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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1998
REGISTRATION NO. 333-42317
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE
AMENDMENT NO. 1
TO
POST EFFECTIVE
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------
CONSOLIDATION CAPITAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7340 52-2054952
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTIONOF INDUSTRIALCLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
1747 PENNSYLVANIA AVENUE, N.W., SUITE 900
WASHINGTON, D.C. 20006
202/955-5490
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
JONATHAN J. LEDECKY
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
CONSOLIDATION CAPITAL CORPORATION
1747 PENNSYLVANIA AVENUE, N.W., SUITE 900
WASHINGTON, D.C. 20006
202/955-5490
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
F. TRAYNOR BECK, ESQUIRE LINDA L. GRIGGS, ESQUIRE
EXECUTIVE VICE PRESIDENT, GENERAL MORGAN, LEWIS & BOCKIUS LLP
COUNSEL AND SECRETARY 1800 M STREET, N.W.
1747 PENNSYLVANIA AVE. N.W., SUITE WASHINGTON, D.C. 20036
900 202/467-7000
WASHINGTON D.C. 20006
202/955-5490
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
================================================================================
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PROSPECTUS
CONSOLIDATION CAPITAL CORPORATION
24,000,000 SHARES OF COMMON STOCK
-----------
This Prospectus covers 24,000,000 shares of common stock, $.001 par value
(the "Common Stock"), which may be offered and issued by Consolidation Capital
Corporation (the "Company") from time to time in connection with the
acquisition by the Company of other businesses, assets or securities. It is
expected that the terms of the acquisitions involving the issuances of
securities covered by this Prospectus will be determined by direct negotiations
with the owners or controlling persons of the businesses, assets or securities
to be acquired by the Company. No underwriting discounts or commissions will be
paid, although finder's fees may be paid from time to time with respect to
specific mergers or acquisitions. Any person receiving such fees may be deemed
to be an underwriter within the meaning of the Securities Act of 1933, as
amended (the "Securities Act").
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "BUYR." As of February 20, 1998, the Company had 30,292,857 shares of
Common Stock outstanding. On February 20, 1998, the closing price of the Common
Stock was $22.50 per share. The Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and files reports and other information with the Securities and Exchange
Commission. See "Additional Information."
All expenses of this offering will be paid by the Company.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is March 5, 1998
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No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby to any person in any jurisdiction in which it is
unlawful to make such offer or solicitation to such person. Neither the
delivery of this Prospectus nor any offer or sale made hereunder shall under
any circumstance imply that the information contained herein is correct as of
any date subsequent to the date hereof.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Additional Information................................................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Price Range of Common Stock.............................................. 17
Dividend Policy.......................................................... 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 21
Management............................................................... 31
Executive Compensation................................................... 33
Certain Relationships and Related Party Transactions..................... 35
Principal Stockholders................................................... 36
Description of Capital Stock............................................. 37
Plan of Distribution..................................................... 38
Restrictions on Resale................................................... 38
Legal Matters............................................................ 38
Experts.................................................................. 38
Index to Financial Statements............................................ F-1
</TABLE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (the "Registration
Statement") under the Securities Act and the rules and regulations promulgated
thereunder, with respect to the Common Stock offered hereby. This Prospectus
omits certain information contained in the Registration Statement, and
reference is made to the Registration Statement, and the exhibits and
schedules thereto, for further information with respect to the Company and the
Common Stock offered hereby. Statements contained in this Prospectus as to the
contents of any contract, agreement or other document filed as an exhibit to
the Registration Statement are not necessarily complete. Reference is made to
the respective exhibit for a more complete description of such statement,
which is qualified in its entirety by such reference. The Registration
Statement may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission
maintained at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such
materials may be obtained from the Public Reference Section of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, registration statements and certain other
filings made with the Commission through its Electronic Data Gathering,
Analysis and Retrieval ("EDGAR") system are publicly available through the
Commission's site on the Internet's World Wide Web, located at
http://www.sec.gov. The Registration Statement, including all exhibits thereto
and amendments thereof, has been filed with the Commission through EDGAR.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
Consolidation Capital Corporation is the successor to Ledecky Brothers L.L.C.
Hereinafter, except as otherwise indicated, Consolidation Capital Corporation
and Ledecky Brothers L.L.C. are referred to jointly as the "Company." This
Prospectus also contains pro forma financial information that gives effect to
certain events. Such information is not necessarily indicative of the results
that the Company would have attained had the events occurred at the beginning
of the periods presented, as assumed, or of the future results of the Company.
See "Pro Forma Combined Financial Statements."
This Prospectus may contain forward-looking statements, which can be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "intend," "plans," "anticipate," "estimate" or "continue" or the
negative thereof or other variations thereon or comparable terminology. The
matters described in "Risk Factors" and certain other factors noted throughout
this Prospectus and in any exhibits to the Registration Statement of which this
Prospectus is a part, constitute cautionary statements identifying important
factors with respect to any such forward-looking statements, including certain
risks and uncertainties, that could cause actual results to differ materially,
from those in such forward-looking statements.
THE COMPANY
Founded in February 1997 by Jonathan J. Ledecky, Consolidation Capital
Corporation intends to consolidate the facilities management industry to become
a national single-source provider of facilities management services. 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 intends to employ a corporate democracy
approach as one of its principal operating strategies.
To date, the Company's operations have consisted of organizational
activities, research and analysis with respect to industry consolidations and
acquisition opportunities, efforts to refine the Company's business strategy,
meetings and negotiations with potential acquisition candidates and the
acquisition of one company. The Company was initially capitalized with $59,000,
has generated immaterial revenues to date other than investment earnings on the
proceeds of its initial public offering (the "IPO"), and earned income of
$7,000 from its founding in February 1997 through December 31, 1997. The
Company completed the 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 $527,000,000.
In February 1998, the Company acquired one facilities management business
specializing in providing janitorial maintenance management services and
entered into definitive agreements to acquire seven facilities management
businesses specializing in providing electrical installation and maintenance
services (the "Pending Acquisitions"). See "--Recent Developments." Facilities
management companies generally provide many products and services needed for
the operation and maintenance of a building. These products and services
include janitorial maintenance management services, electrical installation and
maintenance services, 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.
From 1994 until November 1997, Jonathan Ledecky served as Chief Executive
Officer of USOP and, in that capacity, was responsible for in excess of $1.7
billion in acquisitions of businesses in seven different industry
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groups, including office supplies, office furniture, coffee and beverage
services, computer and telecommunications networks and services, print
management, corporate travel services and educational supplies. The Company
will seek to leverage the experience and expertise of Jonathan Ledecky, its
founder, Chairman and Chief Executive Officer, and the Company's management
team to become a leading consolidator of the facilities management industry.
The Company's management team consists of, in addition to Jonathan Ledecky:
Timothy C. Clayton, Executive Vice President, Chief Financial Officer and
Treasurer; F. Traynor Beck, Executive Vice President, General Counsel and
Secretary; and, David Ledecky, Executive Vice President and Chief
Administrative Officer. See "Management."
At the time of the IPO, the Company announced its intention to pursue
consolidation opportunities in one or more growing industries that are
fragmented with no clear market leader and that could benefit from economies of
scale. The Company believes that the facilities management industry has these
characteristics since it 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 initially to focus exclusively on the facilities
management industry, rather than 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
and industrial clients.
During the last several years, property owners, such as real estate
investment trusts ("REITS"), have undergone consolidation. The Company believes
that, as the real estate industry undergoes further consolidation, the emerging
large-scale property owners will continue to develop an increased interest in
dealing with national providers of facilities management services. Property
owners also have increasingly turned to outsourcing many of the traditional
facilities management services that were once performed by the property owners'
own employees. This trend towards outsourcing allows property owners to focus
on their core competencies, reduce operating expenses, access technical
expertise of outside vendors and improve quality. The Company believes that the
consolidation of property owners and the increase in outsourcing of facilities
management services will present opportunities for the Company to (i) acquire
smaller, independent companies that are unable to compete with national
providers of facilities management services, (ii) expand through acquisitions
into new sectors of the facilities management industry, and (iii) broaden the
customer base of acquired companies.
The Company believes that it possesses substantial competitive advantages.
The Company expects to benefit from its ability to deploy rapidly its
significant financial resources and to use its publicly traded stock as
currency in selected acquisitions. Because the Company has significant cash and
cash equivalents, the Company's ability to acquire attractive companies is not
likely to be constrained initially by the need to access the capital markets.
Furthermore, the Company believes that its corporate democracy principles will
help it attract and acquire companies and will differentiate it from
traditional consolidators. The Company believes that its corporate democracy
approach generates significant competitive advantages because this approach
allows managers of the acquired companies to benefit from the economies of a
large organization while simultaneously retaining local operational control,
enabling them to provide flexible and responsive service to customers. Such an
approach could, however, limit possible consolidation efficiencies and
integration efforts. In addition, although the Company's management team has
experience in acquiring and consolidating businesses, it does not have
experience managing companies in the facilities management industry. The
Company, therefore, expects to rely in part upon management of acquired
companies or other individuals who are experienced in the facilities management
industry. See "Risk Factors--Competition," "Business--Strategy" and
"Management."
The Company will have broad discretion in identifying and selecting possible
acquisition candidates. Within the facilities management industry, the Company
intends to focus on the acquisition of businesses 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
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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. Other than the pending
acquisition of Service Management, the Company has no present arrangements or
understandings with respect to the acquisition of any specific business. See
"Risk Factors--Appropriate Acquisitions May Not Be Available and Full
Investment of Net Proceeds May Be Delayed" and "Business--Strategy."
The Company's principal executive offices are located at 1747 Pennsylvania
Avenue, N.W., Suite 900, Washington D.C. 20006, and its telephone number is
202-955-5490.
RECENT DEVELOPMENTS
On February 4, 1998, the Company completed the acquisition of Service
Management USA ("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. Some of Service
Management's major clients include the United Parcel Service, K-Mart, Wal-Mart,
Target, Sports Authority, CVS, Kroger, Shaw's and Bi-lo grocery stores. The
total consideration paid by the Company consisted of $9 million in cash and
142,857 shares of Common Stock, with the potential of additional consideration
of $13 million in cash and shares of Common Stock based on the performance of
Service Management and the achievement of certain acquisition goals.
On February 27, 1998, the Company entered into definitive agreements to
acquire the Pending Acquisitions. The Pending Acquisitions include: Garfield
Electric Company ("Garfield"), Indecon, Inc. ("Indecon"), Riviera Electric
Construction Co., Inc. ("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 Pending Acquisitions
specialize in providing electrical installation and maintenance services for
commercial, institutional, industrial and retail customers throughout Ohio,
Colorado, Kansas, Missouri, Wisconsin, Florida and Arizona. Each of the Pending
Acquisitions 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. Bill Love, the founder and
president of SKC, will serve as the president of the Company's electrical
services division upon completion of the Pending Acquisitions.
The combined 1997 revenues of the Pending Acquisitions were approximately
$284.3 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 Pending
Acquisitions, 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.
Assuming that the acquisition of Service Management and the Pending
Acquisitions had occurred at the beginning of the Company's 1997 fiscal year,
the Company had pro forma fiscal year 1997 revenues of $310.5 million and pro
forma fiscal year 1997 net income of $11.2 million.
The aggregate consideration to be paid by the Company in the Pending
Acquisitions is approximately $138.1 million, consisting of $66.1 million in
cash and $72.0 million in 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. The completion of the Pending Acquisitions is subject to a number of
customary closing conditions and there can be no assurance that such
acquisitions will be completed. In addition, the completion of each of the
Pending Acquisitions is dependent upon the completion of all of the Pending
Acquisitions.
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. See "Risk
Factors--Appropriate Acquisitions May Not Be Available and Full Investment of
Net Proceeds May Be Delayed."
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RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
risk factors, in addition to the other information contained in this
Prospectus, in evaluating an investment in the shares of Common Stock offered
hereby.
The risk factors set forth below and elsewhere in this Prospectus should be
read as accompanying all forward-looking statements made in this Prospectus.
These forward-looking statements can be identified by the use of forward-
looking terminology such as "may," "will," "expect," "intend," "plans,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. The Company's actual results
could differ materially from those anticipated in such forward-looking
statements, for the reasons set forth below and for other reasons.
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, meetings and
negotiations and the execution of letters of intent and agreements with
potential acquisition candidates and one acquisition. The Company intends to
consolidate the facilities management industry to become a single-source
provider of facilities management services. Until its recent acquisition of
Service Management, 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 such acquired business and any additional acquisitions,
including the Pending Acquisitions, and the successful integration and
consolidation of those businesses.
CONFLICTS OF INTEREST
Jonathan Ledecky serves as both the Chairman and Chief Executive Officer of
the Company and the Chairman and an executive officer of USOP. On January 13,
1998, Jonathan Ledecky entered into a Services Agreement with USOP, effective
upon the completion of USOP's announced restructuring which involves a self-
tender and the incurrence of indebtedness related thereto, the spin-off of
four of USOP's divisions and an equity investment. If the restructuring is
completed, Jonathan Ledecky will resign as the Chairman and as an executive
officer of USOP, but will continue to provide mutually agreed advisory
services to USOP and the companies that are being spun off from USOP, and the
Services Agreement will supersede Jonathan Ledecky's amended and restated
employment agreement with USOP, described below (the "USOP Employment
Agreement"). Jonathan Ledecky also is expected to serve as a director of 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.
As long as Jonathan Ledecky serves as a director and an executive officer of
both the Company and USOP, and as a director of each of the companies that are
being spun off from USOP, Jonathan Ledecky 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. There is no
agreement among Jonathan Ledecky, the Company, USOP 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.
Under the USOP Employment Agreement, Jonathan Ledecky is obligated to assist
in, among other things, identifying and pursuing new business and investment
opportunities and acquisitions for USOP, developing and providing strategic
plans and growth analyses for USOP, providing structuring, capitalization,
restructuring, recapitalization and reorganization advice to USOP and
assisting in implementing such advice, and interfacing with the investment and
financial community on an as-needed basis. While Jonathan Ledecky is not
responsible for the day-to-day oversight of USOP, his positions as an
executive officer and Chairman of the Board of USOP
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may nonetheless result in competition between USOP matters and Company matters
for his time and professional attention, and may result in or exacerbate
conflicts as to his obligations to present business opportunities to one
company or another, or to pursue such opportunities for one company or
another. The USOP Employment Agreement and the Services Agreement also contain
covenants not to compete (which USOP has revised to permit the Pending
Acquistions) with USOP 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 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.
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. If and when the Services Agreement supersedes
the USOP Employment Agreement, Jonathan Ledecky will have contractual
obligations and duties of loyalty and care to the Company 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.
In addition, Jonathan Ledecky is the Non-Executive Chairman of the Board of
U.S.A. Floral Products, Inc. ("USA Floral"), the Non-Executive Chairman of the
Board of UniCapital Corporation, ("UniCapital") and a prospective minority
investor in Unison Partners, Inc. ("Unison Partners"). Each of USA Floral,
UniCapital and Unison Partners is, or is seeking to become, a consolidator of
businesses in one or more industries. Jonathan Ledecky may thus have conflicts
of interest in determining to which of these entities, if any, a particular
relevant business opportunity should be presented.
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.
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If the Company loses the services of one or more of its current executives,
the Company's business could be adversely affected. The Company may not
successfully recruit additional personnel and any additional personnel that
are recruited may not have the requisite skills, knowledge or experience
necessary or desirable to enhance the incumbent management. The Company does
not intend to maintain key man life insurance with respect to any of its
executive officers. See "Management."
ALLOCATION OF MANAGEMENT TIME
Pursuant to the CCC Employment Agreement, Jonathan Ledecky is required to
devote the substantial majority of his business time, attention and efforts to
the business of the Company. Pursuant to the USOP 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. The competing
claims upon Jonathan Ledecky's time and energies could divert his attention
from the affairs of the Company, placing additional demands on the Company's
other management resources. Pursuant to their employment agreements with the
Company, each of the other executive officers of the Company is required to
devote his full business time, attention and efforts to the business of the
Company. The efforts of all or any of these individuals may not be sufficient
to meet the Company's management needs.
APPROPRIATE ACQUISITIONS MAY NOT BE AVAILABLE AND FULL INVESTMENT OF NET
PROCEEDS MAY BE DELAYED
The results of the Company's planned operations are dependent upon the
Company's ability to identify, attract and acquire additional desirable
acquisition candidates, which may take considerable time. The Company may not
be successful in identifying, attracting or acquiring 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. On February 4,
1998, the Company acquired its first business, Service Management, for $9
million in cash and 142,857 shares of Common Stock and will pay $66.1 million
in cash and $72.0 million in shares of Common Stock for the Pending
Acquisitions. The Company used, and will use, 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 one acquisition and has signed definitive agreements
with the seven Pending 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."
The Company's management team is utilizing the proceeds of the IPO to
accelerate the research and analysis that has been performed to date to
identify and select prospective acquisition candidates. Management of the
Company has virtually unrestricted flexibility in identifying and selecting
prospective acquisition
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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. The Company may enlist
the assistance of other persons to assess the management of acquisition
candidates (including, without limitation, investment bankers, brokers,
accountants and other advisers who have rendered or may in the future render
services to USOP). See "--Conflicts of Interest" and "Certain Relationships
and Related Party Transactions."
One of the key elements of the Company's internal growth strategy is to
improve the profitablilty and increase the revenues of acquired businesses.
The Company will seek to improve the profitability and increase the revenues
of acquired businesses by various means, including combining administrative
functions, eliminating redundant facilities, implementing system and
technology improvements, purchasing products and services in large quantities
and cross-selling products and services. The Company's ability to increase
revenues will be affected by various factors, including the Company's ability
to expand the products and services offered to the customers of acquired
companies, develop national accounts and attract and retain a sufficient
number of employees to perform the Company's 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 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 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
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initiate and maintain its acquisition program. If the Company does not have
sufficient cash resources, its growth could be limited unless it is able to
obtain additional capital through debt or equity financings.
As of February 20, 1998, the Company had cash and cash equivalents of
approximately $520.0 million and has agreed to pay consideration consisting,
in part, of $66.1 million in cash in connection with the Pending Acquisitions.
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, 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.
Among the possible adverse effects of borrowings to consummate acquisitions
or for other capital requirements are: (i) if the Company's operating revenues
after acquisitions were to be insufficient to pay debt service, there would be
a risk of default and foreclosure on the Company's assets; (ii) if a loan
agreement contains covenants that require the maintenance of certain financial
ratios or reserves, and any such covenant were breached without a waiver or
renegotiation of the terms of that covenant, then the lender could have the
right to accelerate the payment of the indebtedness even if the Company has
made all principal and interest payments when due; (iii) if the terms of a
loan did not provide for amortization prior to maturity of the full amount
borrowed and the "balloon" payment could not be refinanced at maturity on
acceptable terms, the Company might be required to seek additional financing
and, to the extent that additional financing were not available on acceptable
terms, to liquidate its assets; and (iv) if the interest rate on a loan is
variable, the Company would be subject to interest rate fluctuations which
could increase the Company's debt service obligations. The level of
indebtedness that the Company may incur cannot be predicted and will depend
upon these factors and the relevant business characteristics of the
acquisition candidates for which such indebtedness will be undertaken.
The Company currently has 250,000,000 authorized shares of Common Stock. As
of February 20, 1998, the Company had 30,292,857 shares of Common Stock
outstanding. In addition, the Company has securities outstanding that are
convertible into or exercisable for 5,176,000 shares of Common Stock,
consisting of (i) options to purchase 1,536,000 shares of Common Stock granted
under the Consolidation Capital Corporation 1997 Long-Term Incentive Plan (the
"Incentive Plan"), (ii) options to purchase 60,000 shares of Common Stock
granted under the Consolidation Capital Corporation 1997 Non-Employee
Directors' Stock Plan (the "Directors' Plan"), (iii) 500,000 shares of Common
Stock issuable upon the conversion of the 500,000 shares of Convertible Non-
Voting Common Stock currently outstanding, (iv) 1,130,000 shares of Common
Stock issuable upon the exercise of warrants issued to Friedman, Billings,
Ramsey & Co., Inc., the representative of the underwriters in the Company's
IPO (the "Representative"), and (v) 1,950,000 shares of Common Stock issuable
upon the exercise of warrants issued to Jonathan Ledecky in connection with
the IPO. The Company has reserved (i) 1,190,357 shares for issuance pursuant
to awards available to be made under the Incentive Plan, (ii) 240,000 shares
for issuance pursuant to options available to be granted under the Directors'
Plan, and (iii) 1,000,000 shares for issuance pursuant to the Consolidation
Capital Corporation 1997 Employee Stock Purchase Plan (the "Purchase Plan").
Accordingly, as of February 20, 1998, the Company had 212,100,786 authorized
but unissued and unreserved shares of Common Stock (excluding shares of Common
Stock valued at $72.0 million to be issued in the Pending Acquisitions).
Consequently, subject to the rules and regulations of The Nasdaq National
Market, the Company will be able to finance acquisitions by issuing
significant amounts of additional shares of Common Stock without obtaining
shareholder approval of such issuances. To the extent the Company uses
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Common Stock for all or a portion of the consideration to be paid for future
acquisitions, dilution may be experienced by existing stockholders. Moreover,
the issuance of additional shares of Common Stock may have a negative impact
on earnings per share and may negatively impact the market price of the Common
Stock. See "Use of Proceeds" and "Dilution."
COMPETITION 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.
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 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.
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EXPOSURE TO DOWNTURNS IN COMMERCIAL AND INDUSTRIAL CONSTRUCTION
Approximately 70% of the Pending Acquisitions' 1997 aggregate revenues
involves the installation of electrical systems in newly constructed
commercial, institutional, industrial and retail buildings and plants. The
extent to which the Pending Acquisitions are 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
Pending Acquisitions operate 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 Pending Acquisitions operate, 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.
RISKS OF FIXED PRICE CONTRACTS; BID AND PERFORMANCE BONDS
A substantial portion of the electrical installation contracts of the
Pending Acquisitions are fixed price contracts. The terms of these contracts
require the Pending Acquisitions to guarantee the price of their services and
assume the risk that the costs associated with their performance will be
greater than anticipated. The Pending Acquisitions' profitability in this
market is therefore dependent on their ability to predict accurately the costs
associated with their services. These costs may be affected by a variety of
factors, some of which may be beyond the Pending Acquisitions' control. If the
Pending Acquisitions are 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 Pending Acquisitions' 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 Pending Acquisitions 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 Pending Acquisitions'
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
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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.
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 of an
investment company. The Company believes that its principal activities, which
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will involve acquiring control of operating companies, will not subject the
Company to registration and regulation under the Investment Company Act.
Nonetheless, since the Company currently falls within the Investment Company
Act's definition of an investment company, it will rely on a safe harbor rule
that exempts the Company from the Investment Company Act for a period of one
year 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."
RISKS RELATING TO INTERNATIONAL EXPANSION
Although it is not currently anticipated, if the Company were to expand into
international markets, it may face additional risks relating to such matters
as currency exchange rate fluctuations, new and different legal and regulatory
requirements, political and economic risks relating to the stability of
foreign governments and their trading relationships with the United States,
difficulties in staffing and managing foreign operations, differences in
financial reporting, differences in the manner in which different cultures do
business, operating difficulties and other factors. The many difficulties and
risks inherent in international operations could result in a material adverse
impact upon the Company's business, financial condition and results of
operations.
POTENTIAL REGULATORY REQUIREMENTS
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 industry being consolidated.
Among the requirements that may be imposed in
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order to obtain approval of an acquisition under the HSR Act may be a
requirement that the Company divest a portion of its then-existing operations
or those of the acquisition candidate, which may render a given acquisition
disadvantageous. In addition, acquisitions of businesses in regulated
industries would subject the Company to regulatory requirements which could
limit the Company's flexibility in growing and operating its businesses.
TAX CONSIDERATIONS
As a general rule, federal and state tax laws and regulations have a
significant impact upon the structuring of business combinations. The Company
will evaluate the possible tax consequences of any prospective business
combination and will endeavor to structure the business combination so as to
achieve the most favorable tax treatment to the Company, the acquisition
candidate and their respective stockholders. Nonetheless, the Internal Revenue
Service (the "IRS") or appropriate state tax authorities may not ultimately
agree with the Company's tax treatment of a consummated business combination.
To the extent that the IRS or state tax authorities ultimately prevail in
recharacterizing the tax treatment of a business combination, there may be
adverse tax consequences to the Company, the acquisition candidate and/or
their respective stockholders.
POTENTIAL INFLUENCE OF EXISTING STOCKHOLDER
As of February 20, 1998, Jonathan Ledecky, the Company's founder, Chairman
and Chief Executive Officer, owned beneficially approximately 14.9% of the
outstanding shares of Common Stock. The Company's executive officers and
directors, if acting together, may be able to significantly influence the
election of directors and matters requiring the approval of the stockholders
of the Company. This concentration of ownership may also have the effect of
delaying or preventing a change in control of the Company. See "Principal
Stockholders."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON THE PRICE OF COMMON
STOCK
As of February 20, 1998, the Company had 30,292,857 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
2,692,857 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 February 20, 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, 1,596,000 shares of Common Stock were reserved for issuance
upon the exercise of outstanding stock options, and an aggregate of 2,430,357
shares were reserved for issuance pursuant to the Incentive Plan, the
Directors' Plan and 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. The Registration Statement of which this Prospectus forms a part
registers 24,000,000 shares of Common Stock for issuance in acquisitions, of
which 142,857 shares have been issued in connection with the acquisition of
Service Management. 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
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"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 the Representative (which will have the
right, beginning one year after the Effective Date, to require the Company to
register such shares for sale under the Securities Act) and 500,000 shares
were reserved for issuance upon the conversion of shares of Convertible Non-
Voting Common Stock (which shares will be eligible for resale beginning on
November 25, 1998, the first anniversary of the Effective Date). Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect the prevailing market price of the Common Stock
and impair the Company's ability to raise additional capital through the sale
of equity securities. Each of the Company and its executive officers and
directors 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 expects to have an aggressive acquisition program under which it
will issue shares of Common Stock. Although some of the shares issued in
acquisitions may be subject to contractual restrictions on the transfer
thereof, shares issued in acquisitions accounted for under the pooling-of-
interests method of accounting cannot be issued subject to contractual
restrictions on transfer. Under the pooling-of-interests method of accounting,
the affiliates of acquired companies, which are expected to be in 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 are sold in the market by stockholders as soon as their
shares become freely transferable, the price of shares of Common Stock could
be adversely affected.
NO PRIOR MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the IPO, there was no public market for the Company's Common Stock.
An active public market for the Common Stock may not develop or be sustained.
The offering price for the Common Stock to be issued pursuant to this
Prospectus will be determined by negotiations between the Company and the
owners of the companies to be acquired. Any such negotiated price may bear no
relationship to the price at which the Common Stock will trade after each
respective acquisition and an active trading market may not be sustained
subsequent to any future acquisition transactions. The trading price of the
Common Stock could be subject to significant fluctuations in response to
activities of the Company's competitors, variations in quarterly operating
results, changes in market conditions and other events or factors. The market
price of the Company's Common Stock after the offering could also be adversely
affected by confusion or uncertainty as to the pace of the Company's
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 volatility of the stock market
could adversely affect the market price of the Common Stock and the ability of
the Company to raise equity in the public markets.
NO DIVIDENDS
The Company has not paid any dividends on its Common Stock to date. The
payment of any dividends will be within the discretion of the Company's Board
of Directors. It is the present intention of the Board of Directors
16
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to retain all earnings, if any, for use in the Company's business operations
and, accordingly, the Board of Directors does not anticipate declaring any
dividends in the foreseeable future. See "Dividend Policy."
DILUTION TO NEW INVESTORS
If the Company issues additional 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 ANTITAKEOVER PROVISIONS
The Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which prohibit the Company from engaging in
a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
"interested stockholder," unless the business combination is approved in a
prescribed manner. See "Description of Capital Stock--Certain Provisions of
Delaware Law and the Company's Restated Certificate of Incorporation."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been quoted on the Nasdaq National Market
since November 26, 1997. On February 20, 1998, the closing price of the Common
Stock was $22.50 per share. As of February 20, 1998, there were 11 holders of
record of the Company's Common Stock. The Common Stock has traded at prices
ranging from $18.75 to $22.50 during the period from November 26, 1997 to
February 20, 1998.
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future because it intends to retain its earnings, if
any, to finance the expansion of its business and for general corporate
purposes. Any payment of future dividends will be at the discretion of the
Board of Directors and will depend upon, among other factors, the Company's
earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to the payment of dividends and other
considerations that the Board of Directors deems relevant. Further, in the
event that the Company obtains a credit facility to be used for future
acquisitions or other capital requirements, it is likely that the terms of
such credit facility will prohibit or limit the payment of dividends by the
Company.
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SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Selected Financial Data for the year ended December 31, 1997 (except pro
forma combined amounts) have been derived from the Company's audited financial
statements which are included elsewhere in this Prospectus. The unaudited pro
forma combined financial data gives effect to (i) the completion of the
acquisition of Service Management, (ii) the completion of the Pending
Acquisitions, and (iii) certain pro forma adjustments to the historical
financial statements as described below. The selected pro forma combined
financial data are not necessarily indicative of operating results or
financial position that would have been achieved had the events described
above been consummated and should not be construed as representative of future
operating results or financial position. The Selected Financial Data should be
read in conjunction with the Unaudited Pro Forma Combined Financial Statements
and the notes thereto, and the historical financial statements of the Company,
Service Management, Garfield, Indecon, Riviera, SKC, Town & Country, Tri-City
and Wilson, and the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------
PRO FORMA
ACTUAL COMBINED(1)
----------- ------------
(UNAUDITED)
<S> <C> <C>
Statement of Operations Data:
Revenues.................................. $ $ 310,523
Cost of Revenues.......................... 250,309
----------- ------------
Gross profit.............................. 60,214
Selling, general and administrative(2).... 1,985 38,640
Goodwill amortization(3).................. 2,594
----------- ------------
Operating income (loss)................... (1,985) 18,980
Other (income) expense
Interest expense........................ 622
Interest income......................... (2,056) (2,026)
Other, net................................ (180)
----------- ------------
Income before income taxes(4)............. 71 20,564
Provision for income taxes................ 64 9,608
----------- ------------
Net income................................ $ 7 $ 10,956
=========== ============
Net income per share--Basic............... $ -- $ 0.90
=========== ============
Net income per share--Diluted............. $ -- $ 0.90
=========== ============
Weighted average number of common shares
outstanding ............................. 4,109,205 12,108,113(5)
=========== ============
Weighted average number of common and
potentially dilutive shares outstanding
......................................... 4,115,107 12,178,935(5)
=========== ============
<CAPTION>
AS OF DECEMBER 31, 1997
----------------------------
PRO FORMA
ACTUAL COMBINED(6)
----------- ---------------
(UNAUDITED)
<S> <C> <C>
Balance Sheet Data:
Working capital........................... $ 527,277 $ 477,044(7)
Total assets.............................. 529,065 650,765
Long term debt, net of current
maturities............................... -- 1,795
Stockholders' equity...................... 527,297 591,099
</TABLE>
- --------
(1) The pro forma combined statement of operations data assume that the
acquisition of Service Management, the Pending Acquisitions, the IPO and
the concurrent offering of 500,000 shares of Convertible Non-Voting Common
Stock were completed on January 1, 1996.
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<PAGE>
(2) The pro forma combined statement of operations data reflect an aggregate
of approximately (i) $2,511 in pro forma reductions/increase in salaries,
bonuses and benefits to the owners of Service Management and the Pending
Acquisitions, which have been agreed to prospectively (the "Compensation
Differential") and a reduction of $3,291 related to anticipated
termination of contributions to employee stock ownership plans at certain
of the Pending Acquisitions.
(3) Consists of amortization of the $103.7 million of goodwill to be recorded
as a result of the combination of Service Management and the Pending
Acquisitions, over a 40 year period and computed on the basis described in
the Notes to the Unaudited Pro Forma Combined Financial Statements.
(4) Assumes all income is subject to a corporate income tax rate of 40% and
that the majority of the goodwill amortization expense is not tax
deductible.
(5) For calculation of the pro forma weighted average common shares
outstanding and common and potentially dilutive shares outstanding, see
Notes 3 and 4 of Notes to Unaudited Pro Forma Combined Financial
Statements.
(6) The pro forma combined balance sheet data assume that the acquisitions of
Service Management and the Pending Acquisitions were consummated on
December 31, 1997.
(7) Includes $75.1 million of cash consideration for the acquisitions of
Service Management and the Pending Acquisitions.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
balance sheet of the Company and related notes thereto appearing elsewhere in
this Prospectus.
OVERVIEW AND RESULTS OF OPERATIONS
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 Service Management since its acquisition. 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 $527,000,000. The proceeds will be utilized 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 Service
Management offset by salaries and other operating costs of the Company.
LIQUIDITY AND CAPITAL RESOURCES
As of February 20, 1998, the Company had cash and cash equivalents of
approximately $520.0 and has agreed to pay consideration consisting of, in
part, $66.1 million in cash in connection with the Pending Acquisitions. 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.
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<PAGE>
BUSINESS
THE COMPANY
Consolidation Capital Corporation was founded in February 1997 by Jonathan
J. Ledecky to build consolidated enterprises with national market reach
through the acquisition and integration of multiple businesses in one or more
fragmented industries 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 and industrial clients.
Jonathan Ledecky is the Chairman and founder and, until November 5, 1997,
was the Chief Executive Officer, of USOP. While managing USOP, Jonathan
Ledecky developed a strategy of "corporate democracy," which he believes
facilitated USOP's rapid consolidation of more than 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 intends to employ a corporate democracy
approach as one of its principal operating strategies.
From 1994 until November 1997, Jonathan Ledecky served as Chief Executive
Officer of USOP and, in that capacity, was responsible for in excess of $1.7
billion in acquisitions of domestic and international businesses. The Company
will seek to leverage the experience and expertise of Jonathan Ledecky, its
founder, Chairman and Chief Executive Officer, and the Company's management
team to become a leading consolidator of 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 will further its ability to
identify, attract and acquire desirable acquisition candidates.
The Company believes that it will possess substantial competitive
advantages. The Company expects to benefit from its ability to deploy rapidly
its significant financial resources and to use its publicly traded stock as
currency in selected acquisitions. Because the Company has significant cash
and cash equivalents as of February 20, 1998, the Company's ability to acquire
attractive companies is not likely to be constrained initially by the need to
access the capital markets. Furthermore, the Company believes that its
corporate democracy principles will help it attract and acquire companies and
will differentiate it from traditional consolidators. The Company believes
that its corporate democracy approach generates significant competitive
advantages because this approach allows managers of the acquired companies to
benefit from the economies of a large organization while simultaneously
retaining local operational control, enabling them to provide flexible and
responsive service to customers. Such an approach could, however, limit
possible consolidation efficiencies and integration efforts. In addition,
although the Company's management team has experience in acquiring and
consolidating businesses, it does not have experience managing companies in
the facilities management industry. The Company, therefore, expects to rely in
part upon management of acquired companies or other individuals experienced in
the facilities management industry.
Since the closing of the IPO in December 1997, the Company has acquired
Service Management and has entered into definite agreements to acquire the
seven Pending Acquisitions. See "Business--Recent Developments."
21
<PAGE>
INDUSTRY BACKGROUND
Facilities management companies generally provide many products and services
needed for the routine 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, 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
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
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.
These favorable trends are expected to continue. With the Company's
significant financial resources combined with its aggressive consolidation
strategy, the Company believes that it is well positioned to capitalize on the
trends toward outsourcing.
