and health
requirements, and has not and is not engaged in any unfair labor practice;
(b) there is not now, nor within the past three years has there been,
any unfair labor practice complaint against the Company pending or, to the
Company's knowledge, threatened, before the National Labor Relations Board or
any other comparable authority;
(c) there is not now, nor within the past three years has there been,
any labor strike, slowdown or stoppage actually pending or, to the Company's
knowledge, threatened, against or directly affecting the Company;
(d) to the Company's knowledge, no labor representation organization
effort exists nor has there been any such activity within the past three years;
(e) no grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to the Company's knowledge, no
claims therefor exist or have been threatened;
17
<PAGE>
(f) the employees of the Company are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against the Company or currently being negotiated by the
Company; and
(g) to the knowledge of the Company, all persons classified by the
Company as independent contractors do satisfy and have satisfied the
requirements of law to be so classified, and the Company has fully and
accurately reported their compensation on IRS Forms 1099 when required to do so.
5.22 EMPLOYEE BENEFIT PLANS. Attached hereto as SCHEDULE 5.22 are
complete and accurate copies of all employee benefit plans, all employee welfare
benefit plans, all employee pension benefit plans, all multiemployer plans and
all multiple employer welfare arrangements (as defined in Sections 3(3), (1),
(2), (37) and (40), respectively, of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")), which are currently maintained and/or sponsored
-----
by the Company, or to which the Company currently contributes, or has an
obligation to contribute in the future (including, without limitation, any such
plan or arrangement created by any agreements, including any employment
agreements and any other agreements containing "golden parachute" provisions and
----------------
deferred compensation agreements disclosed in SCHEDULE 5.18(A)), together with
copies of any trusts related thereto and a classification of employees covered
thereby (collectively, the "Plans"). To the best of the Company's knowledge,
-----
SCHEDULE 5.22 sets forth each plan or arrangement that would have been an
employee pension or welfare benefit plan but for its termination within the past
three years.
To the best of the Company's knowledge, all Plans are in material
compliance with all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable laws, and, in all material
respects, have been administered, operated and managed in material accordance
with the governing documents. All Plans that are intended to qualify (the
"Qualified Plans") under Section 401(a) of the Code have been determined by the
- ----------------
Internal Revenue Service to be so qualified, and copies of the current plan
determination letters, most recent actuarial valuation reports, if any, most
recent Form 5500, or, as applicable, Form 5500-C/R filed with respect to each
such Qualified Plan or employee welfare benefit plan and most recent trustee or
custodian report, are included as part of SCHEDULE 5.22. To the Company's
knowledge, to the extent that any Qualified Plans have not been amended to
comply with applicable law, the remedial amendment period permitting retroactive
amendment of such Qualified Plans has not expired and will not expire within 120
days after the Closing Date. To the Company's knowledge, all reports and other
documents required to be filed with any governmental agency or distributed to
plan participants or beneficiaries (including, but not limited to, annual
reports, summary annual reports, actuarial reports, PBGC-1 Forms, audits or tax
returns) have been timely filed or distributed except to the extent that the
failure to file or distribute such reports or documents would not subject the
Company to any material penalty. None of: (i) any Shareholder; (ii) to the
knowledge of the Company, any Plan; or (iii) the Company has engaged in any
transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA which could result in the imposition of a material penalty
under ERISA or a material tax under the Code, except in accordance with an
applicable exemption or except any such prohibited transaction that results from
the conversion of the ESOP to a Profit Sharing Plan (as defined) in Section
5.22(j) below) and the consequent holding by the Profit Sharing Plan of a
promissory note in favor of the Company. No Plan has incurred an accumulated
funding deficiency, as defined in Section 412(a) of the Code and Section 302(1)
of ERISA; and the Company does not currently have (nor at the Closing Date will
have) any direct or indirect liability whatsoever (including being subject to
any statutory lien to secure payment of any such liability), to the Pension
Benefit Guaranty Corporation ("PBGC") with respect to any such Plan under Title
----
IV of ERISA
18
<PAGE>
or to the Internal Revenue Service for any excise tax or penalty;
and neither the Company nor any member of a "controlled group" (as defined in
----------------
ERISA Section 4001(a)(14)) currently has (or at the Closing Date will have) any
obligation whatsoever to contribute to any "multiemployer pension plan" (as
--------------------------
defined in ERISA Section 4001(a)(13), nor has any withdrawal liability
whatsoever (whether or not yet assessed) arising under or capable of assertion
under Title IV of ERISA (including, but not limited to, Sections 4201, 4202,
4203, 4204, or 4205 thereof) been incurred by any Plan. Further, within the
last three years, except as set forth on SCHEDULE 5.22:
(a) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan without notice to and,
where required, approval by the Internal Revenue Service;
(b) no Plan which is subject to the provisions of Title IV of
ERISA has been terminated;
(c) there have been no "reportable events" (as that phrase is defined
-----------------
in Section 4043 of ERISA) with respect to any Plan which were not properly
reported;
(d) the valuation of assets of any Qualified Plan subject to Title IV
of ERISA, as of the Closing Date, shall equal or exceed the actuarial present
value of all accrued pension benefits under such Qualified Plan in accordance
with the assumptions contained in the Regulations of the PBGC governing the
funding of terminated defined benefit plans;
(e) with respect to Plans which qualify as "group health plans" under
------------------
Section 4980B of the Internal Revenue Code and Section 607(1) of ERISA and
related regulations (relating to the benefit continuation rights imposed by
"COBRA"), and to the Company?s knowledge, the Company has complied (and on the
-----
Closing Date will have complied), in all material respects with all reporting,
disclosure, notice, election and other benefit continuation requirements imposed
thereunder as and when applicable to such plans, and the Company has no (and
will incur no) direct or indirect liability and is not (and will not be) subject
to any material loss, assessment, excise tax penalty, loss of federal income tax
deduction or other sanction, arising on account of or in respect of any direct
or indirect failure by the Company, at any time prior to the Closing Date, to
comply with any such federal or state benefit continuation requirement, which is
capable of being assessed or asserted before or after the Closing Date directly
or indirectly against the Company with respect to such group health plans;
(f) the Company has not been a member of a ?controlled group? as
defined in ERISA Section 4001(a)(14);
(g) there is no pending litigation, arbitration, or disputed claim,
settlement or adjudication proceeding (other than routine claims for benefits)
and to the Company's knowledge, there is no threatened litigation, arbitration
or disputed claim, settlement or adjudication proceeding, or any governmental or
other proceeding, or investigation with respect to any Plan, or any disputed
claim, settlement or adjudication (other than routine claims for benefits) with
respect to any fiduciary, administrator, party in interest or sponsor thereof
(in their capacities as such);
(h) as required in accordance with GAAP, the Company Financial
Statements as of the Balance Sheet Date reflect the approximate total pension,
medical and other benefit expense for all Plans as of the date thereof, and no
material funding changes or irregularities not reflected thereon would cause
such Company Financial Statements to be inaccurate; and
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(i) the Company has not incurred liability under Section 4062 of
ERISA.
5.23 CONFORMITY WITH LAW; LITIGATION.
(a) Except as set forth on SCHEDULE 5.23(A), the Company is not in
violation of any law or regulation or under any order of any court or federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction which would have a Material
Adverse Effect on the Company. The Company has conducted and is conducting its
business in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing which might have a
Material Adverse Effect on the Company.
(b) Except as set forth on SCHEDULE 5.23(B), as of the date of this
Agreement, there are no claims, actions, suits or proceedings, pending or, to
the knowledge of the Company, threatened against or affecting the Company at law
or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received which might have a
Material Adverse Effect on the Company. As of the date of this Agreement, there
are no judgments, orders, injunctions, decrees, stipulations or awards (whether
rendered by a court or administrative agency or by arbitration) against the
Company or against any of its properties or business which might have a Material
Adverse Effect on the Company.
5.24 TAXES.
(a) (i) The Company has timely filed all Tax Returns (as defined
below) due on or before the Closing Date and all such Tax Returns are true,
correct and complete in all material respects.
(ii) The Company has paid in full on a timely basis all
Taxes (as defined below).
(iii) The amount of the Company's liability for unpaid Taxes
as of the Balance Sheet Date did not exceed the amount of the current liability
accruals for Taxes (excluding reserves for deferred Taxes) shown on the Interim
Balance Sheet, and the amount of the Company's liability for unpaid Taxes for
all periods or portions thereof ending on or before the Closing Date will not
exceed the amount of the current liability accruals for Taxes (excluding
reserves for deferred Taxes) as such accruals are reflected on the books and
records of the Company on the Closing Date.
(iv) There are no ongoing examinations or claims against the
Company for Taxes, and no notice of any audit, examination or claim for Taxes,
whether pending or threatened, has been received.
(v) The Company has a taxable year ended on December 31, in
each year commencing from the incorporation of the Company.
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(vi) The Company currently utilizes the accrual method of
accounting for income Tax purposes and such method of accounting has not changed
in the past 10 years. The Company has not agreed to, and is not and will not be
required to, make any adjustments under Code Section 481(a) as a result of a
change in accounting methods.
(vii) The Company has withheld and paid over to the proper
governmental authorities all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid to any employee, independent contractor, creditor or third
party.
(viii) Copies of (A) any Tax examinations, (B) extensions of
statutory limitations for the collection or assessment of Taxes and (C) the Tax
Returns of the Company for the last five fiscal years have been made available
to CCC.
(ix) There are (and as of immediately following the Closing
there will be) no Liens on the assets of the Company relating to or attributable
to Taxes, except for Permitted Encumbrances.
(x) To the Company's knowledge, there is no basis for the
assertion of any claim relating to or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company or otherwise
have an adverse effect on the Company or its business.
(xi) There are no contracts, agreements, plans or arrangements,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of the Company that, individually or collectively,
could give rise to any payment (or portion thereof) that would not be deductible
pursuant to Sections 280G, 404 or 162 of the Code.
(xii) The Company is not, and has not been at any time, a
party to a tax sharing, tax indemnity or tax allocation agreement, and the
Company has not assumed the tax liability of any other person under contract.
(xiii) To the knowledge of the Company and the Shareholders,
neither the Company nor any Shareholder has taken any action or refrained from
taking any action that would cause the Merger not to qualify as a reorganization
as defined under Code Section 368(a)(1)(A) and Section 368(a)(2)(D).
(b) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar
---
governmental charge, impost or levy (including without limitation income taxes,
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipt
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes or windfall
profit taxes) together with any related penalties, fines, additions to tax or
interest imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof; and
(ii) the term "Tax Return" shall mean any return (including any
----------
information return), report, statement, schedule, notice, form, estimate or
declaration of estimated tax relating to or required to be filed with any
governmental authority in connection with the determination, assessment,
collection or payment of any Tax.
21
<PAGE>
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, the Company
has conducted its business in the ordinary course and, between the Balance Sheet
Date and the date of this Agreement except as contemplated herein or as set
forth on SCHEDULE 5.25, there has not been:
(a) any change that by itself or together with other changes has
had a Material Adverse Effect;
(b) any damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting the properties or business of the
Company;
(c) any change in the authorized capital of the Company or in its
outstanding securities or any change in its ownership interests or any grant of
any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock, or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Company, except for
distributions relating to the payment of taxes (in the event the Company is a
Subchapter S Corporation under the Code);
(e) any increase in the compensation, bonus, sales commissions or fee
arrangements payable or to become payable by the Company to any of its officers,
directors, Shareholders, employees, consultants or agents, except in the
ordinary course of business consistent with past practice or as required by
contract or law;
(f) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character, which has had a Material Adverse
Effect;
(g) any sale or transfer, or any agreement to sell or transfer, any
material assets property or rights of the Company to any person, including
without limitation any Shareholder and his affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Shareholder and his affiliates owing to the
Company, provided that the Company may negotiate and adjust bills in the course
of good faith disputes with customers in a manner consistent with past practice;
(i) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the ordinary
course of business of the Company;
(k) any waiver of any material rights or claims of the Company;
22
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(l) any breach, amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party other
than in the ordinary course of business;
(m) any transaction by the Company outside the ordinary course of
business;
(n) any capital commitment by the Company exceeding $50,000
individually;
(o) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company or the
revaluation by the Company of any of its assets;
(p) any creation or assumption by the Company of any mortgage, pledge,
security interest or lien or other encumbrance on any asset (other than
Permitted Encumbrances, liens arising under existing lease financing
arrangements which are not material and liens for Taxes not yet due and
payable);
(q) any entry into, amendment of, relinquishment, termination or non-
renewal by the Company of any contract, lease transaction, commitment or other
right or obligation requiring aggregate payments by the Company in excess of
$50,000 with respect to such contract, lease, transaction, commitment or other
right or obligation other than in the ordinary course of business;
(r) any loan by the Company to any person or entity, incurring by the
Company, of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others;
(s) the commencement or notice or, to the knowledge of the Company
and the Shareholders, threat of commencement, of any lawsuit or proceeding
against, or investigation of, the Company or any of its affairs; or
(t) negotiation or agreement by the Company or any officer or
employee thereof to do any of the things described in the preceding clauses (a)
through (s) (other than negotiations with CCC and its representatives regarding
the transactions contemplated by this Agreement).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. SCHEDULE 5.26 sets forth a
complete and accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which the Company
has any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have
access thereto; and
(e) the name of each person, corporation, firm or other entity
holding a general or special power of attorney from the Company and a
description of the terms of such power.
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<PAGE>
5.27 ENVIRONMENTAL MATTERS.
(a) Hazardous Material. To the knowledge of the Company and its
------------------
Shareholders, other than as set forth on SCHEDULE 5.27(A), no underground
storage tanks and no substance that has been designated by any Governmental
Entity or by applicable federal, state, local or other applicable law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum, urea-
formaldehyde and all substances listed as hazardous substances pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, but excluding office, janitorial, and similar
supplies properly and safely maintained (a "Hazardous Material"), are present
------------------
in, on or under any property, including the land and the improvements, ground
water and surface water thereof, that the Company has at any time owned,
operated, occupied or leased (including the Real Property). SCHEDULE 5.27(A)
identifies all underground and aboveground storage tanks, and the capacity, age,
and contents of such tanks, which to the knowledge of the Company and the
Shareholders, are located on Real Property owned or leased by the Company.
(b) Hazardous Materials Activities. Except as set forth on SCHEDULE
------------------------------
5.27(B), to its knowledge, the Company has not transported, stored, used,
manufactured, disposed of or released, or exposed its employees or others to,
Hazardous Materials in violation of any law in effect on or before the Closing
Date, nor has the Company disposed of, transported, sold, or manufactured any
product containing a Hazardous Material (collectively, "Company Hazardous
-----------------
Materials Activities") in violation of any rule, regulation, treaty or statute
- --------------------
promulgated by any Governmental Entity in effect prior to or as of the date
hereof to prohibit, regulate or control Hazardous Materials or any Company
Hazardous Material Activity.
(c) Permits. The Company currently holds all environmental
-------
approvals, permits, licenses, clearances and consents (the "Environmental
-------------
Permits") necessary for the conduct of the Company?s Hazardous Material
- --------
Activities and other business of the Company as such activities and business are
currently being conducted. All Environmental Permits are in full force and
effect. The Company (A) is in compliance in all material respects with all terms
and conditions of the Environmental Permits and (B) is in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the laws of all Governmental Entities relating to pollution or
protection of the environment or contained in any regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder. To the Company?s knowledge, there are no circumstances that
may prevent or interfere with such compliance in the future. SCHEDULE 5.27(C)
includes a listing and description of all Environmental Permits currently held
by the Company.
(d) Environmental Liabilities. No action, proceeding, revocation
-------------------------
proceeding, amendment procedure, writ, injunction or claim is pending against
the Company, or to the knowledge of the Company, threatened against the Company
concerning any Environmental Permit, Hazardous Material or any Company Hazardous
Materials Activity. To the knowledge of the Company and the Shareholders, there
are no past or present actions, activities, circumstances, conditions, events,
or incidents that could involve the Company (or any person or entity whose
liability the Company has retained or assumed, either by contract or operation
of law) in any environmental litigation, or impose upon the Company (or any
person or entity whose liability the Company has retained or assumed, either by
contract or operation of law) any environmental liability including, without
limitation, common law tort liability.
24
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5.28 RELATIONS WITH GOVERNMENTS. To the knowledge of the Company and
the Shareholders, the Company has not made, offered or agreed to offer anything
of value to any governmental official, political party or candidate for
government office, nor has it otherwise taken any action that would cause the
Company to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended, or any law of similar effect.
5.29 DISCLOSURE. The Company has delivered or made available to CCC
and Newco true and complete copies of each agreement, contract, commitment or
other document (or summaries thereof) that is referred to specifically in the
Schedules or that has been requested by CCC. Without limiting any exclusion,
exception or other limitation contained in any of the representations and
warranties made herein, this Agreement and the schedules hereto do not and will
not include any untrue statement of a material fact or omit to state a material
fact necessary to make the statements herein or therein not misleading. If any
Shareholder becomes aware of any fact or circumstance which would change a
representation or warranty of any Shareholder in this Agreement or any
representation made on behalf of the Company, the Shareholders (through the
Representative (as defined in Section 13.14) or otherwise) shall immediately
give notice of such fact or circumstance to CCC. However, such notification
shall not relieve the Company or the Shareholders of their respective
obligations under this Agreement.