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 will focus on: (1) identifying
acquisition candidates which meet the Company's consolidation criteria; (2)
attracting and acquiring companies through implementation of the Company's
corporate democracy approach, which the Company believes will differentiate it
from other consolidators; and (3) achieving operating efficiencies and
synergies by combining administrative functions, eliminating redundant
facilities, implementing system and technology improvements and purchasing
products and services in large volumes.
Identify and Pursue Strategic Consolidation 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.
22
<PAGE>
In general, the Company plans to acquire larger, established high quality
companies, or "hubs," in high density, metropolitan areas, and additional
smaller companies, or "spokes," in secondary markets surrounding the hubs.
Where possible, the operations of the spokes will be integrated into the
operations of existing hubs, thereby enabling the Company to achieve the
economies of scale necessary to decrease operating cost and increase operating
margin.
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 will be the Company's ability to deploy
rapidly its significant financial resources and/or to use its publicly traded
stock as consideration in selected acquisitions.
Differentiate Through Corporate Democracy. The Company believes that its
implementation of corporate democracy will give the Company a competitive
advantage over rival consolidators in attracting, buying and integrating
acquired companies. The Company's business model entails both a decentralized
management philosophy and a centralized operating approach. Each of the
acquired companies will continue to manage all functions that "touch the
customer," including sales, marketing, customer service, credit and
collections. The Company will manage functions such as purchasing, accounting,
inventory management, human resources and finance centrally where it can
leverage its size and scale. Principles of corporate democracy that will be
used by the Company include:
. Control by Owner/Operator. The corporate democracy approach to
consolidation is designed to allow the owners and operators who have
built an acquired company to retain operational control of the business
while the Company centralizes certain administrative functions to provide
benefits from operating efficiencies and synergies resulting from the
consolidation of the acquired company into a larger enterprise. This is
in contrast to the traditional consolidation approach used by other
consolidators in which the owner/operators and their employees are often
relieved of management responsibility as a result of a complete
centralization of management in the consolidated enterprise.
. ""Think National, Act Local" Management. The Company plans to provide
strategic oversight and guidance with respect to acquisitions, financing,
marketing and operations. At the same time, managers of acquired
companies will be responsible for the day-to-day operations of each of
the acquired companies. As part of its "Think National, Act Local"
management strategy, the Company intends to foster a culture of
cooperation and teamwork that emphasizes dissemination of "best
practices" among its local or acquired management teams. The Company
believes that this decentralized management philosophy results in better
customer service by allowing local management the flexibility to
implement policies and make decisions based upon the needs and desires of
local customers and the context of local market conditions. The
decentralized sales and customer contact also facilitates the retention
of historical customers of the acquired companies.
. Local Business Identity, Management and Sales Organization. The corporate
democracy approach to consolidation permits the Company to capitalize on
the strength of the owner/operator's connection to his locality, region
or community by maintaining the original name of the acquired company in
the given geographic location. This contrasts with other consolidation
approaches which often eliminate the local name of the acquired company
and replace it with a single or "national" business name. The Company
believes that many customers purchase products and services based upon
long-term commercial relationships. The Company believes that corporate
democracy best preserves the business-customer relationships by, in most
circumstances, retaining the management, sales organizations, and brand
name identity of acquired companies and minimizing operational changes
that adversely affect the customer.
. Use of Stock as Currency and Incentive Compensation. The Company intends
to structure many of its acquisitions using the Company's stock as
currency. This use of stock as acquisition currency, coupled with the
retention of experienced owner/operators and established sales
organizations, creates a high percentage of employee ownership and strong
incentives for good performance. The Company believes
23
<PAGE>
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:
. Combining Administrative Functions. The Company will seek to institute a
Company-wide management information system and to combine at the
corporate level certain administrative functions, such as financial
reporting and finance, insurance, employee benefits and legal support.
. Using Hub and Spoke System to Eliminate Redundant Facilities and
Service. The hub and spoke strategy involves the acquisition of a larger,
established, high-quality company in a targeted geographic area into
which the facilities and operations of local, smaller acquired companies,
or "spokes", are folded, allowing the elimination of redundant facilities
and reducing overhead. This hub and spoke strategy also enables the
integration of certain operational activities, such as inventory
management, purchasing, shipping, accounting and human resources, among
acquired companies located in a geographic area, thereby permitting the
elimination of duplicative facilities and costs.
. Implementing System and Technology Improvements. The Company believes it
will be able to increase the operating margin of combined acquired
companies by using operating and technology systems to improve and
enhance the operations of the combined acquired companies, which may
include computerized inventory management and order processing systems,
computerized quotation and job costing systems and computerized logistics
and distribution systems. The Company believes that many of the acquired
companies have not made material investments in such operating and
technology systems because 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 accruing as the result of high volume
purchases. The Company may also negotiate improved arrangements with
wholesalers and manufacturers to reduce inventory levels of certain
acquired companies, thereby allowing more efficient operations by
decreasing inventory holding costs and increasing operating margins. The
Company may also seek to leverage 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.
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<PAGE>
. 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.
These synergies of strategic marketing and cross-functional selling may
allow additional services to be provided or goods to be sold to existing
customers of the acquired companies, resulting in additional revenues for
the Company. These synergies may also provide a broader geographic sales
and service reach for each of the acquired companies, increasing the
customer base of the acquired companies.
SERVICES
As of the date of this Prospectus, the Company operates primarily in the
janitorial maintenance management sector of the facilities management
industry. If the Pending Acquisitions are completed, the Company will also
operate in the electrical installation and maintenance services sector 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.
Such services have been offered under individually negotiated building
maintenance contracts, the majority of which are obtained through
competitive bidding. Most of the Company's janitorial contracts are of one
year duration, contain automatic renewal clauses, and can be subject to
termination by either party upon 30 to 90 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 seeks to further increase its market presence through
aggressive acquisitions of premier commercial cleaning contractors.
Janitorial maintenance is a $50 billion industry comprised of more than
45,000 companies, most of which are of the "mom and pop" variety 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.
Electrical Installation and Maintenance Services. Assuming the Company
completes the Pending Acquisitions, the Company will offer a broad range of
electrical design, installation and maintenance
25
<PAGE>
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 Pending
Acquisitions have the management depth and systems infrastructure to serve
as the platform on which to grow the Company's electrical services
division. The Pending 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. These Census data indicate 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 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 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., 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. See "Risk Factors--Competition."
26
<PAGE>
RECENT DEVELOPMENTS
Since the Company's IPO in December 1997, the Company acquired Service
Management and has entered into definitive agreements to acquire the Pending
Acquisitions. A description of these acquisitions follows:
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. The consideration paid by the Company
consisted of $9 million in cash and 142,857 shares of 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 a combination of the earnings before interest and taxes of Service
Management during the 12 months subsequent to the Company's completion of the
acquisition of Service Management, and the revenues of Service Management,
including the revenues of certain companies that may be acquired by the
Company or Service Management in the future, during the 24 months subsequent
to the completion of the acquisition of Service Management.
Tri-City. Tri-City was founded in 1958 and operates throughout Florida from
its 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. Heimuth L. Eidell, Tri-
City's founder and president, will sign an employment agreement to continue to
serve as president of Tri-City.
Wilson. Wilson was founded in 1988 and operates throughout Arizona, Nevada
and California from its headquarters in Scottsdale, Arizona 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, will sign an
employment contract to continue to serve as Wilson's president.
Town & Country. Town & Country was founded in 1972 and operates throughout
Wisconsin and other midwestern states from 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, will
sign an employment contract to continue to serve as Town & Country's
president.
Riviera. Riviera was founded in 1980 and operates throughout the western
United States from its 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 approximately
325 employees. Donald G. White, Riviera's founder and president, will sign an
employment contract to continue to serve as Riviera's president.
Garfield and Indecon. Garfield and Indecon were founded in 1972 and 1989,
respectively, and operates under common management throughout Ohio from their
headquarters in Cincinnati and from its 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, will sign
an employment contract to continue to serve as president of those companies.
27
<PAGE>
SKC. SKC was founded in 1980 and operates throughout Kansas and Missouri
from its headquarters in 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, will sign an employment contract to serve as
the president of the Company's electrical services division and Lawrence J.
Malach will sign an employment contract to serve as the president of SKC.
CONFLICTS OF INTEREST
Jonathan Ledecky serves as both the Chairman and Chief Executive Officer of
the Company and the Chairman and an executive officer of USOP. On January 13,
1998, Jonathan Ledecky entered into a Services Agreement with USOP, effective
upon the completion of USOP's announced restructuring which involves a self-
tender and the incurrence of indebtedness related thereto, the spin-off of
four of USOP's divisions and an equity investment. If the restructuring is
completed, Jonathan Ledecky will resign as the Chairman and as an executive
officer of USOP, but will continue to provide mutually agreed advisory
services to USOP and the companies that are being spun off from USOP, and the
Services Agreement will supersede Jonathan Ledecky's USOP Employment
Agreement. Jonathan Ledecky also is expected to serve as a director of the
companies 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.
As long as Jonathan Ledecky serves as a director and an executive officer of
both the Company and USOP or as a director of the companies being spun off
from USOP Jonathan Ledecky 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. There is no agreement among
Jonathan Ledecky, the Company, USOP 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.
In addition, Jonathan Ledecky has entered into the USOP Employment
Agreement, which will remain in effect until USOP's proposed restructuring is
completed and is replaced by the Services Agreement, and the CCC Employment
Agreement. Under the USOP Employment Agreement, Jonathan Ledecky is obligated
to assist in, among other things, identifying and pursuing new business and
investment opportunities and acquisitions for USOP, developing and providing
strategic plans and growth analyses for USOP, providing structuring,
capitalization, restructuring, recapitalization and reorganization advice to
USOP and assisting in implementing such advice, and interfacing with the
investment and financial community on an as-needed basis. While Jonathan
Ledecky is not responsible for the day-to-day oversight of USOP, his positions
as an executive officer and Chairman of the Board of USOP may nonetheless
result in competition between USOP matters and Company matters for his time
and professional attention, and may result in or exacerbate conflicts as to
his obligations to present business opportunities to one company or another,
or to pursue such opportunities for one company or another. The USOP
Employment Agreement and the Services Agreement also contain covenants not to
compete (which USOP has revised to permit the Pending Acquisitions) with USOP
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
describes as a trade secret of USOP. Were Jonathan Ledecky to be held
wrongfully to have disclosed any trade secret information to the Company or
others in violation of his obligations to USOP, he could face liability for
such disclosure, and the Company
28
<PAGE>
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
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.
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. If and when the Services Agreement supersedes
the USOP Employment Agreement, Jonathan Ledecky will have contractual
obligations and duties of loyalty and care to the Company 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
and contractual obligations to USOP without allegedly breaching them to the
others. Any alleged breach of such duties of loyalty and care or contractual
obligations could result in litigation by or on behalf of the offended company
under any of a number of possible legal theories, including seeking damages
from Jonathan Ledecky for the purported breach or from the other such company
for tortiously interfering with the offended company's contractual
relationship with Jonathan Ledecky or for inducing him to breach his duties to
the offended company. The conduct or response to any such litigation could
consume significant management attention and resources, and the defense,
settlement or final adjudication of any such litigation could have a material
adverse effect on the Company's business, financial condition and/or results
of operations.
In addition, Jonathan Ledecky is the Non-Executive Chairman of the Board of
USA Floral, the Non-Executive Chairman of the Board of UniCapital, and a
prospective minority investor in Unison Partners. Each of USA Floral,
UniCapital and Unison Partners is, or is seeking to become, a consolidator of
businesses in one or more industries. Jonathan Ledecky may thus have conflicts
of interest in determining to which of these entities, if any, a particular
relevant business opportunity should be presented.
COMPETITION
The 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 are beginning to enter the
facilities management business. Barriers to entry to the markets for certain
facilities management services, such as janitorial 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 offering multiple services and that are willing to accept lower
profit margins in order to capture market share. 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 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
29
<PAGE>
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.
FACILITIES AND EMPLOYEES
The Company's corporate offices are located in leased space at 1747
Pennsylvania Avenue, N.W., Suite 900, Washington, D.C. 20006. The telephone
number of its principal executive offices is 202/955-5490. To accommodate its
planned growth, the Company intends to seek a larger headquarters facility in
the Washington area, which it intends to lease. As of February 20, 1998, the
Company employed four executive officers and expects to employ a limited
number of other personnel in the near future.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
30
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning each of the
executive officers and directors of the Company as of February 20, 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 36 Executive Vice President and Chief
Administrative Officer; Director
Vincent W. Eades 38 Director
W. Russell Ramsey 37 Director
M. Jude Reyes 42 Director
</TABLE>
Jonathan J. Ledecky founded the Company in February 1997 and serves as its
Chairman and Chief Executive Officer. Jonathan Ledecky founded U.S. Office
Products Company, a company engaged in providing office and educational
products and business services, in October 1994 and has served as its Chairman
of the Board and, until November 5, 1997, its Chief Executive Officer. Since
its inception, USOP has acquired over 205 companies. Jonathan Ledecky has also
served as the Non-Executive Chairman of the Board of USA Floral since April
1997 and as the Non-Executive Chairman of the Board of 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 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.
31
<PAGE>
In that capacity, he researched and analyzed industry consolidation and
acquisition opportunities. From 1992 to 1996, David Ledecky was an attorney at
the Washington, D.C. law firm of Comey, Boyd & Luskin. Prior to 1992, he was
an attorney with the law firm of Shearman & Sterling, and a Vice President of
The Legacy Fund, Inc. in Washington, D.C. He is a former consultant to the
computer and telecommunications industries. He is a graduate of Harvard
College and Yale Law School. David Ledecky is the brother of Jonathan Ledecky.
Vincent W. Eades has been a director of the Company since November 25, 1997.
Mr. Eades has served as the Senior Vice President of Sales and Marketing for
Starbucks Coffee Co. Inc. since May 1995. Mr. Eades was employed by Hallmark
Cards Inc., most recently as a General Manager from November 1985 through
April 1995. Additionally, he serves as a director of USA Floral.
W. Russell Ramsey has been a director of the Company since November 25,
1997. Mr. Ramsey is President, co-founder and a director of Friedman,
Billings, Ramsey Group, Inc. ("FBR Group"), a holding company engaged in
brokerage, investment banking, corporate finance and asset management
activities in the Washington, D.C. area. He has continuously served as
President of FBR Group and its predecessors since co-founding FBR Group in
1989. FBR, the Representative in the IPO, is a wholly owned indirect
subsidiary of FBR Group. FBR was ranked fourth in terms of lead managed U.S.
IPO dollar volume for 1997 year to date as of October 17, 1997, according to
CommScan EquiDesk. FBR has 230 full-time employees and operates offices in the
Washington, D.C. area, Boston, London, and Irvine. During 1989, Mr. Ramsey
served as a Vice President at Johnston, Lemon & Co., Inc., a Washington, D.C.
brokerage firm. Mr. Ramsey holds a B.A. from The George Washington University.
Mr. Ramsey is a director designee of FBR pursuant to an agreement between the
Company and FBR.
M. Jude Reyes has been a director of the Company since November 25, 1997.
Mr. Reyes has served as Chairman and President of Premium Distributors of
Virginia, L.L.C., a beverage distributor, since 1992. Between 1989 and 1992,
Mr. Reyes served as President and Chairman of Harbor Distributing Company in
Los Angeles, California. He also is a director and investor in three other
beverage distributors and two wholesale food service distributors. Mr. Reyes
is a director designee of FBR pursuant to an agreement between the Company and
FBR.
If the Pending Acquisitions are completed, the size of the Company's Board
will be increased by one to include a designee of such Pending Acquisitions,
which designee must be reasonably acceptable to the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established an Audit Committee and a
Compensation Committee.
The responsibilities of the Audit Committee include recommending to the
Board of Directors the independent public accountants to be selected to
conduct the annual audit of the books and records of the Company, reviewing
the proposed scope of such audit and approving the audit fees to be paid,
reviewing accounting and financial controls of the Company with the
independent public accountants and the Company's financial and accounting
staff and reviewing and approving transactions between the Company and its
directors, officers and affiliates. Messrs. Eades, Ramsey and Reyes are the
members of the Audit Committee.
The Compensation Committee provides a general review of the Company's
compensation plans to ensure that they meet corporate objectives. The
responsibilities of the Compensation Committee also include administering the
Incentive Plan and Bonus Plan, including selecting the officers and salaried
employees to whom awards will be granted. Messrs. Eades and Reyes, independent
directors of the Company, are the members of the Compensation Committee.
DIRECTOR COMPENSATION
Directors who are not receiving compensation as officers, employees or
consultants of the Company are entitled to receive an annual retainer fee of
$25,000. In addition, pursuant to the Consolidation Capital Corporation 1997
Non-Employee Directors' Stock Plan, each non-employee director receives an
automatic initial grant of options to purchase
20,000 shares of Common Stock on the date of their initial election to the
Board of Directors, and an automatic annual grant of options to purchase 5,000
shares. Each such option will have an exercise price equal to the fair market
value of a share of Common Stock on the date of grant. See "--1997 Non-
Employee Directors' Stock Plan."
32
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides for fiscal 1997 certain summary information
concerning the cash and non-cash compensation earned by or awarded to (i) the
Company's Chief Executive Officer and (ii) each of the Company's other
executive officers (collectively, the "named executive officers"). The Company
was organized in February 1997, with David Ledecky as its sole employee. All
other named executive officers were employed by the Company as of November 25,
1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION AWARDS
------------ ------------
SECURITIES
UNDER-
LYING
FISCAL SALARY OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($)(1) SARS (#)(2) COMPENSATION
--------------------------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Jonathan J. Ledecky,
Chief Executive Officer and
Chariman 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.
33
<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.
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.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR 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.
34
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Set forth below is a description of certain transactions and relationships
between the Company and certain persons who are officers, directors and
principal stockholders of the Company.
Jonathan Ledecky, the Company's Chairman, Chief Executive Officer and
founder, is the brother of David Ledecky, Executive Vice President, Chief
Administrative Officer and a director of the Company.
Jonathan Ledecky advanced to the Company $305,000, at an annual interest
rate equal to 6.75%, to pay the expenses incurred in connection with the IPO.
The Company repaid Jonathan Ledecky's loans to the Company, including accrued
interest of approximately $4,000, using the proceeds of the IPO.
W. Russell Ramsey, a director of the Company, is President and a principal
stockholder of FBR. FBR rendered investment banking services to the Company in
connection with the IPO.
Timothy C. Clayton, Executive Vice President, Chief Financial Officer and
Treasurer of the Company, was, through October 1997, a Partner at Price
Waterhouse LLP, the Company's independent accountants.
F. Traynor Beck, Executive Vice President, General Counsel and Secretary of
the Company, was, until the Effective Date, a partner at Morgan, Lewis &
Bockius LLP, the Company's legal counsel.
For information with respect to certain conflicts of interest, see
"Business--Conflicts of Interest."
35
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of February 20, 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.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OF CONVERTIBLE
NUMBER OF CONVERTIBLE PERCENTAGE OF NON-VOTING
NAME AND ADDRESS OF SHARES OF NON-VOTING COMMON STOCK COMMON STOCK
BENEFICIAL OWNER COMMON STOCK COMMON STOCK OWNED OWNED
- ------------------- ------------ ------------------- ------------- -------------
<S> <C> <C> <C> <C>
Jonathan J. Ledecky..... 4,500,000(1) 0 14.9% 0%
c/o Consolidation
Capital Corporation
1747 Pennsylvania
Avenue, N.W., Suite 900
Washington, DC 20006
David Ledecky........... 0 0 0 0
F. Traynor Beck......... 0 0 0 0
Timothy C. Clayton...... 2,000 0 * 0
Vincent W. Eades........ 0 0 0 0
W. Russell Ramsey(2).... 0 500,000 0 100%
M. Jude Reyes........... 0 0 0 0
All directors and
executive officers as a
group (7 persons)...... 4,502,000 500,000 14.9% 100%
</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) 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.
36
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 250,000,000 shares
of Common Stock, par value $.001 per share, and 500,000 shares of Convertible
Non-Voting Common Stock, par value $.001 per share. As of February 20, 1998,
the Company had outstanding 30,292,857 shares of Common Stock and 500,000
shares of Convertible Non-Voting Common Stock. The following summary
description of the capital stock of the Company does not purport to be
complete and is subject to the detailed provisions of, and is qualified in its
entirety by reference to, the Company's Restated Certificate of Incorporation
and Amended and Restated Bylaws and to the applicable provisions of the
General Corporation Law of the State of Delaware (the "DGCL").
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Cumulative
voting is not permitted under the Company's Restated Certificate of
Incorporation. Holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available. See "Dividend Policy." In the event of a liquidation, dissolution
or winding up of the Company, holders of the Common Stock are entitled to
share ratably in the distribution of all assets remaining after payment of
liabilities, subject to the rights of any holders of preferred stock of the
Company. The holders of Common Stock have no preemptive rights to subscribe
for additional shares of the Company and no right to convert their Common
Stock into any other securities. In addition, there are no redemption or
sinking fund provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are, and the shares of Common Stock offered hereby will
be, fully paid and nonassessable.
CONVERTIBLE NON-VOTING COMMON STOCK
The holders of Convertible Non-Voting Common Stock have the same rights and
privileges as the holders of Common Stock, except that holders of Convertible
Non-Voting Common Stock have no voting rights. The Convertible Non-Voting
Common Stock is non-transferable and will not be publicly traded. Further,
each share of Convertible Non-Voting Common Stock will automatically be
converted into one share of Common Stock on the first anniversary of the date
of this Prospectus.
CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION
The Company is subject to the provisions of Section 203 of the DGCL. Section
203 prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. A "business combination" includes a merger, asset sale or
other transaction resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three
years prior to the proposed business combination has owned 15% or more of the
corporation's voting stock.
The Company's Restated Certificate of Incorporation provides that a director
shall not be liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL
or (iv) for any transaction from which the director derived any improper
personal benefit. The effect of this provision is to eliminate the rights of
the Company and its stockholders (through stockholders' derivative suits on
behalf of the Company) to recover monetary damages against a director for
breach of fiduciary duty of care as a director except in the situation
described in clauses (i) through (iv) above. If the DGCL is subsequently
amended to authorize the further elimination or limitation of the liability of
a director, then the liability of a director of the Company shall be
eliminated or limited to the fullest extent permitted by the DGCL, as so
amended.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
37
<PAGE>
PLAN OF DISTRIBUTION
The Company will offer and issue the Common Stock from time to time in
connection with the acquisition by the Company of other businesses, assets or
securities. It is expected that the terms of the acquisitions involving the
issuances of securities covered by this Prospectus will be determined by
direct negotiations with the owners or controlling persons of the businesses,
assets or securities to be acquired by the Company. No underwriting discounts
or commission will be paid, although finder's fees may be paid from time to
time with respect to specific mergers or acquisitions. Any person receiving
such fees may be deemed to be an underwriter within the meaning of the
Securities Act.
RESTRICTIONS ON RESALE
Affiliates of entities acquired by the Company who do not become affiliates
of the Company may not resell Common Stock registered under the Registration
Statement to which this Prospectus relates except pursuant to an effective
registration statement under the Securities Act covering such shares, or in
compliance with Rule 145 promulgated under the Securities Act or another
applicable exemption from the registration requirements of the Securities Act.
Generally, Rule 145 permits such affiliates to sell such shares immediately
following the acquisition in compliance with certain volume limitations and
manner of sale requirements. Under Rule 145, sales by such affiliates during
any three-month period cannot exceed the greater of (i) 1% of the shares of
Common Stock of the Company outstanding and (ii) the average weekly reported
volume of trading of such shares of Common Stock on all national securities
exchanges during the four calendar weeks preceding the proposed sale. These
restrictions will cease to apply under most other circumstances if the
affiliate has held the Common Stock for at least one year, provided that the
person or entity is not then an affiliate of the Company. Individuals who are
not affiliates of the entity being acquired and do not become affiliates of
the Company will not be subject to resale restrictions under Rule 145 and,
unless otherwise contractually restricted, may resell Common Stock immediately
following the acquisition without an effective registration statement under
the Securities Act. The ability of affiliates to resell shares of the Common
Stock under Rule 145 will be subject to the Company having satisfied its
Exchange Act reporting requirements for specified periods prior to the time of
sale.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby has been passed
upon for the Company by Morgan, Lewis & Bockius LLP, Washington, D.C.
EXPERTS
The historical financial statements included in this Prospectus have been
audited by various independent accountants. The companies and periods covered
by these audits are indicated in the individual accountants' reports. Such
financial statements have been so included in reliance on the reports of the
various independent accountants given on the authority of such firms as
experts in auditing and accounting.
38
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONSOLIDATION CAPITAL CORPORATION UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Combined Financial Statements... F-3
Unaudited Pro Forma Combined Balance Sheet.......................... F-4
Unaudited Pro Forma Combined Statement of Operations................ F-5
Notes to Unaudited Pro Forma Combined Financial Statements.......... F-6
CONSOLIDATION CAPITAL CORPORATION
Report of Independent Accountants................................... F-9
Balance Sheet ...................................................... F-10
Statement of Income................................................. F-11
Statement of Stockholders' Equity................................... F-12
Statement of Cash Flows............................................. F-13
Notes to Financial Statements....................................... F-14
SERVICE MANAGEMENT USA, INC.
Report of Independent Accountants................................... F-19
Combined Balance Sheet.............................................. F-20
Combined Statement of Operations.................................... F-21
Combined Statement of Stockholder's Equity.......................... F-22
Combined Statement of Cash Flows.................................... F-23
Notes to Combined Financial Statements.............................. F-24
TRI-CITY ELECTRICAL CONTRACTORS, INC.
Report of Independent Accountants................................... FINT-1
Consolidated Balance Sheet.......................................... FINT-2
Consolidated Statements of Operations and Retained Earnings......... FINT-3
Consolidated Statements of Stockholders' Equity..................... FINT-4
Consolidated Statements of Cash Flows............................... FINT-5
Notes to Consolidated Financial Statements.......................... FINT-7
WILSON ELECTRIC COMPANY, INC.
Report of Independent Accountants................................... FINW-1
Balance Sheet....................................................... FINW-2
Statement of Income and Retained Earnings........................... FINW-3
Statement of Cash Flows............................................. FINW-4
Notes to Financial Statements....................................... FINW-5
SKC ELECTRIC, INC. AND AFFILIATE
Report of Independent Accountants................................... FINS-1
Balance Sheet....................................................... FINS-2
Statement of Income................................................. FINS-3
Statement of Cash Flows............................................. FINS-4
Notes to Financial Statements....................................... FINS-6
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
RIVIERA ELECTRIC CONSTRUCTION CO.
Report of Independent Accountants..................................... FINR-1
Balance Sheet......................................................... FINR-2
Statement of Income................................................... FINR-3
Statement of Stockholders' Equity..................................... FINR-4
Statement of Cash Flows............................................... FINR-5
Notes to Financial Statements......................................... FINR-6
TOWN & COUNTRY ELECTRIC, INC.
Report of Independent Accountants..................................... FINC-1
Balance Sheet......................................................... FINC-2
Statement of Income................................................... FINC-4
Statement of Stockholders' Equity..................................... FINC-5
Statement of Cash Flows............................................... FINC-6
Notes to Financial Statements......................................... FINC-7
GARFIELD ELECTRIC COMPANY
Report of Independent Accountants..................................... FING-1
Balance Sheet......................................................... FING-2
Statement of Income................................................... FING-3
Statement of Stockholders' Equity..................................... FING-4
Statement of Cash Flows............................................... FING-5
Notes to Financial Statements......................................... FING-6
INDECON, INC.
Report of Independent Accountants..................................... FINI-1
Balance Sheet......................................................... FINI-2
Statement of Income................................................... FINI-3
Statement of Stockholders' Equity..................................... FINI-4
Statement of Cash Flows............................................... FINI-5
Notes to Financial Statements......................................... FINI-6
</TABLE>
F-2
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
INTRODUCTION TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined balance sheet gives effect to the
recent acquisition of Service Management and the Pending Acquisitions, as if
they had occurred as of the Company's most recent balance sheet date, December
31, 1997.
The unaudited pro forma combined statements of operations give effect to the
recent acquisition of Service Management and the Pending Acquisitions as if
they had occurred on January 1, 1997.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what the
Company's financial position and results of operations would actually have
been if such transactions in fact had occurred on the assumed dates and are
not necessarily representative of the Company's financial position or results
of operations for any future period. The unaudited pro forma combined
financial statements should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this Prospectus.
F-3
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1997
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATION SERVICE SKC GARFIELD RIVIERA TRI-CITY TOWN & WILSON
CAPITAL MANAGEMENT ELECTRIC INDECON ELECTRIC ELECTRIC ELECTRICAL COUNTRY ELECTRIC
CORPORATION USA, INC. & AFFILIATE INC. COMPANY CONSTRUCTION CONTRACTORS ELECTRIC CO. CO.
------------- ---------- ----------- ------- -------- ------------ ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents...... $528,392 $ 4 $1,686 $ $ 1 $ 295 $ 1,334 $ 198 $ 1,042
Marketable
securities....... 128
Accounts
receivable,
net.............. 4,132 5,301 2,432 1,829 9,288 16,873 10,605 14,085
Inventories....... 161 39 54 380 295
Costs and
estimated
earnings in
excess of
billings on
uncompleted
contracts........ 135 56 1,211 190 2,402 1,705 1,302
Prepaid expenses
and other
current assets... 653 303 150 788 58 31 1,491 730 233
-------- ------ ------ ------ ------ ------- ------- ------- -------
Total current
assets......... 529,045 4,567 7,433 3,315 3,153 9,804 22,480 13,533 16,662
Property and
equipment, net.... 20 2,333 554 200 294 1,608 2,513 1,626 704
Other assets....... 27 381 1 161 246 838 99 136
Intangibles........ 202 172 11
-------- ------ ------ ------ ------ ------- ------- ------- -------
Total assets.... $529,065 $7,129 $8,368 $3,516 $3,608 $11,658 $25,831 $15,430 $17,513
======== ====== ====== ====== ====== ======= ======= ======= =======
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current
liabilities:
Short term debt... $ $1,623 $ 196 $ 728 $ 853 $ 1,524 $ 238 $ 320 $ 183
Current
maturities,
capital leases...
Accounts
payable.......... 156 1,738 1,415 527 870 3,590 5,414 2,206 4,589
Accrued
liabilities and
other............ 1,612 556 2,021 611 415 1,554 3,070 3,104 3,879
Billings in
excess of costs
and estimated
earnings on
uncompleted
contracts........ 1,652 134 186 1,088 7,046 1,267 3,402
-------- ------ ------ ------ ------ ------- ------- ------- -------
Total current
liabilities.... 1,768 3,917 5,284 2,000 2,324 7,756 15,768 6,897 12,053
Long-term debt..... 730 982 18 2,798 252 197
ESOP liability..... 1,822
-------- ------ ------ ------ ------ ------- ------- ------- -------
Total
liabilities.... 1,768 4,647 8,088 2,000 2,342 10,554 16,020 7,094 12,053
-------- ------ ------ ------ ------ ------- ------- ------- -------
Stockholders'
equity:
Common Stock...... 30 180 11 3 503 1,351 10 2 10
Convertible Non-
Voting common
stock............ 1
Additional paid-
in capital....... 527,259 110 112 515 266
Retained
earnings......... 7 2,192 269 1,546 958 (247) 9,689 7,819 5,184
Treasury stock.... (33) (195)
-------- ------ ------ ------ ------ ------- ------- ------- -------
Total
stockholders'
equity......... 527,297 2,482 280 1,516 1,266 1,104 9,811 8,336 5,460
-------- ------ ------ ------ ------ ------- ------- ------- -------
Total
liabilities and
stockholders'
equity......... $529,065 $7,129 $8,368 $3,516 $3,608 $11,658 $25,831 $15,430 $17,513
======== ====== ====== ====== ====== ======= ======= ======= =======
<CAPTION>
PRO FORMA
MERGER PRO FORMA
ADJUSTMENTS COMBINED
----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents...... $(75,077) $457,875
Marketable
securities....... 128
Accounts
receivable,
net.............. 64,545
Inventories....... 929
Costs and
estimated
earnings in
excess of
billings on
uncompleted
contracts........ 7,001
Prepaid expenses
and other
current assets... 4,437
----------- ---------
Total current
assets......... (75,077) 534,915
Property and
equipment, net.... 9,852
Other assets....... 1,889
Intangibles........ 103,724 104,109
----------- ---------
Total assets.... $ 28,647 $650,765
=========== =========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current
liabilities:
Short term debt... $ (196) $ 5,469
Current
maturities,
capital leases... --
Accounts
payable.......... 20,505
Accrued
liabilities and
other............ 300 17,122
Billings in
excess of costs
and estimated
earnings on
uncompleted
contracts........ 14,775
----------- ---------
Total current
liabilities.... 104 57,871
Long-term debt..... (3,182) 1,795
ESOP liability..... (1,822) --
----------- ---------
Total
liabilities.... (4,900) 59,666
----------- ---------
Stockholders'
equity:
Common Stock...... (2,066) 34
Convertible Non-
Voting common
stock............ 1
Additional paid-
in capital....... 62,795 591,057
Retained
earnings......... (27,410) 7
Treasury stock.... 228 --
----------- ---------
Total
stockholders'
equity......... 33,547 591,099
----------- ---------
Total
liabilities and
stockholders'
equity......... $ 28,647 $650,765
=========== =========
</TABLE>
F-4
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
UNAUDITED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
CONSOLIDATION SERVICE SKC GARFIELD RIVIERA TRI-CITY TOWN & WILSON
CAPITAL MANAGEMENT ELECTRIC INDECON ELECTRIC ELECTRIC ELECTRICAL COUNTRY ELECTRIC
CORPORATION USA, INC. & AFFILIATE INC. COMPANY CONSTRUCTION CONTRACTORS ELECTRIC CO. CO.
------------- ---------- ----------- ------- -------- ------------ ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......... $ $26,266 $23,482 $13,672 $10,826 $37,049 $79,493 $48,726 $71,009
Cost of revenues.. 19,856 16,971 11,301 8,286 31,607 63,551 39,701 59,036
------ ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.... 6,410 6,511 2,371 2,540 5,442 15,942 9,025 11,973
Selling, general &
administrative
expenses......... 1,985 3,832 4,200 1,376 1,605 3,999 9,925 7,006 10,514
Goodwill
amortization.....
------ ------- ------- ------- ------- ------- ------- ------- -------
Operating
income......... (1,985) 2,578 2,311 995 935 1,443 6,017 2,019 1,459
Other (income)
expense:
Interest
expense........ 53 33 69 229 53 75 110
Interest
income......... (2,056) (168) (156)
Other, net...... 6 (40) (41) 24 (119) 26 (113) 77
------ ------- ------- ------- ------- ------- ------- ------- -------
Income before
provision for
income taxes..... 71 2,519 2,351 1,003 842 1,333 6,106 2,057 1,428
Provision for
income taxes..... 64 52 1,150 452 319 462 894 625
------ ------- ------- ------- ------- ------- ------- ------- -------
Net income........ $ 7 $ 2,467 $ 1,201 $ 551 $ 523 $ 1,333 $ 5,644 $ 1,163 $ 803
====== ======= ======= ======= ======= ======= ======= ======= =======
Net income per
share--Basic.....
Net income per
share--Diluted...
Weighted average
number of common
shares
outstanding
(Note 3).........
Weighted average
number of common
and potentially
dilutive shares
outstanding
(Note 4).........
<CAPTION>
COMBINED PRO FORMA PRO FORMA
TOTAL ADJUSTMENTS COMBINED
--------- ----------- -----------
<S> <C> <C> <C>
Revenues.......... $310,523 $ $ 310,523
Cost of revenues.. 250,309 250,309
--------- ----------- -----------
Gross profit.... 60,214 60,214
Selling, general &
administrative
expenses......... 44,442 (5,802) 38,640
Goodwill
amortization..... 2,594 2,594
--------- ----------- -----------
Operating
income......... 15,772 3,208 18,980
Other (income)
expense:
Interest
expense........ 622 622
Interest
income......... (2,380) 354 (2,026)
Other, net...... (180) (180)
--------- ----------- -----------
Income before
provision for
income taxes..... 17,710 2,854 20,564
Provision for
income taxes..... 4,018 5,590 9,608
--------- ----------- -----------
Net income........ $ 13,692 $(2,736) $ 10,956
========= =========== ===========
Net income per
share--Basic..... $ 0.90
===========
Net income per
share--Diluted... $ 0.90
===========
Weighted average
number of common
shares
outstanding
(Note 3)......... 12,108,113
===========
Weighted average
number of common
and potentially
dilutive shares
outstanding
(Note 4)......... 12,178,935
===========
</TABLE>
F-5
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 1--UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
The unaudited pro forma combined balance sheet reflects the following
adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) ADJUSTMENTS
-------- ---- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $(75,077) $ $(75,077)
Marketable securities..............................
Accounts receivable, net...........................
Prepaid and other current assets...................
-------- ---- --------
Total current assets............................... (75,077) (75,077)
Property and equipment, net.........................
Other assets........................................
Goodwill, net....................................... 103,424 300 103,724
-------- ---- --------
Total assets....................................... $ 28,347 $300 $ 28,647
======== ==== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities, long-term debt ................ $ (196) $ $ (196)
Current maturities, capital leases ................
Accounts payable ..................................
Accrued liabilities and other ..................... 300 300
-------- ---- --------
Total current liabilities ......................... (196) 300 104
Subordinated debt to stockholders ..................
Long-term debt, less current maturities............. (3,182) (3,182)
Other long-term liabilities.........................
ESOP liability...................................... (1,822) (1,822)
-------- ---- --------
Total liabilities.................................. (5,200) 300 (4,900)
-------- ---- --------
Stockholders' equity................................
Common Stock....................................... (2,066) (2,066)
Non-Voting Common Stock............................
Additional paid-in capital......................... 62,795 62,795
Treasury Stock..................................... 228 228
Retained earnings.................................. (27,410) (27,410)
-------- ---- --------
Total stockholders' equity......................... 33,547 33,547
-------- ---- --------
Total liabilities and stockholders' equity......... $ 28,347 $300 $ 28,647
======== ==== ========
</TABLE>
- --------
(A) Reflects the recent acquisition of Service Management and the Pending
Acquisitions for consideration consisting of $75,077 in cash and 3,745,932
shares of common stock valued at $63,802, for a total estimated purchase price
of $138,879 resulting in excess purchase price over the fair value of net
assets acquired of $103,424. For purposes of computing the estimated purchase
price for accounting purposes, the value of the shares was determined in
consideration of restrictions on the sale and transferability of the shares
issued. The shares generally will be subject to the following restrictions on
resale: up to one-third of the shares may be resold beginning twelve months
after their date of acquisition, the first one-third and an additional one-
third may be resold beginning eighteen months after their date of acquisition
and the first two-thirds and the remaining one-third may be resold beginning
twenty-four months after their date of acquisition. Also reflects the
repayment of the employee stock ownership plan (ESOP) debt and the related
elimination of unearned ESOP shares at one of the Pending Acquisitions, and
the forgiveness of a $2,200 note payable to a shareholder of one of the
Pending Acquisitions.
(B) Records the net deferred income tax liability attributable to the
temporary differences between the financial reporting and tax basis of assets
and liabilities of Service Management.
F-6
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 2--UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
The unaudited pro forma combined statements of operations reflect the
following adjustments:
For the year ended December 31, 1997:
<TABLE>
<CAPTION>
TOTAL
PRO FORMA
(A) (B) (C) (D) (E) ADJUSTMENTS
------- ------- ------- ----- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ $ $ $ $ $
Cost of revenues........
------- ------- ------- ----- ------- -------
Gross profit..........
Selling, general and
administrative
expenses............... (2,511) (3,291) (5,802)
Goodwill amortization... 2,594 2,594
------- ------- ------- ----- ------- -------
Operating income
(loss)............... 2,511 (2,594) 3,291 3,208
Other (income) expense:
Interest expense......
Interest income....... 354 354
Other, net............
------- ------- ------- ----- ------- -------
Income (loss) before
provision for income
taxes.................. 2,511 (2,594) 3,291 (354) 2,854
Provision for income
taxes.................. 5,590 5,590
------- ------- ------- ----- ------- -------
Net income (loss)....... $ 2,511 $(2,594) $ 3,291 $(354) $(5,590) $(2,736)
======= ======= ======= ===== ======= =======
</TABLE>
- --------
(A) Reflects the modifications in salaries, bonuses and benefits to the owners
of Service Management and the Pending Acquisitions to which they have
agreed prospectively.
(B) Reflects the amortization of goodwill to be recorded as a result of the
acquisition of Service Management and the Pending Acquisitions over a 40
year estimated life.
(C) Adjustment to eliminate expense recorded in connection with certain of the
Pending Acquisition ESOPs. These plans will be converted to profit sharing
plans as part of the acquisitions, and no future contributions will be
made.
(D) Adjustment to eliminate interest income relating to the cash consideration
of $75,077 used in the acquisition of Service Management and the Pending
Acquisitions.
(E) Reflects the incremental provision for federal and state income taxes
assuming (i) the Pending Acquisition was subject to federal and state
income tax; (ii) the other statements of operations' adjustments; and
(iii) the amortization of goodwill is not tax deductible, with the
exception of the goodwill associated with the acquisition of Service
Management.
NOTE 3--UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS
(CONTINUED)
Includes (i) 2,026,165 shares representing the weighted average shares
outstanding for the Company, (ii) 2,300,000 shares issued to founding
stockholder of the Company, (iii) 3,745,932 shares issued to the owners of
Service Management and the Pending Acquisitions, and (iv) 4,036,015 shares of
the 27,850,000 shares issued in the Company's initial public offering
completed in December 1997 to fund the cash portion of the consideration
payable to the owners of Service Management and the Pending Acquisitions.
F-7
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS
(CONTINUED)
Includes (i) 2,026,165 shares representing the weighted average shares
outstanding for the Company, (ii) 2,300,000 shares issued to the founding
stockholder of the Company, (iii) 3,745,932 shares issued to the owners of
Service Management and the Pending Acquisitions, (iv) 4,036,015 shares of the
27,850,000 shares issued in the Company's initial public offering completed in
December 1997 to fund the cash portion of the consideration payable to the
owners of Service Management and the Pending Acquisitions, and (v) 70,822
weighted average shares, calculated using the treasury stock method, to
reflect the potential dilutive effects of the assumed exercise as of the
beginning of the period of certain warrants issued to Jonathan Ledeck and the
representatives of the underwriters in the Company's initial public offering
and all outstanding options.
F-8
<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
F-9
<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.
F-10
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
STATEMENT OF INCOME
FOR A PERIOD FROM INCEPTION (FEBRUARY 27, 1997) TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<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 ............... 4,109,205
=========
Weighted average number of Common and Potentially Dilutive Shares
outstanding ....................................................... 4,115,107
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (FEBRUARY 27, 1997) TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE NON-VOTING
COMMON STOCK COMMON STOCK
------------------ ------------------------- ADDITIONAL TOTAL
SHARES SHARES PAID-IN- RETAINED STOCKHOLDERS'
OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL EARNINGS EQUITY
----------- ------ ------------- ---------- ---------- -------- -------------
<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.
F-12
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (FEBRUARY 27, 1997) TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<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.
F-13
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1--BUSINESS AND ORGANIZATION
Consolidation Capital Corporation, a Delaware corporation (the "Company"),
was incorporated in September 1997. Ledecky Brothers L.L.C., ("LLC"), a
limited liability corporation 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.
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.
F-14
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO BALANCE SHEET--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 the beginning of
the period.
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.
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.
F-15
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO BALANCE SHEET--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3--STOCKHOLDERS' EQUITY (CONTINUED)
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).
Options granted under the Directors' Plan will have an exercise price per
share equal to the fair market value of a share at the date of grant. Options
will expire at the earlier of 10 years from the date of grant or 90 days after
termination of service as a director. Options will vest and become exercisable
ratably as to 50% of the shares underlying the option on the first and second
anniversaries of the date of grant, subject to acceleration by the Board. In
the event of a change in control of the Company prior to normal vesting, all
options not already exercisable will become fully vested and exercisable.
1997 Employee Stock Purchase Plan
The Company has adopted, and the Company's stockholder has approved, the
1997 Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan
permits eligible employees of the Company and its subsidiaries (generally all
full-time employees who have completed one year of service) to purchase shares
of Common Stock at a discount. Employees who elect to participate will have
amounts withheld through payroll deduction during purchase periods. At the end
of each purchase period, accumulated payroll deductions will be used to
purchase stock at a price equal to 85% of the market price at the beginning of
the period or the end of the period, whichever is lower. Stock purchased under
the Purchase Plan will be subject to a one-year holding period. The Company
has reserved 1,000,000 shares of Common Stock for issuance under the Purchase
Plan.
F-16
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO BALANCE SHEET--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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 outstanding 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>
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 companies 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......................................................... (2.28)
Net Income (Loss) Per Share--Diluted
As reported....................................................... $ --
Pro forma......................................................... (2.28)
</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:
<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>
F-17
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO BALANCE SHEET--(CONTINUED)
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
On February 4, 1998, the Company completed the acquisition of Service
Management USA ("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 million in cash and 142,857 shares of Common
Stock, with the potential for the payment of up to an additional $13 million
in cash and shares of Common Stock based on the performance of Service
Management and the achievement of certain acquisition goals.
On February 27, 1998, the Company entered into definitive agreements to
acquire seven facilities management businesses specializing in providing
electrical installation and maintenance services (the "Pending Acquisitions").
The Pending Acquisitions include: Garfield Electric Company, Indecon, Inc.,
Riviera Electric, Inc., SKC Electric and affiliate, Town & Country Electric,
Inc., Tri-City Electrical Contractors, Inc., and Wilson Electric, Inc. The
aggregate consideration to be paid by the Company in the Pending Acquisitions
consists of $71.7 million in cash and 3.6 million in shares of Common Stock.
In addition, there is the potential for the payment of up to an additional $37
million in cash and shares of Common Stock based on the performance of the
acquired businesses as a group. The completion of the Pending Acquisitions is
subject to a number of customary closing conditions and there can be no
assurance that such acquisitions will be completed. In addition, the
completion of each of the Pending Acquisitions is dependent upon the
completion of all of the Pending Acquisitions.
F-18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Service Management USA, Inc.
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations, of stockholder's equity and of cash flows
present fairly, in all material respects, the financial position of Service
Management USA, Inc. and its affiliates (the "Company") at December 31, 1996
and 1997 and the results of their operations and their cash flows for each of
the three years in the period ended 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 audits. We conducted our
audits 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 audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
February 19, 1998
F-19
<PAGE>
SERVICE MANAGEMENT USA, INC.
COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997
------ ------
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................ $ 425 $ 4
Marketable securities............................................ 36 128
Accounts receivable, net of an allowance for doubtful accounts of
$295 and $333, respectively..................................... 1,614 4,044
Other receivable................................................. 46 88
Related party receivable......................................... 169
Employee receivables............................................. 5 75
Prepaid expenses................................................. 92 59
------ ------
Total current assets......................................... 2,218 4,567
Property and equipment, net...................................... 1,159 2,333
Deposits......................................................... 26 27
Intangibles...................................................... 167 202
------ ------
Total assets................................................. $3,570 $7,129
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Bank line of credit.............................................. $ $1,250
Current maturities, long-term debt............................... 165 373
Current obligations, capital leases.............................. 43
Accounts payable................................................. 954 1,738
Accrued liabilities.............................................. 452 503
Federal payroll tax payable...................................... 341
Income taxes payable............................................. 19 53
------ ------
Total current liabilities.................................... 1,974 3,917
Long-term debt................................................... 94 730
Capital lease obligations........................................ 100
------ ------
Commitments
Total liabilities............................................ 2,168 4,647
Stockholder's equity:
Common stock, Service Management USA, Inc., $1 par value, 1,000
shares authorized, issued and outstanding..................... 1 1
Common stock, Diversified Management Services USA, Inc., no par
value, 200 shares authorized, issued and outstanding.......... 152 152
Interstate Building Services, LLC.............................. 27
Additional paid-in capital..................................... 110 110
Retained earnings.............................................. 1,139 2,192
------ ------
Total stockholder's equity................................... 1,402 2,482
------ ------
Total liabilities and stockholder's equity................... $3,570 $7,129
====== ======
</TABLE>
The accompanying notes are an
integral part of these combined financial statements.
F-20
<PAGE>
SERVICE MANAGEMENT USA, INC.
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Revenues........................................... $4,964 $12,074 $26,266
Cost of revenues................................... 3,650 8,735 19,856
------ ------- -------
Gross profit................................... 1,314 3,339 6,410
Selling, general and administrative expenses....... 617 2,169 3,832
------ ------- -------
Operating income............................... 697 1,170 2,578
Other (income) expense:
Interest expense................................. 2 4 53
Realized and unrealized (gains) losses on trading
securities...................................... 40 (64) 6
------ ------- -------
Income before income taxes......................... 655 1,230 2,519
Provision for state income taxes................... 19 52
------ ------- -------
Net income......................................... $ 655 $ 1,211 $ 2,467
====== ======= =======
Unaudited pro forma information (see Note 2):
Income before provision for income taxes......... $ 655 $ 1,230 $ 2,519
Provision for income taxes....................... 262 492 1,008
------ ------- -------
Pro forma net income............................. $ 393 $ 738 $ 1,511
====== ======= =======
</TABLE>
The accompanying notes are an
integral part of these combined financial statements.
F-21
<PAGE>
SERVICE MANAGEMENT USA, INC.
COMBINED STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN- RETAINED STOCKHOLDER'S
SERVICE DIVERSIFIED INTERSTATE LLC CAPITAL EARNINGS EQUITY
------- ----------- -------------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994................... $ 1 $ 42 $ 316 $ 359
Net income............ 655 655
Dividends............. (186) (186)
--- ---- --- ---- ------- -------
Balance, December 31,
1995................... 1 42 785 828
Issuance of common
stock, Diversified
Management Services
USA, Inc............. 152 152
Capital contribution.. 68 68
Net income............ 1,211 1,211
Dividends............. (857) (857)
--- ---- --- ---- ------- -------
Balance, December 31,
1996................... 1 152 110 1,139 1,402
Capital contribution.. 27 27
Net income............ 2,467 2,467
Dividends............. (1,312) (1,312)
Distribution of cer-
tain equipment to
stockholder.......... (102) (102)
--- ---- --- ---- ------- -------
Balance, December 31,
1997 .................. $ 1 $152 $27 $110 $ 2,192 $ 2,482
=== ==== === ==== ======= =======
</TABLE>
The accompanying notes are an
integral part of these combined financial statements.
F-22
<PAGE>
SERVICE MANAGEMENT USA, INC.
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1995 1996 1997
----- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 655 $ 1,211 $ 2,467
Adjustments to reconcile net income to net cash
provided by operating activities:
Purchases of marketable trading securities.......... (104) (173)
Proceeds from sale of marketable trading securi-
ties............................................... 175 74
Provision for doubtful accounts..................... 98 197 233
Depreciation and amortization....................... 24 245 709
Loss on write-off of assets......................... 21
Unrealized/realized (gain) loss of marketable
trading securities................................. 40 (64) 6
Changes in operating assets and liabilities:
Accounts receivable................................ (346) (1,224) (2,873)
Prepaid expenses and other current assets.......... (2) (129) (126)
Accounts payable and accrued liabilities........... 138 1,468 494
Income taxes payable............................... 19 34
----- ------- -------
Net cash provided by operating activities......... 607 1,815 845
----- ------- -------
Cash flow from investing activities:
Purchases of equipment.............................. (222) (1,017) (1,835)
Purchase of contract rights......................... (70)
----- ------- -------
Net cash used in investing activities............. (222) (1,017) (1,905)
----- ------- -------
Cash flow from financing activities:
Proceeds from bank line of credit................... 1,250
Principal payments on long-term debt................ (14) (76) (512)
Proceeds from long-term debt........................ 25 148 1,356
Payments on capital lease obligations............... (18) (143)
Proceeds from issuance of common stock.............. 152
Proceeds from stockholder contribution.............. 68
Dividends to stockholder............................ (186) (857) (1,312)
----- ------- -------
Net cash used in financing activities............. (175) (583) 639
----- ------- -------
Net increase (decrease) in cash and cash equivalents.. 210 215 (421)
Cash and cash equivalents, beginning of year.......... -- 210 425
----- ------- -------
Cash and cash equivalents, end of year................ $ 210 $ 425 $ 4
===== ======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest.............................. $ 2 $ 4 $
Supplemental disclosure of non-cash transactions:
Marketable securities exchanged for accounts
receivable......................................... $ 84
Capital lease obligations........................... $ 162
Purchase of net assets of Diversified for Note
Payable............................................ 175
Distribution of certain equipment to stockholder.... $ 102
Contribution of certain equipment................... 27
</TABLE>
The accompanying notes are an
integral part of these combined financial statements.
F-23
<PAGE>
SERVICE MANAGEMENT USA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 1--BUSINESS AND ORGANIZATION
Service Management USA, Inc., and its affiliated entities provide contract
facility management and janitorial services to commercial establishments
located throughout the United States.
The accompanying financial statements represent the financial position,
operating results and cash flows of Service Management USA, Inc., and its
subsidiary Interstate Building Services, LLC, and Diversified Management
Services USA, Inc., collectively "Service Management" or the "Company", which
have been presented on a combined basis due to common ownership and common
management. All intercompany activity and balances have been eliminated.
Service Management USA, Inc. was incorporated in October 1994. Prior to
incorporation, the entity was operated as a sole proprietorship. Diversified
Management Services USA, Inc. was incorporated in November 1996 via the
purchase of the net assets of an operating business. Interstate Building
Services, LLC was formed in October of 1997.
On February 6, 1998, all of the issued and outstanding common stock of
Service Management USA, Inc., Diversified Management Services USA, Inc. and
ownership interest in Interstate Building Services, LLC was acquired by
Consolidation Capital Corporation ("CCC") for $9,000 in cash and 142,857
shares of CCC common stock.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenues are recognized as services are performed.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less at the date
of purchase to be cash equivalents.
Property and Equipment
Property and equipment are depreciated using straight-line and accelerated
methods over their estimated useful lives ranging from three to seven years.
Intangibles
Intangible assets consist of amounts allocated to customer contracts
purchased and are being amortized straight-line basis over a period of five
years, which is deemed to be the estimated period benefited. Accumulated
amortization was $6 and $45 at December 31, 1996 and 1997 respectively.
F-24
<PAGE>
SERVICE MANAGEMENT USA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Marketable Securities
The Company's marketable securities consist of investments in certain
equities and mutual funds and are classified as trading. Accordingly, any
realized or unrealized gains and losses are recorded in the period incurred.
As of ended December 31, 1997, the net unrealized loss for these investments
was $5.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, and accrued liabilities as reflected in the financial
statements approximates fair value because of the short-term maturity of these
instruments. The carrying amounts of short-term and long-term debt
approximates fair value as the interest rates approximate market rates for
debt with similar terms and average maturities.
Income Taxes
The Company has elected to be treated as a cash basis S-Corporation for
federal income tax purposes and accordingly, any liabilities for income taxes
are the direct responsibility of the stockholder. Therefore, no provision or
liability for federal income taxes has been included in the financial
statements. The Company is subject to income and franchise taxes in certain
states, which has been appropriately reflected in the financial statements.
There are differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities primarily related to accounts
receivable and accounts payable. At December 31, 1997, the Company's net
assets for financial reporting purposes exceeds the tax basis by approximately
$2,453.
The unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as if the Company had been
subject to federal income taxes for the entire periods presented.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. Receivables
are not collateralized and, accordingly, the Company performs on-going credit
evaluations to reduce the risk of loss.
During 1996 revenues derived from one customer were approximately 45.0% of
total revenues. At December 31, 1996, the accounts receivable balance for this
customer was $469. During 1997 revenues derived from three customers were
approximately 17.5%, 14.3%, and 11.1%, respectively, of total revenues. At
December 31, 1997, the accounts receivable balances for these customers were
$1,178, $603 and $305, respectively.
F-25
<PAGE>
SERVICE MANAGEMENT USA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND WRITE- AT END
OF PERIOD EXPENSES OFFS OF PERIOD
---------- ---------- ------ ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1995........ $ 0 $ 98 $ 0 $ 98
Year ended December 31, 1996........ $ 98 $197 $ 0 $295
Year ended December 31, 1997........ $295 $233 $(195) $333
</TABLE>
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------ ------
<S> <C> <C>
Cleaning equipment........................................... $1,096 $2,581
Automobiles.................................................. 230 356
Computer equipment........................................... 58 108
Office equipment............................................. 25 93
Furniture and fixtures....................................... 8 26
------ ------
1,417 3,164
Accumulated depreciation..................................... (258) (831)
------ ------
$1,159 $2,333
====== ======
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1996 and 1997
was $24, $223 and $586, respectively.
NOTE 5--CREDIT FACILITIES
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1997
----- -----
<S> <C> <C>
Equipment term note, payable in monthly installments of $25
including interest at 7.7%, through January, 2001............ $ $ 809
Equipment term note, payable in monthly installments of $6
including interest at 7.7%, through December, 2000........... 187
Note payable, due in monthly installments of $13.............. 55
Notes payable, vehicles, various monthly payments including
interest at rates ranging from 8% to 18%, maturing at various
dates from December 1997 through 2001........................ 122 52
Note payable, issued in connection with the purchase of net
assets for Diversified Management Services USA, Inc., monthly
principal payments of $20 beginning December 1, 1996,
interest of 8%............................................... 137
Current maturities............................................ (165) (373)
----- -----
$ 94 $ 730
===== =====
</TABLE>
F-26
<PAGE>
SERVICE MANAGEMENT USA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 5--CREDIT FACILITIES (CONTINUED)
Principal payments required under long-term debt obligations are as follows:
<TABLE>
<S> <C>
1998.................................................................. $ 373
1999.................................................................. 345
2000.................................................................. 370
2001.................................................................. 15
------
$1,103
======
</TABLE>
Line of Credit
In April 1997, the Company obtained a revolving line of credit for
borrowings of up to $1,000. The line of credit, which expires on April 30,
1998, bears interest at LIBOR plus 2% (7.49% at December 31, 1997), and is
limited to 80% of eligible trade accounts receivable.
Additionally, in December 1997 an additional $250 facility was obtained with
a maturity of two months at an interest rate of LIBOR plus 2%. This line of
credit was paid in January, 1998.
Equipment Facility
In April 1997, the Company obtained an equipment facility which provides for
the Company to borrow up to $1,500 under term notes until April 30, 1998. As
of December 1997, approximately $1,000 had been utilized under this facility
to purchase equipment. These $1,000 term notes bear interest at 7.7% and
require 36 monthly installments of principal and interest of approximately
$31.
Both the line of credit and the equipment notes contain, among other
provisions, maintenance of certain financial covenants and ratios including
tangible net worth and cash flow coverage, restrictions on dividends and
indebtedness, and are collateralized by the majority of the Company's assets,
and are personally guaranteed by the stockholder and spouse. The Company was
in violation of certain debt covenants as of December 31, 1997 for which
appropriate waivers were obtained.
NOTE 6--COMMITMENTS
Lease Commitments
In January 1998, the Company began leasing its primary office facility from
a company owned by the Company's stockholder. The lease agreement requires
monthly payments of approximately $8, escalating 3.5% annually through 2002.
The Company also leases office space in various states on a month-to-month
basis. Rent expense under these lease arrangements for December 31, 1995, 1996
and 1997 were $16, $28 and $15, respectively.
Additionally, in November 30, 1996, the Company acquired approximately $162
of equipment under leases qualifying as capital in connection with the
purchase of Diversified Management Services USA, Inc. The balance on these
capital lease obligations were paid in full in fiscal 1997.
F-27
<PAGE>
SERVICE MANAGEMENT USA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6--COMMITMENTS (CONTINUED)
Guarantee
The Company's stockholder has obtained a mortgage of $1,280 in connection
with the acquisition of a building. Service Management USA, Inc. is a
guarantor of this obligation. Under the terms of the transaction with CCC (see
Note 1), Service Management USA, Inc. was released from this guarantee.
NOTE 7--EMPLOYEE BENEFIT PLAN
In November 1997, the Company established a profit sharing plan under the
provisions of Section 401(k) of the Internal Revenue Code. Virtually all
employees are eligible to participate in the plan. Employees can contribute up
to 15% of their gross salary to the plan, and the Company makes matching
contributions of up to 3%. The Company recorded matching contributions of $8
for the year ended December 31, 1997.
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Tri-City Electrical Contractors, Inc.:
We have audited the accompanying consolidated balance sheets of Tri-City
Electrical Contractors, Inc. as of December 31, 1996 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tri-City
Electrical Contractors, Inc. as of December 31, 1996 and 1997, and the results
of its operations and its cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Orlando, Florida
February 16, 1998
FINT-1
<PAGE>
TRI-CITY ELECTRICAL CONTRACTORS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 2,734,000 $ 1,333,571
Certificates of deposit............................ 46,101 --
Accounts receivable (note 2)....................... 13,423,658 16,873,473
Costs and estimated earnings in excess of billings
on uncompleted contracts (note 3)................. 1,116,186 2,401,919
Inventories........................................ 287,136 379,543
Prepaid expenses................................... 588,310 831,859
Deferred income taxes (note 6)..................... 443,972 --
Refundable income taxes............................ 1,276 658,698
------------ -----------
Total current assets............................... 18,640,639 22,479,063
------------ -----------
Property, plant and equipment, at cost (note 5):
Leasehold improvements............................. 1,012,292 1,098,838
Autos, trucks and trailers......................... 1,681,540 1,618,478
Office furniture and equipment..................... 1,932,148 2,543,219
Shop tools and equipment........................... 1,065,898 860,513
Capitalized equipment leases (notes 5 and 13)...... 712,596 705,758
------------ -----------
6,404,474 6,826,806
Less accumulated depreciation and amortization..... (3,841,367) (4,313,431)
------------ -----------
Net property, plant and equipment.................. 2,563,107 2,513,375
------------ -----------
Other assets:
Advances to stockholders (note 9).................. 550,768 607,168
Other ............................................. 66,141 230,553
Advances to joint venture partner (note 12)........ 60,000 --
------------ -----------
676,909 837,721
------------ -----------
$ 21,880,655 $25,830,159
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable (note 4)............................. $ 2,530 $ 30
Current maturities of long-term debt and
capitalized lease obligations
(note 5).......................................... 490,374 237,544
Accounts payable................................... 3,630,900 5,414,432
Accrued salaries and wages......................... 1,332,014 1,527,555
Accrued expenses................................... 1,708,451 1,406,199
Billings in excess of costs and estimated earnings
on uncompleted contracts (note 3)................. 4,375,530 7,045,641
Due to stockholders................................ 155,253 --
------------ -----------
Total current liabilities.......................... 11,695,052 15,631,401
Long-term debt and capitalized lease obligations,
less current maturities (note 5)................... 556,139 252,238
Deferred income taxes (note 6)...................... 45,025 --
------------ -----------
Total liabilities.................................. 12,296,216 15,883,639
------------ -----------
Minority interest in joint ventures (note 12)....... 184,072 135,832
------------ -----------
Stockholders' equity:
Common stock, 10,000 shares authorized, issued and
outstanding, at $1 par value...................... 10,000 10,000
Additional paid-in capital......................... 111,827 111,827
Retained earnings.................................. 9,278,540 9,688,861
------------ -----------
Total stockholders' equity......................... 9,400,367 9,810,688
Commitments and contingencies (notes 7 and 9).......
------------ -----------
$ 21,880,655 $25,830,159
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
FINT-2
<PAGE>
TRI-CITY ELECTRICAL CONTRACTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Contract revenues earned............... $71,977,018 $63,852,151 $79,492,578
Cost of revenues earned................ 63,321,626 51,904,661 63,550,836
----------- ----------- -----------
Gross profit......................... 8,655,392 11,947,490 15,941,742
Selling, general and administrative
expenses.............................. 6,994,448 9,017,708 8,986,018
Depreciation expense................... 949,800 944,325 939,103
----------- ----------- -----------
Income from operations............... 711,144 1,985,457 6,016,621
----------- ----------- -----------
Other income (expense):
Interest income....................... 66,979 67,318 168,039
Interest expense...................... (223,389) (196,604) (52,983)
Other income (expense), net........... 477,561 (50,455) (25,576)
----------- ----------- -----------
Other income (expense), net.......... 321,151 (179,741) 89,480
----------- ----------- -----------
Income before income taxes........... 1,032,295 1,805,716 6,106,101
Income tax expense (note 6)............ 487,252 679,856 461,879
----------- ----------- -----------
Net income before minority interest.. 545,043 1,125,860 5,644,222
Minority interest in joint venture
income (note 12)...................... (71,419) (104,584) (134,535)
----------- ----------- -----------
Net income .......................... $ 473,624 $ 1,021,276 $ 5,509,687
=========== =========== ===========
Unaudited pro forma information (Note
1):
Income before income taxes............. $ 6,106,101
Pro forma provision for income taxes... 2,442,440
-----------
Pro forma net income (unaudited)....... $ 3,663,661
===========
</TABLE>
See accompanying notes to consolidated financial statements.
FINT-3
<PAGE>
TRI-CITY ELECTRICAL CONTRACTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balances at January 1, 1995...... $10,000 $111,827 $ 7,783,640 $ 7,905,467
Net income....................... -- -- 473,624 473,624
------- -------- ----------- -----------
Balances at December 31, 1995.... 10,000 111,827 8,257,264 8,379,091
Net income....................... -- -- 1,021,276 1,021,276
------- -------- ----------- -----------
Balances at December 31, 1996.... 10,000 111,827 9,278,540 9,400,367
Net income....................... -- -- 5,509,687 5,509,687
Distributions to stockholders.... -- -- (5,099,366) (5,099,366)
------- -------- ----------- -----------
Balances at December 31, 1997.... $10,000 $111,827 $ 9,688,861 $ 9,810,688
======= ======== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
FINT-4
<PAGE>
TRI-CITY ELECTRICAL CONTRACTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 473,624 $ 1,021,276 $ 5,509,687
Adjustments to reconcile net income to
net cash provided by operating
activities:
Loss (gain) on sale of property, plant
and equipment......................... (47,561) (62,346) 29,982
Depreciation........................... 949,800 944,325 939,103
Deferred tax (benefit) expense......... (1,047,291) 6,132 461,879
Minority interest in net income........ 71,419 104,584 134,535
Cash provided by (used for) changes in:
Accounts receivable................... (48,982) 1,111,307 (3,449,815)
Costs and estimated earnings in excess
of billings on uncompleted
contracts............................ 298,752 1,006,354 (1,285,733)
Inventories........................... 3,939 (53,420) (92,407)
Prepaid expenses...................... (38,111) (468,671) (243,549)
Refundable income taxes............... 488,931 (1,276) (657,422)
Due to (from) stockholders............ (55,907) 189,645 (211,653)
Other assets.......................... 180,633 338,065 (164,412)
Accounts payable...................... (857,493) (1,050,987) 1,783,532
Accrued expenses...................... 69,004 1,448,411 (169,644)
Income tax payable.................... 1,309,269 (1,309,269) --
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................ (794,451) (31,711) 2,670,111
---------- ----------- -----------
Net cash provided by operating
activities........................... 955,575 3,192,419 5,254,194
---------- ----------- -----------
Cash flows from investing activities:
Purchase of property, plant and
equipment............................. (1,296,299) (624,426) (959,179)
Redemption of certificate of deposit... 42,465 223,074 46,101
Proceeds from sale of property, plant
and equipment......................... 122,827 142,711 39,827
Repayment from (payments to) joint
venture partner....................... (50,000) -- (122,775)
---------- ----------- -----------
Net cash used in investing activi-
ties................................. (1,181,007) (258,641) (996,026)
---------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
FINT-5
<PAGE>
TRI-CITY ELECTRICAL CONTRACTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
---------- ----------- ----------
<S> <C> <C> <C>
Cash flows from financing activities:
Principal payments on long-term debt.... (867,966) (1,781,913) (556,731)
Proceeds from equipment notes payable... 1,375,137 127,913 --
Proceeds from installment note payable.. -- 500,000 --
Proceeds from sale-leaseback back of as-
sets................................... -- 734,013 --
Proceeds from (repayment of)
notes payable.......................... 249,180 (1,081,500) (2,500)
Distributions to shareholders........... -- -- (5,099,366)
---------- ----------- ----------
Net cash provided by (used in)
financing activities................. 756,351 (1,501,487) (5,658,597)
---------- ----------- ----------
Net increase (decrease) in cash and
cash
equivalents.......................... 530,919 1,432,291 (1,400,429)
Cash and cash equivalents at beginning of
year.................................... 770,790 1,301,709 2,734,000
---------- ----------- ----------
Cash and cash equivalents at end of
year.................................... $1,301,709 $ 2,734,000 $1,333,571
========== =========== ==========
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest.............................. $ 223,389 $ 196,604 $ 52,983
========== =========== ==========
Income taxes.......................... $ 225,274 $ 1,984,369 $ 720,355
========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
FINT-6
<PAGE>
TRI-CITY ELECTRICAL CONTRACTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
Tri-City Electrical Contractors, Inc. (the Company) is an electrical
contractor engaged in designing and installing electrical systems in the
commercial, industrial and residential construction markets. The Company is
headquartered in Altamonte Springs, Florida and operates branch locations in
Pompano Beach, Tampa and Fort Myers, Florida. The Company conducts all of its
business within the state of Florida.
As further described in Note 14, the Company entered into a Letter of Intent
with Consolidation Capital Corporation for the potential sale of the Company.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
B&S Diversified, Inc. and B&S Diversified, Inc. #2. B&S Diversified, Inc. and
B&S Diversified, Inc. #2 are joint ventures in which the Company has a 75%
interest as to profits and losses. All significant intercompany transactions
between the entities have been eliminated in consolidation.
(c) Cash Equivalents
Cash equivalents are short-term, highly liquid investments that are both
readily convertible into known amounts of cash and are so near their maturity
that they present insignificant risk of changes in value because of changes in
interest rates. For purposes of the statement of cash flows, the Company
considers such investments with a maturity of three months or less to be cash
equivalents.
(d) Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out method.
(e) Income Taxes
Until December 31, 1996, the Company followed the asset and liability method
in which deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
Effective January 1, 1997, the Company's stockholders elected to be taxed
under the provisions of sub-chapter S of the Internal Revenue Code. Under
these provisions, the stockholders will include in their individual income tax
returns their pro rata shares of the Company's revenue and expenses.
The unaudited pro forma federal and state income tax information included in
the Statements of Operations is presented in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", as if
the Company had been subject to federal and state income taxes as a C
corporation rather than under the provisions of a sub-chapter S corporation
for 1997.
(f) Contract Revenue Recognition and Contract Costs
Contract revenues are recognized on the percentage-of-completion method.