5.30 CCC PROSPECTUS; SECURITIES REPRESENTATIONS. Each Shareholder has
received and reviewed a copy of the prospectus dated March 5, 1998 including all
supplements thereto (as supplemented, the "CCC Prospectus") contained in CCC's
--------------
shelf registration statement on Form S-1 (File No. 333-42317). Each Shareholder
(a) has such knowledge and experience in business and financial matters and such
knowledge concerning the business, operations and financial condition of the
Company that such Shareholder is capable of evaluating the merits and risks of
an investment in the shares of CCC Common Stock, (b) fully understands the
nature, scope, and duration of the limitations on transfer contained herein, in
the Affiliate Agreement (if applicable), and under applicable law, and (c) can
bear the economic risk of any investment in the shares of CCC Common Stock and
can afford a complete loss of such investment. Each Shareholder, or such
Shareholders' purchaser representative, has had an adequate opportunity to ask
questions and receive answers (and has asked such questions and received answers
to his satisfaction) from the officers of CCC concerning the business,
operations and financial condition of CCC. Except as required by applicable
law, the Shareholders have no contract, undertaking, agreement or arrangement,
written or oral, with any other person to sell, transfer or grant participation
in any shares of CCC Common Stock to be acquired by such Shareholder in the
Merger.
5.31 AFFILIATES. SCHEDULE 5.31 lists each of the persons who is, in
the reasonable judgment of the Company and the Shareholders, an affiliate of the
Company within the meaning of Rule 145 (each such person an "Affiliate" with
---------
respect to the Company) promulgated under the 1933 Act.
5.32 LOCATION OF CHIEF EXECUTIVE OFFICES. SCHEDULE 5.32 sets forth
the location of the Company's chief executive offices.
5.33 LOCATION OF EQUIPMENT AND INVENTORY. Set forth on SCHEDULE 5.33
is a list of all locations where a filing is required under the UCC (as defined
below) with respect to Inventory and Equipment held on the date hereof by the
Company. For purposes of this Agreement, (a) the term "Inventory" shall mean
---------
any "inventory" as such term is defined in the Uniform Commercial Code as in
effect on the date hereof in the State of Texas (the "UCC") owned by the Company
---
as of the date hereof, and, in any event, shall include, but shall not be
limited to, all merchandise, inventory and goods, and all additions,
substitutions and replacements thereof, wherever located, together with all
goods, supplies, incidentals,
25
<PAGE>
packaging materials, labels, materials and any other items used or usable in
manufacturing, processing, packaging or shipping same; in all stages of
production, and all proceeds therefrom; and (b) the term "Equipment" shall mean
---------
any "equipment" as such term is defined in the UCC owned by the Company as of
---------
the date hereof, and, in any event, shall include, but shall not be limited to,
all machinery, equipment, furnishings, fixtures and vehicles owned by the
Company, wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto.
6. REPRESENTATIONS OF CCC AND NEWCO
To induce the Company and each Shareholder to enter into this
Agreement and consummate the transactions contemplated hereby, each of CCC and
Newco represents and warrants to the Company and the Shareholders as follows
(for purposes of this Agreement, the phrases "knowledge of CCC," "knowledge of
---------------- ------------
Newco," "CCC's knowledge," or "'Newco's knowledge" or words of similar import,
- ----- ---------------- ------------------
mean the actual knowledge of the directors and officers of each of CCC and
Newco.
6.1 DUE ORGANIZATION. Each of CCC and Newco is a corporation duly
organized, validly existing and in good standing under the laws of its state of
organization, and each is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective businesses in the places and in the manner as now
conducted, except where the failure to be so authorized, qualified or licensed
would not have a material adverse effect on the business, operations,
properties, assets or condition, financial or otherwise, of CCC or Newco. Copies
of the Certificate of Incorporation, Articles of Incorporation and the Bylaws,
each as amended, of CCC and Newco (collectively, the "CCC Charter Documents")
---------------------
have been made available to the Company. Neither CCC nor Newco is in violation
of any CCC Charter Document.
6.2 CCC COMMON STOCK. The shares of CCC Common Stock to be delivered
to the Shareholders pursuant to this Agreement, when delivered in accordance
with the terms of this Agreement, will be duly authorized and validly issued
shares of CCC capital stock, fully paid and nonassessable. All of the shares of
CCC Common Stock to be issued to the Shareholders in accordance herewith will be
offered, issued, sold and delivered by CCC in compliance with all applicable
state and federal laws concerning the issuance of securities and none of such
shares was or will be issued in violation of the preemptive rights of any
shareholder of CCC.
6.3 AUTHORIZATION; VALIDITY OF OBLIGATIONS. CCC and Newco have all
requisite corporate power and authority to enter into this Agreement and the
transactions contemplated hereby. Each of CCC and Newco has the full legal
right and authority to enter into this Agreement and the transactions
contemplated hereby. The execution and delivery of this Agreement by CCC and
Newco and the performance by each of CCC and Newco of the transactions
contemplated herein will, prior to Closing, have been duly and validly
authorized by the respective Boards of Directors of CCC and Newco, and this
Agreement will, prior to Closing, been duly and validly authorized by all
necessary corporate action. This Agreement is a legal, valid and binding
obligation of each of CCC and Newco enforceable against CCC and Newco in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
6.4 NO CONFLICTS. Except as set forth on SCHEDULE 6.4, the
execution, delivery and performance of this Agreement, the consummation of the
transactions contemplated hereby and the fulfillment of the terms hereof will
not:
26
<PAGE>
(a) conflict with, or result in a breach or violation of the CCC
Charter Documents;
(b) conflict with, or result in a default (or would constitute a
default but for a requirement of notice or lapse of time or both) under any
document, agreement or other instrument to which either CCC or Newco is a party,
or by which either CCC or Newco is bound, or result in the creation or
imposition of any lien, charge or encumbrance on any of CCC's or Newco's
properties pursuant to (i) any law or regulation to which either CCC or Newco or
any of their respective property is subject, or (ii) any judgment, order or
decree to which CCC or Newco is bound or any of their respective property is
subject;
(c) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of CCC or Newco;
(d) violate any material law, order, judgment, rule, regulation,
decree or ordinance to which CCC or Newco is subject, or by which CCC or Newco
is bound; or
(e) require the consent of any third party.
6.5 CAPITALIZATION OF CCC AND OWNERSHIP OF CCC STOCK. The authorized
capital stock of CCC consists of 250,000,000 shares of Common Stock, of which
34,216,310 shares were outstanding on March 12, 1998, and 500,000 shares of
Convertible Non-Voting Common Stock, par value $.001 per share, of which 500,000
shares were outstanding on March 12, 1998. The authorized capital stock of
Newco consists of 100 shares of Common Stock, of which 100 shares are
outstanding. All of the issued and outstanding shares of Newco are owned
beneficially, and of record by CCC. All of the issued and outstanding shares of
CCC Common Stock are duly authorized and validly issued shares of CCC, fully
paid and non-assessable. All of the issued and outstanding shares of CCC Common
Stock have been offered, issued, sold and delivered by CCC in compliance with
all applicable state and federal laws concerning the issuance of securities and
none of such shares were issued in violation of the preemptive rights of any
shareholder of CCC.
6.6 CONFORMITY WITH LAW; LITIGATION.
(a) Neither CCC nor Newco is in violation of any law or regulation or
under any order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over either of them which would have a material adverse effect on
the business operations, properties, assets or condition, financial or otherwise
of CCC and its subsidiaries taken as a whole. CCC has conducted and is
conducting its business in substantial compliance with the requirements,
standards, criteria and conditions set forth in applicable federal, state and
local statutes, ordinances, permits, licenses, orders, approvals, variances,
rules and regulations and is not in violation of any of the foregoing which
might have a material adverse effect on the business operations, properties,
assets or conditions, financial or otherwise of CCC and its subsidiaries taken
as a whole.
(b) There are no claims, actions, suits or proceedings, pending or,
to the knowledge of CCC or Newco, threatened against or affecting CCC or Newco
at law or in equity, or before any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over either of them that would have a material adverse
effect and no notice of any such claim, action, suit or proceeding, whether
pending or threatened, has been received.
27
<PAGE>
There are no judgments, orders, injunctions, decrees, stipulations or awards
(whether rendered by a court or administrative agency or by arbitration) against
CCC or Newco or against any of the properties of either of them which would have
a material adverse effect on the business operations, properties, assets or
conditions, financial or otherwise of CCC and its subsidiaries taken as a whole.
6.7 DISCLOSURE. Without limiting any exclusion, exception or other
limitation contained in any of the representations and warranties made herein,
this Agreement, the Schedules hereto and all other documents and information
relating to CCC (excluding any information related to the Company or the
Shareholders) furnished to the Company, the Shareholders and their
representatives pursuant hereto do not and will not include any untrue statement
of material fact or omit to state a material fact necessary to make the
statements herein or therein not misleading. If CCC or Newco becomes aware of
any fact or circumstances which would change a representation or warranty of CCC
or Newco in this Agreement, CCC and Newco shall immediately give notice of such
fact or circumstance to the Shareholders and the Company. However, such
notification shall not relieve CCC or Newco of their respective obligations
under this Agreement.
6.8 CCC PROSPECTUS. The CCC Prospectus, in the form delivered to the
Shareholders pursuant to Section 5.30 hereof, does not contain, as of the date
hereof, with respect to the sale of shares of CCC Common Stock to the
Shareholders hereunder, any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The balance sheet of CCC (including the related notes)
included in the CCC Prospectus presents fairly, in all material respects, the
financial position of CCC as of the date thereof in conformity with GAAP.
6.9 REGISTRATION STATEMENT. The Shares to be delivered pursuant to
this Agreement will be issued pursuant to a Shelf Registration Statement on Form
S-1 filed with the United States Securities and Exchange Commission (the
"Registration Statement") on February 27, 1998 and declared effective on March
- -----------------------
5, 1998. To the knowledge of CCC, no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceeding for that
purpose shall have been instituted or threatened by the SEC. The Shares will be
subject to the contractual restrictions on resale set forth in Section 7.10
below and will be tradable in accordance with the requirements of Rule 145(d)
under the 1933 Act.
6.10 INVESTMENT INTENT. CCC is acquiring the shares of the Company
for investment purposes only, for its own account and not as a nominee or agent
for any other Person, and not with a view to or for resale in connection with
any distribution thereof within the meaning of the 1933 Act, and can bear the
economic risk of an investment in the shares of the Company and can afford a
complete loss of such investment.
7. COVENANTS
7.1 TAX MATTERS.
(a) The following provisions shall govern the allocation of
responsibility as between the Shareholders, on the one hand, and the Surviving
Corporation, on the other, for certain tax matters following the Closing Date:
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(i) The Representative shall cause to be prepared and cause to
be filed, within the time and in the manner provided by law, all Tax Returns of
the Company for all periods ending on or before the Closing Date that are due
after the Closing Date. The Shareholders shall pay to the Surviving Corporation
on or before the due date of such Tax Returns the amount of all Taxes shown as
due on such Tax Returns to the extent that such Taxes are not reflected in the
current liability accruals for Taxes (excluding reserves for deferred Taxes)
shown on the Company's books and records as of the Closing Date. Such Returns
shall be prepared and filed in accordance with applicable law and in a manner
consistent with past practices and shall be subject to review and approval by
CCC. To the extent reasonably requested by the Shareholders or required by law,
CCC and the Surviving Corporation shall participate in the filing of any Tax
Returns filed pursuant to this paragraph.
(ii) The Surviving Corporation shall prepare or cause to be
prepared and file or cause to be filed any Tax Returns for Tax periods which
begin before the Closing Date and end after the Closing Date. The Shareholders
shall pay to the Surviving Corporation within fifteen (15) days after the date
on which Taxes are paid with respect to such periods an amount equal to the
portion of such Taxes which relates to the portion of such taxable period ending
on the Closing Date to the extent such Taxes are not reflected in the current
liability accruals for Taxes (excluding reserves for deferred Taxes) shown on
the Company's books and records as of the Closing Date. Notwithstanding the
preceding sentence, the Shareholders shall not be responsible for any tax that
may arise under Section 4978 of the Code as a result of the consummation of the
Merger. For purposes of this Section 7.1, in the case of any Taxes that are
imposed on a periodic basis and are payable for a taxable period that includes
(but does not end on) the Closing Date, the portion of such Tax which relates to
the portion of such taxable period ending on the Closing Date shall (A) in the
case of any Taxes other than Taxes based upon or related to income or receipts,
be deemed to be the amount of such Tax for the entire taxable period multiplied
by a fraction the numerator of which is the number of days in the taxable period
ending on the Closing Date and the denominator of which is the number of days in
the entire taxable period, and (B) in the case of any Tax based upon or related
to income or receipts be deemed equal to the amount which would be payable if
the relevant taxable period ended on the Closing Date. Any credits relating to a
taxable period that begins before and ends after the Closing Date shall be taken
into account as though the relevant taxable period ended on the Closing Date.
All determinations necessary to give effect to the foregoing allocations shall
be made in a manner consistent with prior practice of the Company. The Surviving
Corporation will pay over to the Shareholders any Tax refunds attributable to
Tax periods ending on or before the Closing Date; provided that either (i) the
Company paid the Taxes subject to the refund, (ii) such Taxes were reflected in
the current liability accruals for Taxes (excluding reserves for deferred Taxes)
shown on the Company's books and records as of the Closing Date, or (iii) that
the Shareholders paid to the Company or to the applicable taxing authority,
pursuant to this Section 7.1(a), the Taxes subject to the refund(s).
(iii) CCC and the Surviving Corporation on the one hand and
the Shareholders on the other hand shall (A) cooperate fully, as reasonably
requested, in connection with the preparation and filing of Tax Returns
pursuant to this Section 7.1 and any audit, litigation or other proceeding with
respect to Taxes; (B) make available to the other, as reasonably requested, all
information, records or documents with respect to Tax matters pertinent to the
Company for all periods ending prior to or including the Closing Date; and (C)
preserve information, records or documents relating to Tax matters pertinent to
the Company that is in their possession or under their control until the
expiration of any applicable statute of limitations or extensions thereof.
(iv) The Shareholders shall timely pay all transfer,
documentary, sales, use, stamp, registration and other Taxes and fees arising
from or relating to the transactions contemplated by
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this Agreement, and the Shareholders shall, at their own expense, file all
necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration, and other Taxes and fees. If
required by applicable law, CCC and the Surviving Corporation will join in the
execution of any such Tax Returns and other documentation.
7.2 ACCOUNTS RECEIVABLE. In the event that all Accounts Receivable
(other than those specified on SCHEDULE 5.12 are not collected in full (net of
reserves specified in Section 5.12 and retainage) within 180 days after the
Closing (or with respect to those Accounts Receivable specified on SCHEDULE
5.12, within the number of days after the Closing specified on such SCHEDULE)
then, at the request of the Surviving Corporation, the Shareholders shall pay
(based on their percentage ownership of the Company immediately prior to the
Effective Time) the Surviving Corporation an amount equal to the Accounts
Receivable not so collected, and upon receipt of such payment the Surviving
Corporation shall assign to the Shareholders making the payment all of their
rights with respect to the uncollected Accounts Receivable giving rise to the
payment and shall also thereafter promptly remit any excess collections received
by it with respect to such assigned Accounts Receivable. The Surviving
Corporation shall provide reasonable assistance to the Shareholders with
collections of the uncollected Accounts Receivable.
7.3 [INTENTIONALLY OMITTED]
7.4 RELATED PARTY AGREEMENTS. All Related Party Agreements, other
than those listed on SCHEDULE 7.4, will be terminated at the Closing by the
Company and/or Shareholder parties thereto. Reasonably promptly following the
Closing and at the expense of CCC, the Shareholders shall, if requested by CCC,
direct a third party, which shall be reasonably acceptable to CCC, to evaluate
if the rents with respect to each lease that is a Related Party Agreement (other
than those listed on SCHEDULE 7.4) are greater than those for comparably
situated properties in the same geographic market as of the date the Related
Party Agreement was entered into or as of the date of such evaluation. To the
extent that such third party reasonably determines that the rents payable with
respect to any such lease are 25% or more than for comparably situated
properties both as of the date the Related Party Agreement was entered into and
the date of the evaluation, the parties will negotiate in good faith to adjust
such rents to market rates.
7.5 COOPERATION.
(a) The Company, the Shareholders, CCC and Newco shall each deliver
or cause to be delivered to the other on the Closing Date, and at such other
times and places as shall be reasonably agreed to, such instruments as the other
may reasonably request for the purpose of carrying out this Agreement. In
connection therewith, if required, the president or chief financial officer of
the Company shall execute any documentation reasonably required by CCC's
Accountant (in connection with such accountants' audit or review of the Company)
or the Nasdaq National Market.
(b) The Shareholders and the Company shall cooperate and use their
reasonable efforts to have the present officers, directors and employees of the
Company cooperate with CCC on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
filing obligations, actions, proceedings, arrangements or disputes of any nature
with respect to matters pertaining to all periods prior to the Closing Date.