Under this method, the percentage of completion of each job is the portion of
the costs incurred to date compared to current estimates of total cost. This
percentage is applied to the total contract price to determine the amounts of
revenue earned on fixed price contracts. Revenues from cost plus contracts are
recognized on the basis of costs incurred during the period plus the fee
earned. At the time a loss on a contract becomes known, the entire amount of
the estimated loss is recorded. The Company does not recognize any gross
profit amounts related to change order work performed until such time as those
change orders have been approved by the customer.
FINT-7
<PAGE>
TRI-CITY ELECTRICAL CONTRACTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Contract costs include all direct and indirect costs related to job
performance. Selling, general and administrative costs are charged to expense
as incurred.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts" represents revenues recognized in excess of amounts
billed.
The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents contract billings in excess of revenues
recognized.
(g) Depreciation and Amortization
Depreciation and amortization is provided in amounts sufficient to allocate
the cost of depreciable or amortizable assets to operations over their
estimated service lives using the straight-line method for financial statement
reporting purposes. The straight-line, declining balance, Accelerated Cost
Recovery System and Modified Accelerated Cost Recovery System methods are used
for income tax reporting.
The estimated service lives for financial reporting purposes are generally
as follows:
<TABLE>
<S> <C>
Leasehold improvements......................................... 3-15 years
Autos, trucks and trailers..................................... 5 years
Office furniture and equipment................................. 3-10 years
Shop tools and equipment....................................... 5 years
</TABLE>
(h) Reclassifications
Certain reclassifications have been made to the 1995 and 1996 consolidated
financial statements to conform with the 1997 presentation.
(i) Significant Group Concentration of Credit Risk
As of December 31, 1997 and 1996, substantially all of the Company's
receivables are obligations of companies in the construction business. The
Company does not require collateral or other security on most of these
accounts. The credit risk on these accounts is controlled through credit
approvals, lien rights and payment bonds issued on behalf of general
contractors, limits and monitoring procedures.
(j) Use of Estimates
In conformity with generally accepted accounting principles, management of
the Company has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of these consolidated financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates (see note 3).
(k) Financial Instruments
BALANCE SHEET FINANCIAL INSTRUMENTS--The carrying amounts reported in the
consolidated balance sheets for cash and cash equivalents, certificates of
deposit, accounts receivable, accounts payable and accrued expenses
approximate fair value because of the immediate or short-term maturity of
these financial instruments. The carrying amounts reported for the Company's
notes payable and long-term debt approximate fair value because the
instruments are variable rate notes which reprice frequently.
FINT-8
<PAGE>
TRI-CITY ELECTRICAL CONTRACTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(l) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
on January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. Adoption of this Statement did not have a material
impact on the Company's financial position, results of operations, or
liquidity.
(2) ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Completed contracts including retentions........... $ 1,329,411 $ 1,356,146
Contracts in progress:
Current billings................................. 8,325,388 10,649,975
Retentions....................................... 3,681,338 5,069,366
Other.............................................. 97,621 162,399
----------- -----------
13,433,758 17,237,886
Less allowance for doubtful accounts............... (10,100) (364,413)
----------- -----------
$13,423,658 $16,873,473
=========== ===========
</TABLE>
The provisions for doubtful accounts of $113,100, $10,000 and $354,313 have
been included in selling, general and administrative expenses in the
accompanying consolidated 1995, 1996 and 1997 statements of operations,
respectively.
(3) CONTRACTS IN PROGRESS
Contracts in progress are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Costs incurred on uncompleted contracts............ $71,670,443 $73,320,138
Estimated earnings................................. 9,327,198 11,651,629
----------- -----------
80,997,641 84,971,767
Less billings to date.............................. 84,256,985 89,615,489
----------- -----------
$(3,259,344) $(4,643,722)
=========== ===========
</TABLE>
FINT-9
<PAGE>
TRI-CITY ELECTRICAL CONTRACTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) CONTRACTS IN PROGRESS--(CONTINUED)
Included in the consolidated balance sheets under the following captions:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts.............. $ 1,116,186 $ 2,401,919
Billings in excess of costs and estimated
earnings on uncompleted contracts.............. (4,375,530) (7,045,641)
----------- -----------
$(3,259,344) $(4,643,722)
=========== ===========
</TABLE>
As of December 31, 1995, 1996 and 1997, the Company had unapproved change
orders of approximately $3,284,000, $3,162,000 and $3,163,000, respectively,
which are recorded without profit recognition as a component of contract
revenue in the accompanying consolidated statements of operations.
(4) NOTES PAYABLE
The Company has lines of credit arrangements with two banks under which it
may borrow, on an unsecured basis, up to an aggregate of $3,000,000 as of
December 31, 1997, with interest that approximates the banks' prime rate (8
1/2% at December 31, 1997). As of December 31, 1997, the Company also has a
line of credit arrangement with one bank under which it can borrow up to an
additional $1,000,000 with interest that approximates the bank's prime rate
plus 1% (8 1/2% at December 31, 1997, the total balances outstanding under
these lines of credit were $2,530 and $30 at December 31, 1996 and 1997,
respectively.
These note agreements each contain a provision restricting the payment of
dividends and transfer of ownership of the Company without the prior written
consent of the lenders. Written consent of the lenders was obtained by the
Company subsequent to December 31, 1997.
(5) LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS
Long-term debt and capitalized lease obligations are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
---------- --------
<S> <C> <C>
Capitalized equipment lease obligations, related to
certain vehicles and equipment, payable in 26 to 51
equal monthly principal installments plus interest at
the commercial paper rate plus .9% maturing on
various dates through February, 2001................. $ 734,013 $489,782
Installment note payable to a bank with original
balance of $500,000 payable in 24 equal monthly
installments of $20,833 with interest at bank's prime
rate plus 1/2% (8 1/4% at December 31, 1996). The
balance of the note payable was repaid during 1997... 312,500 --
---------- --------
1,046,513 489,782
Less current maturities.............................. 490,374 237,544
---------- --------
$ 556,139 $252,238
========== ========
</TABLE>
FINT-10
<PAGE>
TRI-CITY ELECTRICAL CONTRACTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS--(CONTINUED)
Maturities of and capitalized lease obligations for years ending after
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998................................................................ $237,932
1999................................................................ 198,097
2000................................................................ 51,910
2001................................................................ 1,843
--------
$489,782
========
</TABLE>
(6) INCOME TAXES
The provision for income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
----------- -------- --------
<S> <C> <C> <C>
CURRENT:
Federal.................................... $ 1,310,717 $575,502 $ --
State...................................... 223,826 98,222 --
----------- -------- --------
1,534,543 673,724 --
----------- -------- --------
DEFERRED:
Federal.................................... (891,740) 5,235 415,690
State...................................... (155,551) 897 46,189
----------- -------- --------
(1,047,291) 6,132 461,879
----------- -------- --------
Total income tax expense..................... $ 487,252 $679,856 $461,879
=========== ======== ========
</TABLE>
The tax effect of temporary differences between the income tax basis of
assets and liabilities and the financial statement reporting amounts which
result in the recognition of deferred tax assets and liabilities as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
Deferred tax assets:
Bad debts................................................ $ 3,434
Accrued losses on long-term construction contracts....... 503
Workers' compensation self insurance reserves............ 380,387
Deferred compensation.................................... 128,727
Reserve for loss contracts............................... 84,520
Tax reported asset sale-gains............................ 8,059
---------
Total deferred tax assets.............................. 605,630
---------
Deferred tax liabilities:
Deferred profit on contracts............................. (153,599)
Depreciation............................................. (19,362)
Other.................................................... (33,722)
---------
Total deferred tax liabilities......................... (206,683)
---------
Net deferred tax assets................................ $ 398,947
=========
</TABLE>
FINT-11
<PAGE>
TRI-CITY ELECTRICAL CONTRACTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) INCOME TAXES--(CONTINUED)
Presented in the accompanying consolidated balance sheet as of December 31,
1996:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
Current assets............................................ $443,972
Noncurrent liabilities.................................... (45,025)
--------
$398,947
========
</TABLE>
No valuation allowance has been recognized in the accompanying consolidated
financial statements for the deferred tax assets as of December 31, 1996 or
1995 because the Company has sufficient taxable income within the statutory
carryback periods.
Effective January 1, 1997, the Company elected, by consent of its
stockholders, to be taxed under the provisions of subchapter S of the Internal
Revenue Code. Under those provisions, the Company does not pay federal or
state corporate income taxes on its taxable income. Instead, the stockholders
include in their individual income tax return the Company's taxable income or
loss.
The Company incurred an income tax liability associated with built-in gains
at the time of the conversion to "S" corporation status. Built-in gains
represent the excess of the fair market value of the S corporation's assets at
the effective date of the S corporation election over the aggregate adjusted
tax basis of those assets at that date. Taxes associated with the built-in
gains were charged to operations during the year ended December 31, 1997.
The balances of deferred tax assets and liabilities as of December 31, 1996,
net of the tax associated with the built-in gains referred to above, were also
charged to operations during the year ended December 31, 1997 resulting in the
1997 provision for income taxes.
The actual expense for 1995 and 1996 differs from the "expected" tax expense
(computed by applying the U.S. federal corporate income tax rate of 34% to
income before income taxes) as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
Computer "expected" tax expense........................ $350,980 $613,978
Nondeductible expenses................................. 17,309 39,867
State income taxes, net of federal tax effect.......... 45,062 63,291
Settlement of investment in partnerships at amounts
different than accrued................................ 86,220 --
Computed taxes attributable to minority interest
portion of income before taxes........................ (24,282) (35,559)
Other, net............................................. 11,963 (1,721)
-------- --------
$487,252 $679,856
======== ========
</TABLE>
(7) LEASES
The Company leases their Pompano Beach and Fort Myers facilities from third
parties. The remainder of the facilities are leased from a related party, as
more fully described in note 9. These leases have been classified as operating
leases.
FINT-12
<PAGE>
TRI-CITY ELECTRICAL CONTRACTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) LEASES--(CONTINUED)
The Company also leases a portion of their fleet vehicles for a period of
five years from acquisition of the vehicles. These leases are cancelable after
one year and, accordingly, are classified as operating leases.
The following is a schedule of future minimum lease payments required under
operating leases, including those with related parties as more fully described
in note 9, that have initial or remaining noncancelable lease terms in excess
of one year at December 31, 1997:
<TABLE>
<S> <C>
1998.............................................................. $863,214
1999.............................................................. 523,419
2000.............................................................. 410,068
2001.............................................................. 269,205
2002 and thereafter............................................... 83,487
----------
$2,149,393
==========
</TABLE>
Rental expense for operating leases was $474,668, $683,594 and $902,239 for
the years ended December 31, 1995, 1996 and 1997, respectively.
(8) 401(K) EMPLOYEES' PROFIT SHARING PLAN
The Company has a 401(K) profit sharing plan under which voluntary employee
contributions are permissible from eligible employees who elect to participate
in the plan. The Company's contribution is determined annually by the Board of
Directors. Contributions made by the Company were $23,263, $104,888 and
$116,768 for the years ended December 31, 1995, 1996, and 1997, respectively.
(9) RELATED PARTY TRANSACTIONS
The Company leases its Altamonte Springs and Tampa facilities from its
principal shareholder. The Altamonte Springs lease agreement requires base
monthly payments of $30,509. For each year after the first year, the lease
payment will be upwardly adjusted by the greater of the increase in the
Consumer Price Index or three percent. The lease requires the Company to
provide insurance, repairs and maintenance, and taxes on the leased property.
The lease expires in 1998. The Tampa lease agreement requires monthly payments
of $3,000 and expires in 1999.
The Company is guarantor of two loans in the name of the principal
stockholder to finance the Company's Altamonte Springs and Tampa facilities.
The total amount borrowed under the two loan agreements was $1,274,000. The
principal amounts of the loans outstanding at December 31, 1996 and 1997 were
$823,600 and $732,150, respectively.
Amounts due from a trust in the name of its principal stockholder at
December 31, 1996 and 1997, were $550,768 and $607,168, respectively. These
amounts are included in advances from stockholders on the accompanying
consolidated balance sheets and arise from the Company paying expenses on
behalf of the trust.
FINT-13
<PAGE>
TRI-CITY ELECTRICAL CONTRACTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) BACKLOG
The following is a reconciliation of backlog work to be performed under
signed contracts in existence at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
(MILLIONS)
----------
<S> <C>
Balance, December 31, 1996........................................ $ 37.0
Contract adjustments and new contracts............................ 117.1
Less: Contract revenue earned, 1997............................... 79.5
------
Balance, December 31, 1997........................................ $ 74.6
======
</TABLE>
In addition, between January 1 and January 31, 1998, the Company entered
into additional contracts totaling approximately $8.3 million.
(11) ENVIRONMENTAL REMEDIATION
During 1993, the Company incurred costs for remediation in connection with
efforts to clean up a petroleum product contamination at its Altamonte
Springs, Florida facilities. The Company applied for and received approval for
reimbursement of $302,890 under the Florida Petroleum Liability Insurance and
Restoration program. As of December 31, 1996 and 1997, $222,299 of the total
approved reimbursement has been collected and $80,591 remains outstanding and
is included in accounts receivable in the accompanying consolidated balance
sheet.
(12) MINORITY INTEREST
The Company is party to two joint ventures with B&S Diversified, Inc., in
connection with two specified contracts. The venture agreements provide for
sharing of profits at 75% to the Company and 25% to the joint venture partner.
All transactions related to the ventures have been consolidated in the
accompanying consolidated financial statements and all significant
intercompany balances have been eliminated.
(13) SALE-LEASEBACK TRANSACTIONS
On December 31, 1996 the Company completed a transaction wherein seventy-
five of the vehicles the Company had owned with a net book value of $712,596
at the date of the transaction, were sold to a leasing company for the sum of
$734,013 resulting in a gain of $21,417.
The Company immediately entered into individual lease agreements for each of
the vehicles with terms ranging from twenty-six to fifty-one months and with
interest accruing at .9% over the commercial paper rate (5.8% at December 31,
1997) payable monthly on the outstanding unamortized cost of the leased asset.
The gain realized on the transaction is to be amortized over the respective
lease terms for each of the individual vehicles.
(14) SUBSEQUENT EVENT
Subsequent to December 31, 1997, the stockholders of the Company entered
into an agreement to sell their shares of the Company to Consolidation Capital
Corporation ("CCC"), a public company, for cash and shares of CCC common
stock. Simultaneous with the transaction, the Company will become a C-
corporation and its income will be taxed at the corporate level (as it was in
1996 and prior years) rather than be included in the income tax returns of the
stockholders.
FINT-14
<PAGE>
To the Board of Directors and Stockholders of Wilson Electric Company, Inc.
We have audited the accompanying balance sheet of Wilson Electric Company,
Inc. as of November 30, 1995, 1996 and 1997, and the related statements of
income and retained earnings, and cash flows for each of the three years in
the period ended November 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wilson Electric Company,
Inc. as of November 30, 1995, 1996 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended November
30, 1997, in conformity with generally accepted accounting principles.
Barry and Moore, P.C.
Phoenix, Arizona
January 30, 1998
FINW-1
<PAGE>
The accompanying notes are an integral part of this balance sheet.
WILSON ELECTRIC COMPANY, INC.
BALANCE SHEET
NOVEMBER 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ 1,757,952 $ 3,385,466 $ 1,041,785
Contracts receivable (Notes 3 and 5).. 8,542,419 11,308,641 14,085,329
Costs and estimated earnings in excess
of billings on
uncompleted contracts (Note 4)....... 565,702 1,225,288 1,301,651
Notes receivable...................... 37,975 -- 59,824
Deferred income taxes (Note 11)....... -- -- 115,760
Prepaid expenses and other current as-
sets................................. 13,579 105,835 57,866
----------- ----------- -----------
Total current assets................ 10,917,627 16,025,230 16,662,215
----------- ----------- -----------
PROPERTY AND EQUIPMENT: (Note 5)
Equipment............................. 161,328 223,263 340,632
Automobiles & trucks.................. 474,589 521,007 564,579
Office equipment...................... 60,834 97,093 126,525
Furniture............................. 7,904 16,318 23,630
Computer equipment & software......... 130,015 138,923 415,226
Leasehold Improvements................ -- -- 15,090
----------- ----------- -----------
834,670 996,604 1,485,682
Less accumulated depreciation....... (430,028) (562,403) (781,312)
----------- ----------- -----------
Property and equipment, net......... 404,642 434,201 704,370
SHW JOINT VENTURE, (Note 10)............ 468,408 422,641 --
OTHER ASSETS............................ 19,651 23,227 136,160
GOODWILL, (net of $13,500, $10,500 and
$7,500 of amortization) (Note 9)....... 16,500 13,500 10,500
----------- ----------- -----------
$11,826,828 $16,918,799 $17,513,245
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................... $ 2,242,295 $ 4,875,340 $ 4,588,823
Billings in excess of costs and esti-
mated earnings on
uncompleted contracts (Note 4)....... 2,312,092 3,211,141 3,401,706
Accrued liabilities................... 292,637 468,575 428,838
Accrued payroll and related taxes..... 2,785,396 2,348,590 2,914,098
Accrued contribution to Employee Stock
Ownership Plan (Note 6).............. 665,410 1,358,147 536,299
Note Payable ((Notes 5 and 6)......... -- -- 183,333
Employee Stock Ownership Plan note
payable (Note 6)..................... 149,625 2,000,000 --
Less--Accrued contribution included
above.............................. (149,625) (1,358,147) --
----------- ----------- -----------
Total current liabilities......... 8,297,830 12,903,646 12,053,097
----------- ----------- -----------
COMMITMENTS (Notes 5 and 7)............. -- -- --
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; autho-
rized 1,000,000 shares, issued and
outstanding 10,000................... 10,000 10,000 10,000
Additional paid-in capital............ 265,950 265,950 265,950
Retained earnings..................... 3,253,048 4,381,056 5,184,198
Employee Stock Ownership Plan note
payable (Note 6)..................... (149,625) (2,000,000) --
Accrued contribution included in cur-
rent liabilities..................... 149,625 1,358,147 --
----------- ----------- -----------
Total stockholders' equity........ 3,528,998 4,015,153 5,460,148
----------- ----------- -----------
$11,826,828 $16,918,799 $17,513,245
=========== =========== ===========
</TABLE>
FINW-2
<PAGE>
The accompanying notes are an integral part of these statements.
WILSON ELECTRIC COMPANY, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED NOVEMBER 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
CONTRACT REVENUES.................... $ 40,279,206 $ 49,790,214 $ 71,008,958
COST OF CONTRACT REVENUES............ (29,935,382) (37,729,341) (59,036,426)
------------ ------------ ------------
GROSS PROFIT......................... 10,343,824 12,060,873 11,972,532
------------ ------------ ------------
EXPENSES:
General and administrative expenses
.................................. 6,317,716 7,281,252 8,093,230
ESOP contribution (Note 6)......... 1,981,828 2,957,797 2,421,164
------------ ------------ ------------
Total expenses................... 8,299,544 10,239,049 10,514,394
------------ ------------ ------------
INCOME FROM OPERATIONS............... 2,044,280 1,821,824 1,458,138
OTHER INCOME (EXPENSE):
Interest income.................... 20,919 89,593 157,634
Interest expense................... (4,439) (82,404) (109,581)
Other income (expense)............. 6,235 101,820 (78,548)
------------ ------------ ------------
Net other income (expense)....... 22,715 109,009 (30,495)
------------ ------------ ------------
INCOME BEFORE INCOME TAXES........... 2,066,995 1,930,833 1,427,643
PROVISION FOR INCOME TAXES (Note
11)................................. (811,730) (802,825) (624,501)
------------ ------------ ------------
NET INCOME........................... 1,255,265 1,128,008 803,142
RETAINED EARNINGS, Beginning of
year................................ 1,997,783 3,253,048 4,381,056
------------ ------------ ------------
RETAINED EARNINGS, End of year....... $ 3,253,048 $ 4,381,056 $ 5,184,198
============ ============ ============
</TABLE>
FINW-3
<PAGE>
The accompanying notes are an integral part of these statements.
WILSON ELECTRIC COMPANY, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 1,255,265 $ 1,128,008 $ 803,142
----------- ----------- -----------
Adjustments to reconcile net income to
net cash provided by (used for)
operations--
Depreciation and amortization....... 104,364 154,621 232,324
(Gain) Loss on sale of assets....... 12,780 (1,447) 2,255
SHW Joint Venture (income) loss..... -- (96,733) 80,641
(Increase) decrease in:
Contracts receivable................ (1,108,920) (2,766,221) (2,776,688)
Costs and estimated earnings in
excess of billings on uncompleted
contracts.......................... 64,168 (659,586) (76,363)
Notes receivable.................... 14,275 37,975 (59,824)
Prepaid expenses.................... 20,695 (92,256) 47,969
Other assets........................ (5,325) (3,651) (113,008)
Deferred Income Taxes............... -- -- (115,760)
Increase (decrease) in:
Accounts payable.................... (933,811) 2,633,045 (286,517)
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... 1,403,358 899,049 190,565
Accrued liabilities................. (180,580) 175,938 (39,737)
Accrued payroll and related taxes... 1,149,901 (436,806) 565,508
Accrued pension contribution........ (1,101,364) 692,737 (821,848)
----------- ----------- -----------
Net adjustments to reconcile net
income to net cash (used for)
provided by operations............... (560,459) 536,665 (3,170,483)
----------- ----------- -----------
Net cash (used for) provided by
operating activities............. 694,806 1,664,673 (2,367,341)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment................. (243,149) (181,509) (502,423)
Distribution from SHW Joint Venture... -- 142,500 342,000
Proceeds on sale of equipment......... 8,093 1,850 750
Loan to ESOP.......................... -- -- (2,000,000)
Repayments of loan to ESOP............ -- -- 2,000,000
----------- ----------- -----------
Net cash flows used for investing
activities....................... (235,056) (37,159) (159,673)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings............................ -- -- 2,000,000
Repayment of borrowings............... -- -- (1,816,667)
----------- ----------- -----------
Net cash flows provided by financing
activities......................... -- -- 183,333
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH......... 459,750 1,627,514 (2,343,681)
CASH AND CASH EQUIVALENTS, Beginning of
year................................... 1,298,202 1,757,952 3,385,466
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, End of year.. $ 1,757,952 $ 3,385,466 $ 1,041,785
=========== =========== ===========
</TABLE>
FINW-4
<PAGE>
WILSON ELECTRIC COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1995, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Wilson Electric Company, Inc. (the "Company") was incorporated on May 24,
1988 and performs electrical contracting services throughout Arizona. The
significant accounting policies of the Company are as follows:
Cash and Cash Equivalents--
Cash equivalents consist of investments in highly liquid investments with
maturities of three months or less, and at November 30, 1996 and 1997,
included restricted cash of $184,330 and $770,297, respectively.
Revenue and Cost Recognition--
Revenues from construction contracts are recognized on the percentage-of-
completion method, measured by the actual costs incurred to date compared to
estimated total cost for each contract. Revenue recognition commences only
after contract progress reaches a state where experience is sufficient to
estimate a profit on the contract. At the time a loss on a contract becomes
known, the entire amount of the estimated loss is recognized.
Contract costs include all direct material, labor and employee benefit costs
and indirect costs related to contract performance, such as indirect labor,
equipment rentals, insurance and tools. Selling and most general and
administrative costs are charged to expense as incurred. Changes in job
performance, job conditions and estimated profitability may result in
revisions to costs and revenues, and are recognized in the period in which the
revisions are determined.
The asset "Costs and estimated earnings in excess of billings on uncompleted
contracts" represents revenues recognized in excess of amounts billed. The
liability "Billings in excess of costs and estimated earnings on uncompleted
contracts" represents billings in excess of revenues recognized.
Depreciation--
Property and equipment are carried at cost. Depreciation of property and
equipment is determined using straight-line and accelerated methods of
depreciation for financial statement purposes at rates based on the following
estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures......................................... 5-10 years
Computer equipment and software................................ 3- 5 years
Shop equipment................................................. 3- 5 years
Automotive equipment........................................... 3- 5 years
</TABLE>
Expenditures for major renewals and betterments that extend the useful lives
of property and equipment are capitalized. Expenditures for maintenance and
repair are charged to expense as incurred.
Estimates--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These affect the reported amounts of 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 these
estimates.
FINW-5
<PAGE>
WILSON ELECTRIC COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1995, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
Advertising Expense--
The Company expenses advertising costs as incurred. Advertising expenses
were $61,438, $96,441 and $27,303 in 1995, 1996 and 1997, respectively.
(2) SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Income taxes paid................ $ 921,180 $ 876,819 $ 752,833
Interest paid.................... $ 4,439 $ 82,404 $ 84,581
(3) CONTRACTS RECEIVABLE:
Contracts receivable consist of the following:
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Completed contracts.............. $ 1,873,011 $ 897,193 $ 779,037
Contracts in progress............ 5,065,980 8,632,012 10,698,107
Unbilled completed contracts..... 56,668 152,600 143,000
Retainages....................... 1,556,760 1,636,836 2,475,185
Less: Allowance for doubtful
accounts........................ (10,000) (10,000) (10,000)
------------ ------------ ------------
$ 8,542,419 $11,308,641 $14,085,329
============ ============ ============
(4) CONTRACTS IN PROCESS:
Information with respect to contracts in process follows:
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Expenditures on uncompleted
contracts....................... $18,300,419 $22,081,105 $50,660,947
Estimated earnings thereon....... 4,095,848 3,920,520 6,378,912
------------ ------------ ------------
22,396,267 26,001,625 57,039,859
Less billings applicable
thereto......................... 24,142,657 27,987,478 59,139,914
------------ ------------ ------------
$ (1,746,390) $ (1,985,853) $ (2,100,055)
============ ============ ============
Included in the accompanying balance sheet under the following captions:
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Costs and estimated earnings in
excess of billings on
uncompleted contracts........... $ 565,702 $ 1,225,288 $ 1,301,651
Billings in excess of costs and
estimated earnings on
uncompleted contracts........... (2,312,092) (3,211,141) (3,401,706)
------------ ------------ ------------
$ (1,746,390) $ (1,985,853) $ (2,100,055)
============ ============ ============
</TABLE>
FINW-6
<PAGE>
WILSON ELECTRIC COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1995, 1996 AND 1997
(5) NOTE PAYABLE AND LINE OF CREDIT:
As of November 30, 1995, 1996 and 1997, the Company had a line of credit
with Norwest Bank in the amount of $2,500,000, $3,000,000 and $4,000,000,
respectively. Interest was 9.75%, 9.25% and 8.50% at November 30, 1995, 1996
and 1997, respectively. The collateral for the line of credit is a first lien
position on all accounts and contracts receivable, inventory, equipment,
vehicles, furniture and fixtures. There were no borrowings against this line
at November 30, 1995, 1996 and 1997, respectively.
The agreement requires the Company to maintain certain ratios and minimums.
In January, 1997, the Company borrowed $2,000,000 and then loaned the
proceeds to the Employee Stock Ownership Plan. The loan is payable in minimum
monthly payments of $83,333, together with interest at the prime rate.
(6) EMPLOYEE STOCK OWNERSHIP PLAN:
Effective December 1, 1992 the Company established an employee stock
ownership Plan (ESOP) covering substantially all of its employees. Company
contributions to the Plan are determined annually by management.
During fiscal year 1994, the ESOP used the proceeds of a loan guaranteed by
the Company to purchase 1,900 shares of the Company's common stock for
$2,280,000. The loan was paid in full during the fiscal year 1995.
During fiscal year 1996, the ESOP purchased 2,500 shares of the Company's
common stock for $3,500,000. The ESOP made cash payments totaling $1,500,000
and issued $2,000,000 of notes due November 1, 1997.
In January, 1997, the Company borrowed $2,000,000 and loaned the funds to
the ESOP for the repayment of its $2,000,000 of notes. During the year ended
November 30, 1997, the Company accrued contributions to the ESOP sufficient to
allocate the remaining shares, and accordingly reduced the loan to the ESOP to
zero.
Generally accepted accounting principles require the following:
1) For loans made to the ESOP by someone other than the Company (a direct
loan), the loan balance is reported as a liability and a deduction in the
stockholders' equity section of the Company. At November 30, 1996, the loan
to the ESOP was a direct loan, as the loan was payable to the selling
shareholders.
2) For loans made to the ESOP by the Company, the Company does not report a
loan receivable from the ESOP. Instead, the loan receivable is reported as
a deduction in the stockholder's equity section and is reduced to the
extent accrued Company contributions to the ESOP releases shares.
Information with respect to the allocation of common shares is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Allocated........................................... 4,900.0 5,971.4 7,400.0
Committed to be released............................ -- 1,428.6 0.0
------- ------- -------
Total............................................. 4,900.0 7,400.0 7,400.0
======= ======= =======
</TABLE>
FINW-7
<PAGE>
WILSON ELECTRIC COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1995, 1996 AND 1997
(6) EMPLOYEE STOCK OWNERSHIP PLAN:--(CONTINUED)
The fair values for shares allocated and committed to be released is based
upon the latest appraisal available.
During the years ended November 30, 1995, 1996 and 1997, contributions
charged to expense amounted to $1,981,828, $2,957,797 and $2,421,164,
respectively. In addition, in 1995 and 1996, the Company paid interest of
$81,734 and $65,338, respectively, on the ESOP's notes payable.
(7) COMMITMENTS:
The Company leases its offices, warehouse facilities and vehicles under
operating leases.
Minimum annual rental commitments are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
1996.............................................. $250,907 $ -- $ --
1997.............................................. 191,618 307,994 --
1998.............................................. 109,734 138,318 309,421
1999.............................................. -- 61,857 143,360
2000.............................................. -- 45,356 131,081
2001.............................................. -- 25,256 116,934
Thereafter........................................ -- -- 38,915
-------- -------- --------
$552,259 $578,781 $739,711
======== ======== ========
</TABLE>
(8) RELATED PARTY TRANSACTIONS:
The Company leased office space from one of its shareholders for $6,249 per
month. This lease expired on December 31, 1996, and is on a month-to-month
basis.
The Company performs contracting activities with a company which is owned by
an employee. Total revenue for the years ended November 30, 1995, 1996 and
1997 were $291,806, $137,027 and $0, respectively. Amounts included in
Accounts Receivable from such activities at November 30, 1996 and 1995, were
$131,528 and $42,654, respectively. There were no amounts included in Accounts
Receivable at November 30, 1997.
(9) GOODWILL:
During 1993, the Company acquired assets and assumed leases and contracts-
in-process of Adkins Cabling Systems (Adkins). The amount assigned to goodwill
represents the excess of the amount paid over the fair value of assets
received, and is being amortized over eight years which is the term of related
employment and non-competition agreements with the sole Adkins shareholder.
(10) SHW JOINT VENTURE:
The Company had a minority interest in a general partnership joint venture
formed to construct a freeway management system. Related costs included in the
Company's contract revenue earned and cost of revenues earned were $80,000,
$7,000 and $0 for the years ended November 30, 1995, 1996 and 1997. The
investment was accounted on the equity method of accounting wherein the
Company recognized it's share of the joint ventures net assets.
The joint venture was completed in 1997.
FINW-8
<PAGE>
WILSON ELECTRIC COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1995, 1996 AND 1997
(11) INCOME TAXES:
Deferred income taxes arise because of timing differences between financial
and income tax reporting.
At November 30, 1997, the only significant timing difference relates to
accrued vacation pay, that is not tax deductible unless paid within 2 1/2
months after year-end. The provision for income taxes for 1997 differed from
the amount computed by applying the statutory income tax rates because of non-
deductible expenses.
FINW-9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
SKC Electric, Inc. and Affiliate
In our opinion, the accompanying combined balance sheet at December 31, 1997
and 1996, and the related combined statements of income and of cash flows for
the years ended December 31, 1997 and 1996 and the three months ended December
31, 1995 of SKC Electric, Inc. and Affiliate, and the consolidated statements
of income and of cash flows of Lovecor, Inc. and subsidiaries for the year
ended September 30, 1995, present fairly, in all material respects, the
financial position of SKC Electric, Inc. and Affiliate, at December 31, 1997
and 1996, and the results of their operations and their cash flows for the
years ended December 31, 1997 and 1996, for the three months ended December
31, 1995, and for the year ended September 30, 1995, 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 audits. We conducted our
audits 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 audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Kansas City, Missouri
February 17, 1998
FINS-1
<PAGE>
SKC ELECTRIC, INC. AND AFFILIATE
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 719,316 $1,686,037
Accounts receivable:
Contracts........................................... 4,688,121 5,161,512
Other............................................... 75,761 138,708
Costs and estimated earnings in excess of billings.... 125,597 134,759
Materials............................................. 85,438 161,338
Deferred income taxes................................. -- 150,000
---------- ----------
Total current assets.............................. 5,694,233 7,432,354
Property and equipment................................ 251,363 553,957
Receivable--related party............................. 250,000 250,000
Other assets.......................................... 131,375 131,790
---------- ----------
$6,326,971 $8,368,101
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt..................... $ 3,495 $ 196,490
Accounts payable...................................... 963,534 1,414,869
Due to stockholders................................... 3,101 --
Billings in excess of costs and estimated earnings.... 1,555,592 1,652,288
Accrued expenses...................................... 545,450 825,818
Accrued ESOP liability................................ 350,000 --
Accrued income taxes.................................. 105,000 1,195,900
---------- ----------
Total current liabilities......................... 3,526,172 5,285,365
---------- ----------
Long-term debt, less current portion.................... -- 982,449
ESOP common stock purchase obligation (Note 8).......... -- 3,000,000
Unearned ESOP common stock (Note 8)..................... -- (1,178,939)
Commitments and contingencies (Notes 7 and 10)..........
STOCKHOLDERS' EQUITY (NOTE 9)
Common stock:
SKC Electric, Inc., $.01 par value, 100,000 shares
authorized, 63,491 issued and outstanding at December
31, 1997; no par value, 1,000 shares authorized,
100 shares issued and outstanding at December 31,
1996................................................. 10,000 635
SKCE, Inc., $10 par value, 1,000,000 shares
authorized, 1,000 shares issued and outstanding...... 10,000 10,000
Additional paid-in capital............................ 15,000 --
Retained earnings..................................... 2,765,799 268,591
---------- ----------
Total stockholders' equity........................ 2,800,799 279,226
---------- ----------
$6,326,971 $8,368,101
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINS-2
<PAGE>
SKC ELECTRIC, INC. AND AFFILIATE
STATEMENT OF INCOME
<TABLE>
<CAPTION>
LOVECOR, INC. SKC ELECTRIC, INC. AND AFFILIATE--
CONSOLIDATED COMBINED
------------- ---------------------------------------
FOR THE FOR THE THREE FOR THE FOR THE
YEAR ENDED MONTHS ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues from
construction and
service contracts...... $11,261,874 $3,012,185 $16,811,224 $23,482,722
Costs from construction
and service contracts.. 8,556,644 2,205,404 12,565,452 16,970,948
----------- ---------- ----------- -----------
Gross profit............ 2,705,230 806,781 4,245,772 6,511,774
Selling, general and
administrative
expenses............... 1,900,327 426,680 2,906,523 4,199,645
----------- ---------- ----------- -----------
Operating income........ 804,903 380,101 1,339,249 2,312,129
Other income............ 25,853 6,459 60,322 38,381
----------- ---------- ----------- -----------
Income before income
taxes.................. 830,756 386,560 1,399,571 2,350,510
Provision for income
tax.................... 277,984 -- -- 1,150,000
----------- ---------- ----------- -----------
Net income.............. $ 552,772 $ 386,560 $ 1,399,571 $ 1,200,510
=========== ========== =========== ===========
Unaudited pro forma
information:
Income before provision
for income taxes...... $ 386,560 $ 1,399,571 $ 2,350,510
Provision for income
taxes................. 150,758 545,833 916,582
---------- ----------- -----------
Pro forma net income... $ 235,802 $ 853,738 $ 1,433,928
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINS-3
<PAGE>
SKC ELECTRIC AND AFFILIATE
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
LOVECOR, INC. SKC ELECTRIC, INC. AND AFFILIATED--
CONSOLIDATED COMBINED
------------- ----------------------------------------
FOR THE FOR THE THREE FOR THE FOR THE
YEAR ENDED MONTHS ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities
Net income............... $ 552,772 $ 386,560 $ 1,399,571 $1,200,510
Adjustments to reconcile
net income to net cash
provided (used) by
operating activities:
Depreciation............ 70,750 18,165 75,534 124,339
Provision for doubtful
accounts............... -- -- -- 161,127
Gain on sale of fixed
assets................. -- -- (540) 3,502
Deferred income taxes... (305,000) -- -- (150,000)
ESOP compensation
expense................ -- -- -- 270,648
(Increase) decrease in
assets:
Accounts receivable--
contracts.............. (637,735) (169,078) (1,900,371) (634,518)
Accounts receivable--
other.................. 4,064 4,904 (50,820) (62,947)
Costs and estimated
earnings in excess of
billings on uncompleted
contracts.............. 31,226 (3,322) (63,236) (9,162)
Materials............... 49,572 (18,751) (47,260) (75,900)
Other assets............ (251,135) 362 (77,810) (415)
Increase (decrease) in
liabilities:
Accounts payable........ 238,944 654,921 658,374 451,335
Billings in excess of
costs and estimated
earnings on uncompleted
contracts.............. (370,863) (238,685) 394,852 96,696
Accrued expenses and
ESOP liability......... 239,104 (320,693) 721,457 (69,632)
Accrued income taxes.... 106,724 (254,087) (68,397) 1,090,900
--------- --------- ----------- ----------
Net cash provided (used)
by operating
activities.............. (271,577) 60,296 1,041,354 2,396,483
Cash flows used by
investing activities
Capital expenditures.... (102,108) (18,416) (97,711) (431,610)
Proceeds from
disposition of fixed
assets................. -- -- 540 1,175
--------- --------- ----------- ----------
Net cash used by
investing activities.... (102,108) (18,416) (97,171) (430,435)
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINS-4
<PAGE>
SKC ELECTRIC AND AFFILIATE
STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
LOVECOR, INC. SKC ELECTRIC, INC. AND AFFILIATE--
CONSOLIDATED COMBINED
------------- ---------------------------------------
FOR THE FOR THE THREE FOR THE FOR THE
YEAR ENDED MONTHS ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows used by
financing activities
Distributions to
stockholders.......... (3,633) -- (654,172) (799,342)
Principal payments on
long-term debt........ (30,288) (5,063) (29,453) (199,985)
Borrowings to finance
ESOP.................. -- -- -- 1,375,429
Loan to ESOP........... -- -- -- (1,375,429)
--------- -------- --------- -----------
Net cash used by
financing activities... (33,921) (5,063) (683,625) (999,327)
Net increase (decrease)
in cash and cash
equivalents............ (407,606) 36,817 260,558 966,721
Cash and cash
equivalents--beginning
of period.............. 829,547 421,941 458,758 719,316
--------- -------- --------- -----------
Cash and cash
equivalents--end of
period................. $ 421,941 $458,758 $ 719,316 $ 1,686,037
========= ======== ========= ===========
Income taxes paid....... $ 469,994 $ -- $ 68,397 $ 210,400
========= ======== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINS-5
<PAGE>
SKC ELECTRIC, INC. AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company's activities and operating cycle
SKC Electric, Inc., its subsidiary, Cramar Electric, Inc., and its
affiliate, SKCE, Inc. (the Company) are electrical specialty contractors and
electrical service companies operating primarily in the commercial markets in
Kansas and Missouri. The Company is headquartered in Lenexa, Kansas, and
operates branch offices in Branson and Columbia, Missouri. During 1996, the
Company acquired an exclusive franchise for TEGG services which provides
preventive maintenance contracts for end user facilities located throughout
the same geographic areas. The stock of Cramar Electric, Inc. was acquired in
September 1997 for approximately $35,000 and will allow the Company to enter
the residential and multifamily construction market.
The length of the Company's construction contracts varies but is typically
less than one year. Therefore, the contract-related assets and liabilities are
classified as current. Other items in the balance sheet are classified as
current or noncurrent depending on whether their realization and liquidation
period extend beyond one year.
The Company grants credit, generally without collateral, but is usually
eligible for filing a contractor's lien against the property on which work was
performed. Most of the Company's contracts are in the Kansas and Missouri
regions. Consequently, the Company's ability to collect the amounts due from
customers is affected by the economic fluctuations in these geographic areas.
During 1997, approximately 17% of the Company's revenues were from one
customer.
Principles of combination and consolidation
The combined financial statements include the consolidated accounts of SKC
Electric, Inc. and its subsidiary, Cramar Electric, Inc., combined with its
affiliate, SKCE, Inc. all of which are under common control and management and
stock ownership effective October 1, 1995. Prior to October 1, 1995, SKC
Electric, Inc. and its affiliate were owned by a separate corporation,
Lovecor, Inc., which had the same stock ownership as SKC Electric, Inc. and
its affiliate. Immediately following the close of business on September 30,
1995, the consolidated group was terminated as a result of the tax-free spin
off of SKC Communications, Inc. (now SKCE, Inc.) and the subsequent tax-free
merger of Lovecor, Inc. into SKC Electric, Inc.
The fiscal year of the Company was September 30 prior to October 1, 1995, at
which time a December 31 year end was adopted. All significant intercompany
transactions and balances have been eliminated from the combined and
consolidated financial statements.
Revenue and cost recognition
The Company utilizes the percentage-of-completion method of accounting for
the recognition of revenues and costs of all significant construction
contracts. Revenues are recognized according to the ratio of costs incurred to
estimated total contract costs. Changes in job performance, job conditions,
estimated profitability and final contract settlements may result in revisions
to costs and income and are recognized in the period in which the revisions
are determined.
Balances billed but not paid pursuant to retainage provisions under
provisions under construction contracts generally become due upon completion
of the contracts and acceptance by the customers.
Revenue earned on specific contracts in excess of billings and billings in
excess of revenue earned are shown as current assets and liabilities,
respectively, in the accompanying balance sheet. Revenues from service
contracts and maintenance work are recognized when earned.
FINS-6
<PAGE>
SKC ELECTRIC, INC. AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Direct costs on construction contracts include all direct material,
equipment, subcontractor, and labor costs. Where costs such as tools, travel,
licenses and fees, and utilities can be charged to a specific job, the Company
also considers these direct costs. Certain indirect costs for both
construction and service contracts are allocated to jobs based on an overhead
burden rate developed by the Company. This rate is based on the relationship
between these indirect costs and labor expense incurred on the contracts.
Selling, general and administrative costs are charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are determined.
Property and equipment and depreciation
Property and equipment is stated at cost. Expenditures for renewals and
betterments are capitalized. Maintenance and repairs are expensed as incurred.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. Upon sale or retirement, the cost and related
accumulated depreciation are eliminated from the respective accounts and the
resulting gain or loss is included in or charged against income.
Income taxes
During the period October 1, 1994 through September 30, 1995, Lovecor, Inc.
was a C corporation and used the liability method of accounting for income
taxes. Deferred income taxes are recorded to reflect the tax consequences of
future years of differences between the basis of assets and liabilities for
income tax and financial reporting purposes.
For the period October 1, 1995 to December 31, 1996, the companies'
stockholders elected S corporation status under the Internal Revenue Code,
thereby consenting to include the income or losses in their individual tax
returns. At the time of the election, the Company was subject to a potential
built-in gains tax based on the gross profit recognized on uncompleted
contracts determined on a percentage-of-completion method. This tax totaling
$105,000 was accrued at September 30, 1995 and subsequently paid. There is no
provision for income taxes reflected in the financial statements during the
period the companies elected S Corporation status.
Subsequent to December 31, 1996, SKC Electric, Inc. terminated its S
Corporation status and began using the liability method of accounting for
income taxes. At this time, SKC Electric, Inc. was required to change its
method of accounting for tax purposes from the completed contract method to
the percentage-of-completion method.
The unaudited pro forma information included in the Statement of Income is
presented as if the Company had been subject to federal and state income taxes
for all periods presented.
Materials
Materials consist of electrical supplies used on the contracts or for
service work. The materials are valued at the lower of original cost or net
realizable value. A residual value remains for materials used but not consumed
on the jobs.
Use of estimates
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates
and assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from these estimates.
FINS-7
<PAGE>
SKC ELECTRIC, INC. AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Cash and cash equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be a cash equivalent.
2. CONTRACT RECEIVABLES
The contract receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
---------- ----------
<S> <C> <C>
Current............................................... $4,108,444 $4,679,185
Retainage............................................. 579,677 622,327
Less allowance for doubtful accounts.................. -- (140,000)
---------- ----------
$4,688,121 $5,161,512
========== ==========
</TABLE>
At December 31, 1996, the Company considered the receivables to be fully
collectible; therefore, no allowance for doubtful accounts was recorded.
Retainages are due upon completion of the contracts and all are expected to be
collected in the next 12 months.
3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- ------------
<S> <C> <C>
Costs incurred on uncompleted contracts............ $ 4,901,213 $ 9,916,098
Estimated earnings................................. 798,890 4,033,573
----------- ------------
5,700,103 13,949,671
Less--Billings to date............................. (7,130,098) (15,467,200)
----------- ------------
$(1,429,995) $ (1,517,529)
=========== ============
Included in the accompanying balance sheet under the following captions:
Costs and estimated earnings in excess of billings
on uncompleted contracts.......................... $ 125,597 $ 134,759
Billings in excess of costs and estimated earnings
on uncompleted contracts.......................... (1,555,592) (1,652,288)
----------- ------------
$(1,429,995) $ (1,517,529)
=========== ============
</TABLE>
FINS-8
<PAGE>
SKC ELECTRIC, INC. AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
The property and equipment balance consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
--------- ----------
<S> <C> <C>
Office furniture......................................... $ 51,123 $ 53,452
Computers................................................ 304,600 384,772
Communication equipment.................................. 22,650 35,515
Construction equipment................................... 235,954 358,264
Trucks and vehicles...................................... 378,061 384,398
Leasehold improvements................................... -- 151,226
--------- ----------
992,388 1,367,627
Less--Accumulated depreciation........................... (741,025) (813,670)
--------- ----------
$ 251,363 $ 553,957
========= ==========
</TABLE>
5. NOTES PAYABLE AND LONG-TERM DEBT
The Company has a line of credit agreement with a bank with a borrowing
limit of $500,000 which matures April 30, 1998. The interest rate is prime and
is payable monthly. This line of credit is collateralized by the Company's
contract receivables, materials, fixed assets and personal guaranties of the
stockholders. There were no outstanding borrowings under this agreement as of
December 31, 1996 or 1997.
In 1997, the Company entered into an agreement with a bank for a $1,375,429
term loan which was used to finance the purchase by the SKC Electric, Inc.
Employee Stock Ownership Plan of 30% of the shares of the Company's common
stock from the majority shareholder. The term loan provides for interest
payable quarterly at the prime rate, which was 8.5% at December 31, 1997, and
annual payments of $196,490 due each December 31 with the balance due December
31, 2001. The term loan is secured by unallocated ESOP stock pledged as
collateral. The balance outstanding at December 31, 1997 was $1,178,939, of
which $196,490 was the current portion of the term loan.
The Company had other long-term debt comprised of obligations under notes
payable on vehicles and other assets due to various financial institutions
with interest rates ranging from 6% to 10% outstanding at December 31, 1996.
These obligations were repaid in 1997.
6. INCOME TAXES
Income tax expense (benefit) consisted of the following components:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1997
------------- -------------
<S> <C> <C>
Current
Federal........................................ $ 472,984 $1,085,000
State.......................................... 110,000 215,000
--------- ----------
582,984 1,300,000
Deferred
Federal........................................ (252,700) (125,000)
State.......................................... (52,300) (25,000)
--------- ----------
(305,000) (150,000)
--------- ----------
Total........................................ $ 277,984 $1,150,000
========= ==========
</TABLE>
FINS-9
<PAGE>
SKC ELECTRIC, INC. AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES--(CONTINUED)
The difference between the effective tax rate and the federal statutory
income tax rate (34%) is:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1997
------------- ------------
<S> <C> <C>
Statutory federal income tax provision............ $ 282,457 $ 799,173
State taxes net of federal benefit................ 38,082 125,400
Contract accounting method change................. -- 202,675
Other, net........................................ (42,555) 22,752
--------- ----------
$ 277,984 $1,150,000
========= ==========
</TABLE>
The Company's deferred income tax assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Allowance for doubtful accounts................................. $ 54,600
Employee compensation........................................... 54,686
Other expenses.................................................. 40,714
--------
$150,000
========
</TABLE>
7. COMMITMENTS AND RELATED PARTY TRANSACTIONS
The Company was a guarantor on a personal loan of the stockholders in the
amount of $109,000 at December 31, 1996 and had given a security interest in
its accounts receivables and materials as collateral on that debt. Such
guarantee no longer exists at December 31, 1997.
The Company received advances from a stockholder totaling $3,101 at December
31, 1996.
During 1995, SKC Electric, Inc. loaned $250,000 to an unrelated corporation.
The loan is secured by a second mortgage on a commercial building. During
1996, the majority shareholder of SKC Electric, Inc. acquired the stock of the
corporation which owned the building collateralizing the loan. SKC Electric,
Inc.'s security position remains the same following the acquisition. The loan
is non-interest bearing and has no stated maturity date.
In December 1996, the Company entered into an operating lease agreement with
a company that is owned by the shareholders for the lease of new office and
warehouse space. The lease is for five years and expires December 2001. The
agreement calls for monthly payments of $8,095. No expense was incurred on
this lease during the year ended December 31, 1996, and $97,140 was expensed
during the year ended December 31, 1997. Future minimum lease payments total
$97,140 for each of the next 5 years. Management believes that the rental
expense under this lease is equivalent to that which could have been
experienced in an unrelated arms-length transaction.
The Company is party to an operating lease agreement for its former office
and warehouse space with an unrelated third party. The lease is for five
years, expiring March 1998. Lease expense under this agreement was $46,150,
$11,544, $42,355 and $46,177 for the periods ended September 30, 1995,
December 31, 1995, December 31, 1996, and December 31, 1997, respectively. The
facility in Branson, Missouri is leased under an operating lease agreement
with an unrelated third party. The lease is for two years, expiring in August
1996,
FINS-10
<PAGE>
SKC ELECTRIC, INC. AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
with an additional two year option which the Company exercised. Lease expense
under this agreement was $13,750, $2,850, $14,452 and $15,365 for the periods
ended September 30, 1995, December 31, 1995, December 31, 1996, and December
31, 1997, respectively. In June 1997, the Company entered into a two year
operating lease with an unrelated third party for a new facility. Future
minimum lease payments under these leases will be $22,944 and $7,750 for the
years ending December 31, 1998 and 1999.
8. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution employee benefit plan which includes
a qualified profit sharing plan funded through a trust. As a part of the
profit sharing plan, the Company offers a salary deferral program under
Section 401 of the Internal Revenue Code. Under this plan, the Company matches
certain contributions of the eligible participants. In addition, the Company's
annual discretionary contribution, if any, is determined by the Board of
Directors and may be any amount not in excess of 15% of the total
participant's compensation and not to exceed $30,000 for any individual
participant. The Company's expense under this plan totaled $217,051, $3,506,
$30,613 and $31,019, for the periods ended September 30, 1995, December 31,
1995, December 31, 1996, and December 31, 1997, respectively.
The Company also contributes to a Voluntary Employee Beneficiary Association
(VEBA) established under 501(c)(9) of the Internal Revenue Code. The VEBA,
which is a trust, provides various health and welfare benefits to the members,
which are the employees of the Company. Contributions are determined as a
percentage of payroll. The Company contributed $401,153, $111,482, $555,114
and $1,043,211 to the VEBA for the periods ended September 30, 1995, December
31, 1995, December 31, 1996 and December 31, 1997, respectively.
On December 24, 1996, the Company formed the SKC Electric, Inc. Employee
Stock Ownership Plan (ESOP). Management prefunded the ESOP with the maximum
allowable contribution, which for 1996 totaled approximately $350,000. This
amount was accrued by the Company in December of 1996 when it was authorized
by the Company's Board of Directors. During 1996, the ESOP did not acquire any
common stock of the Company.
On September 30, 1997, the Company borrowed $1,375,429 and loaned this
amount to the ESOP (see Note 5). The ESOP used this amount together with the
Company's $350,000 cash contribution to purchase 30% of the SKC Electric,
Inc.'s common stock from the majority stockholder at appraised value. Of the
19,047 shares of common stock purchased, 3,727 were allocated to participant
accounts representing the contribution for 1996. For 1997, management
contributed $196,496 representing 2,189 shares. For the year ended December
31, 1997, the Company recognized $270,648 of expense representing compensation
expense for the year based on the estimated average fair value of the 2,189
shares.
The Company has recorded a $3,000,000 ESOP common stock purchase obligation
on the combined balance sheet at December 31, 1997 representing the estimated
fair value of the 19,047 shares held by the ESOP which are puttable to SKC
Electric, Inc. by the participants upon distribution. Unearned ESOP common
stock represents the historical cost of shares for which compensation expense
has not been accrued at December 31, 1997.
On January 30, 1998, The Company announced a business combination in which
all of the common stock of the Company would be acquired. If consummated, this
transaction could result in a termination of the ESOP and all remaining
unallocated shares held by the ESOP could be allocated to participant
accounts. The Company would repay the outstanding balance on the term loan and
recognize compensation expense in 1998 representing the transaction value of
remaining common shares allocated at that time.
FINS-11
<PAGE>
SKC ELECTRIC, INC. AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. STOCKHOLDERS' EQUITY
Subsequent to December 31, 1996, SKC Electric Inc.'s Board of Directors
increased the number of authorized shares to 100,000 with a par value of $.01.
In addition, the Company split the 100 shares outstanding into 63,491 shares
which remain issued and outstanding at December 31, 1997.
The changes in the capital stock, additional paid-in capital and retained
earnings balances are summarized as follows:
<TABLE>
<CAPTION>
COMMON ADDITIONAL
STOCK PAID-IN RETAINED
COMBINED CAPITAL EARNINGS
--------- ---------- -----------
<S> <C> <C> <C>
Balance, September 30, 1994............. $ 634,913 $ -- $ 481,155
Net income.............................. -- -- 552,772
--------- -------- -----------
Balance, September 30, 1995............. 634,913 -- 1,033,927
Lovecor, Inc. merger into SKC Electric,
Inc.................................... (614,913) 15,000 599,913
Net income.............................. -- -- 386,560
--------- -------- -----------
Balance, December 31, 1995.............. 20,000 15,000 2,020,400
Net income.............................. -- -- 1,399,571
Stockholder distributions............... -- -- (654,172)
--------- -------- -----------
Balance, December 31, 1996.............. 20,000 15,000 2,765,799
Net income.............................. -- -- 1,200,510
SKC Electric, Inc. stock split.......... (9,365) 9,365 --
Other--ESOP compensation................ -- 74,158 --
ESOP common stock purchase obligation... -- (98,523) (2,901,477)
Stockholder distributions............... -- -- (796,241)
--------- -------- -----------
Balance, December 31, 1997.............. $ 10,635 $ -- $ 268,591
========= ======== ===========
</TABLE>
10. CONTINGENCIES
During the year ended December 31, 1996, the National Labor Relations Board
and International Brotherhood of Electrical Workers Local Union, Local No.
124, brought suit against the Company alleging unfair hiring practices and
threatening or terminating employees due to their union affiliation. In March
1997, an out-of-court settlement was reached. The settlement calls for the
Company to pay to the union $155,000, which was accrued in the fourth quarter
of calendar 1996, and paid in 1997.
The Company has legal matters pending which arose in the ordinary course of
business. It is management's opinion that these legal matters will not result
in liabilities that would have a material adverse effect on the Company's
financial position or results of operations.
FINS-12
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Riviera Electric Construction Co.
Englewood, Colorado
We have audited the accompanying balance sheets of RIVIERA ELECTRIC
CONSTRUCTION CO. as of December 31, 1997 and 1996, and the related statements
of income, changes in stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RIVIERA ELECTRIC
CONSTRUCTION CO. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting
principles.
Baird, Kurtz & Dobson
Denver, Colorado
February 18, 1998
FINR-1
<PAGE>
RIVIERA ELECTRIC CONSTRUCTION CO.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31,
ASSETS -----------------------
1996 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash......................................... $ 103,182 $ 295,184
----------- -----------
Receivables:
Contracts.................................... 6,910,281 7,093,367
Retainage.................................... 1,711,153 1,611,347
Unbilled on completed contracts.............. 284,859 495,611
Related parties.............................. 102,006 40,170
Other........................................ 14,280 112,998
----------- -----------
9,022,579 9,353,493
Less allowance for uncollectible accounts.... 8,000 65,000
----------- -----------
9,014,579 9,288,493
----------- -----------
Prepaid expenses............................. 5,774 30,026
----------- -----------
Costs and estimated earnings in excess of
billings on uncompleted contracts........... 457,293 189,818
----------- -----------
Total current assets........................ 9,580,828 9,803,521
----------- -----------
PROPERTY AND EQUIPMENT, AT COST
Land......................................... 106,500 106,500
Buildings and improvements................... 1,217,928 1,217,928
Leasehold improvements....................... 124,356 163,646
Automobiles and trucks....................... 401,528 423,729
Office furniture and equipment............... 466,038 592,419
Tools and equipment.......................... 277,386 290,480
----------- -----------
2,593,736 2,794,702
Less accumulated depreciation and
amortization................................ 974,532 1,186,294
----------- -----------
1,619,204 1,608,408
----------- -----------
DEPOSITS AND OTHER ASSETS..................... 116,598 246,294
----------- -----------
$11,316,630 $11,658,223
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Notes payable, stockholder................... $ 790,000 $ 415,000
Notes payable................................ 1,000,000 990,000
Current maturities of long-term debt......... 118,665 119,230
Accounts payable............................. 2,546,410 3,589,392
Accrued expenses............................. 1,073,852 1,554,276
Billings in excess of costs and estimated
earnings on uncompleted contracts........... 2,289,817 1,088,368
----------- -----------
Total current liabilities................... 7,818,744 7,756,266
----------- -----------
LONG-TERM DEBT................................ 638,216 522,577
----------- -----------
NOTES PAYABLE--STOCKHOLDERS................... -- 2,275,000
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, no par value; 1,000,000 shares
authorized, issued and outstanding,
1997--320,200 shares, 1996--310,200 shares.. 1,233,764 1,350,988
Retained earnings (deficit).................. 1,625,906 (246,608)
----------- -----------
2,859,670 1,104,380
----------- -----------
$11,316,630 $11,658,223
=========== ===========
</TABLE>
See Notes to Financial Statements
FINR-2
<PAGE>
RIVIERA ELECTRIC CONSTRUCTION CO.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Contract revenues..................... $29,464,580 $30,879,445 $31,845,921
Service revenues...................... 3,005,879 4,955,771 5,203,331
----------- ----------- -----------
32,470,459 35,835,216 37,049,252
----------- ----------- -----------
DIRECT COSTS OF REVENUES EARNED
Contract costs........................ 26,164,454 27,462,760 27,051,842
Service costs......................... 2,682,071 4,226,942 4,555,202
----------- ----------- -----------
28,846,525 31,689,702 31,607,044
----------- ----------- -----------
GROSS PROFIT........................... 3,623,934 4,145,514 5,442,208
INDIRECT SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES............... 2,666,836 2,883,829 3,999,543
----------- ----------- -----------
INCOME FROM OPERATIONS................. 957,098 1,261,685 1,442,665
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest expense...................... (170,552) (257,402) (228,751)
Interest income....................... 269 8,161 283
Other, net............................ 55,561 24,195 119,218
----------- ----------- -----------
(114,722) (225,046) (109,250)
----------- ----------- -----------
NET INCOME............................. $ 842,376 $ 1,036,639 $1,333,415
=========== =========== ===========
UNAUDITED PRO FORMA INFORMATION (SEE
NOTE 1)
Income before provision for income
taxes................................ $ 842,376 $ 1,036,639 $1,333,415
Provision for income taxes............ 314,206 386,666 497,364
----------- ----------- -----------
PRO FORMA NET INCOME (UNAUDITED)....... $ 528,170 $ 649,973 $ 836,051
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
FINR-3
<PAGE>
RIVIERA ELECTRIC CONSTRUCTION CO.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
-------------------
RETAINED
EARNINGS
SHARES DOLLARS (DEFICIT) TOTAL
------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994......... 377,800 $1,485,880 $2,045,212 $3,531,092
Net income........................ -- -- 842,376 842,376
Stockholders' distributions....... -- -- (1,734,539) (1,734,539)
Issuance of common stock.......... 3,000 18,750 -- 18,750
Redemption of common stock........ (73,600) (289,616) (173,825) (463,441)
------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1995......... 307,200 1,215,014 979,224 2,194,238
Net income........................ -- -- 1,036,639 1,036,639
Stockholders' distributions....... -- -- (389,957) (389,957)
Issuance of common stock.......... 3,000 18,750 -- 18,750
------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1996......... 310,200 1,233,764 1,625,906 2,859,670
Net income........................ -- -- 1,333,415 1,333,415
Stockholders' distributions....... -- -- (3,164,999) (3,164,999)
Issuance of common stock ......... 25,200 212,224 -- 212,224
Redemption of common stock........ (15,200) (95,000) (40,930) (135,930)
------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1997......... 320,200 $1,350,988 $ (246,608) $1,104,380
======= ========== ========== ==========
</TABLE>
See Notes to Financial Statements
FINR-4
<PAGE>
RIVIERA ELECTRIC CONSTRUCTION CO.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................. $ 842,376 $ 1,036,639 $1,333,415
Items not requiring (providing) cash:
Depreciation and amortization.......... 119,040 169,157 212,632
Loss from partnership.................. 21,222 -- --
Income from joint venture.............. (9,722) -- --
Loss from sale of property and
equipment............................. 4,925 17,701 380
Changes in:
Receivables............................ 245,664 (3,580,164) (348,834)
Related party receivables.............. (324,128) 327,461 74,920
Other current assets................... (2,679) 14,609 (24,252)
Costs and estimated earnings in excess
of billings on uncompleted contracts.. (25,442) (196,050) 267,475
Other assets........................... 62,246 -- --
Accounts payable....................... (1,552,104) 1,192,347 1,042,982
Accrued expenses....................... (164,219) (9,565) 480,424
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................. 423,796 1,562,081 (1,201,449)
Related party payables................. 255,118 (255,118) --
----------- ----------- ----------
Net cash provided by (used in)
operating activities................. (103,907) 279,098 1,837,693
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment.... (720,411) (385,106) (202,316)
Proceeds from sales of property and
equipment............................. 8,101 1,700 100
Investments in joint ventures and other
assets................................ (12,500) (46,523) (129,696)
Cash provided for note receivable...... (100,000) -- --
Payments received on note receivable... 30,000 -- --
----------- ----------- ----------
Net cash used in investing
activities........................... (794,810) (429,929) (331,912)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on line of
credit................................ 1,480,000 (250,000) (10,000)
Payments on long-term debt............. (69,806) (457,066) (115,074)
Proceeds from notes payable--
stockholders.......................... 462,000 435,000 --
Repayments on notes payable--
stockholders.......................... -- -- (375,000)
Proceeds from long-term borrowings..... -- 680,983 --
Issuance of common stock for cash...... 18,750 18,750 212,224
Distributions to stockholders.......... (1,734,539) (389,957) (889,999)
Distribution of cash for spinoff....... (51,620) -- --
Redemption of Common Stock............. -- -- (135,930)
----------- ----------- ----------
Net cash (used in) provided by
financing activities................. 104,785 37,710 (1,313,779)
----------- ----------- ----------
INCREASE (DECREASE) IN CASH............. (793,932) (113,121) 192,002
CASH, BEGINNING OF PERIOD............... 1,010,235 216,303 103,182
----------- ----------- ----------
CASH, END OF PERIOD..................... $ 216,303 $ 103,182 $ 295,184
=========== =========== ==========
</TABLE>
See Notes to Financial Statements
FINR-5
<PAGE>
RIVIERA ELECTRIC CONSTRUCTION CO.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is engaged in the construction of electrical systems for
industrial and commercial buildings. The Companies' operations are
predominately in Colorado. The Company grants credit to its customers which
are primarily commercial general contractors in Colorado.
The Company derives most of its revenues from guaranteed maximum price
contracts. The remainder of the contracts are fixed price contracts. The
length of the Company's contracts varies, but contracts are typically
completed in one year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE AND COST RECOGNITION
Revenues are recognized on the percentage of completion method, measured by
the percentage of costs incurred to date to estimated total costs for each
contract, commonly referred to as the cost-to-cost method.
Contract costs include all direct material and labor costs and certain
indirect costs related to contract performance such as supplies, tools,
supervisory salaries, and repairs. Selling, general, and administrative costs
are charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, and estimated
profitability, including those arising from contract penalty provisions and
final contract settlements, may result in revisions to costs and income which
are recognized in the period in which the revisions are determined. An amount
equal to contract costs attributable to claims is included in revenues when
realization is probable and the amount can be reliably estimated.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenue recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenue recognized.
PROPERTY AND EQUIPMENT
Property and equipment are depreciated over the estimated useful lives of
each asset. Leasehold improvements are depreciated over the shorter of the
lease term or the estimated useful lives of the improvements. Annual
depreciation is primarily computed using declining balance methods.
INCOME TAXES
The Company, with its stockholders' consent, has elected to be taxed as an S
Corporation under the Internal Revenue Code. In lieu of corporate income
taxes, the stockholders of an S Corporation are taxed on their proportionate
share of the corporation's taxable income. Therefore, no provision for income
taxes has been included in these financial statements.
There are differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities primarily related to property
and equipment, and contracts in progress. At December 31, 1997, the Company's
net assets for financial reporting purposes exceeds the tax basis by
approximately $70,000.
FINR-6
<PAGE>
RIVIERA ELECTRIC CONSTRUCTION CO.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The unaudited pro forma income tax information included in the Statement of
Income is presented in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as if the Company had been
subject to federal income taxes for the years presented.
NOTE 2: REORGANIZATION AND CORPORATE SEPARATION
As of April 1, 1995, the Company entered into an agreement with Riviera
Electric of California, Inc., a California corporation, to separate the
California division from the Colorado division of the Company. The Company
transferred the assets identified as related to California; and Riviera
Electric of California, Inc. agreed to assume all liabilities, debts,
contracts and obligations of the California division and to issue 460 shares
of common stock to the Company. The Company then exchanged the stock of
Riviera Electric of California, Inc. in exchange for 368 shares of its own
common stock of the Company. The Company's majority stockholder maintains a
controlling interest in Riviera Electric of California, Inc. This transaction
was reported as a transaction between entities under common control using the
historical cost basis of assets and liabilities. The assets net of liabilities
transferred to Riviera Electric of California, Inc. as of April 1, 1995 were
$463,441. The statements of income and cash flows for the year ended December
31, 1995, are reflected as if the transaction occurred January 1, 1995.
NOTE 3: COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS
Information with respect to uncompleted contracts follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Costs incurred on uncompleted contracts......... $ 16,086,014 $ 13,741,951
Estimated earnings.............................. 2,149,180 2,046,994
------------ ------------
18,235,194 15,788,945
Less billings to date........................... 20,067,718 16,687,495
------------ ------------
$ (1,832,524) $ (898,550)
============ ============
</TABLE>
Included in the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
------------ -----------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts............. $ 457,293 $ 189,818
Billings in excess of costs and estimated
earnings on uncompleted contracts............. (2,289,817) (1,088,368)
------------ -----------
$ (1,832,524) $ (898,550)
============ ===========
</TABLE>
NOTE 4: JOINT VENTURE
Included in other assets at December 31, 1997, is an investment of $125,000
in a joint venture. The joint venture was formed to acquire land and to
develop condominium units on the property. As of December 31, 1997, the
venture had little activity.
FINR-7
<PAGE>
RIVIERA ELECTRIC CONSTRUCTION CO.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5: NOTES PAYABLE
An agreement with a bank provides for borrowing up to $1,800,000, due May 1,
1998, unsecured, with an assignment up to $500,000 of a life insurance policy
on the majority stockholder. The agreement bears interest at prime, 8.5
percent, at December 31, 1997. The average interest rate for the years ended
December 31, 1997, 1996 and 1995 was approximately 8.25, 8.5 and 9.0 percent
respectively. The loan requires a $50,000 compensating balance. The agreement
also contains working capital and debt restrictions. The loan is guaranteed by
the president and majority stockholder.
NOTE 6: LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
--------- ---------
<S> <C> <C>
Bank note payable (A)................................... $ 143,390 $ 103,430
Bank note payable (B)................................... 520,783 483,804
Bank note payable (C)................................... 72,913 40,826
Bank note payable (D)................................... 19,795 13,747
--------- ---------
756,881 641,807
Less current maturities................................. 118,665 119,230
--------- ---------
$ 638,216 $ 522,577
========= =========
</TABLE>
Aggregate annual maturities of long-term debt at December 31, 1997 are:
<TABLE>
<S> <C>
1998............................................................... $ 119,230
1999............................................................... 89,220
2000............................................................... 57,438
2001............................................................... 375,919
---------
$ 641,807
=========
</TABLE>
(A) Due July 15, 2000; payable $3,330 monthly plus accrued interest at prime
plus 1%, secured by a deed of trust on certain property.
(B) Due January 15, 2001; payable $3,082 monthly plus monthly interest at
prime plus 1%; remaining principal and interest due at maturity; secured by a
deed of trust on certain property and guaranteed by the majority stockholder
of the Company.
(C) Due February 1, 1999; payable $2,917 monthly plus accrued interest at
9.5%; secured by vehicles.
(D) Due October 1, 1999; payable in monthly installments of $678 including
interest at prime plus .5%; payment subject to change if the prime rate
changes; secured by a vehicle.
NOTE 7: COMMON STOCK
During 1997, the Company increased its common stock shares authorized from
50,000 to 1,000,000 and issued 199 shares of Common Stock to its stockholders
for each share then held by the stockholders. These actions are reflected in
the financial statements as if they happened at the earliest period presented.
FINR-8
<PAGE>
RIVIERA ELECTRIC CONSTRUCTION CO.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8: OPERATING LEASES
The Company has entered into noncancellable operating leases for facilities
and equipment expiring in various years through March, 2003. The Company also
leases several vehicles under operating leases which expire through October,
2000.
Future minimum lease payments at December 31, 1997, were:
<TABLE>
<S> <C>
1998............................................................... $440,565
1999............................................................... 252,056
2000............................................................... 159,080
2001............................................................... 61,982
2002............................................................... 59,220
Thereafter......................................................... 4,935
--------
Future minimum lease payments...................................... $977,838
========
</TABLE>
Rental expenses for all operating leases was $617,000, $517,800, and
$360,284, during 1997, 1996, and 1995, respectively.