(c) Each party hereto shall cooperate in attempting to obtain all
consents and approvals that are required under this Agreement to effect the
transactions contemplated hereby or that
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are advisable in order that any Material Contract remain in effect after the
Merger and without giving rise to any right to termination, cancellation or
acceleration or loss of any right or benefit. In addition, each party hereto
shall otherwise use their best efforts to consummate the transaction
contemplated hereby and to fulfill their obligations under this Agreement. The
Company and the Shareholders and Newco and CCC shall each diligently make, and
cooperate with the other in using their best efforts (excluding out of pocket
expenditures) to obtain or cause to be obtained prior to the Closing Date all
such consents without any change in the terms or conditions of any contract or
license that could reasonably be expected to be materially less advantageous to
the Surviving Corporation than those pertaining under the contract or license as
in effect on the date of this Agreement. The Company and Shareholders shall
advise CCC and Newco of any difficulties experienced in obtaining any of the
consents and of any conditions proposed, considered, or requested for any of the
consents. CCC and Newco agree to use their best efforts to assist the Company
and Shareholders in obtaining such consents, and to take such reasonable actions
necessary or desirable to obtain such consents, including without limitation,
executing such instruments and other documents as may be required in connection
with obtaining such consents.
(d) The Company, the Shareholders and CCC shall file any information
and documents that remain to be filed under the HSR Act as promptly as
practicable at such time as such items are required to be filed. The Parties
hereby agree to (a) cooperate with each other in connection with such HSR Act
filings, which cooperation shall include furnishing the other with any
information or documents that may be reasonably required in connection with such
filings; (b) promptly file, after any request by the Federal Trade Commission
("FTC") or Department of Justice ("DOJ") and after appropriate negotiation with
the FTC or DOJ of the scope of such request, any information or documents
requested by the FTC or DOJ; and (c) furnish each other with any correspondence
from or to, and notify each other of any other communications with, the FTC or
DOJ that relates to the transactions contemplated hereunder, and to the extent
practicable, to permit each other to participate in any conferences with the FTC
or DOJ.
7.6 CONDUCT OF BUSINESS PENDING CLOSING. Except as set forth on
SCHEDULE 7.6, between the date hereof and the Effective Time, the Company will
(except as requested or agreed by CCC):
(a) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(b) maintain its properties, facilities and equipment and other
assets in as good working order and condition as at present, ordinary wear and
tear excepted;
(c) perform in the ordinary course of business all of its obligations
under debt and lease instruments and other agreements relating to or affecting
its assets, properties, equipment or rights;
(d) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments other than in the ordinary course of
business without the consent of CCC;
(e) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(f) use its best efforts to maintain and preserve its business
organization intact, retain its present key employees and maintain its
relationships and present agreements with suppliers, customers and others having
business relations with the Company;
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(g) maintain compliance in all material respects with all permits,
rules, laws and regulations, consent orders and the like; and
(h) maintain present salaries and commission levels for all officers,
directors, employees, agents, representatives and independent contractors,
except in the ordinary course of business consistent with past practice or as
required by contract or law.
7.7 ACCESS TO INFORMATION. Between the date of this Agreement and
the Closing Date, the Company will afford to the officers and authorized
representatives of CCC during normal business hours and with reasonable prior
notice access to (i) all of the sites, properties, books and records of the
Company and (ii) such additional financial and operating data and other
information as to the business and properties of the Company as CCC may from
time to time reasonably request, including without limitation, access upon
reasonable request to the Company's employees, customers, vendors, suppliers and
creditors. No information or knowledge obtained in any investigation pursuant
to this Section 7.7 shall affect or be deemed to modify any representation or
warranty contained in this Agreement or the conditions to the obligations of the
parties to consummate the Merger. However, if CCC becomes aware of a breach of
any warranty or representation by the Company or any Shareholder, CCC shall
promptly notify the Company and the Representative of same.
7.8 PROHIBITED ACTIVITIES. Except as set forth in SCHEDULE 7.8,
between the date hereof and the Effective Time, the Company will not, without
the prior written consent of CCC:
(a) make any change in its Articles of Incorporation or Bylaws,
or authorize or propose the same;
(b) issue, deliver or sell, authorize or propose the issuance,
delivery or sale of any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind, or authorize or propose
any change in its equity capitalization, or issue or authorize the issuance of
any debt securities, except (a) as required under any currently existing
?employee benefit plan? (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended), any currently existing employment
agreement or any currently existing buy sell agreements, (b) shares issued upon
exercise of options or other rights outstanding as of the date hereof, or (c)
shares, if any, required to be issued under the tax-qualified employee stock
ownership plan;
(c) declare or pay any dividend, or make any distribution (whether in
cash, stock or property) in respect of its stock whether now or hereafter
outstanding, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock except as provided above in
subsection (b), or purchase, redeem or otherwise acquire or retire for value any
shares of its stock;
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, or guarantee any indebtedness,
except in the ordinary course of business and consistent with past practice in
an amount in excess of $50,000 individually;
(e) except in the ordinary course of business consistent with past
practice or as required by contract or law, increase the compensation payable or
to become payable to any officer, director, Shareholder, employee, agent,
representative or independent contractor; make any bonus or
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management fee payment to any such person (except for accrued and unpaid
bonuses); make any loans or advances; adopt or amend any Plan; or grant any
severance or termination pay;
(f) create or assume any mortgage, pledge or other lien or
encumbrance (other than Permitted Encumbrances) upon any assets or properties
whether now owned or hereafter acquired;
(g) sell, assign, lease, pledge or otherwise transfer or dispose of
any property or equipment except in the ordinary course of business consistent
with past practice;
(h) acquire or negotiate for the acquisition of (by merger,
consolidation, purchase of a substantial portion of assets or otherwise) any
business or the start-up of any new business, or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to the
Company;
(i) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(j) waive any material rights or claims of the Company, provided that
the Company may negotiate and adjust bills in the course of good faith disputes
with customers in a manner consistent with past practice;
(k) commit a material breach of or amend or terminate any material
agreement, permit, license or other right except for any amendments or
terminations in the ordinary course of business;
(l) enter into any other transaction (i) that is not negotiated at
arm?s length with a third party not affiliated with the Company or any officer,
director or Shareholder of the Company or (ii) outside the ordinary course of
business consistent with past practice or (iii) prohibited hereunder;
(m) commence a lawsuit other than for routine collection of bills;
(n) revalue any of its assets, including without limitation, writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business consistent with past practice;
(o) make any tax election other than in the ordinary course of
business and consistent with past practice, change any tax election, adopt any
tax accounting method other than in the ordinary course of business and
consistent with past practice, change any tax accounting method, file any Tax
Return (other than any estimated tax returns, payroll tax returns or sales tax
returns) or any amendment to a Tax Return, enter into any closing agreement,
settle any tax claim or assessment, or consent to any tax claim or assessment,
without the prior written consent of CCC; or
(p) take, or agree (in writing or otherwise) to take, any of the
actions described in Sections 7.8(a) through (o) above, or any action which
would make any of the representations and warranties of the Company and the
Shareholders contained in this Agreement untrue or result in any of the
conditions set forth in Articles 8 and 9 not being satisfied.
7.9 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the
Company shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective
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bargaining agreements, if requested by CCC, and shall provide CCC with proof
that any required notice has been sent.
7.10 SALES OF CCC COMMON STOCK.
(a) Except with the consent of CCC, no Shareholder will, directly or
indirectly, offer, sell, contract to sell, pledge or otherwise dispose of any
shares of CCC Common Stock received by such Shareholder in the Merger as the
Base Merger Consideration prior to the first anniversary of the Closing.
Thereafter, up to one-third of the shares of CCC Common Stock received by a
Shareholder as part of the Base Merger Consideration may be resold at any time
after the first anniversary of the Closing, an additional one-third may be
resold beginning eighteen months after the Closing by each Shareholder and the
remaining one-third may be resold beginning on the second anniversary of the
Closing. Except with the consent of CCC, no shareholder will, directly or
indirectly, offer, sell, contract to sell, pledge or otherwise dispose of any
shares of CCC Common Stock received by such Shareholder as the Contingent Merger
Consideration prior to 19 months after the Closing Date. Thereafter, up to 50%
of the shares of CCC Common Stock received by a Shareholder as part of the
Contingent Merger Consideration may be resold at any time beginning 19 months
after the Closing Date and the remaining 50% may be resold beginning 23 months
after the Closing Date. Notwithstanding anything in the foregoing to the
contrary, a Shareholder may transfer shares of CCC Common Stock to a Related
Party for estate planning purposes, provided that such Related Party transferee
(i) acknowledges the contractual restrictions relating to the transfer of such
shares set forth in this Section 7.10 and (ii) agrees to be bound by the same.
For purposes hereof, "Related Part" means, with respect to any Person that is
an individual, any spouse, lineal descendant (including by adoption), executor,
administrator, trustee, legatee or beneficiary of such Person or any other
Person controlled by such Person. For purposes hereof, "Person" means an
individual, corporation, association, partnership, joint venture, trust, estate,
limited liability company, limited liability partnership or other entity or
organization. Transfers of shares of CCC Common Stock by employees of CCC also
are subject to CCC policies against insider trading and the misuse of material
non-public information and compliance with applicable securities laws and rules.
Persons who become affiliates of CCC may be subject to additional restrictions
on the trading of their CCC Common Shares pursuant to applicable law.
(b) Each Shareholder agrees to sell the shares of CCC Common Stock to
be received by such Shareholder in the Merger only in accordance with the
requirements, if any, of applicable law, including, without limitation, Rule
145(d) promulgated under the 1933 Act or any successor to such rule. CCC
acknowledges that the provisions of this Section 7.10(b) will be satisfied as to
any sale by a Shareholder of the CCC Common Stock that the Shareholder may
acquire pursuant to the Merger by a broker?s letter and a letter from the
Shareholder with respect to that sale stating that the applicable requirements
of Rule 145(d)(1) have been met or are inapplicable by virtue of Rule 145(d)(2)
or Rule 145(d)(3).
(c) The certificate or certificates evidencing the shares of CCC
Common Stock to be delivered to the Shareholders in the Merger will bear
restrictive legends substantially in the following forms as long as applicable:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), MAY APPLY. IF RULE 145
--------------
APPLIES, PRIOR TO [ONE YEAR FROM THE EFFECTIVE DATE], THESE SHARES
--------------------------------
MAY ONLY BE TRANSFERRED IN
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ACCORDANCE WITH THE PROVISIONS OF RULE 145(D)(1) OR ANOTHER
APPLICABLE EXEMPTION UNDER THE SECURITIES ACT. WITHOUT LIMITING
THE FOREGOING, IF RULE 145 APPLIES, AFTER [ONE YEAR FROM THE
-----------------
EFFECTIVE DATE], THESE SHARES MAY BE TRANSFERRED BY
--------------
NON-AFFILIATES OF THE ISSUER UNDER RULE 145(D)(2) SO LONG AS THE
ISSUER IS CURRENT IN ITS REPORTING OBLIGATIONS UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, OR UNDER ANOTHER
APPLICABLE EXEMPTION UNDER THE SECURITIES ACT. WITHOUT LIMITING
THE FOREGOING, AFTER [TWO YEARS FROM THE EFFECTIVE DATE], THESE
---------------------------------
SHARES MAY BE TRANSFERRED BY NON-AFFILIATES OF THE ISSUER WITHOUT
RULE 145 RESTRICTIONS IN ACCORDANCE WITH RULE 145(D)(3).
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CONTRACTUAL RESTRICTIONS ON TRANSFER EXPIRING ON ______________,
PURSUANT TO THAT CERTAIN AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MARCH 15, 1998 (THE "AGREEMENT"), BY AND AMONG THE
---------
ISSUER, CCC ACQUIRING CO. NO. 10, WALKER ENGINEERING, INC.
(THE "COMPANY") AND THE SHAREHOLDERS OF THE COMPANY. PRIOR
-------
TO THE EXPIRATION OF SUCH HOLDING PERIOD, SUCH SHARES MAY
NOT BE SOLD, TRANSFERRED OR ASSIGNED AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, TRANSFER OR
ASSIGNMENT EXCEPT TO THE EXTENT SUCH SALE, TRANSFER OR ASSIGNMENT
IS IN COMPLIANCE WITH THE AGREEMENT. UPON THE WRITTEN REQUEST OF
THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) WHEN THE HOLDING PERIOD HAS EXPIRED.
7.11 CCC STOCK OPTIONS. CCC shall make available to the Surviving
Corporation for distribution at the discretion of the President of the Surviving
Corporation options to purchase up to 250,000 shares of CCC Common Stock to be
granted to the key employees of the Surviving Corporation (who were not, unless
otherwise approved by CCC, Shareholders) on or shortly after the Closing in
accordance with CCC's policies and under the terms of CCC's 1997 Long-Term
Incentive Plan. The exercise price of such options shall be equal to the fair
market value of the underlying shares of CCC Common Stock on the date of grant
and such options shall have vesting provisions established by the Compensation
Committee of the Board of Directors of CCC. The options issued under the terms
of this Section 7.11 shall be nonqualified stock options that shall become
exercisable over no more than a four year period with at least 25% of such
options vesting each year (with the four year period commencing on the Closing
Date) and shall expire on the tenth anniversary of the date of grant provided
the optionee is still an employee. The shares of CCC Common Stock underlying
such options shall be registered under the 1933 Act and approved for listing on
Nasdaq.
7.12 TAX COVENANT. CCC, Newco and the Company shall treat the Merger
for income tax purposes as a reorganization within the meaning of Section 368(a)
of the Code and any comparable state or local tax statute.
7.13 TAX FREE REORGANIZATION PROTECTION. Prior to the Effective Time,
CCC, Newco, the Shareholders and the Company will each use their best efforts to
cause the Merger to qualify, and prior to the Effective Time and on and after
the Closing Date, will refrain from taking any actions that would
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result in the Merger failing to qualify, as a reorganization as defined under
Code Section 368(a)(1)(A) and Section 368(a)(2)(D). After the Effective Time,
CCC, Newco, the Shareholders and the Company will refrain from taking any
actions that would cause the stock paid to the Shareholders pursuant to Section
2.3 of this Agreement to be taxable to the Shareholders upon receipt.
7.14 D&O INSURANCE AND INDEMNIFICATION OF DIRECTORS AND OFFICERS. All
rights to indemnification for acts or omissions occurring prior to the Closing
now existing in favor of the current or former directors, officers, employees or
agents of the Company required by applicable law, under the Company's Charter
Documents, or any other agreement between any such director, officer, employee
or agent of the Company and the Company and any other now existing obligation of
the Company to indemnify directors or officers for acts or omissions occurring
prior to the Closing shall survive the Merger and shall continue in full force
and effect in accordance with their terms for a period of not less than six (6)
years from the Effective Time and, to the extent the Surviving Corporation fails
to perform its obligations with respect thereto, CCC shall perform such
obligations. In addition, CCC will provide to each director and officer of the
Surviving Corporation, during the term of his service, D&O insurance having
coverage at least as comprehensive as the D&O insurance currently maintained by
CCC.
7.15 GOVERNMENT CONTRACTS. To the extent applicable, it is the
intention of the Company to transfer to Newco and novate the government
contracts listed on SCHEDULE 5.19 and to obtain the required governmental
recognition of Newco as the Company's successor in interest to such government
contracts. Recognizing that applicable government regulations may not permit
the Company to transfer the Company's government contracts and obtain novation
of those contracts prior to the Closing, the Company and Newco agree to
cooperate and diligently pursue contract novation pursuant to applicable and
required government procedures.
7.16 CCC STOCK. Between the date of this Agreement and the Effective
Time, CCC shall not declare, pay or set aside any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its equity securities or directly or indirectly redeem, purchase or otherwise
acquire or offer to acquire any shares of its equity securities, other than any
such action which would not result in any adjustment to the Base Merger
Consideration or the Contingent Merger Consideration pursuant to Section 2.2(b)
and 2.3(e).
7.17 EMPLOYEE BENEFITS MATTERS. For the twelve month period
commencing as of the Closing Date, CCC and any successor thereto shall continue
to maintain all Plans maintained by the Company as of the Closing Date for the
benefit of all employees of CCC or any entity related to CCC under the terms of
Code Sections 414(b), (c), (m) or (o) who are engaged in the performance of
services with respect to the business conducted by the Company prior to the
Closing Date. Any amendment, modification, or termination of any Plan of the
Company maintained by CCC or its successor during any period such Plan is
required to be maintained in accordance with this Section 7.16 shall only be
made if CCC and the president of the Surviving Corporation or his successor, in
his capacity as an employee of CCC or any affiliate thereof, shall mutually
agree to such amendment, modification, or termination.
7.18 GUARANTEED DEBT. It is understood and agreed that the
Shareholders will seek to have all personal guarantees (by pledge of assets or
otherwise) of any Shareholder released in connection with consummation of the
Merger and that CCC will cooperate with the Shareholders in such effort.
Following the Closing CCC will not and will cause the Surviving Corporation not
to draw under any line of credit or other indebtedness the repayment of which
has been personally guaranteed by a Shareholder
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(by pledge of assets or otherwise) unless and until such personal guarantee
(including any pledge of assets) has been fully released.