NOTE 9: PROFIT SHARING PLANS
The Company has a 401(k) savings and retirement plan which covers all
eligible employees. The plan provides benefits based on earnings of each
participant. The plan allows the Company to make an additional discretionary
contribution. Participants' interests are 100% vested when they enter the
plan. For the years ended December 31, 1997, 1996, and 1995, the Company made
no additional discretionary contributions to the plan.
In December, 1996, the Company established a new profit sharing plan. In
September, 1997, the Company decided to make a $300,000 contribution to the
new plan for 1996. The Company has also approved a $300,000 contribution for
1997. During the year ended December 31, 1997, $600,000 has been recorded as
profit sharing expense.
NOTE 10: RELATED PARTY TRANSACTIONS
The Company performs various administrative functions, shares certain costs,
and pays certain bills, for a company related through common ownership (see
Note 2). During the years ended December 31, 1997 and 1996, this related
entity reimbursed the Company $241,727, and $193,559, respectively for
expenses the Company paid on behalf of this related entity. During the year
ended December 31, 1995, substantially all of the entity's operating expenses
were paid by the Company. As of December 31, 1997 and 1996 $10,302 and
$48,637, respectively, was owed to the Company by this related entity.
During 1995, the Company sold a partnership interest to the Company's
majority stockholder for $78,412. The Partnership billed the Company
$1,600,190 for services rendered during the year ended December 31, 1995. The
Company provided and was reimbursed for health insurance, miscellaneous tools
and other services to the partnership during 1995 in the amount of $74,156.
At December 31, 1997 and 1996, the Company had a note payable to its
majority stockholder of $265,000 and $643,000, and notes payable of $150,000
and $150,000 to other stockholders, respectively. The notes are unsecured, due
on demand, and bear interest at a bank's prime rate plus one percent. The
average interest rates for the years ended December 31, 1997, 1996 and 1995
were approximately 9.25, 9.5 and 10.0 percent respectively.
FINR-9
<PAGE>
RIVIERA ELECTRIC CONSTRUCTION CO.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10: RELATED PARTY TRANSACTIONS (CONTINUED)
In December 1997, distributions totaling $2,275,000 were made to
stockholders in the form of notes payable. The notes are unsecured, bear
interest at a bank's prime rate plus one percent, and are subordinated to the
Company's bank debt. Principal is due April 1, 1999. Interest expense for all
notes payable to stockholders was $54,548, $51,012 and $55,309, for the years
ended December 31, 1997, 1996, and 1995, respectively.
The Company maintains a $1 million life insurance policy on its president
and majority stockholder.
The Company rents various office equipment and employee lodging facilities
under operating leases with a director of the Company. The leases expire in
1998. Total lease expense paid for 1997, 1996, and 1995, was $74,952, $113,177
and $89,896, respectively.
NOTE 11: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain
concentrations. Those matters include the following:
Contracts in Process
The Company recognizes revenue on contracts under the percentage-of-
completion method, which involves estimates of total contract costs and the
percentage of a contract's completion. The methodology used is described as
part of Note 1.
Bonding and Regulations
The Company currently is involved in long-term construction contracts. As
part of these contracts, the Company must meet certain requirements and obtain
an appropriate level of bonding.
NOTE 12: ADDITIONAL CASH FLOW INFORMATION
Noncash Investing and Financing Activities
During 1995, the Company redeemed 368 shares of common stock in exchange for
460 shares of its affiliate with a fair value of $463,441. The transaction is
detailed at Note 2.
During 1997, the Company issued notes payable of $2,275,000 to stockholders
as distributions.
Additional Cash Payment Information
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Interest paid (net of amount capitalized)....... $222,686 $253,191 $170,728
</TABLE>
NOTE 13: SUBSEQUENT EVENT
In February 1998, the Company and its stockholders signed a letter of intent
to sell the Company. The Company's outstanding stock will be acquired by, and
the Company will be simultaneously merged into a wholly-owned subsidiary of
Consolidated Capital Corporation. If the transaction is completed, the
existing stockholders intend to purchase land and a building from the Company
and to contribute the $2,275,000 notes payable discussed in Note 10, to the
Company as additional paid-in capital.
FINR-10
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Town & Country Electric Inc.
We have audited the accompanying balance sheets of Town & Country Electric
Inc. (a Wisconsin corporation) as of December 31, 1997 and 1996, and the
related statements of earnings, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Town & Country Electric
Inc. as of December 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1997 in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Appleton, Wisconsin
February 6, 1998
FINC-1
<PAGE>
TOWN & COUNTRY ELECTRIC INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......................... $ 253,462 $ 198,051
Contract receivables .............................. 9,331,072 10,604,699
Other receivables ................................. 23,302 267,662
----------- -----------
9,354,374 10,872,361
Inventories........................................ 260,872 294,829
Prepaid expenses................................... 98,298 112,656
Costs and estimated earnings in excess of billings
on contracts in progress.......................... 1,465,108 1,705,125
Deferred income tax................................ 378,800 349,400
----------- -----------
Total current assets............................. 11,810,914 13,532,422
PROPERTY AND EQUIPMENT--AT COST
Equipment.......................................... 1,261,582 1,431,590
Furniture and fixtures............................. 552,206 561,394
Computer equipment................................. 543,073 587,283
Vehicles........................................... 1,351,576 1,643,078
Leasehold improvements............................. 161,493 194,174
Building........................................... 161,124 162,357
----------- -----------
4,031,054 4,579,876
Less accumulated depreciation..................... 2,380,179 2,969,891
----------- -----------
1,650,875 1,609,985
Land............................................... 16,216 16,216
----------- -----------
1,667,091 1,626,201
OTHER ASSETS
Cash surrender value of life insurance............. 83,482 98,898
Goodwill........................................... 203,586 203,586
Less accumulated amortization..................... (18,098) (31,669)
----------- -----------
185,488 171,917
Investments........................................ 338 338
----------- -----------
269,308 271,153
----------- -----------
$13,747,313 $15,429,776
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
FINC-2
<PAGE>
TOWN & COUNTRY ELECTRIC INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Current maturities of long-term debt................. $ 156,269 $ 320,644
Accounts payable..................................... 1,650,744 2,206,393
Accrued liabilities
Salaries, wages and vacation........................ 1,729,140 1,792,164
Property, payroll and other taxes................... 314,323 396,442
Profit sharing...................................... 340,049 407,824
Health and disability insurance..................... 67,605 58,597
Other............................................... 296,241 207,547
Income taxes........................................ 345,000 241,000
----------- -----------
3,092,358 3,103,574
Billings in excess of costs and estimated earnings on
contracts in progress............................... 579,683 1,265,955
----------- -----------
Total current liabilities.......................... 5,479,054 6,896,566
LONG-TERM DEBT, less current maturities................ 1,149,468 197,014
COMMITMENTS............................................ -- --
STOCKHOLDER'S EQUITY
Common stock
Class A--authorized 200,000 shares of $.005 par
value, issued and 47,307 and 48,461 shares at
December 31, 1996 and September 30, 1997,
respectively...................................... 236 242
Class B--authorized 400,000 shares of no par value,
issued 263,900 and 264,710 shares at December 31,
1996 and September 30, 1997, respectively......... 1,320 1,324
Additional paid-in capital........................... 461,396 515,944
----------- -----------
462,952 517,510
Retained earnings...................................... 6,655,839 7,818,686
----------- -----------
7,118,791 8,336,196
----------- -----------
$13,747,313 $15,429,776
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINC-3
<PAGE>
TOWN & COUNTRY ELECTRIC INC.
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Contract revenues earned................ $43,306,306 $51,219,799 $48,725,990
Cost of revenues earned................. 34,569,800 41,156,211 39,701,121
----------- ----------- -----------
Gross profit.......................... 8,736,506 10,063,588 9,024,869
General and administrative expenses..... 5,638,605 6,547,518 7,006,235
----------- ----------- -----------
Operating profit...................... 3,097,901 3,516,070 2,018,634
Other income (expense)
Interest expense...................... (206,474) (153,433) (74,988)
Miscellaneous income, net............. 58,303 106,915 113,446
----------- ----------- -----------
(148,171) (46,518) 38,458
----------- ----------- -----------
Earnings before income taxes........ 2,949,730 3,469,552 2,057,092
Provision for income taxes.............. 1,155,024 1,413,716 894,245
----------- ----------- -----------
NET EARNINGS............................ $ 1,794,706 $ 2,055,836 $ 1,162,847
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
FINC-4
<PAGE>
TOWN & COUNTRY ELECTRIC INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK ISSUED
-------------------------------
CLASS A CLASS B
(NONVOTING) (VOTING) ADDITIONAL TOTAL
--------------- --------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
------- ------ ------- ------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... 54,880 $274 287,000 $1,466 $239,516 $3,464,716 $3,705,972
Retirement and
redemption of stock.... (14,140) (70) (29,020) (145) -- (656,964) (657,179)
Issuance of stock....... 2,000 10 4,000 (10) 97,360 -- 97,360
Net earnings............ -- -- -- -- -- 1,794,706 1,794,706
------- ---- ------- ------ -------- ---------- ----------
Balance December 31,
1995................... 42,740 214 261,980 1,311 336,876 4,602,458 4,940,859
Retirement and
redemption of stock.... (134) (1) -- -- -- (2,455) (2,456)
Issuance of stock....... 4,701 23 1,920 9 124,520 -- 124,552
Net earnings............ -- -- -- -- -- 2,055,836 2,055,836
------- ---- ------- ------ -------- ---------- ----------
Balance December 31,
1996................... 47,307 236 263,900 1,320 461,396 6,655,839 7,118,791
Retirement and
redemption of stock.... (48) -- -- -- (1,370) -- (1,370)
Issuance of stock....... 1,154 6 810 4 55,918 -- 55,928
Net earnings for the
year ended December 31,
1997................... -- -- -- -- -- 1,162,847 1,162,847
------- ---- ------- ------ -------- ---------- ----------
Balance December 31,
1997................... 48,413 $242 264,710 $1,324 $515,944 $7,818,686 $8,336,196
======= ==== ======= ====== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
FINC-5
<PAGE>
TOWN & COUNTRY ELECTRIC INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings........................... $ 1,794,706 $ 2,055,836 $ 1,162,847
Adjustments to reconcile net earnings
to net cash provided by operating
activities............................
Depreciation expense................... 517,363 647,192 690,665
Loss on sale of property and
equipment............................. 5,218 16,442 34
Amortization of goodwill............... -- 13,573 13,571
Decrease (increase) in accounts
receivable............................ 376,430 (1,992,514) (1,517,987)
Decrease (increase) in inventories..... (43,847) 8,118 (33,957)
Increase in prepaid expenses........... (47,717) (25,354) (14,358)
(Increase) decrease in costs and
estimated earnings in excess of
billings on contracts in progress..... 300,173 (304,357) (240,017)
Increase in deferred income taxes...... (96,000) (15,800) 29,400
Increase (decrease) in accounts
payable............................... (74,592) 127,869 555,649
Increase (decrease) in accrued
liabilities........................... 206,510 683,036 11,216
Decrease (increase) in billings in
excess of costs and estimated
earnings on contracts in progress..... (175,362) (123,360) 686,272
----------- ----------- -----------
Net cash provided by operating
activities.......................... 2,762,882 1,090,681 1,343,335
Cash flows from investing activities
Purchase of property and equipment..... (812,013) (971,003) (660,656)
Proceeds from sale of property and
equipment............................. 35,219 36,792 10,847
Increase in cash surrender value of
life insurance........................ (11,122) (13,371) (15,416)
Acquisition of assets of electrical
contractor............................ (203,586) -- --
----------- ----------- -----------
Net cash used in investing
activities.......................... (991,502) (947,582) (665,225)
Cash flows from financing activities
Proceeds from borrowings............... 2,420,770 199,253 2,486,646
Issuance of common stock............... 97,360 124,552 55,928
Payments on borrowings................. (2,702,418) (1,233,676) (3,274,725)
Retirement and redemption of stock..... (657,179) (2,456) (1,370)
----------- ----------- -----------
Net cash used in financing
activities.......................... (841,467) (912,327) (733,521)
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS............................ 929,913 (769,228) (55,411)
Cash and cash equivalents at beginning
of period.............................. 92,777 1,022,690 253,462
----------- ----------- -----------
Cash and cash equivalents at end of
period................................. $ 1,022,690 $ 253,462 $ 198,051
----------- ----------- -----------
Supplemental disclosures of cash flow
information
Cash paid during period for:
Interest............................... $ 204,017 $ 158,191 $ 72,207
Income taxes........................... 1,226,603 1,063,726 1,288,604
</TABLE>
The accompanying notes are an integral part of these statements.
FINC-6
<PAGE>
TOWN & COUNTRY ELECTRIC INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A--SUMMARY OF ACCOUNTING POLICIES
Town & Country Electric Inc. ("Company") is engaged in electrical
contracting for industrial, commercial, residential and institutional
customers. The majority of the contracts are in the midwestern United States.
On January 30, 1998, the Company entered into a Letter of Intent with
Consolidation Capital Corporation ("CCC") for the potential sale of the
Company to CCC.
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
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.
A summary of the Company's significant accounting policies used in the
preparation of the financial statements follows.
1. Revenue and Cost Recognition
Revenues from fixed-price contracts are recognized on the percentage-of-
completion method, measured by the percentage of costs incurred to date to
estimated total costs for each contract. This method is used because
management believes costs to be the best available measure of progress on
these contracts. Contracts are considered completed when the work is
substantially complete and accepted. Revenues from time and material contracts
are recognized on the basis of costs incurred during the period plus fees
earned.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs and depreciation costs. General and administrative
costs are charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts, if material, are made in the period in which such
losses are determined. It is reasonably possible that changes in job
performance, job conditions and estimated profitability may result in
revisions to costs and income, and are recognized in the period in which the
revisions are determined.
2. Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
3. Inventories
Inventories, consisting of electrical materials and supplies, are stated at
the lower of cost, determined on the first-in, first-out method, or market.
4. Property and Equipment and Depreciation
Property and equipment are stated at cost. Expenditures for additions and
improvements are capitalized while replacements, maintenance and repairs which
do not improve or extend the lives of the respective assets are expensed
currently as incurred. Properties sold, or otherwise disposed of, are removed
from the property accounts, with gains or losses on disposal credited or
charged to the results of operations.
FINC-7
<PAGE>
TOWN & COUNTRY ELECTRIC INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE A--SUMMARY OF ACCOUNTING POLICIES--CONTINUED
Depreciation is provided over the estimated useful lives of the respective
assets, using straight-line and accelerated methods, as follows:
<TABLE>
<S> <C>
Equipment....................................................... 7 years
Furniture and fixtures.......................................... 7 years
Computer equipment.............................................. 5 years
Vehicles........................................................ 5 years
Leasehold improvements.......................................... 15 years
Building........................................................ 19-39 years
</TABLE>
5. Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred
taxes. The deferred taxes relate primarily to differences between the
financial and tax basis of accounts receivable, inventories, accrued vacation,
and other accrued liabilities. The deferred taxes represent the future tax
return consequences of those differences.
6. Goodwill
Goodwill is the excess of cost over the fair value of net assets acquired
and is being amortized by the straight-line method over 15 years.
7. Financial Instruments
The carrying amount of financial instruments at December 31, 1997
approximates fair value.
NOTE B--CONCENTRATIONS OF CREDIT RISK
The Company maintains its cash balances at two financial institutions.
Accounts at each institution are secured by the Federal Deposit Insurance
Corporation up to $100,000. Uninsured balances aggregate to $98,051 at
December 31, 1997. The Company has not experienced any losses in such accounts
and believes it is not exposed to any significant credit risk on cash and cash
equivalents.
NOTE C--CONTRACT RECEIVABLES
Contract receivables consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Contract receivables currently due............... $8,805,476 $ 9,732,792
Retention........................................ 649,302 997,407
---------- -----------
9,454,778 10,730,199
Less: Allowance for doubtful accounts............ (123,706) (125,500)
---------- -----------
$9,331,072 $10,604,699
========== ===========
</TABLE>
FINC-8
<PAGE>
TOWN & COUNTRY ELECTRIC INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE D--CONTRACTS IN PROCESS
Information relative to contracts in process at December 31, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Included in the balance sheet as:
Costs and estimated earnings in excess of
billings on contracts in progress............... $1,465,108 $1,705,125
Billings in excess of costs and estimated
earnings on contracts in progress............... (579,683) (1,265,955)
---------- ----------
$ 885,425 $ 439,170
========== ==========
</TABLE>
NOTE E--INDEBTEDNESS
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
---------- --------
<S> <C> <C>
Note payable to bank, 7.75% interest, with land and a
building pledged as collateral. Payable in monthly in-
stallments of $1,024, including interest, to December
1998.................................................. $ 94,543 $ 89,949
Note payable to bank, 8.18% interest, with vehicles
pledged as collateral. Payable in monthly installments
of $6,275, including interest, to January 1999........ 142,422 76,460
Note payable to bank, 8.45% interest, with vehicles
pledged as collateral. Payable in monthly installments
of $8,424, including interest, to January 2000........ -- 192,251
Note payable to bank, 8.15% interest, with a vehicle
pledged as collateral. Payable in monthly installments
of $1,765, including interest, to October 1998........ 38,370 19,656
Note payable to former shareholder for redemption of
stock, 6.46% interest, quarterly payments of $7,329
including interest, last payment due February 1998.... 35,472 7,324
Note payable to Dory Electric, Inc., 7.5% interest for
purchase of Dory Electric, Inc. Payable in one
installment of $80,000 made January 1996 and monthly
installments of $4,008, including interest, to January
2001.................................................. 165,747 132,018
1996 Notes payable, paid off in 1997................... 829,183 --
---------- --------
1,305,737 517,658
Less current maturities............................ 156,269 320,644
---------- --------
$1,149,468 $197,014
========== ========
</TABLE>
The aggregate maturities on long-term debt as of December 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998............................................................... $320,644
1999............................................................... 138,316
2000............................................................... 58,697
--------
$517,657
========
</TABLE>
FINC-9
<PAGE>
TOWN & COUNTRY ELECTRIC INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE E--INDEBTEDNESS--CONTINUED
REVOLVING LINE OF CREDIT
The Company has available a $3,667,000 revolving line of credit with M&I
Bank Fox Valley of Appleton which runs through March 31, 2000. Under the terms
of the agreement the Company is required to make monthly interest payments at
prime less .25% (effectively 8.25% (effectively 8.25% at December 31, 1997).
The terms of the agreement contain various restrictive covenants including the
maintenance of certain levels of working capital and net worth, redemption of
stock and issuance of stock. The Company is in compliance with these covenants
as of December 31, 1997. At December 31, 1997, there was no outstanding
balance on the revolver note.
NOTE F--INCOME TAXES
The provision (credit) for income taxes for the years ended December 31,
1997, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ---------
<S> <C> <C> <C>
Current
Federal................................. $ 990,507 $1,112,556 $ 751,935
State................................... 260,517 316,960 171,710
Deferred.................................. (96,000) (15,800) (29,400)
---------- ---------- ---------
$1,155,024 $1,413,716 $ 894,245
========== ========== =========
</TABLE>
The reconciliation of statutory to actual tax provision is as follows for
the year ended December 31:
<TABLE>
<CAPTION>
1995 % 1996 % 1997 %
---------- ---- ---------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Provision at statutory
rate.................... $1,002,908 34.0% $1,179,648 34.0% $699,411 34.0%
State income taxes, net
of federal benefit...... 171,941 5.8 209,194 6.0 113,329 6.0
Other.................... (19,825) (0.6) 24,874 0.7 81,505 3.0
---------- ---- ---------- ---- -------- ----
Tax provision
recorded.............. $1,155,024 39.2% $1,413,716 40.7% $894,245 43.0%
========== ==== ========== ==== ======== ====
</TABLE>
The tax effect of items that comprise a significant portion of deferred tax
assets at December 31:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Vacation pay............................................... $198,966 $202,945
Accrued continued employment............................... 61,386 60,195
Allowance for bad debts.................................... 48,245 48,945
Other...................................................... 70,202 37,315
-------- --------
Total current deferred tax asset......................... 378,799 $349,400
======== ========
</TABLE>
FINC-10
<PAGE>
TOWN & COUNTRY ELECTRIC INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE G--COMMITMENTS AND CONTINGENCIES
The Company leases its home office building under an operating lease in
effect through July, 2004. During the term of the lease, the Company has the
option to purchase the building. The Company also leases other office space
and a vehicle under operating leases. Future minimum rental payments under
these leases consist of the following at December 31, 1996:
<TABLE>
<S> <C>
1998............................................................ $ 237,655
1999............................................................ 216,184
2000............................................................ 161,277
2001............................................................ 141,960
2002............................................................ 141,960
Thereafter........................................................ 223,720
----------
Total......................................................... $1,122,756
==========
</TABLE>
Total rent expense for all operating leases was $234,180, $197,202, and
$116,818 for the years ended December 31, 1997, 1996 and 1995, respectively.
In addition, the Company rents equipment as needed. The Company treats these
rents as contract costs.
NOTE H--PROFIT SHARING AND 401(K) PLAN
The Company has a profit sharing and 401(k) plan covering substantially all
employees, which includes the provisions of Section 401(k) of the Internal
Revenue Code. The Plan allows for tax deferred employee contributions.
Participants may make voluntary contributions of between 1% and 15% of their
annual compensation to the Plan. This contribution may be 100% matched by the
Company, up to a maximum of $950 per employee for the years ended December 31,
1997, 1996, and 1995. Matching and any additional Company contributions to the
Plan are determined annually by the Board of Directors. Company contributions
to the Plan for the years ended December 31, 1997, 1996 and 1995 amounted to
$380,488, $315,874, and $277,720, respectively.
Beginning in 1995, participants were allowed to elect that up to 33% of
their matching contribution could be allocated to purchase Company stock.
These amounts have been deposited with the asset custodian.
NOTE I--STOCK REDEMPTION AGREEMENT
The Company's Articles of Incorporation include provisions concerning the
purchase of a stockholder's stock by the Company when such stockholder is no
longer an employee or director of the Company. Under the terms of this
agreement, the price paid for the stock is to be the Company's appraised value
as of the end of the fiscal year immediately preceding the date of the
termination of the stockholder as an employee or director.
FINC-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Garfield Electric Company
We have audited the accompanying balance sheets of Garfield Electric Company
as of December 31, 1996 and 1997, and the related statements of earnings,
equity, and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Garfield Electric Company
at December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
Grant Thornton LLP
Cincinnati, Ohio
February 12, 1998
FING-1
<PAGE>
GARFIELD ELECTRIC COMPANY
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1996 1997
------ ------
<S> <C> <C>
ASSETS
Cash........................................................... $ 3 $ 1
Accounts receivable:
Trade (including retainages of $55 and $67 in 1996 and
1997)....................................................... 971 1,664
Affiliates................................................... 297 158
Officer...................................................... 28 37
Allowance.................................................... (30) (30)
------ ------
1,266 1,829
Inventory...................................................... 42 54
Cost and estimated earnings in excess of billings on uncom-
pleted contracts.............................................. 615 1,211
Prepaid expenses............................................... 20 21
Deferred Federal income tax.................................... 6 37
------ ------
Total current assets....................................... 1,952 3,153
Equipment--net................................................. 328 294
Investment in affiliate........................................ -- 75
Deposits....................................................... 2 3
Cash surrender value of life insurance......................... 70 83
------ ------
Total assets............................................... $2,352 $3,608
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable--bank............................................ $ 474 $ 838
Current maturities of long-term debt........................... 5 15
Bank overdraft................................................. 141 218
Accounts payable:
Trade........................................................ 405 624
Affiliate.................................................... 20 21
Other........................................................ 7 7
------ ------
432 652
Billings in excess of costs and estimated earnings on uncom-
pleted contracts.............................................. 113 186
Accrued income taxes........................................... 156 228
Accrued expenses
Payroll and payroll taxes.................................... 118 181
Workers compensation......................................... 65 6
Dividends.................................................... 42 --
------ ------
Total accrued expenses..................................... 225 187
------ ------
Total current liabilities.................................. 1,546 2,324
Long-term debt obligations..................................... 2 18
STOCKHOLDERS' EQUITY
Common stock (5,000 shares authorized, 1,666 issued, with 933
shares outstanding in 1996 and 1997, without par value, at
aggregate stated value)..................................... 503 503
Retained earnings............................................ 496 958
Less 733 treasury shares at cost in 1996 and 1997............ (195) (195)
------ ------
Total stockholders' equity................................. 804 1,266
------ ------
Total liabilities and stockholders' equity................. $2,352 $3,608
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
FING-2
<PAGE>
GARFIELD ELECTRIC COMPANY
STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1995 1996 1997
------- ------ -------
<S> <C> <C> <C>
Contract revenue....................................... $11,792 $8,766 $10,826
Contract costs (net of affiliated company labor
transactions of $235, $505, and $472 for the years
ended December 31, 1995, 1996 and 1997................ 9,683 6,908 8,286
------- ------ -------
Gross profit....................................... 2,109 1,858 2,540
Selling and administrative expenses (net of affiliated
company reimbursement of $235, $488 and $360 for the
years ended December 31, 1995, 1996 and 1997.......... 1,325 1,394 1,593
Note receivable charge off............................. 564 -- 12
------- ------ -------
Total selling and administrative expense........... 1,889 1,394 1,605
------- ------ -------
Operating profit................................... 220 464 935
Other expense (income)
Interest expense..................................... 130 46 69
Interest income...................................... (16) -- --
Other................................................ -- 18 24
------- ------ -------
Earnings before income taxes....................... 106 400 842
Income taxes........................................... 27 185 319
------- ------ -------
Net earnings....................................... $ 79 $ 215 $ 523
======= ====== =======
Net earnings per share............................. $ 85 $ 230 $ 561
======= ====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
FING-3
<PAGE>
GARFIELD ELECTRIC COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED TREASURY STOCKHOLDERS'
STOCK EARNINGS STOCK EQUITY
------ -------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995................. $503 $278 $(195) $ 586
Dividends, $36 per share................. -- (34) -- (34)
Net earnings............................. -- 79 -- 79
---- ---- ----- ------
BALANCE, DECEMBER 31, 1995............... 503 323 (195) 631
Dividends, $45 per share................. -- (42) -- (42)
Net earnings............................. -- 215 -- 215
---- ---- ----- ------
BALANCE, DECEMBER 31, 1996............... 503 496 (195) 804
Dividends, $65 per share................. -- (61) -- (61)
Net earnings............................. -- 523 -- 523
---- ---- ----- ------
BALANCE, DECEMBER 31, 1997 $503 $958 $(195) $1,266
==== ==== ===== ======
</TABLE>
The accompanying notes are an integral part of these statements.
FING-4
<PAGE>
GARFIELD ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
------------------
1995 1996 1997
----- ----- ----
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net earnings.............................................. $ 79 $ 215 $523
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
(Gain) on disposal of asset.............................. (5) (2) (4)
Deferred Federal income tax.............................. (1) (5) (31)
Depreciation and amortization............................ 102 101 144
Changes in assets and liabilities:
Accounts receivable..................................... (301) 815 (563)
Note receivable charge off.............................. 564 -- --
Inventory............................................... (7) 41 (12)
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. (487) 354 73
Cost and estimated earnings on uncompleted contracts in
excess of billings..................................... (78) (100) (596)
Prepaid expenses........................................ 16 (16) (2)
Accounts payable........................................ 222 (612) 220
Accrued income taxes.................................... 77 150 72
Accrued expenses........................................ 110 (33) (38)
----- ----- ----
Net cash provided by (used in) operating activities.... 291 908 (214)
Cash flows provided by (used in) investing activities:
Purchases of equipment.................................... (94) (214) (109)
Investment in Affiliate................................... -- -- (75)
Proceeds from disposal of equipment....................... 5 2 3
Increase in cash surrender value of life insurance........ (15) (16) (13)
Note receivable........................................... 59 -- --
----- ----- ----
Net cash used in investing activities.................. (45) (228) (194)
Cash flows provided by (used in) financing activities:
Dividends paid............................................ (33) (42) (61)
Proceeds (payment) of note payable........................ (502) (332) 26
Change in bank overdraft and line of credit............... 290 (305) 441
----- ----- ----
Net cash provided by (used in) financing activities.... (245) (679) 406
----- ----- ----
Net increase (decrease) in cash............................ 1 1 (2)
Cash at beginning of year.................................. 1 2 3
----- ----- ----
Cash at end of year........................................ $ 2 $ 3 $ 1
===== ===== ====
Supplemental disclosure of cash transactions:
Interest paid............................................. $ 130 $ 46 $ 69
===== ===== ====
Taxes paid................................................ $ 16 $ 39 $247
===== ===== ====
</TABLE>
The accompanying notes are an integral part of these statements.
FING-5
<PAGE>
GARFIELD ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE A--SUMMARY OF ACCOUNTING POLICIES
The Company is a non-union electrical contractor performing services
primarily in the Midwest area of the United States. A summary of significant
accounting policies consistently applied in the preparation of the
accompanying financial statements follows:
1. Income Recognition
The accompanying financial statements have been prepared using the
percentage-of-completion method of accounting and, therefore, take into
account the cost, estimated earnings and revenue to date on contracts not yet
completed.
The amount of revenue recognized at the statement date is the portion of the
total contract price that the cost expended to date bears in relation to the
anticipated final total cost, based on current estimates of cost to complete.
Actual results may vary from anticipated amounts.
Contract cost includes all direct labor and benefits, materials unique to or
installed in the project, subcontract costs, and allocated indirect
construction costs.
As long-term contracts extend over one or more years, revisions in estimates
of cost and earnings during the course of the work are reflected in the
accounting period in which the facts which require the revision become known.
At the time a loss on a contract becomes known, the entire amount of the
estimated ultimate loss is recognized in the financial statements.
2. Inventory
Inventory is stated at the lower of cost or market; cost is determined using
the first-in, first-out method.
3. Depreciation and Amortization
Depreciation and amortization are provided in amounts sufficient to relate
the cost of depreciable assets to operations over their estimated service
lives, approximately three to ten years, principally on accelerated methods.
4. Income Taxes
Deferred income taxes have been provided for timing differences primarily
relating to currently non-deductible state tax accruals which completely
reverse in the subsequent year.
Permanent differences result from officers life insurance expense and meals
and entertainment expense.
5. Major Customers
Approximately 36% of 1995 revenues were derived from two customers (20% and
16% respectively). Approximately 35% of 1996 revenues were derived from three
customers (13%, 11% and 11% respectively). Approximately 31% of 1997 revenues
were derived from two customers (20% and 11% respectively).
6. Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of
FING-6
<PAGE>
GARFIELD ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE A--SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
7. Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, and accrued liabilities as reflected in the financial
statements approximates fair value because of the short-term maturity of these
instruments. The carrying amounts of long-term debt approximates fair value as
the interest rates approximate market rates for debt with similar terms and
average maturities.
8. Concentrations of Credit Risk
Financial instruments that potentially subject the Corporation to
concentrations of credit risk consist principally of trade accounts
receivable. Receivables are not collateralized and accordingly, the
Corporation performs on-going credit evaluations to reduce the risk of loss.
The Corporation also maintains bank accounts at one financial institution.
The balances are insured by the Federal Deposit Insurance Corporation up to
$100.
9. Earnings Per Share
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period. Weighted average common shares outstanding were
933 shares for all periods persented.
NOTE B--EQUIPMENT--LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1996 1997
------ ------
<S> <C> <C>
Automobiles and trucks........................................ $ 393 $ 400
Equipment..................................................... 658 718
Fixtures...................................................... 114 115
------ ------
1,165 1,233
Accumulated depreciation...................................... 837 939
------ ------
$ 328 $ 294
====== ======
</TABLE>
Depreciation expense was $102, $101 and $144 for the years ended December
31, 1995, 1996 and 1997.
NOTE C--EMPLOYEE BENEFIT PLANS
The Company has a contributory profit-sharing plan covering all full time
employees. Contributions are made at the discretion of the Board of Directors.
Effective March 1, 1989, the plan was amended to include a 401(k) plan, to
which contributions may be made by the Corporation. Contributions to the plan
totaled $20 and $22, and $57 in December 31, 1995, 1996 and 1997.
FING-7
<PAGE>
GARFIELD ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE D--LEASES
The Company occupies premises owned by related parties under month-to-month
leases at monthly rentals of approximately $4 in 1995, 1996, and 1997. Total
rental expense was $92, $89, and $139 for December 31, for 1995, 1996 and
1997.
NOTE E--DEBT
The Company has a $1,250 revolving credit note with interest at prime (8.75%
at December 31, 1997) plus .5% of which $474, and $838 are outstanding at
December 31, 1996, and 1997. The note is secured by inventory, equipment and
contract rights. This is guaranteed by stockholders of the company and there
are cross guarantees in place with Indecon, Inc. a related company.
Equipment obligations are payable in monthly installments of approximately
$1 including interest at December 31, 1997. This obligation matures in 2000.
NOTE F--COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1996 1997
------ ------
<S> <C> <C>
Costs incurred on uncompleted contracts...................... $2,324 $3,934
Estimated earnings........................................... 761 1,268
------ ------
3,085 5,202
Less billings to date...................................... 2,583 4,177
------ ------
$ 502 $1,025
====== ======
Presented on the balance sheet as follows:
Costs and estimated earnings in excess of billings......... $ 615 $1,211
Billings in excess of costs and estimated earnings......... (113) (186)
------ ------
$ 502 $1,025
====== ======
</TABLE>
The backlog of contracts yet to be completed at December 31, 1997 includes
revenue, costs and gross profit of approximately $3,201, $2,235 and $966,
respectively.
FING-8
<PAGE>
GARFIELD ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE G--INCOME TAXES
Provision for income taxes:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
----------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Federal:
Current................................................... $22 $134 $285
Deferred.................................................. (1) (5) (31)
State and local........................................... 6 56 65
--- ---- ----
$27 $185 $319
=== ==== ====
Components of effective income tax rate:
Federal:
Statutory rate............................................ 22% 34% 34%
Permanent differences..................................... (3) (1) --
Other..................................................... -- (1) --
State and local........................................... 6 14 8
--- ---- ----
Net effective income tax rate............................ 25% 46% 42%
=== ==== ====
</TABLE>
The approximate tax effect of the temporary differences giving rise to the
Company's deferred income tax asset is:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1996 1997
----- -----
<S> <C> <C>
Deferred tax asset
Currently non-deductible state accrual........................ $ 6 $ 32
</TABLE>
NOTE H--RELATED PARTIES
The Company receives a management fee from related companies as a
reimbursement of the cost of performance of administrative functions. This
amounted to approximately $235, $488 and $360 in December 31, 1995, 1996 and
1997 which has been reflected as a reduction of selling and administrative
expenses.
The Company and its related party, from time to time provide workers to each
other during peak labor needs. These charges are recorded at cost, including
benefits and related payroll taxes. The totals charged to the related party by
the Company for work performed by its workers was $275, $539 and $477 for the
years ended 1995, 1996 and 1997 respectively. The totals charged to the
Company for work performed by the related party's workers was $40, $34 and $5
for the years ended 1995, 1996 and 1997 respectively.
FING-9
<PAGE>
GARFIELD ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE I--TREASURY STOCK
The Company has repurchased the shares of a former shareholder for a total
of $132. This amount is being repaid in twelve quarterly installments of
approximately $11 plus interest at 10%. The note is reflected in the financial
statements at $132 less payments made to date. The financial instrument is
recorded at cost which approximates fair value. As of December 31, 1997 all
payments have been made.
NOTE J--UNCOLLECTIBLE NOTE RECEIVABLE
The Company advanced money to and performed services for another
construction company from time to time. During the year ended December 31,
1995, it became known to the Company that the amounts advanced would be
uncollectible and the asset was written off.