7.19 REPAYMENT OF RECEIVABLE. On or before the 180th day immediately
following the Closing CCC shall cause the Surviving Corporation to repay in full
all amounts then outstanding under the Walker Note described on Schedule 5.8
hereto.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CCC AND NEWCO
The obligation of CCC and Newco to effect the Merger is subject to the
satisfaction or waiver, at or before the Effective Time, of the following
conditions and deliveries:
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. (a)
All of the representations and warranties of the Shareholders and the Company
contained in this Agreement shall be true, correct and complete on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date except (i) to the extent any such
representation or warranty is expressly stated only as of a specified earlier
date or dates, in which case such representation and warranty shall be true and
accurate as of such earlier specified date or dates (but also subject to clause
(iii) of this Section 8.1(a)), (ii) for changes that are permitted or
contemplated pursuant to this Agreement or (iii) where the consequence of the
matter set forth in such representation and warranty having failed to be true
and accurate as of the date when made, on the Closing Date or on such earlier
specified date would not, in the reasonable discretion of CCC and Newco, have a
Material Adverse Effect, (b) all of the terms, covenants, agreements and
conditions of this Agreement to be complied with, performed or satisfied by the
Company and the Shareholders on or before the Closing Date shall have been duly
complied with, performed or satisfied, except to the extent that the consequence
of the failure of the Company and the Shareholders to have so complied with,
performed or satisfied would not have a Material Adverse Effect; and (c) a
certificate to the foregoing effects dated the Closing Date and signed on behalf
of the Company and by the Shareholders shall have been delivered to CCC.
8.2 NO LITIGATION. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
CCC's proposed acquisition of the Company, limiting or restricting CCC's conduct
or operation of the business of the Company (or its own business) following the
Merger or restraining or prohibiting the Company or the Shareholders from
consummating the transactions contemplated hereby shall be in effect, nor shall
any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending. There shall be no action, suit, claim or proceeding of
any nature having a reasonable likelihood of success pending or threatened
against CCC, Newco, the Shareholders or the Company, their respective properties
or any of their officers or directors, that could materially and adversely
affect the business, assets, financial condition or results of operations of CCC
and its subsidiaries taken as a whole or the Company; provided, however, that
CCC and Newco shall be required to effect the Merger (and this condition shall
be deemed satisfied) if the foregoing matters (including those set forth in
Section 8.1 above), taken together, would not, in the reasonable discretion of
CCC and Newco, have a Material Adverse Effect.
8.3 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse changes in the business, operations, properties, assets, or condition
(financial or otherwise) of the Company since
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the date of this Agreement; and CCC shall have received a certificate signed by
each Shareholder dated the Closing Date to such effect with respect to the
Company only; provided, however, that CCC and Newco shall be required to effect
the Merger (and this condition shall be deemed satisfied) if the foregoing
matters, taken together, would not, in the reasonable discretion of CCC and
Newco, have a Material Adverse Effect.
8.4 CONSENTS AND APPROVALS. All consents marked with an asterisk on
SCHEDULE 5.3 or SCHEDULE 5.14 (the "Required Consents"), shall have been
-----------------
obtained. No action by the DOJ or FTC challenging or seeking to enjoin the
consummation of the transactions contemplated hereby shall be pending.
8.5 OPINION OF COUNSEL. CCC shall have received an opinion from
counsel to the Company and the Shareholders, dated the Closing Date, in
substantially the form of EXHIBIT 8.5.
8.6 CHARTER DOCUMENTS. CCC shall have received (a) a copy of the
Articles of Incorporation of the Company certified by an appropriate authority
in the state of its incorporation and (b) a copy of the Bylaws of the Company
certified by the Secretary of the Company.
8.7 QUARTERLY FINANCIAL STATEMENTS. CCC shall have received from the
Company completed quarterly financial statements for any quarter ending after
the date of the Interim Financials in a form reasonably satisfactory to CCC.
8.8 FIRPTA COMPLIANCE. The Company shall have delivered to CCC a
properly executed statement in a form reasonably acceptable to CCC for purposes
of satisfying CCC's obligations under Treas. Reg. (S) 1.1445-2(b).
8.9 EMPLOYMENT AGREEMENTS. Charlie Walker shall enter into, at
Closing, an employment agreement with the Surviving Corporation in substantially
the form of EXHIBIT 8.9A hereto. Each Shareholder, other than Charlie Walker,
shall enter into, at Closing, an employment agreement with the Surviving
Corporation in substantially the form of EXHIBIT 8.9B hereto.
8.10 AFFILIATE AGREEMENTS. The Shareholders listed on SCHEDULE 5.31
shall have entered into an Affiliate Agreement in the form set forth as EXHIBIT
8.10.
8.11 SHAREHOLDERS' RELEASE. The Shareholders shall each have
delivered to CCC an instrument dated the Closing Date in the form of EXHIBIT
8.11.
8.12 RELATED PARTY RECEIVABLES AND AGREEMENTS. Except with respect to
the items on SCHEDULE 8.12, all employees, shareholders, directors, officers and
Affiliates of the Company shall have repaid in full all obligations to the
Company in respect of borrowings or advances. The Related Party Agreements set
forth in SCHEDULE 8.12 shall have been terminated as of the Closing.
8.13 CLOSING NET WORTH. The Closing Net Worth of the Company shall be
at least $6,000,000 and the Shareholders shall have delivered to CCC a
certificate to that effect.
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9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS
The obligation of the Shareholders and the Company to effect the
Merger are subject to the satisfaction or waiver, at or before the Effective
Time, of the following conditions and deliveries:
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
of the representations and warranties of CCC and Newco contained in this
Agreement shall be true, correct and complete on and as of the Closing Date with
the same effect as though such representations and warranties had been made as
of such date; all of the terms, covenants, agreements and conditions of this
Agreement to be complied with, performed or satisfied by CCC and Newco on or
before the Closing Date shall have been duly complied with, performed or
satisfied; and a certificate to the foregoing effects dated the Closing Date and
signed by the President or any Vice President of CCC shall have been delivered
to the Company and the Shareholders.
9.2 NO LITIGATION. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
CCC's proposed acquisition of the Company, limiting or restricting CCC's conduct
or operation of the business of the Company (or its own business) following the
Merger or restraining or prohibiting the Company or the Shareholders from
consummating the transactions contemplated hereby shall be in effect, nor shall
any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending. There shall be no action, suit, claim or proceeding of
any nature having a reasonable likelihood of success pending or threatened,
against CCC, Newco, the Shareholders, or the Company, their respective
properties or any of their officers or directors, that could materially and
adversely affect the business, assets, financial condition, results of
operations or prospects of CCC and its subsidiaries taken as a whole.
9.3 CONSENTS AND APPROVALS. All necessary consents of, and filings
with, any governmental authority or agency or third party relating to the
consummation by CCC and Newco of the transactions contemplated herein, shall
have been obtained and made. Any waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been terminated, and no
action by the DOJ or FTC challenging or seeking to enjoin the consummation of
the DOJ transactions contemplated hereby shall be pending.
9.4 EMPLOYMENT AGREEMENTS. The Surviving Corporation shall have
afforded Charlie Walker the opportunity to enter into, at Closing, an employment
agreement with the Surviving Corporation in substantially the form of EXHIBIT
8.9A hereto. The Surviving Corporation shall have afforded each Shareholder,
other than Charlie Walker, the opportunity to enter into, at Closing, an
employment agreement with the Surviving Corporation in substantially the form of
EXHIBIT 8.9B hereto.
9.5 REGISTRATION STATEMENT. No stop order suspending the effectiveness
of the Registration Statement shall have been issued and no proceeding for that
purpose shall have been instituted or threatened by the SEC and the shares of
CCC Common Stock to be issued as part of the Base Merger Consideration shall
have been approved for listing on Nasdaq.
9.6 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse changes in the business, operations, properties, assets, or condition
(financial or otherwise) of CCC and its subsidiaries, taken as a whole, since
the date of this Agreement, and the Shareholders shall have received
39
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a certificate signed by CCC and Newco dated the Closing Date to such effect;
provided, however, that the Shareholders and the Company shall be required to
effect the Merger (and this condition shall be deemed satisfied) if the
foregoing matters, taken together, would not, in the reasonable discretion of
the Shareholders and the Company, have a material adverse effect on the business
operations, properties, assets or conditions, financial or otherwise, of CCC and
its subsidiaries taken as a whole.
9.7 OFFICERS AND DIRECTORS OF SURVIVING CORPORATION. The persons set
forth on SCHEDULE 1.2(C) shall have been appointed, effective at the Effective
Time, to serve as officers and directors of the Surviving Corporation.
10. INDEMNIFICATION
10.1 GENERAL INDEMNIFICATION BY THE SHAREHOLDERS. The Shareholders
(other than the Shareholders set forth on SCHEDULE 5 who shall not be required
to indemnify any party hereunder), jointly and severally, covenant and agree to
indemnify, defend, protect and hold harmless CCC, Newco and the Surviving
Corporation and their respective officers, directors, employees, shareholders,
assigns, successors and affiliates (individually, a "CCC Indemnified Party" and
---------------------
collectively, the "CCC Indemnified Parties") from, against and in respect of:
-----------------------
(a) all liabilities, losses, claims, damages, punitive damages,
causes of action, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments, adjustments,
judgments, settlement payments, deficiencies, penalties, fines, interest
(including interest from the date of such damages), costs and expenses
(including without limitation reasonable attorneys' fees and disbursements of
every kind, nature and description) (collectively, "Damages") suffered,
-------
sustained, incurred or paid by the CCC Indemnified Parties in connection with,
resulting from or arising out of, directly or indirectly:
(i) any breach of any representation or warranty of the
Shareholders or the Company set forth in this Agreement or any Schedule or
certificate, delivered by or on behalf of any Shareholder or the Company in
connection herewith; or
(ii) any nonfulfillment of any covenant or agreement by the
Shareholders or, prior to the Effective Time, the Company, under this Agreement;
or
(iii) the assertion against any CCC Indemnified Party of any
Damages relating to the business, operations or assets of the Company prior to
the Closing Date or the actions or omissions of the directors, officers,
shareholders, employees or agents of the Company prior to the Closing Date,
other than Damages arising from matters expressly disclosed in the Company
Financial Statements, this Agreement or the Schedules to this Agreement; or
(iv) the matters disclosed on SCHEDULES 5.23 (conformity with
law; litigation), 5.27 (environmental matters), and any receivables from related
persons that are listed on SCHEDULE 8.12 and are not repaid pursuant to their
terms; and
(b) any and all Damages incident to any of the foregoing or to
the enforcement of this Section 10.1.
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10.2 GENERAL INDEMNIFICATION BY CCC AND NEWCO. CCC and Newco,
jointly and severally, covenant and agree to indemnify, defend, protect and hold
harmless the Shareholders and their respective officers, directors, employees,
shareholders, assigns, successors and affiliates (individually, a "Shareholder
-----------
Indemnified Party" and collectively, the "Shareholder Indemnified Parties")
- ----------------- -------------------------------
from, against and in respect of:
(a) all Damages suffered, sustained, incurred or paid by the
Shareholder Indemnified Parties in connection with, resulting from or arising
out of, directly or indirectly:
(i) any breach of any representation or warranty of CCC or
Newco set forth in this Agreement or any Schedule or certificate, delivered by
or on behalf of any CCC or Newco in connection herewith; or
(ii) any nonfulfillment of any covenant or agreement by CCC
or Newco under this Agreement;
(b) any and all Damages incident to any of the foregoing or to
the enforcement of this Section 10.2.
10.3 LIMITATION AND EXPIRATION. Notwithstanding the above:
(a) there shall be no liability for indemnification under Section
10.1 or Section 10.2 unless and until the aggregate amount of Damages exceeds
one percent (1%) of the Base Merger Consideration (the "Indemnification
---------------
Threshold"), at which time the Indemnifying Party (defined in Section 10.4
below) shall be liable for all Damages from the first dollar; provided, however,
that the Indemnification Threshold shall not apply to (i) Damages arising out of
any breaches of the covenants of the Shareholders set forth in this Agreement or
representations and warranties made in Sections 5.4 (capital stock of the
Company), 5.5 (transactions in capital stock), 5.18 (material contracts and
commitments), 5.23 (conformity with law; litigation), 5.24 (taxes), 5.27
(environmental matters), or resulting from any receivables from related persons
that are listed on Schedule 8.13 and are not repaid pursuant to their terms;
(ii) Damages described in Section 10.1(a)(iv), or (iii) Damages arising out of
any breaches of the covenants of CCC or Newco set forth in this Agreement or
representations and warranties made in Section 6.2 (CCC Common Stock), 6.5
(Capitalization), Section 6.6 (litigation), 6.8 (CCC Prospectus), or 6.9
(Registration Statement);
(b) the aggregate amount of any liability for Damages of the
Shareholders, CCC and Newco under this Article 10 shall not exceed 50% of the
Merger Consideration except with regard to any Damages that occur as a result of
fraudulent misrepresentations or fraudulent acts of the Shareholders, CCC or
Newco, as applicable;
(c) the indemnification obligations under this Article 10, or under
any certificate or writing furnished in connection herewith, shall terminate at
the date that is the later of clause (i) or (ii) of this Section 10.3(c):
(i) (1) except as to representations, warranties, and
covenants specified in clause (i)(2) of this Section 10.3(c), the first
anniversary of the Closing Date, or
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(2) (x) with respect to representations and warranties of
the Shareholders contained in Sections 5.22 (employee benefit plans), 5.24
(taxes), 5.27 (environmental matters), and the indemnification set forth in
Sections 10.1(a)(ii) (with respect to pre-closing covenants only), 10.1(a)(iii),
10.1(a)(iv), or 10.2(a)(ii) (with respect to pre-closing covenants only) on (A)
the date that is six (6) months after the expiration of the longest applicable
federal or state statute of limitation (including extensions thereof agreed to
by the party from whom indemnification is sought), or (B) if there is no
applicable statute of limitation, (i) four (4) years after the Closing Date if
the Claim is related to the cost of investigating, containing, removing, or
remediating a release of Hazardous Material into the environment, or (ii) two
(2) years after the Closing Date for any other Claim covered by clause (i)(2)(B)
of this Section 10.3(c), (y) with respect to covenants of the Shareholders to be
performed after the Closing Date until fully performed and discharged, and (z)
with respect to the covenants or agreements of CCC and Newco to be performed
after the Closing Date until fully performed and discharged; or
(ii) with respect to a particular claim or demand, the final
resolution of such claim or demand (but not any other claim or demand) pending
as of the relevant dates described in clause (i) of this Section 10.3(c) (such
claims referred to as "Pending Claims");
--------------
(d) in no event will any CCC Indemnified Party be entitled to joint
and several indemnification hereunder for the breach by any Shareholder of the
provisions of Article 11 or Article 12 hereof; it being understood and agreed
that the CCC Indemnified Party shall be entitled to indemnification only from
the Shareholder breaching Article 11 or Article 12, as applicable.
(e) the Shareholders shall have no liability under this Article 10 in
respect of any Damages the full value of which have been recouped by CCC as a
result of (i) the payment by the Shareholders to the Surviving Corporation or
CCC of uncollected Accounts Receivable pursuant to Section 7.2 or (ii) CCC's not
having to pay to the Shareholders any portion of the Contingent Merger
Consideration because of any failure to achieve the targets set forth in Section
2.3(a) (i) herein.
(f) After the Effective Time, indemnification pursuant to this
Section 10 shall be the sole and exclusive remedy of any Indemnified Party for
any breach of any representation, warranty, covenant or other agreement herein
or otherwise arising out of or in connection with the transactions contemplated
by this Agreement or the operations of the Company, whether such claim may be
asserted as a breach of contract, tort, a violation or breach of the 1933 Act or
the rules and regulations promulgated thereunder or otherwise, except with
regard to Damages that occur as a result of fraudulent misrepresentations or
fraudulent acts of the Company, the Shareholders, CCC or Newco, as applicable.
10.4 INDEMNIFICATION PROCEDURES. All claims or demands for
indemnification under this Article 10 ("Claims") shall be asserted and resolved
------
as follows:
(a) In the event that any CCC Indemnified Party or Shareholder
Indemnified Party, as applicable (in either case, an "Indemnified Party") has a
-----------------
Claim against any party obligated to provide indemnification pursuant to this
Article 10 (individually and collectively, the "Indemnifying Party") which does
------------------
not involve a Claim being asserted against or sought to be collected by a third
party, the Indemnified Party shall with reasonable promptness notify the
Indemnifying Party of such Claim, specifying the nature of such Claim and the
amount or the estimated amount thereof to the extent then feasible (the "Claim
-----
Notice"). If the Indemnifying Party does not notify the Indemnified Party
- ------
within thirty days after the date of delivery of the Claim Notice that the
Indemnifying Party disputes such Claim, with a statement of the basis of such
position, the amount of such Claim shall be conclusively
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deemed a liability of the Indemnifying Party hereunder. In case an objection is
made in writing in accordance with this Section 10.4(a), the Indemnified Party
shall respond in a written statement to the objection within thirty days and,
for sixty days thereafter, attempt in good faith to agree upon the rights of the
respective parties with respect to such Claim (and, if the parties should so
agree, a memorandum setting forth such agreement shall be prepared and signed by
both parties).
(b) (i) In the event that any Claim for which the Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third Party Claim"), the Indemnified
-----------------
Party shall deliver a Claim Notice including a copy of the claim if such claim
was made in writing to the Indemnifying Party. The Indemnifying Party shall have
thirty days from the date of delivery of the Claim Notice to notify the
Indemnified Party (A) whether the Indemnifying Party disputes liability to the
Indemnified Party hereunder with respect to the Third Party Claim, and, if so,
the basis for such a dispute, and (B) if such party does not dispute liability,
whether or not the Indemnifying Party desires, at the sole cost and expense of
the Indemnifying Party, to defend against the Third Party Claim, provided that
the Indemnified Party is hereby authorized (but not obligated) to file any
motion, answer or other pleading and to take any other action which the
Indemnified Party shall deem necessary or appropriate to protect the Indemnified
Party's interests.