NOTE K--COMMITMENT
On January 29, 1998 the Corporation entered into a letter of intent with
Consolidation Capital Corporation (CCC) for the potential sale of Garfield
Electric Company to CCC.
NOTE L--CONTINGENCIES
There are various legal actions arising in the normal course of business
that have been brought against the Company. Management believes these matters
will not have a material adverse effect on the Company's financial position or
results of operations. In addition, a shareholder resigned from the Company on
April 30, 1993 and his stock was redeemed in accordance with the shareholders
agreement. He has refused to accept the amount paid by the Company and asserts
that a larger amount is due. No suit has been filed.
NOTE M--STOCK REPURCHASE AGREEMENT
The Company has entered into a stock repurchase agreement with each of its'
shareholders. The repurchase agreement, triggered by death, disability,
retirement or termination from the Company gives the Company the option to
purchase the shares at book value as of the last audited financial statement.
FING-10
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Indecon, Inc.
We have audited the accompanying balance sheets of Indecon, Inc. as of
December 31, 1996 and 1997, and the related statements of earnings,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Indecon, Inc. at December
31, 1996 and 1997, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
Grant Thornton LLP
Cincinnati, Ohio
February 12, 1998
FINI-1
<PAGE>
INDECON, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1996 1997
------ ------
<S> <C> <C>
ASSETS
Accounts receivable:
Trade (including retainages of $4 and $0 in 1996 and 1997 and
net of allowances of $0 and $40 in 1996 and 1997)........... $1,427 $1,876
Affiliates................................................... 20 183
Notes receivable--affiliate.................................... 259 743
Inventory...................................................... 137 39
Unbilled receivables on completed contracts.................... 418 373
Cost and estimated earnings in excess of billings on uncom-
pleted contracts.............................................. 464 56
Prepaid expenses............................................... 1 3
Deferred Federal income tax.................................... 15 42
------ ------
Total current assets....................................... 2,741 3,315
Equipment--net................................................. 126 200
Deposits....................................................... 1 1
------ ------
Total assets............................................... $2,868 $3,516
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable.................................................. $ 71 $ 728
Bank overdraft................................................. 382 16
Accounts payable:
Trade........................................................ 388 209
Affiliate.................................................... 297 302
Billings in excess of costs and estimated earnings on
uncompleted contracts......................................... 4 134
Accrued income taxes........................................... 186 164
Deferred federal income tax.................................... -- 8
Accrued expenses:
Payroll...................................................... 365 388
Other........................................................ 110 51
------ ------
Total current liabilities.................................. 1,803 2,000
STOCKHOLDERS' EQUITY
Common stock (750 shares authorized and issued, with 500
shares outstanding in 1996 and 1997, with a stated value of
$4 per share)............................................... 3 3
Retained earnings............................................ 1,095 1,546
Less 250 treasury shares at cost in 1995 and 1996............ (33) (33)
------ ------
Total stockholders' equity................................. 1,065 1,516
------ ------
Total liabilities and stockholders' equity................. $2,868 $3,516
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
FINI-2
<PAGE>
INDECON, INC.
STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Contract revenue..................................... $7,425 $11,291 $13,672
Contract costs (net affiliated company labor
transactions of $235, $505 and $472 for the years
ended December 31, 1995, 1996 and 1997.............. 5,886 9,199 11,301
------ ------- -------
Gross profit..................................... 1,539 2,092 2,371
Selling and administrative expenses (including
administrative expense reimbursement to affiliate of
$210, $441and $360 for the years ended December 31,
1995, 1996 and 1997)................................ 1,006 1,244 1,376
------ ------- -------
Operating profit................................. 533 848 995
Other expense (income)
(Gain) on disposal of asset........................ (2) -- (1)
Interest--expense.................................. 22 24 33
Interest income.................................... (17) (16) (40)
------ ------- -------
Earnings before income taxes..................... 530 840 1,003
Income taxes......................................... 214 356 452
------ ------- -------
Net earnings..................................... $ 316 $ 484 $ 551
====== ======= =======
Net earnings per common share--primary........... $ 632 $ 968 $ 1,102
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
FINI-3
<PAGE>
INDECON, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED TREASURY STOCKHOLDERS'
STOCK EARNINGS STOCK EQUITY
------ -------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995............... $ 3 $ 335 $(31) $ 307
Net earnings........................... -- 316 -- 316
--- ------ ---- ------
BALANCE, DECEMBER 31, 1995............. 3 651 (31) 623
Dividends, $80 per share............... -- (40) -- (40)
Purchase price adjustment on treasury
shares................................ -- -- (2) (2)
Net earnings........................... -- 484 -- 484
--- ------ ---- ------
BALANCE, DECEMBER 31, 1996............. 3 1,095 (33) 1,065
Dividends, $200 per share.............. -- (100) -- (100)
Net earnings........................... -- 551 -- 551
--- ------ ---- ------
BALANCE, DECEMBER 31, 1997............. $ 3 $1,546 $(33) $1,516
=== ====== ==== ======
</TABLE>
The accompanying notes are an integral part of these statements.
FINI-4
<PAGE>
INDECON, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net earnings............................................. $ 316 $ 484 $ 551
Adjustments to reconcile net earnings to net cash pro-
vided by (used in) operating activities:
(Gain) on disposal of asset............................. (2) -- (1)
Deferred Federal income tax............................. 3 (11) (19)
Depreciation and amortization........................... 59 65 81
Changes in assets and liabilities
Accounts receivable.................................... (411) (477) (612)
Inventory.............................................. -- (136) 98
Unbilled receivables on completed contracts............ (394) 157 45
Billings in excess of costs and estimated earnings on
uncompleted contracts................................. 62 (58) 130
Cost and estimated earnings on uncompleted contracts in
excess of billings.................................... 130 (441) 408
Prepaid expenses....................................... 1 1 (2)
Accounts payable....................................... 267 305 (174)
Accrued income taxes................................... 5 58 (22)
Accrued expenses....................................... 239 101 (36)
----- ----- -----
Net cash provided by operating activities............. 275 48 447
Cash flows (used in) investing activities:
Proceeds from sale of equipment.......................... -- -- 1
Purchases of equipment................................... (71) (61) (155)
Increase in notes receivable affiliate................... (167) (91) (484)
----- ----- -----
Net cash used in investing activities................. (238) (152) (638)
Cash flows provided by (used in) financing activities:
Increase in purchase price of treasury stock............. -- (2) --
Dividends paid........................................... -- (40) (100)
(Proceeds) payment of note payable....................... (288) 42 657
Increase (decrease) in bank overdraft.................... 251 104 (366)
----- ----- -----
Net cash provided by (used in) financing activities... (37) 104 191
----- ----- -----
Net decrease in cash...................................... -- -- --
Cash at beginning of year................................. -- -- --
----- ----- -----
Cash at end of year....................................... $ -- $ -- $ --
===== ===== =====
Supplemental disclosure of cash transactions:
Interest paid............................................ $ 22 $ 20 $ 33
===== ===== =====
Taxes paid............................................... $ 205 $ 309 $ 297
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
FINI-5
<PAGE>
INDECON, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE A--SUMMARY OF ACCOUNTING POLICIES
The Corporation is an industrial electrical contractor whose work is
primarily in Ohio and Kentucky. A summary of significant accounting policies
applied in the preparation of the accompanying financial statements follows:
1. Income Recognition
The Corporation recognizes income on the percentage of completion method.
The percentage of completion is calculated on the cost to cost method using
cost to date and total estimated cost on a job by job basis. Actual results
may vary from estimates. At the time a loss on a contract becomes known, the
entire amount of the estimated ultimate loss is accrued. The current asset
caption "unbilled receivables on completed contracts" includes revenues earned
in excess of billings for time and materials contracts as of December 31, 1996
and 1997. Contract Revenues include $4,520, $8,122, and $10,936 in 1995, 1996,
and 1997 derived from time and material jobs.
2. Inventory
Inventory represents materials purchased for jobs which have not commenced
at December 31. The inventory is carried at the lower of cost or market on a
FIFO basis.
3. Equipment
Depreciation is provided in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives,
approximately three to ten years, principally on accelerated methods.
4. Income Taxes
The provision for tax is charged to current earnings. Deferred taxes have
been recorded for timing differences in deductibility of state income taxes
which completely reverse in the subsequent year and differences in
depreciation methods for book and tax purposes.
5. Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
6. Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, and accrued liabilities as reflected in the financial
statements approximates fair value because of the short-term maturity of these
instruments. The carrying amounts of long-term debt approximates fair value as
the interest rates approximate market rates for debt with similar terms and
average maturities.
FINI-6
<PAGE>
INDECON, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
7. Concentrations of Credit Risk
Financial instruments that potentially subject the Corporation to
concentrations of credit risk consist principally of trade accounts
receivable. Receivables are not collateralized and accordingly, the
Corporation performs on-going credit evaluations to reduce the risk of loss.
The Corporation also maintains bank accounts at one financial institution.
The balances are insured by the Federal Deposit Insurance Corporation up to
$100.
8. Earnings Per Share
Basic earnings per share is computed based upon weighted-average shares
outstanding during the period. Weighted-average shares outstanding for all
periods was 500 shares.
NOTE B--NOTES RECEIVABLE--AFFILIATE
The notes receivable--affiliate result from cash advances to two different
affiliated Companies which have common ownership with this Company. The notes
are due on demand and bear interest at a rate equal to the Corporations line
of credit. The notes are unsecured.
NOTE C--EQUIPMENT
Equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------ ------
<S> <C> <C>
Office equipment............................................. $ 108 $ 142
Construction equipment....................................... 249 364
------ ------
357 506
Accumulated depreciation................................... (231) (306)
------ ------
$ 126 $ 200
====== ======
</TABLE>
Depreciation expense for the year ended December 31, 1995, 1996 and 1997 was
$59, $65 and $81, respectively.
NOTE D--NOTE PAYABLE
The Corporation used at December 31, 1996 and 1997 $71 and $728 of a $1,200
revolving note from the bank. The interest rate is 1% over the prime rate
(currently 8.25%) as of December 31, 1997. The note is secured by inventory
and accounts receivable and is guaranteed by the stockholders. There are also
guarantees in place with Garfield Electric Company, a related company.
FINI-7
<PAGE>
INDECON, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE E--OPERATING LEASES
The Corporation entered into an agreement in June 1997 which leases office
space under an operating lease. The following is a schedule, by years, of the
future minimum rental payments which expire January 31, 2003:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998 $59,316
1999 $59,952
2000 $59,952
2001 $59,952
2002 $59,952
2003 $ 4,996
</TABLE>
Total rent expense under the operating lease was $66,761 for 1997.
NOTE F--INCOME TAXES
Provision for income taxes:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
----------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Federal:
Current.................................................. $162 $282 $352
Deferred................................................. 3 (11) (19)
State and local.......................................... 49 85 119
---- ---- ----
$214 $356 $452
==== ==== ====
Components of effective income tax rate:
Federal:
Statutory................................................ 34% 34% 34%
Permanent differences.................................... -- -- --
Other.................................................... (3) -- --
State and local.......................................... 10 6 12
---- ---- ----
Net effective income tax rate.......................... 41% 40% 46%
==== ==== ====
</TABLE>
The approximate tax effect of the temporary differences giving rise to the
Company's deferred income tax asset is:
<TABLE>
<CAPTION>
DECEMBER 31
------------
1996 1997
------ -----
<S> <C> <C>
Deferred tax asset
Currently non-deductible state accrual....................... $ 15 $ 42
====== =====
Deferred tax liability depreciation.......................... $ -- $ 8
====== =====
</TABLE>
NOTE G--RELATED PARTIES
Two of the stockholders of Indecon, Inc. are stockholders of a related
company to which payments are made to perform some of the administrative
functions of Indecon. The total of this administrative fee paid to reimburse
FINI-8
<PAGE>
INDECON, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE G--RELATED PARTIES (CONTINUED)
the cost of the services provided was $210, $441 and $360, in 1995, 1996 and
1997, respectively. The Corporation and its' related party from time to time
provide workers to each other during peak labor needs. These charges are
recorded at cost, including benefits and payroll taxes. The totals charged to
the related party for work performed by its' workers was $40, $34 and $5 for
the years ended 1995, 1996 and 1997, respectively. The totals charged to the
Corporation for work performed by its' workers was $275, $539 and $477 for the
years ended 1995, 1996 and 1997 respectively.
In 1997, the company separated its Data Network Solutions Cabling division
and sold its net assets at book value to a separate company owned
substantially by Indecon's shareholders.
NOTE H--MAJOR CUSTOMERS
The Corporation had sales to one customer totaling for 79% of total revenue
in 1995, and sales to three customers for 40% of total revenues (15%, 13% and
12%) in 1996 and sales to one customer for 56% of total revenues in 1997.
NOTE I--PROFIT-SHARING PLAN
As of January 1, 1991, the Corporation implemented a 401(k) profit-sharing
plan for all eligible employees. Employer contributions are made at the
discretion of the Board of Directors, with all costs funded as accrued.
Contributions by the Corporation in 1995, 1996 and 1997 totaled $40, $65 and
$44.
NOTE J--COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1996 1997
----- ------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $ 442 $163
Estimated earnings.......................................... 145 17
----- ------
587 180
Less billings to date....................................... 127 258
----- ------
$ 460 $ (78)
===== ======
Included in the accompanying balance sheet under the
following captions:
Costs and estimated earnings in excess of billings on
uncompleted contracts...................................... $ 464 $ 56
Billings in excess of costs and estimated earnings on
uncompleted contracts...................................... (4) (134)
----- ------
$ 460 $ (78)
===== ======
</TABLE>
NOTE K--SETTLEMENT OF STOCKHOLDER LAWSUIT
In February 1996, a lawsuit with a stockholder was settled. The Corporation
was directed to pay a total of $27 for the stockholder's one hundred twenty-
five shares, pursuant to the Corporation's stock repurchase agreement. An
additional $2 was paid to the stockholder.
FINI-9
<PAGE>
INDECON, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE L--COMMITMENT
On January 29, 1998 the Corporation entered into a Letter of Intent with
Consolidation Capital Corporation (CCC) for the potential sale of Indecon,
Inc. to CCC.
NOTE M--LITIGATION
There are various legal actions arising in the normal course of business
that have been brought against the Company. Management believes these matters
will not have a material adverse effect on the Company's financial position or
results of operations.
NOTE N--STOCK REPURCHASE AGREEMENT
The Company has entered into a stock repurchase agreement with each of its'
shareholders. The repurchase agreement, triggered by death, disability,
retirement or termination from the Company gives the Corporation the option to
purchase shares at book value as of the last audited financial statement.
FINI-10
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth fees payable to the Securities and Exchange
Commission and other estimated expenses expected to be incurred in connection
with issuance and distribution of securities being registered. All such fees
and expenses shall be paid by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee................ $145,582
Nasdaq National Market Listing Fee................................. 17,500
Printing Expenses.................................................. 75,000*
Accounting Fees and Expenses....................................... 25,000*
Legal Fees and Expenses............................................ 50,000*
Miscellaneous...................................................... 86,918*
--------
Total............................................................ $400,000
========
</TABLE>
- --------
* Estimate
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
permits a corporation, in its certificate of incorporation, to limit or
eliminate, subject to certain statutory limitations, the liability of
directors to the corporation or its stockholders for monetary damages for
breaches of fiduciary duty, except for liability (a) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any
transaction from which the director derived an improper personal benefit.
Article 10 of the Company's Restated Certificate of Incorporation provides
that the personal liability of directors of the Company is eliminated to the
extent permitted by Section 102(b)(7) of the DGCL.
Section 145 of the DGCL (i) requires a corporation to indemnify for
expenses, including attorney's fees, incurred by a director or officers who
has been successful in defending any claim or proceeding in which the director
or officer is involved because of his or her position with the corporation,
(ii) permits indemnification (a) for judgments, fines, expenses and amounts
paid in settlement in the case of a claim by a party other than the
corporation or in the right of the corporation, even where a director or
officer has not been successful, in cases where the director or officer acted
in good faith and in a manner that he or she reasonably believed was in or not
opposed to the best interests of the corporation provided, in the case of a
criminal proceeding, that the director or officer had no reason to believe his
or her conduct was unlawful or (b) for expenses in the case of a claim or
proceeding by or in the right of the corporation, including a derivative suit
(but not judgments, fines or amounts in settlement), if the director or
officer acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the corporation and has not been
adjudged liable to the corporation unless a court determines that, despite
such adjudication but in view of all of the circumstances, he or she is
entitled to indemnification, and (iii) permits the advancement of expenses to
directors and officers who are defending an action, lawsuit or proceeding upon
receipt of an undertaking for the repayment of such advance if it is
ultimately determined that the director or officer has not met the applicable
standard of conduct and is, therefore, not entitled to be indemnified. Section
145 also provides that the permissive indemnification described above is to be
made upon a determination that the director or officer has met the required
standard of conduct by (a) a majority of disinterested directors, (b) a
committee of disinterested directors designated by a majority of such
directors, (c) independent legal counsel or (d) the stockholders.
The Company has entered into Indemnity Agreements because the Board believes
that the Company's directors' and officers' insurance does not fully protect
the directors and executive officers and that the absence of Indemnity
Agreements may threaten the quality and stability of the governance of the
Company by reducing the Company's ability to attract and retain qualified
persons to serve as directors and executive officers of the
II-1
<PAGE>
Company, and by deterring such persons in the making of entrepreneurial
decisions for fear of later legal challenge. In addition, the Board of
Directors believes that the Indemnity Agreements complement the
indemnification rights and liability protections currently provided directors
and executive officers of the Company under the Amended and Restated Bylaws.
These rights and protections were designed to enhance the Company's ability to
attract and retain highly qualified individuals to serve as directors and
executive officers in view of the high incidence of litigation, often
involving large amounts, against publicly-held companies and the need to
provide such persons with reliable knowledge of the legal risks to which they
are exposed. The Indemnity Agreements complement these rights and protections
by providing directors and executive officers with contractual rights to
indemnification, regardless of any amendment to or repeal of the
indemnification provisions in the Bylaws. The Company's Amended and Restated
Bylaws provide that the Company shall indemnify to the fullest extent
authorized or permitted by law directors and officers of the Company who have
been made or threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by reason of the fact that he or she is
or was a director or officer of the Company.
The Indemnity Agreements are predicated upon Section 145(f) which recognizes
the validity of additional indemnity rights granted by contractual agreement.
The Indemnity Agreements alter or clarify statutory indemnity provisions, in a
manner consistent with the Company's Amended and Restated Bylaws, in the
following respects; (i) indemnification is mandatory, rather than optional, to
the full extent permitted by law, including partial indemnification under
appropriate circumstances, except that the Company is not obligated to
indemnify an indemnitee with respect to a proceeding initiated by the
indemnitee (unless the Board should conclude otherwise), payments made by an
indemnitee in a settlement effected without the Company's written consent,
payments that are found to violate the law, conduct found to constitute bad
faith or active and deliberate dishonesty or short-swing profit liability
under Section 16(b) of the Exchange Act or to the extent that indemnification
has been determined to be unlawful in an arbitration proceeding conducted
pursuant to the provisions of the Indemnity Agreement; (ii) prompt payment of
litigation expenses in advance is mandatory, rather than optional, provided
the indemnitee undertakes to repay such amounts if it is ultimately determined
that the indemnitee is not entitled to be indemnified and provided the
indemnitee did not initiate the proceeding; (iii) any dispute arising under
the Indemnity Agreement is to be resolved through an arbitration proceeding,
which will be paid for by the Company unless the arbitrator finds that the
indemnitee's claims or defenses were frivolous or in bad faith, unless such
arbitration is inconsistent with an undertaking given by the Company, such as
to the Securities and Exchange Commission, that the Company will submit to a
court the question of indemnification for liabilities under the Securities Act
of 1933, as amended, and be governed by the final adjudication of such issue;
and (iv) mandatory indemnification shall be paid within 45 days of the
Company's receipt of a request for indemnification unless a determination is
made that the indemnitee has not met the relevant standards for
indemnification by the Board of Directors, or if a quorum of the directors is
not obtainable, at the election of the Company, either by independent legal
counsel or a panel of arbitrators.
The Company maintains a directors' and officers' liability insurance policy
covering certain liabilities which may be incurred by directors and officers
in connection with the performance of their duties. The entire premium for
such insurance is paid by the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In February 1997, Jonathan J. Ledecky, the Company's Chairman and Chief
Executive Officer, founded the Company's predecessor, Ledecky Brothers L.L.C.
On September 19, 1997, Jonathan Ledecky exchanged his 100% interest in Ledecky
Brothers L.L.C. for 4,411,765 shares of the Company's Common Stock, or 100% of
the outstanding shares. The issuances of securities by Ledecky Brothers L.L.C.
and the Company to Jonathan Ledecky were made in reliance upon the exemption
from registration under the Securities Act of 1933, as amended, in Section
4(2).
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are or will be filed as part of this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.
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.
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.
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.
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.
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.
2.07 Agreement and Plan of Reorganization, dated February 27, 1998, by and
among the Company, CCC8 Acquisition Co., Wilson Electric, Inc. and the
stockholders named therein.
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).
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).
5.01* Opinion of Morgan, Lewis & Bockius LLP as to the legality of the
securities being registered.
10.01* Consolidation Capital Corporation 1997 Long-Term Incentive Plan.
10.02 Consolidation Capital Corporation 1997 Non-Employee Directors' Stock
Plan (Exhibit 10.02 of the Company's Registration Statement on Form S-
1 (File No. 333-36193) is hereby incorporated by reference).
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>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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).
23.01* Consents of Price Waterhouse LLP.
23.02* Consents of Grant Thorton LLP.
23.03* Consent of Baird, Kurtz & Dobson.
23.04* Consent of KPMG Peat Marwick LLP.
23.05* Consent of Barry & Moore P.C.
24.01 Power of Attorney (included on signature page of this registration
statement).
27.01* Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
(b) Financial statement schedules have been omitted because they are
inapplicable, are not required under applicable provisions of Regulation S-X,
or the information that would otherwise be included in such schedules is
contained in the registrant's financial statements or accompanying notes.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) To file, during any period in which any offers or sales are being
made, a post-effective amendment to the registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
II-4
<PAGE>
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any other material change to such information in the registration
statement.
(2) That for the purpose of determining any liability under the Act each
such post-effective amendment may be deemed to be a new registration
statement relating to the securities being offered therein and the offering
of such securities at the time may be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities which are being registered which remain unsold at the
termination of the offering.
(4) To supply by means of a post-effective amendment, Rule 424(c)
supplement or information incorporated by reference, all information
concerning a material transaction, and the company being acquired involved
there, that was not the subject of and included in the registration
statement when it became effective.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(6) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (5) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT ON TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WASHINGTON,
DISTRICT OF COLUMBIA, ON MARCH 5, 1998.
Consolidation Capital Corporation
By: /s/ Jonathan J. Ledecky
---------------------------------
JONATHAN J. LEDECKY
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chairman and Chief March 5, 1998
* Executive Officer
- ------------------------------------- (Principal Executive
JONATHAN J. LEDECKY Officer)
* Executive Vice March 5, 1998
- ------------------------------------- President, Chief
TIMOTHY C. CLAYTON Financial Officer and
Treasurer (Principal
Financial and
Accounting Officer
* Executive Vice March 5, 1998
- ------------------------------------- President, Chief
DAVID LEDECKY Administrative
Officer and Director
* Director March 5, 1998
- -------------------------------------
VINCENT E. EADES
* Director March 5, 1998
- -------------------------------------
W. RUSSELL RAMSEY
* Director March 5, 1998
- -------------------------------------
M. JUDE REYES
</TABLE>
*By: /s/ Jonathan J. Ledecky
---------------------------
JONATHAN J. LEDECKY, ATTORNEY IN
FACT, PURSUANT TO POWERS OF
ATTORNEY PREVIOUSLY FILED AS PART
OF THIS REGISTRATION STATEMENT
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.
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.
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.
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.
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.
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.
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.
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).
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).
5.01* Opinion of Morgan, Lewis & Bockius LLP as to the legality of the
securities being registered.
10.01* Consolidation Capital Corporation 1997 Long-Term Incentive Plan.
10.02 Consolidation Capital Corporation 1997 Non-Employee Directors' Stock
Plan (Exhibit 10.02 of the Company's Registration Statement on Form S-
1 (File No.333-36193) is hereby incorporated by reference).
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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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).
23.01* Consents of Price Waterhouse LLP.
23.02* Consents of Grant Thornton LLP.
23.03* Consent of Baird, Kurtz & Dobson.
23.04* Consent of KPMG Peat Marwick LLP.
23.05* Consent of Barry & Moore P.C.
24.01 Power of Attorney (included on signature page of this registration
statement).
27.01* Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
2
<PAGE>
EXHIBIT 2.01
________________________________________________________________________________
________________________________________________________________________________
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CONSOLIDATION CAPITAL CORPORATION,
CCC2 ACQUISITION CO.,
SKC ELECTRIC, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
MADE EFFECTIVE AS OF FEBRUARY 27, 1998.
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. THE MERGER.......................................................... 2
1.1 The Merger..................................................... 2
1.2 Certificate of Incorporation; Bylaws, Directors and Officers... 2
1.3 Effects of the Merger.......................................... 2
2. CONVERSION AND EXCHANGE OF STOCK.................................... 3
2.1 Manner of Conversion........................................... 3
2.2 Base Merger Consideration...................................... 4
2.3 Contingent Merger Consideration................................ 5
2.4 Exchange of Certificates and Payment of Cash................... 8
3. POST CLOSING ADJUSTMENT; PLEDGED ASSETS............................. 9
3.1 Post-Closing Adjustment........................................ 9
3.2 Pledged Assets................................................. 11
4. CLOSING............................................................. 12
4.1 Location and Date.............................................. 12
4.2 Effect......................................................... 12
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.. 12
5.1 Due Organization.............................................. 13
5.2 Authorization; Validity....................................... 13
5.3 No Conflicts.................................................. 13
5.4 Capital Stock of the Company.................................. 14
5.5 Transactions in Capital Stock................................. 14
5.6 Subsidiaries, Stock, and Notes................................ 14
5.7 Predecessor Status............................................ 14
5.8 Absence of Claims Against the Company......................... 15
5.9 Company Financial Condition................................... 15
5.10 Financial Statements.......................................... 15
5.11 Liabilities and Obligations................................... 15
5.12 Accounts and Notes Receivable................................. 16
5.13 Books and Records............................................. 16
5.14 Permits....................................................... 16
5.15 Real Property................................................. 16
5.16 Personal Property............................................. 17
5.17 Intellectual Property......................................... 18
5.18 Material Contracts and Commitments............................ 19
5.19 Government Contracts.......................................... 20
5.20 Insurance..................................................... 20
5.21 Labor and Employment Matters.................................. 21
5.22 Employee Benefit Plans........................................ 21
5.23 Conformity with Law; Litigation............................... 23
5.24 Taxes......................................................... 24
5.25 Absence of Changes............................................ 25
5.26 Deposit Accounts; Powers of Attorney.......................... 27
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5.27 Environmental Matters......................................... 27
5.28 Relations with Governments.................................... 28
5.29 Disclosure.................................................... 28
5.30 CCC Prospectus; Securities Representations.................... 28
5.31 Affiliates.................................................... 29
5.32 Location of Chief Executive Offices........................... 29
5.33 Location of Equipment and Inventory........................... 29
6. REPRESENTATIONS OF CCC AND NEWCO 29
6.1 Due Organization.............................................. 29
6.2 CCC Common Stock.............................................. 30
6.3 Authorization; Validity of Obligations........................ 30
6.4 No Conflicts.................................................. 30
6.5 Capitalization of CCC and Ownership of CCC Stock.............. 31
6.6 Conformity with Law; Litigation............................... 31
6.7 Disclosure.................................................... 31
6.8 CCC Prospectus................................................ 31
6.9 Registration Statement........................................ 32
6.10 Investment Intent............................................. 32
7. COVENANTS........................................................... 32
7.1 Tax Matters................................................... 32
7.2 Accounts Receivable........................................... 33
7.3 Title Insurance and Surveys................................... 33
7.4 Related Party Agreements...................................... 34
7.5 Cooperation................................................... 34
7.6 Conduct of Business Pending Closing........................... 35
7.7 Access to Information......................................... 36
7.8 Prohibited Activities......................................... 36
7.9 Notice to Bargaining Agents................................... 37
7.10 Sales of CCC Common Stock..................................... 37
7.11 CCC Stock Options............................................. 39
7.12 Tax Covenant.................................................. 40
7.13 CCC Board Seat................................................ 40
7.14 D&O Insurance and Indemnification of Directors and Officers... 40
7.15 Tax Free Reorganization Protection............................ 40
7.16 Consulting Payment............................................ 40
7.17 Government Contracts.......................................... 40
7.18 CCC Stock..................................................... 41
7.19 Employee Benefits Matters..................................... 41
7.20 Supplemental Financial Certificate............................ 41
7.21 Holding Company............................................... 42
7.22 Profit Sharing Plan Conversion Costs.......................... 42
7.23 Indemnification of Stockholder's Purchaser Representative..... 42
7.24 Guaranteed Debt............................................... 43
7.25 Club Membership............................................... 43
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CCC AND NEWCO............ 43
8.1 Representations and Warranties; Performance of Obligations.... 43
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
8.2 No Litigation................................................. 44
8.3 No Material Adverse Change.................................... 44
8.4 Consents and Approvals........................................ 44
8.5 Opinion of Counsel............................................ 44
8.6 Charter Documents............................................. 44
8.7 Quarterly Financial Statements................................ 44
8.8 Delivery of Closing Financial Certificate..................... 44
8.9 FIRPTA Compliance............................................. 45
8.10 Employment Agreements......................................... 45
8.11 Affiliate Agreements.......................................... 45
8.12 Stockholders' Release......................................... 45
8.13 Related Party Receivables and Agreements...................... 45
8.14 Consummation of Group Merger Transaction...................... 45
8.15 Employee Plan Fiduciary Condition............................. 45
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS........................................................ 45
9.1 Representations and Warranties; Performance of Obligations.... 45
9.2 No Litigation................................................. 46
9.3 Consents and Approvals........................................ 46
9.4 Employment Agreements......................................... 46
9.5 Tax Certificate Delivery...................................... 46
9.6 Satisfaction With Stockholder Release and Affiliate Agreements 46
9.7 Tax Opinion................................................... 46
9.8 Consummation of Group Merger Transaction...................... 46
9.9 Employee Plan Fiduciary Condition............................. 46
9.10 Board Expansion............................................... 46
9.11 Registration Statement........................................ 47
9.12 No Material Adverse Change.................................... 47
9.13 Officer and Directors of Surviving Corporation................ 47
10. INDEMNIFICATION..................................................... 47
10.1 General Indemnification by the Stockholders................... 47
10.2 General Indemnification by CCC and Newco...................... 48
10.3 Limitation and Expiration..................................... 48
10.4 Indemnification Procedures.................................... 50
10.5 Survival of Representations Warranties........................ 51
10.6 Right to Set Off.............................................. 51
11. NONCOMPETITION...................................................... 51
11.1 Prohibited Activities......................................... 51
11.2 Damages....................................................... 52
11.3 Reasonable Restraint.......................................... 52
11.4 Severability; Reformation..................................... 53
11.5 Independent Covenant.......................................... 53
11.6 Materiality................................................... 53
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION........................... 53
12.1 Confidentiality............................................... 53
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
12.2 Damages....................................................... 54
13. GENERAL............................................................. 54
13.1 Termination.................................................. 54
13.2 Effect of Termination........................................ 55
13.3 Successors and Assigns....................................... 55
13.4 Entire Agreement; Amendment; Waiver.......................... 55
13.5 Counterparts................................................. 56
13.6 Brokers and Agents........................................... 56
13.7 Expenses..................................................... 56
13.8 Specific Performance; Remedies............................... 56
13.9 Notices...................................................... 56
13.10 Governing Law................................................ 58
13.11 Severability................................................. 58
13.12 Absence of Third Party Beneficiary Rights.................... 58
13.13 Further Representations...................................... 58
13.14 Group Representative and Stockholder Representative.......... 58
13.15 Unanimous Written Consent of Stockholders.................... 59
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
---------
entered into this 27th day of February, 1998, by and among Consolidation Capital
Corporation, a Delaware corporation ("CCC"), CCC2 Acquisition Co., a Kansas
---
corporation and a newly-formed, wholly-owned subsidiary of CCC ("Newco"), and
-----
SKC Electric, Inc., a Kansas corporation (the "Company"), and William P. Love,
-------
Jr., Diane L. Love and SKC Electric, Inc. Profit Sharing Plan (each a
"Stockholder" and collectively, the "Stockholders").
----------- -----------
BACKGROUND
WHEREAS, the Stockholders 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 stockholders that the Company merge with and into Newco (the
"Merger") pursuant to this Agreement, the Plan of Merger (defined below) and the
------
applicable provisions of the laws of the State of Kansas;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, CCC is entering into an Agreement and Plan of Reorganization
substantially similar to this Agreement with each of Garfield Electric Company,
an Ohio corporation ("Company 1"), Indecon, Inc., an Ohio corporation ("Company
--------- -------
2"), Riviera Electric Construction Co., a Colorado corporation ("Company 3"),
- - ---------
Town & Country Electric Inc., a Wisconsin corporation ("Company 4"), Tri-City
---------
Electrical Contractors, Inc., a Florida corporation ("Company 5") and Wilson
---------
Electric Co., Inc., an Arizona corporation ("Company 6"); and together with
---------
Company 1, Company 2, Company 3, Company 4 and Company 5 shall be known
collectively as the "Other Group Companies") (the Other Group Companies,
---------------------
together with the Company, shall be known hereafter collectively as the "Group
-----
Companies" and each shall be known individually as a "Group Company"; and this
- --------- -------------
Agreement together with the other agreements referenced in this clause
applicable to the Other Group Companies shall be known hereafter collectively as
the "Group Company Agreements");
------------------------
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"); and
----
WHEREAS, in order to induce CCC to enter into this Agreement and the other
agreements comprising the Group Company Agreements, the Company and the
Stockholders desire to execute and deliver this Agreement, the effect of which,
taken together with the transactions contemplated by the remaining Group Company
Agreements (such transactions, including the transaction contemplated by this
Agreement, being known hereafter collectively as the "Group Merger
------------
Transaction"), will have a direct and beneficial impact on the Company and the
Stockholders.
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:
<PAGE>
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 a
Plan of Merger (the "Plan 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 new corporations into which
---------------------
each of the Other Group Companies will merge in the Group Merger Transaction are
referred to collectively, together with the Surviving Corporation, as the
Surviving Group Companies. The Surviving Corporation's name will be changed to
that of the Company immediately after the Effective Time.
1.2 CERTIFICATE 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 Kansas
(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 By-Laws of
the Surviving Corporation unless and until thereafter amended as provided
therein and under the State Corporate Laws; provided, that the provisions
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 Corporation 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 Kansas General Corporation Law. 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
<PAGE>
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
Stockholders, 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, 3.1 and 3.2, 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 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 (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
----------------
defined 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 (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(b)), 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 and 2.3 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 (as defined
in Sections 2.2(a) and 2.3(b) respectively), 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 Stockholder shall be aggregated, so that no
Stockholder shall receive cash in an amount greater than the value of one full
share of CCC Common Stock.
3
<PAGE>
2.2 BASE MERGER CONSIDERATION.
(a) For purposes of this Agreement, the "Base Merger Consideration"
-------------------------
shall be $19,950,000, as adjusted pursuant to this Section 2.2 and Section 3.1.