(ii) In the event that the Indemnifying Party timely notifies
the Indemnified Party that the Indemnifying Party does not dispute the
Indemnifying Parties' obligation to indemnify with respect to the Third Party
Claim, the Indemnifying Party shall defend the Indemnified Party against such
Third Party Claim by appropriate proceedings, provided that, unless the
Indemnified Party otherwise agrees in writing, the Indemnifying Party may not
settle any Third Party Claim (in whole or in part) if such settlement does not
include a complete and unconditional release of the Indemnified Party. If the
Indemnified Party desires to participate in, but not control, any such defense
or settlement the Indemnified Party may do so at its sole cost and expense. The
Indemnified Party shall cooperate with the Indemnifying Party's defense against
any third-party claim. If the Indemnifying Party elects not to defend the
Indemnified Party against a Third Party Claim, whether by failure of such party
to give the Indemnified Party timely notice as provided herein or otherwise,
then the Indemnified Party, without waiving any rights against such party, may
settle or defend against such Third Party Claim in the Indemnified Party's sole
discretion and the Indemnified Party shall be entitled to recover from the
Indemnifying Party the amount of any settlement or judgment and, on an ongoing
basis, all indemnifiable costs and expenses of the Indemnified Party with
respect thereto, including interest from the date such costs and expenses were
incurred.
(iii) If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in writing to the Indemnifying
Party, any Third Party Claim seeks material prospective relief which could have
an adverse effect on the assets, liabilities, financial condition or results of
operations of the Indemnified Party (or on the Surviving Corporation but only if
the Indemnified Party is CCC and/or Newco in such an instance), the Indemnified
Party shall have the right to control or assume (as the case may be) the defense
of any such Third Party Claim; provided, however, that the Indemnified Party
will not settle any such Third Party Claim without the prior consent of the
Indemnifying Party, which consent shall not be unreasonably withheld. If the
Indemnified Party elects to exercise such right, the Indemnifying Party shall
have the right to participate in, but not control, the defense of such Third
Party Claim at the sole cost and expense of the Indemnifying Party.
(c) Subject to the provisions of Section 10.3, the Indemnified
Party's failure to give reasonably prompt notice as required by this Section
10.4 of any actual, threatened or possible claim or
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<PAGE>
demand which may give rise to a right of indemnification hereunder shall not
relieve the Indemnifying Party of any liability which the Indemnifying Party may
have to the Indemnified Party unless the failure to give such notice materially
and adversely prejudices the Indemnifying Party.
(d) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under this Article 10, provided that the Indemnified
Party shall be obligated to make reasonable efforts to continue pursuing any
payment pursuant to the terms of any insurance policy or to assign its rights
under such policy to the Indemnifying Party.
10.5 SURVIVAL OF REPRESENTATIONS WARRANTIES. The representations of
each of the Company, the Shareholders, CCC and Newco will survive the Closing
until, and will expire upon, the termination of the indemnification obligations
as provided in Section 10.3(e).
10.6 RIGHT TO SET OFF. CCC shall have the right, but not the
obligation, to set off, in whole or in part, against the Pledged Assets, amounts
finally determined under Section 10.4 to be owed to CCC by the Shareholders
under Section 10.1 hereof.
11. NONCOMPETITION
11.1 PROHIBITED ACTIVITIES. Except as described on SCHEDULE 11.1
hereto or as otherwise provided in an employment agreement with CCC or a
subsidiary of CCC, the Surviving Corporation or any other subsidiary of CCC,
each Shareholder agrees that for a period of two years following the Closing
Date, he/she shall not:
(a) engage, as an officer, director, shareholder, owner, partner,
member, joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant, advisor, or sales representative, in any
electrical contracting (including, without limitation, construction, maintenance
and/or design) business selling any products or services in direct competition
with CCC or any of its subsidiaries within 100 miles of any office of CCC or any
office of any of its subsidiaries (the "Territory");
---------
(b) call upon any person who is, at that time, within the Territory,
an employee of CCC or any subsidiary of CCC in a managerial capacity for the
purpose or with the intent of enticing such employee away from or out of the
employ of CCC or any subsidiary of CCC;
(c) call upon any person within the Territory who is, at that time, or
has been, within one year prior to that time, a customer of CCC or any
subsidiary of CCC, for the purpose of soliciting or selling products or services
in direct competition with CCC or any subsidiary of CCC within the Territory;
(d) call upon any person who is, at the time, or has been, within one
year prior to that time, a customer of CCC and/or any subsidiary or affiliate of
CCC with whom the Shareholder has had personal contact for the purpose of
soliciting or selling products or services in direct competition with CCC and/or
any subsidiary or affiliate of CCC; or
(e) on the Shareholder's behalf or on behalf of any competitor, call
upon any person as a prospective acquisition candidate who was, to the
Shareholder?s knowledge, either called upon by
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CCC or a subsidiary of CCC as a prospective acquisition candidate or was the
subject of an acquisition analysis by CCC or any subsidiary of CCC. The
Shareholder, to the extent lacking the knowledge described in the preceding
sentence, shall immediately cease all contact with any prospective acquisition
candidate upon being informed, in writing, that CCC or any subsidiary of CCC had
so called upon such candidate or made an acquisition analysis thereof.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any Shareholder subject to this Article 11 from acquiring as an
investment not more than one percent of the outstanding voting capital stock of
a competing business, whose stock is traded on a national securities exchange or
through the automated quotation system of a registered securities association.
11.2 DAMAGES. Because of the difficulty of measuring economic losses
to CCC and the Surviving Corporation as a result of the breach of the foregoing
covenant, and because of the immediate and irreparable damage that would be
caused to CCC and the Surviving Corporation for which they would have no other
adequate remedy, each Shareholder subject to this Article 11 agrees that, in
the event of a breach by them of the foregoing covenant, the covenant may be
enforced by CCC or the Surviving Corporation by, without limitation, injunctions
and restraining orders.
11.3 REASONABLE RESTRAINT. It is agreed by the parties that the
foregoing covenants in this Article 11 impose a reasonable restraint on the
Shareholders subject to this Article 11 in light of the activities and business
of CCC on the date of the execution of this Agreement and the current and future
plans of CCC and the Surviving Corporation (as successors to the businesses of
the Company).
11.4 SEVERABILITY; REFORMATION. The covenants in this Article 11 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
11.5 INDEPENDENT COVENANT. All of the covenants in this Article 11
shall be construed as an agreement independent of any other provision of this
Agreement, and the existence of any claim or cause of action of the Shareholders
against the Company, the Surviving Corporation or CCC, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
of such covenants. It is specifically agreed that the period of two years
stated above, shall be computed by excluding from such computation any time
during which any Shareholder subject to this Article 11 is in violation of any
provision of this Article 11 and any time during which there is pending in any
court of competent jurisdiction any action (including any appeal from any
judgment) brought by any person, whether or not a party to this Agreement, in
which action CCC or the Surviving Corporation seeks to enforce the agreements
and covenants of the Shareholders set forth in this Article 11 or in which any
person contests the validity of such agreements and covenants or their
enforceability or seeks to avoid their performance or enforcement; provided,
however, that if any Shareholder is found not to be in violation of the
agreements or covenants in any such activity the period during which the action
was pending shall not be excluded from such computation.
11.6 MATERIALITY. CCC, the Company and each Shareholder hereby agree
that the covenants set forth in this Article 11 are a material and substantial
part of the transactions contemplated by this Agreement, and that no portion of
the Base Merger Consideration or the Contingent Merger Consideration shall be
paid for or allocated to the covenants set forth in this Article 11.
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12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
12.1 CONFIDENTIALITY.
(a) None of the parties hereto will use or disclose to third parties
(except as may be necessary for the consummation of the transactions
contemplated hereby, or as required by law, including, without limitation, in
connection with legal proceedings relating to this Agreement and the
transactions contemplated hereby, or otherwise pursuant to subpoena or the
request of a governmental authority, and then only with prior notice to the
other parties hereto, including delivery of a copy of the subpoena or request,
if applicable) this Agreement, any information (including, without limitation,
financial information) received from any other party hereto or its agents in the
course of investigating, negotiating and performing the transactions
contemplated by this Agreement or any confidential information of the Company or
the Surviving Corporation received or that any such party receives in the future
relating to the Company or the Surviving Corporation (such as lists of
customers, operational policies and pricing and cost policies that are valuable,
special and unique assets of the Company or the Surviving Corporation or the
business of the Company or the Surviving Corporation; provided, however, that
each party may disclose such information to such party's officers, directors,
employees, lenders, advisors, attorneys and accountants who need to know such
information in connection with the consummation of the transactions contemplated
by this Agreement and who are informed by such party of the confidential nature
of such information. Nothing shall be deemed to be confidential information
that: (1) is already in such party's possession, provided that such information
is not known by such party to be subject to another confidentiality agreement
with or other obligation of secrecy to the other party hereto or another party,
or (2) becomes generally available to the public other than as a result of a
disclosure by such party or such party's officers, directors, employees,
lenders, advisors, attorneys or accountants, or (3) becomes available to such
party on a non-confidential basis from a source other than the other party
hereto or its advisors, provided that such source is not known by such party to
be bound by a confidentiality agreement with or other obligation of secrecy to
the other party hereto or another party, or (4) is developed independently by
either party without resort to the confidential information of the other party.
In the event this Agreement is terminated and the transactions contemplated
hereby abandoned, each party will return to the other party all written
confidential information (including all documents, work papers and other written
confidential material) obtained by the such party from any other party, or
developed by such party based on confidential information, in connection with
the transactions contemplated by this Agreement.
(b) No party shall publish any press release or make any other public
announcement concerning this Agreement or the transactions contemplated hereby
without the prior written consent of each other party, which shall not be
withheld unreasonably; provided, however, that nothing contained in this
Agreement shall prevent any party, after notification to each other party, from
making any filings with governmental authorities that, in its judgment, may be
required or advisable in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
12.2 DAMAGES. Because of the difficulty of measuring economic losses
as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they would have
no other adequate remedy, CCC, the Surviving Corporation and the Shareholders
agree that, in the event of a breach by any of them of the foregoing covenant,
the covenant may be enforced against them by injunctions and restraining orders.
Nothing herein shall be construed
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as prohibiting any party from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
13. GENERAL
13.1 TERMINATION. This Agreement may be terminated at any time prior
to the Closing Date solely:
(a) by mutual written consent of the Boards of Directors of CCC
and the Company; or
(b) by the holders of a majority of the voting stock of the Company
and the Company as a group on the one hand, or by CCC, on the other hand, if the
Closing shall not have occurred on or before April 30, 1998, provided that the
right to terminate this Agreement under this Section 13.1(b) shall not be
available to either party (with the Shareholders and the Company deemed to be a
single party for this purpose) whose material misrepresentation, breach of
warranty or failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Closing to occur on or before such
date; or
(c) by the holders of a majority of the voting stock of the Company
and the Company as a group on the one hand, or by CCC, on the other hand, if
there is or has been a material breach, failure to fulfill or default on the
part of the other party (with the Shareholders and the Company deemed to be a
single party for this purpose) of any of the representations and warranties
contained herein or in the due and timely performance and satisfaction of any of
the covenants, agreements or conditions contained herein, and the curing of such
default shall not have been made on or before the Closing Date; or
(d) by the holders of a majority of the voting stock of the Company
and the Company as a group on the one hand, or by CCC, on the other hand, if
there shall be a final nonappealable order of a federal or state court in effect
preventing consummation of the Merger; or there shall be any action taken, or
any statute, rule or regulation or order enacted, promulgated or issued or
deemed applicable to the Merger by any governmental entity which would make the
consummation of the Merger illegal; or
13.2 EFFECT OF TERMINATION. (a) In the event of termination of this
Agreement by either or both of CCC and/or the holders of the majority of the
voting stock of the Company and the Company (with such Shareholders and the
Company deemed to be a single party for purposes of this Section 13.2) pursuant
to Section 13.1, prompt written notice thereof shall forthwith be given to the
other party and this Agreement shall terminate and the transactions contemplated
hereby shall be abandoned without further action by any of the parties hereto,
but subject to and without limiting any of the rights of the parties specified
herein in the event a party is in default or breach in any material respect of
its obligations under this Agreement. If this Agreement is terminated as
provided herein:
(i) None of the parties hereto nor any of their respective
partners, directors, officers, shareholders, employees, agents, or affiliates
shall have any liability or further obligation hereunder except with respect to
Article 12 and Article 13; and
47
<PAGE>
(ii) All filings, applications and other submissions relating
to the transactions contemplated hereby as to which termination has occurred
shall, to the extent practicable, be withdrawn from the agency or other person
to which made.
(b) (i) If this Agreement is terminated pursuant to Section
13.1 and any party shall be in material breach of any of its obligations,
representations, warranties or covenants set forth in this Agreement, the other
party shall have the right to pursue all legal or equitable remedies for breach
of contract or otherwise, and
(ii) Without limiting the generality of the foregoing, or any
applicable law, neither CCC and Newco, on the one hand, nor the Company and the
Shareholders, on the other hand, may rely on the failure of any condition
precedent set forth in Articles 8 and 9 to be satisfied as a ground for
termination of this Agreement by such party if such failure was caused by such
party's (or parties') failure to act in good faith, or a breach of or failure to
perform its representations, warranties, covenants or other obligations in
accordance with the terms hereof.
13.3 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of CCC and the other parties hereto, and the heirs and legal
representatives of the Shareholders.
13.4 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement sets forth
the entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement. This
Agreement shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto. Any extension or waiver by any party of
any provision hereto shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
13.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered (which deliveries may be made by telefax)
shall be deemed to be an original, and all of which counterparts taken together
shall constitute but one and the same instrument.
13.6 BROKERS AND AGENTS. CCC and Newco (as a group) and the Company
and each Shareholder (as a group) each represents and warrants to the other that
except as set forth in SCHEDULE 13.6, it/they has/have not employed any broker
or agent in connection with the transactions contemplated by this Agreement and
agrees to indemnify the other against all losses, damages or expenses relating
to or arising out of claims for fees or commission of any broker or agent
employed or alleged to have been employed by such party.
13.7 EXPENSES. CCC has paid and will pay the fees, expenses and
disbursements of CCC and Newco and their agents, representatives, accountants
and counsel incurred in connection with the subject matter of this Agreement.
The Shareholders (and not the Company) have paid and will pay the fees, expenses
and disbursements of the Shareholders, the Company, and their agents,
representatives, financial advisers, accountants and counsel incurred in
connection with the subject matter of this Agreement. It is agreed that the
fees and expenses relating to any HSR Act filing will be split between CCC on
the one hand and the Shareholders on the other. At the election of the
Shareholders, any of the foregoing
48
<PAGE>
fees contemplated under this SECTION 13.7 payable by them will be paid by CCC or
the Company and not the Shareholders, provided that the aggregate amount of the
Base Merger Consideration is reduced by the amount of such expenses with any
such reduction to have no effect on the calculation of the Actual Earn Out EBIT
or the payment of the Contingent Merger Consideration.
13.8 SPECIFIC PERFORMANCE; REMEDIES. Each party hereto acknowledges
that the other parties will be irreparably harmed and that there will be no
adequate remedy at law for any violation by any of them of any of the covenants
or agreements contained in this Agreement, including without limitation, the
noncompetition provisions set forth in Article 11 and the confidentiality
obligations set forth in Article 12. It is accordingly agreed that, in addition
to any other remedies which may be available upon the breach of any such
covenants or agreements, each party hereto shall have the right to obtain
injunctive relief to restrain a breach or threatened breach of, or otherwise to
obtain specific performance of, the other parties, covenants and agreements
contained in this Agreement.
13.9 NOTICES. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to CCC, Newco or the Surviving Corporation to:
Consolidation Capital Corporation
1747 Pennsylvania Avenue, NW
Suite 900
Washington DC 20006
Attn: F. Traynor Beck
Executive Vice President, General Counsel and Secretary
(Telefax: 202/833-1274)
with a required copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Telecopy: (215) 963-5299
Attn: N. Jeffrey Klauder
If to any Shareholder to:
Charles Walker
c/o Walker Engineering, Inc.
10999 Petal Street
Dallas, TX 75238
Telecopy: 1-888 860-4646
49
<PAGE>
with a required copy to:
Charles Stuber
Canterbury, Stuber, Elder, Gooch & Surratt
One Lincoln Centre
5400 LBJ Freeway, Suite 1300
Dallas, TX 75240
Telecopy: (972) 490-7736
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
13.10 GOVERNING LAW. This Agreement shall be governed by and
construed, interpreted and enforced in accordance with the laws of the State of
Delaware, without giving effect to any of the conflicts of laws provisions
thereof that would require the application of the substantive laws of any other
jurisdiction.
13.11 SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstances is held invalid or
unenforceable in any jurisdiction, the remainder hereof, and the application of
such provision to such person or circumstances in any other jurisdiction, shall
not be affected thereby, and to this end the provisions of this Agreement shall
be severable. The preceding sentence is in addition to and not in place of the
severability provisions in Section 11.4.
13.12 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provision of
this Agreement is intended, nor will any provision be interpreted, to provide or
to create any third party beneficiary rights or any other rights of any kind in
any client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
13.13 FURTHER REPRESENTATIONS. Each party to this Agreement
acknowledges and represents that it has been represented by its own legal
counsel in connection with the transactions contemplated by this Agreement, with
the opportunity to seek advice as to its legal rights from such counsel. Each
party further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement.
13.14 REPRESENTATIVE. Each of the Shareholders hereby appoints
Charlie Walker as his exclusive agent and attorney-in-fact to act on his behalf
with respect to any and all matters, claims, controversies, or disputes arising
out of the terms of this Agreement (the "Representative"). Each Shareholder
--------------
further agrees that upon the vote of the Shareholders holding a majority of the
stock of the Company immediately preceding the Closing (the "Shareholder
-----------
Approval") the Representative shall have the power to take any and all actions
- --------
which the Representative believes are necessary or appropriate or in the best
interests of the Shareholders, as fully as if the Shareholders were acting on
their own behalf, including without limitation, consenting to, and settling any
and all claims, disputes or controversies arising hereunder (including without
limitation the calculation and payment of the Merger Consideration), conducting
all negotiations with and otherwise dealing with CCC and the Surviving
Corporation and engaging counsel, accountants and other representatives in
connection with the foregoing matters. CCC and the Surviving Corporation shall
have the right to rely on any actions taken
50
<PAGE>
or omitted to be taken by the Representative as being the act or omission of the
Shareholders, without the need for any inquiry, and any such actions or
omissions shall be binding upon the Shareholders. The Shareholders shall have
the right to change the identity of the Representative upon Shareholder Approval
and shall deliver to CCC and the Surviving Corporation prompt written notice of
any such change of identity, which upon receipt by CCC and the Surviving
Corporation will effect said change. The Shareholders agree to hold the
Representative free and harmless from and indemnify the Representative against
any and all loss, damage or liability which he may sustain as a result of any
action taken in good faith hereunder, including, without limitation, any legal
fees and expenses.
13.15 UNANIMOUS WRITTEN CONSENT OF SHAREHOLDERS. The execution of
this Agreement by all of the Shareholders shall constitute unanimous written
consent of all of the shareholders of the Company approving the Articles of
Merger within the meaning of the State Corporate Laws.
[Execution Page Following]
51
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CONSOLIDATION CAPITAL CORPORATION
By: /s/ Timothy Clayton
--------------------------------------
Timothy Clayton
Executive Vice President
CCC ACQUIRING CO. NO. 10
By: /s/ F. Traynor Beck
--------------------------------------
F. Traynor Beck
WALKER ENGINEERING, INC.
By: /s/ Charlie Walker
--------------------------------------
Charlie Walker
President
SHAREHOLDERS:
/s/ Charlie Walker
------------------------------------------
Charlie Walker
/s/ Ray Naizer
------------------------------------------
Ray Naizer
/s/ Sam Gioldasis
------------------------------------------
Sam Gioldasis
/s/ Jerry Harrington
------------------------------------------
Jerry Harrington
52
<PAGE>
Index of Defined Terms
----------------------
<TABLE>
<CAPTION>
<S> <C>
1933 Act...................................... 3
Accounts Receivable........................... 12
Actual Earn Out EBIT.......................... 4
Affiliate..................................... 25
Affiliates.................................... 56
Agreement..................................... 1, 35
Articles of Merger............................ 1
Audited Financials............................ 11
Balance Sheet Date............................ 11
Base Merger Consideration..................... 3
CCC........................................... 1
CCC Charter Documents......................... 26
CCC Common Stock.............................. 2
CCC Indemnified Parties....................... 40
CCC Indemnified Party......................... 40
CCC Prospectus................................ 25
CCC's Accountant.............................. 4
CCC's knowledge............................... 26
Certificates.................................. 6
Charter Documents............................. 9
Claim Notice.................................. 42
Claims........................................ 42
Closing....................................... 8
Closing Date.................................. 8
COBRA......................................... 19
Code.......................................... 1
Company....................................... 1, 35
Company Common Stock.......................... 1
Company Financial Statements.................. 11
Company Hazardous Materials Activities........ 24
Company's knowledge........................... 9
Constituent Corporations...................... 1
Contingent Merger Consideration............... 4
Contingent Merger Consideration Payment Date.. 5
controlled group.............................. 19
Damages....................................... 40
DOJ........................................... 31
Earn Out EBIT Notice.......................... 4
Earn Out Period Average Price................. 5
Effective Time................................ 8
employee benefit plan......................... 32
Environmental Permits......................... 24
Equipment..................................... 26
ERISA......................................... 18
First Year Earn Out Amount.................... 4
FTC........................................... 31
</TABLE>
53
<PAGE>
GAAP.......................................... 4
golden parachute.............................. 18
group health plans............................ 19
Hazardous Material............................ 24
Indemnification Threshold..................... 41
Indemnified Party............................. 42
Indemnifying Party............................ 42
Intellectual Property......................... 14
Interim Balance Sheet......................... 11
Interim Period Average........................ 3
Inventory..................................... 25
knowledge of CCC.............................. 26
knowledge of Newco............................ 26
knowledge of the Company...................... 9
leased Real Property.......................... 13
liabilities................................... 12
Lien.......................................... 10
Material Adverse Effect....................... 9
Material Contracts............................ 15
Maximum Earn Out Amount....................... 4
Merger........................................ 1
Merger Consideration.......................... 6
Merger Documents.............................. 8
Merger Price.................................. 3
multiemployer pension plan.................... 19
New Accounting Firm........................... 5
Newco......................................... 1
Newco's knowledge............................. 26
PBGC.......................................... 18
Pending Claims................................ 42
Permits....................................... 12
Permitted Encumbrances........................ 13
Person........................................ 34
Plans......................................... 18
Pledged Assets................................ 7
Prime Rate.................................... 5
Qualified Plans............................... 18
Registration Statement........................ 28
Related Party................................. 34
Related Party Agreements...................... 15
Release Date.................................. 8
reportable events............................. 19
Representative................................ 50
Required Consents............................. 38
Revised Earn Out EBIT......................... 5
Second Year Earn Out Amount................... 4
SECURITIES ACT................................ 34
Shareholder................................... 1
Shareholder Approval.......................... 50
54
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Shareholder Indemnified Parties............... 41
Shareholders.................................. 1
State Corporate Laws.......................... 1
Surviving Corporation......................... 1
Tax........................................... 21
Tax Return.................................... 21
tax-free reorganization....................... 1
Territory..................................... 44
Third Party Claim............................. 43
UCC........................................... 25
Year-End Net Worth............................ 11
</TABLE>
55
<PAGE>
SCHEDULES
1.1 Articles of Merger
1.2(c) Directors and Officers of Surviving Corporation
5 Shareholders deemed to be making only limited representations or
warranties under the Agreement
5.1 Due Organization
5.3 No Conflicts
5.4 Capital Stock of the Company
5.5 Transactions in Capital Stock
5.6(a) Subsidiaries
5.6(b) Other Holdings of Company
5.6(c) Promissory Notes
5.7 Predecessor Status
5.8 Shareholder Claims
5.10 Financial Statements
5.11 Liabilities and Obligations; Capital Expenditures; Indebtedness as
of the Balance Sheet Date
5.12 Accounts and Notes Receivable
5.14 Permits
5.15(c) Real Property
5.15(c)(i) Liens securing indebtedness for borrowed money that CCC or one of
its affiliates has agreed to assume at Closing.
5.16(a) Personal Property
5.17 Intellectual Property
5.18(a) Material Contracts
5.18(c) Outstanding balances on all loans or credit agreements
5.18(d) Breaches/defaults/terminations/liens on Material Contracts caused by
transaction
5.19 Government Contracts
5.20 Insurance
5.21 Labor and Employment Matters
5.22 Employment Benefit Plans
5.23(a) Conformity with Law
5.23(b) Litigation
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.27(a) Hazardous Material
5.27(b) Hazardous Materials Activity
5.27(c) Environmental Permits
5.31 "Affiliates" under the 1933 Act
5.32 Location of chief executive offices
5.33 Location of Equipment and Inventory
6.4 No Conflicts (CCC and Newco)
7.4 Related Party Agreements
7.6 Conduct of Business Pending Closing
7.8 Prohibited Activities
8.12 Related Party Receivables and Agreements
11.1 Prohibited Activities
13.6 Brokers and Agents
56
<PAGE>
EXHIBITS
1.2(a) Articles of Incorporation of Newco
1.2(b) Bylaws of Newco
8.5 Opinion of Counsel
8.9A Walker Employment Agreement
8.9B Other Employment Agreement
8.10 Affiliate Agreements
8.11 Shareholders' Releases
57
<PAGE>
EXHIBIT 10.02
CONSOLIDATION CAPITAL CORPORATION
1997 NON-EMPLOYEE DIRECTORS' STOCK PLAN
1. Purpose. The purpose of this 1997 Non-Employee Directors' Stock Plan
-------
(the "Plan") of Consolidation Capital Corporation, a Delaware corporation (the
"Company"), is to advance the interests of the Company and its stockholders by
providing a means to attract and retain highly qualified persons to serve as
non-employee directors of the Company and to enable such persons to acquire or
increase a proprietary interest in the Company, thereby promoting a closer
identity of interests between such persons and the Company's stockholders.
2. Definitions. In addition to terms defined elsewhere in the Plan, the
-----------
following are defined terms under the Plan:
(a) "Board" means the Board of Directors of the Company.
(b) A "Change in Control" shall be deemed to have occurred if:
(i) the date of the acquisition by any "person" (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act), excluding the Company or
any of its subsidiaries or affiliates or any employee benefit plan
sponsored by any of the foregoing, of beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act) of 50% or more of either (x)
the then outstanding shares of common stock of the Company or (y) the then
outstanding voting securities entitled to vote generally in the election of
directors; or
(ii) the date the individuals who constitute the Board as of the date
of the Initial Public Offering (the "Incumbent Board") cease for any reason
to constitute at least a majority of the members of the Board, provided
that any individual becoming a director subsequent to the effective date of
this Agreement whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than any individual
whose nomination for election to Board membership was not endorsed by the
Company's management prior to, or at the time of, such individual's initial
nomination for election) shall be, for purposes of this Agreement,
considered as though such person were a member of the Incumbent Board; or
(iii) the consummation of a merger, consolidation, recapitalization,
reorganization, sale or disposition of all or a substantial portion of the
Company's assets, a reverse stock split of outstanding voting securities,
the issuance of shares of stock of the Company in connection with the
acquisition of the stock or assets of another entity, provided, however,
that a Change in Control shall not occur
<PAGE>
under this clause (iii) if consummation of the transaction would result in
at least 70% of the total voting power represented by the voting securities
of the Company (or, if not the Company, the entity that succeeds to all or
substantially all of the Company's business) outstanding immediately after
such transaction being beneficially owned (within the meaning of Rule 13d-3
promulgated pursuant to the Exchange Act) by at least 75% of the holders of
outstanding voting securities of the Company immediately prior to the
transaction, with the voting power of each such continuing holder relative
to other such continuing holders not substantially altered in the
transaction.
(c) "Deferred Share" means a credit to a Participant's deferral account
under Section 7 which represents the right to receive one Share upon settlement
of the deferral account. Deferral accounts, and Deferred Shares credited
thereto, are maintained solely as bookkeeping entries by the Company evidencing
unfunded obligations of the Company.
(d) "Fair Market Value" of a Share on a given date mean the last sales
price or, if last sales information is generally unavailable, the average of the
closing bid and asked prices per Share on such date (or, if there was no trading
or quotation in the stock on such date, on the next preceding date on which
there was trading or quotation) as reported in the Wall Street Journal.
-------------------
(e) "Initial Public Offering" shall mean an initial public offering of
shares of Stock in a firm commitment underwriting registered with the Securities
and Exchange Commission in compliance with the provisions of the 1933 Act.
(f) "Option" means the right, granted to a director under Section 6, to
purchase a specified number of Shares at the specified exercise price for a
specified period of time under the Plan. All Options will be non-qualified
stock options.
(g) "Participant" means any person who, as a non-employee director of the
Company, has been granted an Option or Deferred Shares which remain outstanding
or who has elected to be paid fees in the form of Shares or Deferred Shares
under the Plan.
(h) "Share" means a share of common stock, $.01 par value, of the Company
and such other securities as may be substituted for such Share or such other
securities pursuant to Section 8.
3. Shares Available Under the Plan. Subject to adjustment as provided in
-------------------------------
Section 8, the total number of Shares reserved and available for issuance under
the Plan is 300,000. Such Shares may be authorized but unissued Shares,
treasury Shares, or Shares acquired in the market for the account of the
Participant. For purposes of the Plan, Shares that may be purchased upon
exercise of an Option or delivered in settlement of Deferred Shares will not be
considered to be available after such Option has been granted or Deferred Share
credited, except for purposes of issuance in connection with such Option or
Deferred Share; provided, however, that, if an Option
-----------------
2
<PAGE>
expires for any reason without having been exercised in full, the Shares
subject to the unexercised portion of such Option will again be available for
issuance under the Plan.
4. Administration of the Plan. The Plan will be administered by the
--------------------------
Board; provided, however, that any action by the Board relating to the Plan will
-----------------
be taken only if, in addition to any other required vote, such action is
approved by the affirmative vote of a majority of the directors who are not then
eligible to participate in the Plan.
5. Eligibility. Each director of the Company who, on any date on which
-----------
an Option is to be granted under Section 6 or on which fees are to be paid which
could be received in the form of Shares or deferred in the form of Deferred
Shares under Section 7, is not an employee of the Company or any subsidiary of
the Company will be eligible, at such date, to be granted an Option under
Section 6 or receive fees in the form of Shares or defer fees in the form of
Deferred Shares under Section 7. No person other than those specified in this
Section 5 will be eligible to participate in the Plan.
6. Options.
-------
(a) Number of Shares. With respect to any person who becomes a director of
----------------
the Company, such person shall receive, on later of the date of the Initial
Public Offering or the date that such person commences service as a director and
is otherwise eligible pursuant to Section 5, an Option to purchase 20,000
Shares. Thereafter, each such person who continues to serve as a director shall
receive, on the day after each annual meeting of the Company's stockholders, an
Option to purchase 5,000 Shares, provided that on any such date, such person
remains eligible pursuant to Section 5.
(b) Exercise Price. The exercise price per Share purchasable upon exercise
--------------
of an Option will be equal to 100% of the Fair Market Value of a Share on the
date of grant of the Option.
(c) Option Expiration. A Participant's Option will expire at the earlier
-----------------
of (i) 10 years after the date of grant or (ii) one year after the date the
Participant ceases to serve as a director of the Company for any reason,
provided, however, that with respect to clause (ii), such Option shall be
exercisable during such one-year period only to the extent it was exercisable
pursuant to Section 6(d) on the date of such cessation.
(d) Exercisability. Each Option shall become exercisable in two equal
--------------
installments. The first installment shall become exercisable on the date that is
six months from the date the Option is granted and the second installment shall
become exercisable on the date that is one year from the date the Option is
granted, provided, however, that unless otherwise determined by the Board, all
Options held by a Participant shall become immediately exercisable upon (i) a
Change in Control or (ii) the death of such Participant.
3
<PAGE>
(e) Method of Exercise. A Participant may exercise an Option, in whole or
------------------
in part, at such time as it is exercisable and prior to its expiration, by
giving written notice of exercise to the Secretary of the Company, specifying
the Option to be exercised and the number of Shares to be purchased, and paying
in full the exercise price in cash (including by check) or by surrender of
Shares already owned by the Participant (except for Shares acquired from the
Company by exercise of an option less than six months before the date of
surrender) having a Fair Market Value at the time of exercise equal to the
exercise price, or by a combination of cash and Shares.
7. Receipt of Shares or Deferred Shares In Lieu of Fees. Each director
----------------------------------------------------
of the Company may elect to be paid fees, in his or her capacity as a director
(including annual retainer fees for service on the Board, fees for service on a
Board committee, fees for service as chairman of a Board committee, and any
other fees paid to directors) in the form of Shares or Deferred Shares in lieu
of cash payment of such fees, if such director is eligible to do so under
Section 5 at the date any such fee is otherwise payable. If so elected, payment
of fees in the form of Shares or Deferred Shares shall be made in accordance
with this Section 7.
(a) Elections. Each director who elects to be paid fees for a given
---------
calendar year in the form of Shares shall file an election in such form and in
such time in advance as prescribed by the Board. Unless otherwise determined by
the Board, each director who elects to defer such payment of fees in the form of
Deferred Shares for such year must file an irrevocable written election with the
Secretary of the Company no later than December 31 of the year preceding such
calendar year; provided, however, that any newly elected or appointed director
-----------------
may file an election for any year not later than 30 days after the date such
person first became a director, and a director may file an election for the year
in which the Plan became effective not later than 30 days after the date of
effectiveness. An election by a director shall be deemed to be continuing
unless the director revokes or changes such election by filing a new election
form by the due date for such form specified in this Section 7(a). The election
must specify the following:
(i) A percentage of fees to be received in the form of Shares or
deferred in the form of Deferred Shares under the Plan; and
(ii) In the case of a deferral, the period or periods during which
settlement of Deferred Shares will be deferred (subject to such limitations
as may be specified by counsel to the Company).
(b) Payment of Fees in the Form of Shares. At any date on which fees are
-------------------------------------
payable to a Participant who has elected to receive such fees in the form of
Shares, the Company will issue to such Participant, or to a designated third
party for the account of such Participant, a number of Shares having an
aggregate Fair Market Value at that date equal to the fees, or as nearly as
possible equal to the fees (but in no event greater than the fees), that would
have been payable at such date but for the Participant's election to receive
Shares in lieu thereof. If the Shares are to be credited to an account
maintained by the Participant and to the extent reasonably practicable without
requiring the actual issuance of fractional Shares, the Company shall cause
4
<PAGE>
fractional Shares to be credited to the Participant's account. If fractional
Shares are not so credited, any part of the Participant's fees not paid in the
form of whole Shares will be payable in cash to the Participant (either paid
separately or included in a subsequent payment of fees, including a subsequent
payment of fees subject to an election under this Section 7).
(c) Deferral of Fees in the Form of Deferred Shares. The Company will
-----------------------------------------------
establish a deferral account for each Participant who elects to defer fees in
the form of Deferred Shares under this Section 7. At any date on which fees are
payable to a Participant who has elected to defer fees in the form of Deferred
Shares, the Company will credit such Participant's deferral account with a
number of Deferred Shares equal to the number of Shares having an aggregate Fair
Market Value at that date equal to the fees that otherwise would have been
payable at such date but for the Participant's election to defer receipt of such
fees in the form of Deferred Shares. The amount of Deferred Shares so credited
shall include fractional Shares calculated to at least three decimal places.
(d) Crediting of Dividend Equivalents. Whenever dividends are paid or
---------------------------------
distributions made with respect to Shares, a Participant to whom Deferred Shares
are then credited in a deferral account shall be entitled to be receive, as
dividend equivalents, an amount equal in value to the amount of the dividend
paid or property distributed on a single Share multiplied by the number of
Deferred Shares (including any fractional Share) credited to his or her deferral
account as of the record date for such dividend or distribution. Such dividend
equivalents shall be credited to the Participant's deferral account as a number
of Deferred Shares determined by dividing the aggregate value of such dividend
equivalents by the Fair Market Value of a Share at the payment date of the
dividend or distribution.
(e) Settlement of Deferred Shares. The Company will settle the
-----------------------------
Participant's deferral account by delivering to the Participant (or his or her
beneficiary) a number of Shares equal to the number of whole Deferred Shares
then credited to his or her deferral account (or a specified portion in the
event of any partial settlement), together with cash in lieu of any fractional
Share remaining at a time that less than one whole Deferred Share is credited to
such deferral account. Such settlement shall be made at the time or times
specified in the Participant's election filed in accordance with Section 7(a);
provided, however, that a Participant may further defer settlement of Deferred
- -----------------
Shares if counsel to the Company determines that such further deferral likely
would be effective under applicable federal income tax laws and regulations.
(f) Nonforfeitability. The interest of each Participant in any fees paid
-----------------
in the form of Shares or Deferred Shares (and any deferral account relating
thereto) at all times will be nonforfeitable.
8. Adjustment Provisions.
---------------------
(a) Corporate Transactions and Events. In the event any dividend or other
---------------------------------
distribution (whether in the form of cash, Shares or other property),
recapitalization, forward or
5
<PAGE>
reverse split, reorganization, merger, consolidation, spin-off, combination,
repurchase, exchange of Shares or other securities of the Company, extraordinary
dividend (whether in the form of cash, Shares, or other property), liquidation,
dissolution, or other similar corporate transaction or event affects the Shares
such that an adjustment is appropriate in order to prevent dilution or
enlargement of each Participant's rights under the Plan, then an adjustment
shall be made, in a manner that is proportionate to the change to the Shares and
otherwise equitable, in (i) the number and kind of Shares remaining reserved and
available for issuance under Section 3, (ii) the number and kind of Shares
issuable upon exercise of outstanding Options, and/or the exercise price per
Share thereof (provided that no fractional Shares will be issued upon exercise
of any Option), (iii) the number and kind of Shares to be issued pursuant to
Section 6(a), (iv) the kind of Shares to be issued in lieu of fees under Section
7, and (v) the number and kind of Shares to be issued upon settlement of
Deferred Shares under Section 7. In addition, the Board is authorized to make
such adjustments in recognition of unusual or non-recurring events (including,
without limitation, events described in the preceding sentence) affecting the
Company or any subsidiary or the financial statements of the Company or any
subsidiary, or in response to changes in applicable laws, regulations or
accounting principles. The foregoing not withstanding, no adjustment may be made
hereunder except as will be necessary to maintain the proportionate interest of
the Participant under the Plan and to preserve, without exceeding, the value of
outstanding Options and potential grants of Options and the value of outstanding
Deferred Shares.
(b) Insufficient Number of Shares. If at any date an insufficient number
-----------------------------
of Shares are available under the Plan for the receipt of fees in the form of
Shares or deferral of fees in the form of Deferred Shares at that date, fees
shall be paid in the form of Shares or deferred in the form of Deferred Shares
proportionately among directors then eligible to participate to the extent
Shares are then available and otherwise as provided under Section 7.
9. Changes to the Plan. The Board of Directors may amend, alter,
-------------------
suspend, discontinue, or terminate the Plan or authority to grant Options or pay
fees in the form of Shares or Deferred Shares under the Plan without the consent
of stockholders or Participants, except that any amendment or alteration will be
subject to the approval of the Company's stockholders at or before the next
annual meeting of stockholders for which the record date is after the date of
such Board action if such stockholder approval is required by any federal or
state law or regula tion or the rules of any stock exchange or automated
quotation system as then in effect, and the Board may otherwise determine to
submit other such amendments or alterations to stockholders for approval;
provided, however, that, without the consent of an affected Participant, no such
- -----------------
action may materially impair the rights of such Participant with respect to any
previously granted Option or any previous payment of fees in the form of Shares
or Deferred Shares.
10. General Provisions.
------------------
(a) Agreements. Options, Deferred Shares, and any other right or
----------
obligation under the Plan may be evidenced by agreements or other documents
executed by the Company and the
6
<PAGE>
Participant incorporating the terms and
conditions set forth in the Plan, together with such other terms and conditions
not inconsistent with the Plan, as the Board may from time to time approve.
(b) Compliance with Laws and Obligations. The Company will not be
------------------------------------
obligated to issue or deliver Shares in connection with any Option, in payment
of any directors' fees, or in settlement of Deferred Shares in a transaction
subject to the registration requirements of the Securities Act of 1933, as
amended, or any other federal or state securities law, any requirement under any
listing agreement between the Company and any stock exchange or automated
quotation system, or any other law, regulation, or contractual obligation of the
Company, until the Company is satisfied that such laws, regulations, and other
obligations of the Company have been complied with in full. Certificates
representing Shares issued under the Plan will be subject to such stop-transfer
orders and other restrictions as may be applicable under such laws, regulations,
and other obligations of the Company, including any requirement that a legend or
legends be placed thereon.
(c) Limitations on Transferability. Unless otherwise permitted by the
------------------------------
Board, Options, Deferred Shares, and any other right under the Plan will not be
transferable by a Partici pant except by will or the laws of descent and
distribution (or to a designated beneficiary in the event of a Participant's
death), and will be exercisable during the lifetime of the Participant only by
such Participant or his or her guardian or legal representative. Options,
Deferred Shares, and other rights under the Plan may not be pledged, mortgaged,
hypothecated, or otherwise encumbered, and shall not be subject to the claims of
creditors of any Participant.
(d) No Right To Continue as a Director. Nothing contained in the Plan or
----------------------------------
any agreement hereunder will confer upon any Participant any right to continue
to serve as a director of the Company.
(e) No Stockholder Rights Conferred. Nothing contained in the Plan or any
-------------------------------
agreement hereunder will confer upon any Participant (or any person or entity
claiming rights by or through a Participant) any rights of a stockholder of the
Company unless and until Shares are in fact issued to such Participant (or
person) or, in the case an Option, such Option is validly exercised in
accordance with Section 6.
(f) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
--------------------------
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other compensatory arrangements for directors as it may deem desirable.
(g) Governing Law. The validity, construction, and effect of the Plan and
-------------
any agreement hereunder will be determined in accordance with the laws of the
State of Delaware, without giving effect to principles of conflicts of laws, and
applicable federal law.
7
<PAGE>
11. Effective Date and Plan Termination. The Plan will be effective as of
-----------------------------------
the date of its approval by the stockholders of the Company, and, unless earlier
terminated by action of the Board, shall terminate at such time as no Shares
remain available for issuance under the Plan and the Company and Participants
have no further rights or obligations under the Plan.
8
<PAGE>
Exhibit 10.11
EMPLOYMENT AGREEMENTEMPLOYMENT AGREEMENT
----------------------------------------
This Employment Agreement, dated this 11th day of March, 1998, is by and
between Consolidation Capital Corporation Electrical Services, Inc., a Delaware
corporation (the "Company"), and William P. Love, Jr., a resident of the State
of Kansas ("Employee").
R E C I T A L S
The Company desires to employ Employee and to have the benefit of his
skills and services, and Employee desires to accept employment with the Company,
on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants
and conditions set forth herein, and the performance of each, the parties
hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. EMPLOYMENT; TERM. The term of this Agreement shall begin on the date
----------------
hereof and continue for two (2) years (the "Term"), and, unless terminated as
herein provided, may be extended on such terms and conditions as the parties
hereto mutually agree.
2. POSITION AND DUTIES. The Company hereby employs Employee as Chief
-------------------
Executive Officer of the Company. Employee shall have such responsibilities,
duties and authority as are accorded to the office of Chief Executive Officer
and are otherwise assigned to him by the Company's Board of Directors (the
"Board")consistent with his office as Chief Executive Officer. Employee shall
report directly to the Board.
3. COMPENSATION. For all services rendered by Employee, the Company
------------
shall compensate Employee as follows:
(a) Base Salary. Effective on the date, hereof, the base salary
payable to Employee shall be Two Hundred Thousand Dollars ($200,000) per year,
payable on a regular basis in accordance with the Company's standard payroll
procedures, but not less than monthly. On at least an annual basis, the Board
will review Employee's performance and may make increases to such base salary
if, in its discretion, any such increase is warranted.
(b) Incentive Bonus Plan. Company agrees to establish an Incentive
Bonus Plan ("Company's Incentive Bonus Plan") on or before March 31, 1999.
Employee shall be eligible to receive a performance-based incentive bonus for
each calendar year during the Term beginning January 1, 1999, based upon the
achievement of the criteria specified in the Company's Incentive Bonus Plan, as
may be modified or amended from time to time. The incentive bonus, if earned,
will be payable in the form of cash, stock options, or other non-cash awards (or
any combination of the foregoing), in such proportions, and in such forms, as
are determined by the Board or a compensation committee thereof. If the
Company's Incentive Bonus Plan is terminated for any
<PAGE>
reason, the Company will implement a reasonable alternative incentive bonus
arrangement for Employee.
(c) Perquisites, Benefits, and Other Compensation. Employee shall be
entitled to the same perquisites and benefits as Employee is receiving as of the
date of Employee's execution of this Agreement, except that Employee shall not
be entitled to a golf club membership, subject to such changes, additions, or
deletions as the Company may make from time to time, as well as such other
perquisites or benefits as may be specified from time to time by the Board.
4. EXPENSE REIMBURSEMENT. The Company shall reimburse employee for (or,
---------------------
at the Company's option, pay) all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his services
hereunder during the Term. All reimbursable expenses shall be appropriately
documented in reasonable detail by Employee upon submission of any request for
reimbursement, and in a format and manner consistent with the Company's expense
reporting policy, as well as applicable federal and state tax record keeping
requirements.
5. PLACE OF PERFORMANCE. Employee shall carry out his duties and
--------------------
responsibilities hereunder principally in and from the Greater Kansas City
Metropolitan Area. The Company agrees that it may not request or require, for
any reason whatsoever, Employee to relocate from his present residence to
another geographic location.
6. TERMINATION; RIGHTS ON TERMINATION. Employee's employment may be
----------------------------------
terminated in any one of the following ways, prior to the expiration of the
Term:
(a) Death. The death of Employee shall immediately terminate the
Term, and no severance compensation shall be owed to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or
mental illness or injury, Employee shall have been unable to perform the
material duties of his position on a full-time basis for a period of four (4)
consecutive months, then 30 days after written notice to the Employee (which
notice may be given before or after the end of the aforementioned periods, but
which shall not be effective earlier than the last day of the applicable
period), the Company may terminate Employee's employment hereunder if Employee
is unable to resume his full-time duties at the conclusion of such notice
period. Also, Employee may terminate his employment hereunder if his health
should become impaired to the extent that makes the continued performance of his
duties hereunder hazardous to his physical or mental health or his life,
provided that Employee shall have furnished the Company with a written statement
from a qualified doctor to such effect and provided further, that, at the
Company's request made within 30 days from the date of such written statement,
Employee shall submit to an examination by a doctor selected by the Company who
is reasonably acceptable to Employee or Employee's doctor and such doctor shall
have concurred in the conclusion of Employee's doctor. Subject to Section 6(g)
below, if Employee's employment is terminated as a result of Employee's
disability, the Company shall continue to pay Employee his base salary at the
then-current rate for the longer of (i) six (6) months from the effective date
of termination, or (ii) whatever time period is remaining under the Term. Such
payments shall be made in accordance with the Company's regular payroll cycle.
2
<PAGE>
(c) Termination by the Company "For Cause." The Company may
terminate the Agreement ten (10) days after written notice to Employee for good
cause, which shall be: (1) Employee's willful, material and irreparable breach
of this Agreement; (2) Employee's gross negligence in the performance or
intentional nonperformance (continuing for ten (10) days after receipt of
written notice of need to cure) of any of employee's material duties and
responsibilities hereunder; (3) Employee's unwillingness or failure to perform
his material duties satisfactorily (as determined by the Board) in accordance
with the provisions specified herein and such unwillingness or failure is not
cured by Employee within ten (10) days of written notice thereof; (4)
Employee's willful dishonesty, fraud or misconduct with respect to, or
disparagement of, the business or affairs of the Company which materially and
adversely affects the operations or reputation of the Company; (5) Employee's
conviction of a felony; or (6) alcohol or illegal drug abuse by Employee. In
the event of a termination for good cause, as enumerated above, Employee shall
have no right to any severance compensation.
(d) Without Cause. At any time after the commencement of employment,
the Company may, without cause, terminate the Term and Employee's employment,
effective thirty (30) days after written notice is provided to the Employee.
Should Employee be terminated by the Company without cause, subject to Sections
6(g) and 6(h) below, Employee shall receive from the Company the base salary at
the rate, plus paid group health insurance, then in effect, for the longer of:
(i) one (1) year from the date of termination or (ii) whatever time period is
remaining under the Term. Such payments shall be made in accordance with the
Company's regular payroll cycle.
(e) Change in Control of the Company. Refer to Section 20 below.
(f) Termination by Employee for Good Reason. Employee may resign or
terminate his employment hereunder for "Good Reason". As used herein, "Good
Reason" shall mean the continuance, after ten (10) days' prior written notice by
Employee to the Company, specifying the basis for such Employee's having Good
Reason to terminate this Agreement, any material breach of this Agreement by the
Company, including the failure to pay Employee on a timely basis the amounts to
which he is entitled under this Agreement. If Employee resigns or otherwise
terminates his employment for any reason other than Good Reason as defined in
Section 6(f), Employee shall receive no severance compensation. If Employee
resigns for Good Reason, Employee shall be entitled to severance as if he had
been terminated without cause.
(g) Payment Through Termination. Upon termination of Employee's
employment for any reason provided above, Employee shall be entitled to receive
all compensation earned and all benefits and reimbursements (including payments
for accrued vacation and sick leave, in each case in accordance with applicable
policies of the Company) due through the effective date of termination.
Additional compensation subsequent to termination, if any, will be due and
payable to Employee only to the extent and in the manner expressly provided
above in this Section 6. With respect to incentive bonus compensation, Employee
shall be entitled to receive any bonus declared but not paid prior to
termination. In addition, in the event of a termination under Section 6(d) or
6(f), Employee shall be entitled to receive incentive bonus compensation through
the end of the Company's fiscal year in which termination occurs, calculated as
if Employee had remained employed by the Company through the end of such fiscal
year, and paid in such amounts, at such
3
<PAGE>
times, and in such forms as are determined pursuant to Section 3(b) above. In
the event of a termination under Section 6(b), Employee shall be entitled to
receive incentive bonus compensation for the fiscal year in which termination
occurs, calculated only through the date of Employee's termination, and paid in
such amounts, at such times, and in such forms as are determined pursuant to
Section 3(b) above. Except as specified in the preceding three (3) sentences,
Employee shall not be entitled to receive any incentive bonus compensation after
the effective date of termination of his employment. All other rights and
obligations of the Company and Employee under this Agreement shall cease as of
the effective date of termination, except that the Company's obligations under
Section 11 below and Employee's obligations under Sections 7, 8, 9 and 10 below
shall survive such termination in accordance with their terms.
(h) Right to Offset. In the event of any termination of Employee's
employment under this Agreement, the Employee shall have no obligation to seek
other employment; provided, that in the event that (1) Employee secures new
employment or any consulting or other similar arrangement during the period that
any payment is continuing pursuant to the provisions of this Section 6 and which
Employee did not have at the time of such termination, or (2) Employee secures
increased compensation under any other employment, consulting or other similar
arrangement during the period that any payment is continuing pursuant to the
provisions of this Section 6, the Company shall have the right to reduce the
amounts to be paid hereunder by the amount of Employee's earnings or increased
earnings (net of executive placement fees or other similar costs), as the case
may be, from such other employment, consulting or other arrangement.
(i) Options. The rights relating to Employee's stock options shall
be governed by the terms and conditions of Consolidation Capital Corporation's
Long-Term Incentive Plan (the "Incentive Plan"), it being understood and agreed
that upon or after Employee's termination of employment with the Company for any
reason, including termination without cause, his options shall only be
exercisable if and to the extent that they had become exercisable before such
termination and shall remain exercisable only to the extent provided by that
plan.
7. RESTRICTIONS ON COMPETITION.
---------------------------
(a) During the Term, and thereafter, if Employee continues to be
employed by the Company, for the duration of such period, and thereafter for the
Restricted Period (defined below), Employee shall not, directly or indirectly,
for himself or on behalf of or in conjunction with any other person, company,
partnership, corporation, business, group, or other entity (each, a "Person"):
(i) engage, as an officer, director, shareholder, owner, partner,
member, joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant, advisor, or sales representative, in any
business selling any products or services in direct competition with the
Company, within 100 miles of any office of the Company and/or any office of the
Company's subsidiaries (the "Territory");
(ii) call upon any Person who is, at that time, within the
Territory, an employee of the Company in a managerial capacity for the purpose
or with the intent of enticing
4
<PAGE>
such employee away from or out of the employ of the Company and/or any of the
Company's subsidiaries;
(iii) call upon any Person within the Territory who is, at the
time, or has been, within one year prior to that time, a customer of the Company
and/or the Company's subsidiaries for the purpose of soliciting or selling
products or services in direction competition with the Company and/or any of the
Company's subsidiaries within the Territory;
(iv) call upon any Person who is, at the time, or has been,
within one year prior to that time, a customer of Consolidation Capital
Corporation ("CCC") and/or any of CCC's subsidiaries and affiliates with whom
Employee has had personal contact for the purpose of soliciting or selling
products or services in direct competition with CCC and/or CCC's subsidiaries
and affiliates;
(v) on employee's own behalf or on behalf of any competitor, call
upon any Person as a prospective acquisition candidate who is or, during
Employee's employment by the Company, was, to Employee's knowledge, either
called upon by the Company as a prospective acquisition candidate or was the
subject of an acquisition analysis conducted by the Company. Employee, to the
extent lacking the knowledge described in the preceding sentence, shall
immediately cease all contact with any prospective acquisition candidate upon
being informed, in writing, that the Company had so called upon such candidate
or made an acquisition analysis thereof.
(b) The foregoing covenants shall not be deemed to prohibit Employee
from acquiring as an investment not more than one percent (1%) of the capital
stock of a competing business, whose stock is traded on a national securities
exchange or through the automated quotation system of a registered securities
association.
(c) It is further agreed that, in the event that Employee shall cease
to be employed by the Company and enters into a business or pursues other
activities that, at such time, are not in competition with the Company, Employee
shall not be chargeable with a violation of this Section 7 if the Company
subsequently enters the same (or a similar) competitive business or activity or
commences competitive operations within 100 miles of the Employee's new business
or activities. In addition, if Employee has no actual knowledge that his actions
violate the terms of this Section 7, Employee shall not be deemed to have
breached the restrictive covenants contained herein if, promptly after being
notified by the Company of such breach, Employee ceases the prohibited actions.
(d) For the purposes of this Section 7, references to "the Company"
shall mean Consolidation Capital Corporation Electrical Services, Inc. and its
subsidiaries.
(e) The covenants in this Section 7 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions of
any other covenant. If any provision of this Section 7 relating to the time
period or geographic area of the restrictive covenants shall be declared by a
court of competent jurisdiction to exceed the maximum time period or geographic
area, as applicable, that such court deems reasonable and enforceable, said time
period
5
<PAGE>
or geographic area shall be deemed to be, and thereafter shall become,
the maximum time period or largest geographic area that such court deems
reasonable and enforceable and this Agreement shall automatically be considered
to have been amended and revised to reflect such determination.
(f) All of the covenants in this Section 7 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants; provided, that upon
the termination of Employee's employment by Employee for Good Reason pursuant to
Section 6(f) hereof, the Employee may, upon 30 days' prior written notice to the
Company, waive his right to receive any additional compensation pursuant to this
Agreement and engage in any activity prohibited by the covenants of this Section
7. It is specifically agreed that the Restricted Period defined in this Section
7, during which the agreements and covenants of Employee made in this Section 7
shall be effective, shall be computed by excluding from such computation any
time during which Employee is in violation of any provision of this Section 7.
(g) Employee has carefully read and considered the provisions of this
Section 7 and, having done so, agrees that the restrictive covenants in this
Section 7 impose a fair and reasonable restraint on Employee and are reasonably
required to protect the interests of the Company and its officers, directors,
employees, and stockholder. It is further agreed that the Company and Employee
intend that such covenants be construed and enforced in accordance with the
changing activities, business, and locations of the Company throughout the term
of these covenants.
(h) As used herein, the "Restricted Period" shall be defined as
follows: (1) in the event Employee's employment hereunder is terminated for
cause as defined in Section 6(c), the "Restricted Period" shall mean that period
of time equal to the longer of: (i) two (2) years from the date of this
Agreement or (ii) the period during which Employee is entitled to receive and is
receiving any payment pursuant to paragraph 6 hereof; (2) in the event
Employee's employment hereunder is terminated without cause pursuant to Section
6(d), or for good reason as defined in Section 6(f), the "Restricted Period"
shall mean that period of time equal to the longer of: (i) one (1) year from
the date following the termination of his employment under this Agreement or
(ii) whatever time period is remaining under the Term; or (3) in the event
Employee terminates his employment for any reason other than for "good reason"
as defined in Section 6(f), the "Restricted Period" shall be two (2) years from
the date Employee terminates his employment hereunder.
8. CONFIDENTIAL INFORMATION. Employee is employed hereunder by the
------------------------
Company in a confidential relationship wherein Employee, in the course of his
employment with the Company, has and will continue to become familiar with and
aware of information as to the Company's customers, specific manner of doing
business, including the processes, techniques and trade secrets utilized by the
Company and its future plans with respect thereto, all of which has been and
will be established and maintained at great expense to the Company. This
information is confidential and constitutes the valuable good will of the
Company. Employee therefor agrees that he will not, during or after the term of
his employment with the Company, disclose the specific terms of the Company's
relationships or agreements with its significant vendors or customers or any
other significant and material trade secret of the Company whether in existence
or proposed, to any person, firm,
6
<PAGE>
partnership, corporation or business for any reason or purpose whatsoever, with
the exception that the provisions of this Section will not apply to Confidential
Information that otherwise becomes generally known in the industry or to the
public through no act of the Employee or any person or entity acting by or on
the Employee's behalf, or which is required to be disclosed by court order or
applicable law.
9. INVENTIONS. Employee shall disclose promptly to the Company any and
----------
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company and which Employee conceives as a result of his
employment by the Company. Employee hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Employee shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
10. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
--------------------------
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Employee by or on behalf of the Company (including
the respective subsidiaries thereof) or their representatives, vendors or
customers which pertain to the business of the Company (including the respective
subsidiaries thereof) shall be and remain the property of the Company, and be
subject at all times to its discretion and control. Likewise, all
correspondence, reports, records, charts, advertising materials and other
similar data pertaining to the business, activities or future plans of the
Company which is collected by Employee shall be delivered promptly to the
Company without request by it upon termination of Employee's employment.
11. INDEMNIFICATION. In the event Employee is made a party to any
---------------
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Employee), by reason of the fact that he is or was performing services
under this Agreement then the Company shall indemnify Employee against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith to the fullest extent provided by Delaware law and in accordance with
the Company's By-laws.
12. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to the
-------------------
Company that the execution of this Agreement by Employee and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Employee agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Employee and such third party
which was in existence as of the date of this Agreement.
7
<PAGE>
13. ASSIGNMENT; BINDING EFFECT. Employee understands that he has been
--------------------------
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Employee agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Company may
assign Agreement only to the purchaser of substantially all of the assets of the
Company. Subject to the preceding two (2) sentences, this Agreement shall be
binding upon, inure to the benefit of and be enforceable by the parties hereto
and their respective heirs, legal representatives, successors and assigns.
14. COMPLETE AGREEMENT; WAIVER; AMENDMENT. This Agreement is not a
-------------------------------------
promise of future employment. Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement. This Agreement is the final, complete, and exclusive statement and
expression of the agreement between the Company and Employee with respect to the
subject matter hereof, and cannot be varied, contradicted, or supplemented by
evidence of any prior or contemporaneous oral of written agreements. This
written Agreement may not be later modified except by a further writing signed
by a duly authorized officer of the Company and Employee, and no term of this
agreement may be waived except by a writing signed by the party waiving the
benefit of such term.
15. NOTICE. Whenever any notice is required hereunder, it shall be given
------
in writing addressed as follows:
To the Company: Consolidation Capital Corporation
Electrical Services, Inc.
1747 Pennsylvania Avenue, N.W., Ste. 900
Washington, DC 20006
To the Employee: William P. Love, Jr.
10711 Oakcrest
Olathe, Kansas 66061
16. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
----------------------
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 7(e) above. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
17. EQUITABLE REMEDY. Because of the difficulty of measuring economic
----------------
losses to the Company as a result of a breach of the restrictive covenants set
forth in Sections 7, 8, 9 and 10, and because of the immediate and irreparable
damage that would be caused to the Company for which monetary damages would not
be a sufficient remedy, it is hereby agreed that in addition to all other
remedies that may be available to the Company at law or in equity, the Company
shall be entitled to specific performance and any injunctive or other equitable
relief as a remedy for any breach or threatened breach of the aforementioned
restrictive covenant.
8
<PAGE>
18. ARBITRATION. Any unresolved dispute or controversy arising under or
-----------
in connection with this Agreement shall be settled exclusively by arbitration,
conducted in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall not have the authority to add to, detract
from, or modify any provision hereof nor to award punitive damages to any
injured party. The arbitrators shall have the authority to order back-pay,
severance compensation, reimbursement of costs, including those incurred to
enforce this Agreement, and interest thereon in the event the arbitrators
determine that Employee was terminated without disability or good cause, as
defined herein, or that the Company has otherwise materially breached this
Agreement. A decision by a majority of the arbitration panel shall be final and
binding. Judgment may be entered on the arbitrators' award in any court having
jurisdiction. The direct expense of any arbitration proceeding shall be borne
by the Company. The arbitration proceeding shall be held in the city where the
Company's corporate headquarters is located. Notwithstanding the foregoing, the
Company shall be entitled to seek injunctive or other equitable relief, as
contemplated by Section 17 above, from any court of competent jurisdiction,
without the need to resort to arbitration.
19. GOVERNING LAW. This Agreement shall in all respects be construed
-------------
according to the laws of the State of Kansas.
20. CHANGE IN CONTROL.
-----------------
(a) (i) Unless he elects to terminate this Agreement pursuant to
paragraph (ii) below, Employee understands and acknowledges that the Company may
be merged or consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder.
(ii) In the event of a Change in Control whereby Mr. Jonathan J.
Ledecky remains as Chairman of the Board and Chief Executive Officer of the
successor entity which controls the voting interests of the Company, this
Agreement will remain in full force and effect. However, in the event of a
Change in Control whereby Mr. Jonathan J. Ledecky does not remain as Chairman of
the Board and Chief Executive Officer of the successor entity which controls the
voting interests of the Company, Employee may, at his sole discretion, elect to
terminate this Agreement by providing written notice to the Company not more
than twenty (20) business days after the closing of the transaction giving rise
to the Change in Control. In such case, the applicable provisions of Section
6(d) will apply as though the Company had terminated this Agreement without
cause; however, under such circumstances, Employee shall be entitled to continue
to receive his base salary at the rate, plus paid group health insurance, then
in effect for whatever time period is remaining under the Term of this Agreement
or for six months, whichever amount is greater, payable over the term of such
payment and the non-competition provisions of Section 7 shall apply for the
Restricted Period as if the Employee' employment hereunder had been terminated
pursuant to the terms of Section 6(d).
(b) In the event of a Change in Control, Employee will be given
sufficient time and opportunity to elect whether to exercise all or any of his
vested options, if any, under the Incentive Plan, including any options with
accelerated vesting, such that he may convert the options to shares
9
<PAGE>
of stock at or prior to the closing of the transaction giving rise to the Change
in Control, if he so desires.
(c) A "Change in Control" shall be deemed to have occurred if:
(i) any Person, other than an affiliate or employee benefit plan
of the Company, acquires, directly or indirectly, the beneficial ownership (as
defined in Section 13(d) of the Securities Exchange Act of 1934, as amended) of
any voting security of the Company or CCC and immediately after such acquisition
such Person is, directly or indirectly, the beneficial owner of voting
securities representing 50% or more of the total power of all of the then-
outstanding voting securities of the Company or CCC;
(ii) the individuals (A) who, as of the closing date of the
Company's or CCC's initial public offering, constitute the Board of Directors of
the Company or CCC (the "Original Directors") or (B) who thereafter are elected
to the Board of Directors of the Company or CCC and whose election, or
nomination for election, to the Board of Directors of the Company or CCC was
approved by a vote of at least a majority of the Original Directors then still
in office (such directors becoming "Additional Original Directors") immediately
following their election) or (C) who are elected to the Board of Directors of
the Company or CCC and whose election, or nomination for election, to the Board
of Directors of the Company or CCC was approved by a vote of at least a majority
of the Original Directors and Additional Original Directors then still in office
(such directors also becoming "Additional Original Directors" immediately
following their election) (such individuals being in "Continuing Directors"),
cease for any reason to constitute a majority of the members of the Board of
Directors of the Company or CCC.
(iii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a reverse
stock split of outstanding voting securities, or consummation of any such
transaction if stockholder approval is not sought or obtained, other than any
such transaction which would result in at least 75% of the total voting power
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being beneficially owned by at least 75% of
the holders of outstanding voting securities of the Company immediately prior to
the transaction, with the voting power of each such continuing holder relative
to other such continuing holders not substantially altered in the transaction;
or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or a substantial portion of the Company's assets (i.e.,
50% or more of the total assets of the Company).
(d) Employee must be notified in writing by the Company at any time
that the Company or any member of the Board of Directors anticipates that a
Change of Control may take place.
(e) Employee shall be reimbursed by the Company or its successor or
any excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as amended, as a result of any Change in Control. Such amount
will be due and payable by the Company or its
10
<PAGE>
successors within ten (10) days after Employee delivers a written request for
reimbursement accompanied by a copy of his tax return(s) showing the excise tax
actually incurred by Employee.
(f) For purposes of this Section 20, references to "the Company"
shall mean Consolidation Capital Corporation and any other entity that directly
or indirectly controls Fifty Percent (50%) or more of the voting interests of
Consolidated Capital Corporation Electrical Services, Inc.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed as of the date first written above.
CONSOLIDATION CAPITAL CORPORATION
ELECTRICAL SERVICES, INC.
/s/ F. Traynor Beck
--------------------
By: F. Traynor Beck
EMPLOYEE
/s/ William P. Love, Jr.
------------------------
William P. Love, Jr.
12
<PAGE>
Exhibit 11.01
CONSOLIDATION CAPITAL CORPORATION
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended
December 31, 1997
-----------------
<S> <C>
Net income $ 7
============
Weighted average number of Common Shares outstanding 4,911,401
Common stock equivlents from stock options and warrants 79,099
Weighted average number of Common and Potentially Dilutive ------------
Shares outstanding 4,990,500
============
Earnings per share:
Net income per Common Share - Basic $ 0.00
============
Net income per Common Share - Assuming dilution $ 0.00
============
</TABLE>
<PAGE>
EXHIBIT 21.01
SUBSIDIARIES OF CONSOLIDATION CAPITAL CORPORATION ("CCC")
<TABLE>
<CAPTION>
NAME OF COMPANY INCORPORATED IN DIRECT PARENT
- --------------------------------------------- --------------- -------------
<S> <C> <C>
Service Management USA, Inc. ("SMUSA") Virginia CCC
Diversified Management Services, U.S.A., Inc. Virginia SMUSA
Alliance Supply Co., LLC Virginia SMUSA
Interstate Building Services, LLC Virginia SMUSA
Consolidated Electrical Group, Inc. ("CEG") Delaware CCC
Garfield Electric Company Ohio CCC
Indecon, Inc. Ohio CCC
Riviera Electric Construction Co. Colorado CCC
SKC Electric, Inc. Kansas CCC
SKCE, Inc. Kansas SKC Electric, Inc.
Town & Country Electric Inc. Wisconsin CCC
Tri-City Electrical Contractors, Inc. Florida CCC
Wilson Electric Company, Inc. Arizona CCC
Walker Engineering, Inc. Texas CCC
CCC3 Acquisition Corp. Delaware CCC
CCC4 Acquisition Corp. Delaware CCC
CCC5 Acquisition Corp. Delaware CCC
CCC6 Acquisition Corp. Delaware CCC
CCC7 Acquisition Corp. Delaware CCC
</TABLE>
<PAGE>
Exhibit 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-43659) of Consolidation Capital Corporation of
our report dated February 27, 1998 appearing in this Form 10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> FEB-27-1997
<PERIOD-END> DEC-31-1997
<CASH> 528,392
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 529,045
<PP&E> 20
<DEPRECIATION> 0
<TOTAL-ASSETS> 529,065
<CURRENT-LIABILITIES> 1,768
<BONDS> 0
0
0
<COMMON> 31
<OTHER-SE> 527,259
<TOTAL-LIABILITY-AND-EQUITY> 529,065
<SALES> 0
<TOTAL-REVENUES> 2,056
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,985
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 71
<INCOME-TAX> 64
<INCOME-CONTINUING> 7
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