Of the Base Merger Consideration, $6,982,500 shall be paid in cash at Closing
(as defined in Section 4.1) in immediately available funds. The remaining
$12,967,500 of the Base Merger Consideration shall be paid at Closing in shares
of CCC Common Stock valued at a price per share (the "Merger Price") equal to
------------
the sum of (i) the closing price of CCC Common Stock on January 29, 1998, plus
(ii) the closing price of CCC Common Stock on the last trading day prior to the
Closing Date, 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 (subject
to adjustment as provided in this Section 2.2 and Section 3.1) shall be
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
--------
approved for quotation on the Nasdaq National Market.
(b) The calculation of the Base Merger Consideration takes into
account (i) the Net Worth (as defined below) of the Company as of February 28,
1998, calculated in accordance with generally accepted accounting principles
("GAAP") consistently applied, but in any event excluding any increases in
- ------
intangible assets of the Company since the end of the Company's most recently
ended fiscal year and until February 28, 1998 (as certified pursuant to Section
8.8, the "Company's Closing Net Worth"), and (ii) the Earnings before Interest
---------------------------
and Taxes (as defined below) of the Company, computed in accordance with GAAP
consistently applied throughout the period involved but adjusted to reflect the
nonrecurring items that are specified on SCHEDULE 2.2(B) hereto, for the twelve
month period ended at the close of the Company's most recently ended fiscal year
(as certified pursuant to Section 8.8, the "Company's 1997 Adjusted EBIT"). The
----------------------------
calculation of the Base Merger Consideration assumes that (A) the total (the
"Group Closing Net Worth") of the Company's Closing Net Worth and the net worth
- ------------------------
of each of the Other Group Companies as of February 28, 1998 (calculated and
certified in the manner specified in each of the Group Company Agreements) is
equal to or greater than $31,000,000 (the "Group Net Worth Target") and (B) the
----------------------
total (the "Group 1997 Adjusted EBIT") of the Company's 1997 Adjusted EBIT and
------------------------
the Earnings before Interest and Taxes of each of the Other Group Companies for
the twelve month period ended at the close of each Group Company's most recently
ended fiscal year (calculated and certified in the manner specified in each of
the Group Company Agreements) shall have been equal to or greater than
$19,734,000 (the "Group 1997 Adjusted EBIT Target"). For the purposes of this
-------------------------------
Section 2.2, "Net Worth" is equal to total assets less total liabilities,
---------
"Earnings before Interest and Taxes" is equal to net income (A) plus interest
- -----------------------------------
expense, income taxes, extraordinary items, cumulative effect of accounting
changes and discontinued operations and (B) less interest income, and "Group
-----
Closing Net Worth" shall be adjusted by the net amount of the following items
- -----------------
related to the ESOP for SKC Electric, Inc., which are reflected on the balance
sheet for SKC Electric, Inc.: (A) "ESOP common stock purchase obligation", (B)
ESOP-related Debt (current and long-term), and (C) "Unearned ESOP common stock".
(c) If the Group Closing Net Worth is lower than the Group Net Worth
Target, then the Merger Consideration (as defined in Section 2.4(a)) to be
delivered to the Stockholders may, at CCC's election, be reduced either (i) at
the Closing, by the product of (A) the difference between the Group Net Worth
Target and the Group Closing Net Worth times (B) 14% (which reduction shall be
pro rata in cash and in CCC Common Stock valued at the Merger Price in the same
proportions as the cash and CCC
4
<PAGE>
Common Stock components of the Base Merger Consideration as provided in Section
2.2(a)) or (ii) after completion of the Post-Closing Audit (as defined in
Section 3.1(b)), in accordance with Section 3.1(b).
(d) If the Group 1997 Adjusted EBIT is less than the Group 1997
Adjusted EBIT Target, then the Merger Consideration to be delivered to the
Stockholders may, at CCC's election, be reduced either (i) at the Closing, by
an amount equal to seven multiplied by the product of (A) the difference between
the Group 1997 Adjusted EBIT Target and the Group 1997 Adjusted EBIT times (B)
14% (which reduction shall be pro rata in cash and in CCC Common Stock valued at
the Merger Price in the same proportions as the cash and CCC Common Stock
components of the Base Merger Consideration as provided in Section 2.2(a)) or
(ii) after completion of the Post-Closing Audit (as defined in Section 3.1(b)),
in accordance with Section 3.1(b). If the Group 1997 Adjusted EBIT is higher
than the Group 1997 Adjusted EBIT Target, then the Merger Consideration to be
delivered to the Stockholders at Closing shall be increased at the Closing by an
amount equal to seven multiplied by the product of (A) the difference between
the Group 1997 Adjusted EBIT and the Group 1997 Adjusted EBIT Target up to a
maximum of $1 million times (B) 14%. The amount by which the Group 1997
Adjusted EBIT exceeds the Group 1997 Adjusted EBIT Target, up to a maximum of $1
million, is hereafter referred to as the "EBIT Increase."
-------------
(e) 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.
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 an amount up to $5,700,000.
(i) $5,700,00 (the "Maximum Earn Out Amount") will be paid,
-----------------------
subject to the provisions of subsection (ii) and (iii) below, if the Earnings
before Interest and Taxes of the Surviving Group Companies (as defined below),
for the one year period after February 28, 1998 (the "Group Actual Earn Out
---------------------
EBIT") is at least equal to the sum of $25,020,000 and the amount, if any, of
- ----
the EBIT Increase (the "Maximum Earn Out Threshold"). Price Waterhouse LLP,
--------------------------
CCC's independent accountant ("CCC's Accountant"), will determine the Group
----------------
Actual Earn Out EBIT and deliver prompt notice of such amount to the
Stockholders (the "Earn Out EBIT Notice") with supporting documentation. The
--------------------
Stockholders (through the Group 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 Group 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. For purposes of this Section 2.3, "Earnings before Interest and Taxes of
-------------------------------------
the Surviving Group Companies" is equal to net income computed in accordance
- -----------------------------
with GAAP consistently applied of the Group Companies reflected on the books and
records of the Surviving Group Companies and the Holding Company (as defined in
Section 7.21 below), which net income (A) shall not reflect (1) the amortization
of goodwill and other intangibles recognized by CCC in connection with the
acquisition of the Group Companies or any future acquisitions, (2) expenses
(including corporate overhead) of CCC other than those expenses incurred for the
benefit of the Surviving Group Companies that do not duplicate expenses incurred
by the Surviving Group Companies nor exceed the amounts of similar expenses
incurred in the most recently ended fiscal year by the Group Companies prior
5
<PAGE>
to the Closing, or (3) the tax that arises under Section 4978 of the Code, (B)
shall reflect (1) depreciation and amortization of assets of the Surviving Group
Companies except to the extent such amounts result from an increase in the book
value of the assets resulting from the Group Merger Transaction and (2) the
expenses under the employment agreement of William P. Love, Jr. with the Holding
Company and other expenses reasonably necessary for the operation of the Holding
Company in connection with its actions as parent of the Surviving Group
Companies and (C) shall be adjusted by (1) adding the amounts of any interest
expense, income taxes, extraordinary items, cumulative effect of accounting
changes and discontinued operations of the Surviving Group Companies and (2)
subtracting the amount of any interest income of the Surviving Group Companies.
CCC's Accountant will calculate the Contingent Merger Consideration for each
Surviving Group Company and the Group Actual Earn Out EBIT applying the same
accounting principles applied by such Group Company (on a company by company
basis), with all such computations made (and definitions used) in the same way
the computations were made (and definitions were used) by such Group Company
prior to the Closing and will conform to the methods of accounting utilized
consistently during the calendar years 1996, 1997 and 1998 for each such Group
Company, provided in each case that such computations were in accordance with
GAAP. If, after the Closing, CCC's Accountant makes conforming adjustments to
unify the accounting principles utilized by each of the Group Companies, such
adjustments shall have no effect on the calculations made by CCC's Accountant
for purposes of this Section 2.3. CCC will provide the Surviving Corporation
with a schedule on a quarterly basis detailing expenses incurred for the benefit
of the Surviving Group Companies, such schedule to be prepared on a comparative
basis to expenses incurred in the prior year by the Group Companies for the same
items.
(ii) If the Group Actual Earn Out EBIT is equal to or less than
the sum of $22,043,000 and the amount, if any, of the EBIT Increase (the "Earn
----
Out Threshold"), then no Contingent Merger Consideration will be paid to the
- -------------
Stockholders.
(iii) If the Group Actual Earn Out EBIT is greater than the Earn
Out Threshold but less than the Maximum Earn Out Threshold (the difference
between the Maximum Earn Out Threshold and the Earn Out Threshold being
hereinafter referred to as the "Earn Out Range"), then the Contingent Merger
--------------
Consideration will equal the product determined by multiplying (A) the Specified
Percentage (as defined below) by (B) the Maximum Earn Out Amount. For purposes
of this Agreement, the "Specified Percentage" shall mean a fraction, the
--------------------
numerator of which is the amount by which the Group Actual Earn Out EBIT exceeds
the Earn Out Threshold and the denominator of which is the Earn Out Range.
(b) The stockholders of the Group Companies (through the Group
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 Group Actual Earn
Out EBIT. If CCC has not received notice of any such dispute within such 30-day
period, the Group Actual Earn Out EBIT contained in the Earn Out EBIT Notice
shall be final. If, however, the stockholders (through the Group
Representative) have delivered notice of such a dispute to CCC within such 30-
day period, then CCC shall, pursuant to Section 2.3(c) 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 (or four largest firms if the
mergers of accounting firms proposed as of the date of this Agreement have been
completed) (each, a "New Accounting Firm") to review the amount of the Group
-------------------
Actual Earn Out EBIT, the books of the Surviving Group Companies, including the
Surviving Corporation, and the Earn Out EBIT Notice (and related information) to
determine the amount, if any, that the Group Actual Earn Out EBIT is in error.
Such New Accounting Firm shall be confirmed by the former stockholders of the
Group Companies through the Group 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 Group Earn Out EBIT
(the "Revised Earn Out EBIT") if any,
---------------------
6
<PAGE>
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 Contingent Merger Consideration
accordingly. If the Revised Earn Out EBIT is higher than the Group Actual Earn
Out EBIT, CCC shall pay to the Stockholders interest, at the Prime Rate (defined
below), on the deficiency from the date that is fifteen months after the Closing
Date. The costs of the New Accounting Firm shall be borne by CCC if the Revised
Earn Out EBIT is higher than the Group Actual Earn Out EBIT and by the former
stockholders of the Group Companies 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.
(c) The Contingent Merger Consideration described in SECTION 2.3 (A),
reduced as provided in Section 3.1(c) as appropriate, 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 Group Actual Earn Out EBIT by CCC's Accountant, which shall be made in a
timely fashion following expiration of the one (1) year period after the
Closing, but in no event shall such payment be made later than the date that is
fifteen months after the Closing Date unless the Stockholders dispute the Group
Actual Earn Out EBIT in accordance with Section 2.3(b) hereof. 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 Price. 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 the
one year period after the Closing Date (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 Stockholders 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 Stockholders as set forth in written instructions
delivered by the Stockholders to CCC at least five (5) business days prior to
the Closing Date and the Contingent Merger Consideration Date, 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.
(d) If, on or prior to a Contingent Merger Consideration Payment
Date, 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 Contingent Merger
Consideration will be appropriately adjusted to reflect such split, combination,
dividend or other distribution or change.
(e) If, at any time on or before the first anniversary of the Closing
Date, William P. Love, Jr.'s employment agreement with the Holding Company or
Lawrence J. Malach's employment agreement with the Surviving Corporation is
terminated by the Holding Company or the Surviving Corporation, respectively (or
either of such company's successor), in such company's capacity as employer,
without cause (as defined in William P. Love, Jr.'s employment agreement with
the Holding Company or Lawrence J. Malach's employment agreement with the
Surviving Corporation), CCC immediately thereupon shall pay to the Stockholders
an amount equal to the Maximum Earn Out Amount. CCC acknowledges that such a
payment would constitute liquidated damages and not a penalty.
7
<PAGE>
(f) Except for actions taken by CCC or Newco at the direction of
Lawrence J. Malach, in his capacity as President of the Surviving Corporation,
or one of the presidents of the other Surviving Group Companies, in his capacity
as president of such Surviving Group Company during the one year period after
the Closing (the "Earn Out Period"), CCC and Newco (i) will operate the
---------------
businesses of the Surviving Group Companies diligently and in the ordinary
course and (ii) will not take any actions that would materially change the
operations of the businesses of the Surviving Group Companies, including any
action that would prevent any of the Surviving Group Companies (A) from
conducting its business in the ordinary course or (B) from taking any action
necessary to preserve the businesses of the Surviving Group Companies, to keep
available to the Surviving Group Companies its employees (with the same salary
and bonus structure), or to preserve the Surviving Group Companies'
relationships with customers, suppliers and others having business relations
with it.
(g) In the event CCC, Newco or any of their subsidiaries takes any
action or omits to take any action which has a direct, quantifiable, negative
impact on the Earnings before Interest and Taxes of the Surviving Group
Companies or the businesses of the Group Companies as currently being conducted;
then, in any such event, the parties, in good faith, shall make reasonable
adjustments in the calculation of the Group Actual Earn Out EBIT as may be
necessary to neutralize the impact of any such action or omission.
(h) CCC and Newco agree that separate books and records will be kept
for each of the Group Companies during the Earn Out Period.
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 Stockholders the Base Merger Consideration (including cash in
an amount sufficient for payment in lieu of fractional shares pursuant to
Section 2.1(d)), as adjusted pursuant to Section 2.2, with all cash payments to
be made by federal wire transfer of immediately available funds pursuant to wire
transfer instructions provided by the Stockholders 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 8.11),
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
---------------------------------
Stockholders 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 Stockholder and with all necessary
transfer tax and other revenue stamps, acquired at the Stockholder's expense,
affixed and canceled. Each Stockholder 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
8
<PAGE>
3.2(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 Stockholders 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. 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. POST CLOSING ADJUSTMENT; PLEDGED ASSETS
3.1 POST-CLOSING ADJUSTMENT.
(a) The Base Merger Consideration shall be subject to adjustment as
specified in this Section 3.1.
(b) Within ninety (90) days following the Effective Time, CCC shall
cause CCC's Accountant to audit (the "Post-Closing Audit") the books of the
------------------
Company to determine the accuracy of the information relating to the Company's
Closing Net Worth and the Company's 1997 Adjusted EBIT as set forth on the
Financial Certificates (as defined in Section 7.20) and on the financial
certificates of the Other Group Companies. In determining the accuracy of such
information reflected on the Financial Certificates in the course of the Post-
Closing Audit, CCC's Accountant shall apply the same accounting methodology used
by the Company or the Stockholders, as applicable, in preparing such
information; provided that CCC's Accountant shall not be obligated to apply such
methodology to the extent inconsistent with GAAP (as modified by Section 2.2(b)
above). The Stockholders shall cooperate with CCC and CCC's Accountant after the
Closing Date in furnishing information, documents, evidence and other assistance
to CCC's Accountant to facilitate the completion of the Post-Closing Audit
within the aforementioned time period. Without limiting the generality of the
foregoing, within two weeks after the Closing, the Stockholders shall provide
CCC's Accountant with the information and/or documents reasonably requested by
them. CCC's Accountant will test the Company's Closing Net Worth, the Group
Closing Net Worth, the Company's 1997 Adjusted EBIT and the Group 1997 Adjusted
EBIT based upon the Post-Closing Audit and the post-closing audits of the Other
Group Companies. In the event that CCC's Accountant determines (i) a different
amount than the Group Closing Net Worth (the "Actual Closing Net Worth") or (ii)
------------------
a different amount than the Group 1997 Adjusted EBIT (the "Actual 1997 Adjusted
--------------------
EBIT" ), CCC shall promptly deliver a written notice with
- ----
9
<PAGE>
supporting documentation (the "Financial Adjustment Notice") to the stockholders
---------------------------
of the Group Companies, including the Stockholders, setting forth (A) the
determination made by CCC's Accountant of the Actual Closing Net Worth and the
Actual 1997 Adjusted EBIT, (B) the amount of the cash portion of the Base Merger
Consideration that would have been payable at Closing pursuant to Section 2.2(c)
had the Actual Closing Net Worth and the Actual 1997 Adjusted EBIT been used
instead of the Group Closing Net Worth and the Group 1997 Adjusted EBIT to
determine the need for any adjustments to the Base Merger Consideration
pursuant to Sections 2.2(c) and 2.2(d), respectively, and (C) the number of
shares issued as part of the Base Merger Consideration that would have been
issuable at Closing had the Actual Closing Net Worth and the Actual Adjusted
EBIT been used to determine the need for any adjustments to the Base Merger
Consideration as set forth in (B) above. The differences between the respective
amounts set forth in (B) and (C) and the amounts of the cash and the CCC Common
Stock components of the Base Merger Consideration paid pursuant to Section 2.2
(a), as adjusted pursuant to Sections 2.2(c) or 2.2(d), is referred to hereafter
as the "Merger Consideration Adjustment." Any increase in the Base Merger
-------------------------------
Consideration resulting from such Merger Consideration Adjustment shall be owed
by CCC to the Stockholders. Any decrease in such Base Merger Consideration
resulting from such Merger Consideration Adjustment shall be owed by the
Stockholders to CCC. If, on or prior to the payment of the Merger Consideration
Adjustment, 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 part of the Merger
Consideration Adjustment will be appropriately adjusted to reflect such split,
combination, dividend or other distribution or change. The shares of CCC Common
Stock, if any, to be issued in respect of the Merger Consideration Adjustment
shall be registered under the 1933 Act and approved for quotation on the Nasdaq
National Market.
(c) The stockholders of the Group Companies, including the
Stockholders, through the Group Representative, shall have thirty (30) days from
the receipt of the Financial Adjustment Notice to notify CCC if they dispute
such Financial Adjustment Notice. If CCC has not received notice of any such
dispute within such 30-day period, (i) CCC shall be entitled to receive promptly
pro rata from the Stockholders (which may, at CCC's sole discretion, be from the
Pledged Assets as defined in, and subject to the provisions of, Section 3.2
and/or the Contingent Merger Consideration) any Merger Consideration Adjustment
owed to CCC and (ii) the Stockholders shall be entitled to receive promptly from
CCC any Merger Consideration Adjustment owed to the Stockholders. If, however,
the Stockholders (through the Group Representative) have delivered notice of
such a dispute to CCC within such 30-day period, then CCC's Accountant shall
select a New Accounting Firm to review the books of the Group Companies
including, the Surviving Corporation, the Financial Certificates and the
Financial Adjustment Notice (and related information) to determine the amount,
if any, of the revised Merger Consideration Adjustment (the "Actual Merger
-------------
Consideration Adjustment"). Such New Accounting Firm shall be confirmed by the
- ------------------------
Stockholders through the Group 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 Merger Consideration
Adjustment, if any, within thirty (30) days of its selection. The determination
made by the New Accounting Firm shall be final and binding on the parties
hereto, and, upon such determination, CCC shall be entitled to receive pro rata
from the Stockholders (which may, at CCC's sole discretion, be from the Pledged
Assets as defined in, and subject to the provisions of, Section 3.2 and/or the
Contingent Merger Consideration) the Actual Merger Consideration Adjustment or
the Stockholders shall be entitled to receive from CCC the Actual Merger
Consideration Adjustment, as applicable. The costs of the New Accounting Firm
shall be borne by the party (either CCC or the stockholders of the Group
Companies, including the Stockholders) whose amounts, on the Financial
Adjustment Notice or its Financial Certificates, as applicable (the "Proposed
--------
Numbers"), were further from the determination of the New Accounting Firm of
- -------
what the
10
<PAGE>
amounts should have been (the "Revised Numbers"), or equally by CCC and the
---------------
stockholders of the Group Companies, including the Stockholders, in the event
that the Revised Numbers are equidistant between the original amounts.
3.2 PLEDGED ASSETS.
(a) As collateral security for the payment of any Merger
Consideration Adjustment or any indemnification obligations of the Stockholders
pursuant to (and subject to the limitations of) Article 10, the Stockholders
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 Stockholders, the "Pledged Assets"):
--------------
(i) at the option of the Stockholders, such Stockholders' pro
rata portion of cash and/or shares of CCC Common Stock with a value, based on
the Merger Price, equal to ten percent (10%) of the Base Merger Consideration
subject to adjustment pursuant to Section 2.2 or Section 3.1 hereof, and the
certificates and instruments, if any, representing or evidencing such
Stockholder's Pledged Assets;
(ii) all securities hereafter delivered to any Stockholder with
respect to or in substitution for the Stockholder'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 Stockholder receives any such property, such Stockholder
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 Stockholder's Pledged
Assets issued in his or her name in the Merger shall be delivered to CCC
directly by the transfer agent, such certificate bearing 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
Stockholder shall, at the Closing, deliver to CCC, for each such certificate, a
stock power duly signed in blank by him. Any cash comprising a Stockholder's
Pledged Assets shall be withheld by CCC from distribution to the Stockholder and
placed by CCC into an interest bearing custodial account that is not commingled
with any assets of CCC or any of its subsidiaries. All shares of CCC Common
Stock comprising a Stockholder'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 Merger
Consideration Adjust ment and any indemnification obligations of each
Stockholder 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 Stockholders the Pledged Assets (including the interest earned on any
cash portion of the Pledged Assets of each Stockholder and including dividends
and distributions with respect to shares of CCC Common Stock subject to pledge),
less Pledged Assets having an aggregate value equal to the amount of (i), in the
discretion of CCC, the Actual Merger Consideration Adjustment under Section 3.1,
(ii) 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 (iii) any
indemnification obligations of any Stockholder 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
11
<PAGE>
be valued at (x) the Merger Price with respect to the Actual Merger
Consideration Adjustment under Section 3.1 and (y) the average of the closing
price on the Nasdaq National Market per share 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. Notwithstanding the foregoing or anything to the
contrary herein, the Stockholders shall be entitled to satisfy any claims
relating to the Pledged Assets, including but not limited to any indemnification
pursuant to Article 10 hereof or any Merger Consideration Adjustment, 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 3.2, the Stockholders shall have all the rights of stockholders 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.
(e) Notwithstanding the foregoing provisions of this Section 3.2, the
Pledged Assets of any Stockholder that is a Profit Sharing Plan (as defined in
Section 5.22(j)) shall be held by a third party agent and upon terms reasonably
acceptable to CCC and the fiduciaries of such Stockholder.
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 10, 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 Stockholders may mutually agree, which date shall be referred to
as the "Closing Date."
------------
4.2 EFFECT. On the Closing Date, the articles of merger, certificate 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").
--------------
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
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 Stockholders (other than
those Stockholders set forth on SCHEDULE 5 who shall not be deemed to be making
any representations or warranties under this Agreement except with respect to
themselves 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.
12
<PAGE>
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 Stockholder 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 Stockholders 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 Stockholders, enforceable against
the Company and the Stockholders 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;
(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 Stockholder is a party or by which the Company or any Stockholder
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 Stockholder or any of their respective
property is subject, or (ii) any judgment, order or decree to which the Company
or any Stockholder is bound or any of their respective property is subject;
(c) result in termination or any impairment of any material permit,
license, franchise, surety bond, insurance coverage, contractual right or other
authorization of the Company;
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(d) violate any material law, order, judgment, rule, regulation,
decree or ordinance to which the Company or any Stockholder is subject or by
which the Company or any Stockholder 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 100,000 shares of common stock, $.01 par value, of which
63,491 shares are issued and outstanding. No (0) shares of common stock 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 Stockholders 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
state ment 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.
(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 companies 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.
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<PAGE>
5.8 ABSENCE OF CLAIMS AGAINST THE COMPANY. Except as set forth in
SCHEDULE 5.8, no Stock holder 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 end of its most recently ended fiscal year (the "Year-End Net Worth") was
------------------
not less than $279,000.
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 (the "Interim Balance Sheet") as of January 31, 1998 and
---------------------
income statement, for the one-month period then ended (collectively, the
"Interim Financials," 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 previously 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 SCHEDULE 5.18(A) and those
liabilities under any contract, commitment or agreement specifically disclosed
on any Schedule to this Agreement.
(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.
15
<PAGE>
(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 Stockholders), 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
Stockholders. 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 ninety (90) 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-off, 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 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, including without limitation, fee estates,
leaseholds and subleaseholds, purchase options,
16
<PAGE>
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) Except as set forth on SCHEDULE 5.15(D): (i) the Company holds no
interest as landlord in any Real Property; (ii) the Company 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) the Company 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) the Company has no
knowledge of any default by the landlord under any lease relating to the leased
Real Property; (v) the Company has paid all rent under each lease relating to
the leased Real Property with respect to the period through the Closing Date;
and (vi) the Company has not exercised any termination or purchase option under
any lease relating to the leased Real Property nor has the Company exercised any
renewal or extension under any lease relating to the leased Real Property with
respect to any renewal or extension period that will commence after the date
hereof (other than renewals or extensions that have been disclosed to CCC).
(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 default thereunder
or provided notice of the exercise of any option granted to such party under
such lease.
(f) Except as provided on SCHEDULES 5.15(C) OR 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
17
<PAGE>
for material equipment and an indication as to which assets are currently owned,
or were formerly owned, by any Stockholder or business or personal affiliates of
any Stockholder 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.
(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
18
<PAGE>
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
stockholder of the Company are parties ("Related Party Agreements"); (ii) that
------------------------
may give rise to obligations or liabilities exceeding, during the current term
thereof, $50,000 individually, or that may generate revenues or income
exceeding, during the current term thereof, $50,000 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. Other than as disclosed on SCHEDULE
5.18(A), 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 Stockholders, is not subject to any
default thereunder by any party obligated to the Company pursuant thereto.
(c) The outstanding balance on all loans or credit agreements either
(i) between the Company and any Person in which any Stockholder owns a material
interest, or (ii) guaranteed by the Company for the benefit of any Person in
which any Stockholder 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.
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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 Stockholders, has any suspension or debarment action been
threatened or commenced. To the knowledge of the Company and the Stockholders,
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 Stockholders, 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.
(g) To the knowledge of the Company and the Stockholders, 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 workmen's compensation claims received for the past
two policy years. The Company has delivered to CCC or given CCC access to true,
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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;
(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
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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
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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 Stockholder; (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 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
22
<PAGE>
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
(i) the Company has not incurred liability under Section 4062 of
ERISA.
(j) The Company has converted any employee stock ownership Plan (the
"ESOP") maintained by the Company to a profit sharing plan which does not
- -----
provide for pass-through voting by its participants (the "Profit Sharing Plan").
-------------------
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
23
<PAGE>
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 October 1, 1995.
(vi) The Company currently utilizes the cost of completion
method of accounting for income Tax purposes and such method of accounting has
not changed in the past one year. 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.
24
<PAGE>
(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 Stockholders,
neither the Company nor any Stockholder 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) [Intentionally omitted]
(c) 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.
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;
25
<PAGE>
(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, Stockholders, 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 Stockholder 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 Stockholder 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;
(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;
26
<PAGE>
(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 Stockholders, 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.
5.27 ENVIRONMENTAL MATTERS.
(a) Hazardous Material. To the knowledge of the Company and its
------------------
Stockholders, 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
Stockholders, 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,
- --------------------
27
<PAGE>
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 Stockholders, 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.
5.28 RELATIONS WITH GOVERNMENTS. To the knowledge of the Company and the
Stockholders, 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
Stockholder becomes aware of any fact or circumstance which would change a
representation or warranty of any Stockholder in this Agreement or any
representation made on behalf of the Company, the Stockholders (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 Stockholders of their respective
obligations under this Agreement.
5.30 CCC PROSPECTUS; SECURITIES REPRESENTATIONS. Each Stockholder has
received and reviewed a copy of the prospectus dated January 21, 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
Stockholder, or, to the knowledge of such Stockholder, such Stockholder's
purchaser representative, (a) has such knowledge and experience in business and
financial matters and such knowledge
28
<PAGE>
concerning the business, operations and financial condition of the Other Group
Companies that such Stockholder 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 Stockholder, or such
Stockholders' 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 and the Other Group Companies
concerning the business, operations and financial condition of CCC and the Other
Group Companies, respectively. Except as required by applicable law, the
Stockholders 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 Stockholder in the Merger.
Each Stockholder acknowledges and agrees that CCC has not and will not provide
such Stockholder or any other party with a prospectus for the Stockholder's use
in selling CCC Common Stock.
5.31 AFFILIATES. SCHEDULE 5.31 lists each of the persons who is, in the
reasonable judgment of the Company and the Stockholders, 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 States of Missouri and Kansas (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, 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 Stockholder to enter into this Agreement and
consummate the transactions contemplated hereby, each of CCC and Newco
represents and warrants to the Company and the Stockholders 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
29
<PAGE>
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 Stockholders 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 Stockholders 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
stockholder 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 have been duly and validly authorized by the respective
Boards of Directors of CCC and Newco, and this Agreement has 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. 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 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;
(e) require the consent of any third party; or
(f) conflict with, result in a breach of, or result in a default under
any document, agreement or instrument to which Jonathan J. Ledecky is a party,
or by which Jonathan J. Ledecky is bound;
30
<PAGE>
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
30,292,857 shares were outstanding on February 26, 1998, and 500,000 shares of
Convertible Non-Voting Common Stock, par value $.001 per share, of which 500,000
shares were outstanding on February 26, 1998. The authorized capital stock of
Newco consists of 1,000 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 was issued in violation of the preemptive rights of any
stockholder 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. 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
furnished to the Company, the Stockholders 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
Stockholders 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
Stockholders 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
Stockholders 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
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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 January 21, 1998 and declared effective on January
----------------------
26, 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 Stockholders, on the one hand, and the Surviving
Corporation, on the other, for certain tax matters following the Closing Date:
(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 Stockholders 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 Stockholders 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 Stockholders
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 Stockholders 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
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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 Stockholders 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 Stockholders 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
Stockholders 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 Stockholders shall timely pay all transfer,
documentary, sales, use, stamp, registration and other Taxes and fees arising
from or relating to the transactions contemplated by this Agreement, and the
Stockholders 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 ninety (90) 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 Stockholders 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 Stockholders 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 Stockholders with
collections of the uncollected Accounts Receivable.
7.3 TITLE INSURANCE AND SURVEYS.
(a) With respect to each parcel of Real Property owned by the
Company, the Stockholders and the Company shall use their reasonable efforts to
assist CCC in obtaining (i) as soon as practicable after the date of this
Agreement, a title commitment disclosing the condition of title to such fee
estate and all easements, rights of way, and restrictions of record with respect
thereto, as of a date not earlier
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than the date of this Agreement, accompanied by copies of all instruments
evidencing the scope and extent of all such easements, rights of way, and
restrictions of record (the "Title Commitment"), and (ii) at or prior to
----------------
Closing, an ALTA Owner's Policy of Title Insurance on a form customarily used in
the state in which the Real Property is located, issued by a title insurer
satisfactory to CCC, in an amount equal to the fair market value of the Real
Property (as reasonably determined by CCC), insuring title to such property to
be in the name of the party designated by CCC on SCHEDULE 7.3, subject only to
Permitted Encumbrances (each a "Title Policy").
------------
(b) With respect to each Real Property interest as to which a Title
Policy is to be procured pursuant to this Agreement, the Stockholders and the
Company shall use their reasonable efforts to assist CCC in obtaining as soon
as practicable after the date of this Agreement, a current survey of the
relevant parcel, prepared and certified to CCC and to the title insurer of such
Real Property interest by a licensed surveyor and conforming to current ALTA
Minimum Detail Requirements for Land Title Surveys, disclosing the location of
all improvements, easements, party walls, sidewalks, roadways, utility lines,
and other matters customarily shown on such surveys, and showing access
affirmatively to public streets and roads.
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 Stockholder parties thereto. Reasonably promptly following the Closing
and at the expense of CCC, the Stockholders shall 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 Stockholders, 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 Stockholders 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 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 Stockholders and Newco
and CCC shall each
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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 Newco than those pertaining under the contract
or license as in effect on the date of this Agreement. The Company and
Stockholders 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 Stockholders 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 Stockholders 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 the 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;
(g) maintain compliance in all material respects with all permits,
rules, laws and regulations, consent orders and the like; and
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(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 Stockholder, 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, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock except as provided
above in subsection (b);
(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, Stockholder, employee, agent,
representative or independent contractor; make any bonus or 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;
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(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 Stockholder 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
Stockholders 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 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 Stockholder will, directly or
indirectly, offer, sell, contract to sell, pledge or otherwise dispose of any
shares of CCC Common Stock received by such
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Stockholder 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 Stockholder 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 Stockholder and the remaining one-third may be resold beginning on the
second anniversary of the Closing. Except with the consent of CCC, no
stockholder will, directly or indirectly, offer, sell, contract to sell, pledge
or otherwise dispose of any shares of CCC Common Stock received by such
Stockholder 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 Stockholder 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 Stockholder 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 Party" 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. Notwithstanding anything in the foregoing to the contrary, no
Stockholder that is a Profit Sharing Plan shall be restricted in the transfer of
any shares of CCC Common Stock received by such Stockholder as part of the Base
Merger Consideration or as part of the Contingent Merger Consideration to the
extent the transfer is required by applicable law or (i) with respect to the
shares of CCC Common Stock received as part of the Base Merger Consideration,
following the first anniversary of the Closing Date; or (ii) with respect to the
shares of CCC Common Stock received as part of the Contingent Merger
Consideration, following six months after the receipt of such shares with
respect to 100% of such shares and following three months after the receipt of
such shares with respect to 50% of such shares, it being agreed that any shares
of CCC Common Stock received by the Profit Sharing Plan after the resolution of
a dispute as to the amount of the Group Actual Earn Out EBIT shall be considered
to have been received for purposes of this transfer restriction at the same time
as the rest of the shares of CCC Common stock issued as Contingent Merger
Consideration was received.
(b) Each Stockholder acknowledges and agrees that CCC will not
provide such Stockholder with a prospectus for such Stockholder's use in selling
the shares of CCC Common Stock to be received by such Stockholder in the Merger,
and agrees to sell such shares 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 Stockholder of the
CCC Common Stock that the Stockholder may acquire pursuant to the Merger by a
broker's letter and a letter from the Stockholder 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 Stockholders in the Merger will bear
restrictive legends substantially in the following forms as long as applicable:
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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 DATE OF ACQUISITION],
---------------------------------
THESE SHARES MAY ONLY BE TRANSFERRED IN 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 DATE OF ACQUISITION], 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 DATE OF ACQUISITION], 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 FEBRUARY 27, 1998 (THE "AGREEMENT"), BY AND AMONG THE
---------
ISSUER, CCC2 ACQUISITION CO., SKC ELECTRIC, INC. (THE "COMPANY")
-------
AND THE STOCKHOLDERS 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.
(d) Notwithstanding anything in the foregoing to the contrary and
subject to Section 7.10(b) above, no Stockholder that is a Profit Sharing Plan
shall be restricted by this Agreement from transferring, selling or otherwise
disposing of up to 23% of the shares of CCC Common Stock received by such
Stockholder as part of the Base Merger Consideration.
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 62,100 shares of CCC Common Stock to be
granted to the key employees of the Surviving Corporation (who were not, unless
otherwise approved by CCC, Stockholders, other than Stockholders who, as of the
date of this Agreement, owned less than three and one half (3 1/2) percent of
the capital stock of the Company) on or 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
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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 CCC BOARD SEAT. At the Closing, the Board of Directors of CCC shall
expand its number and elect a representative selected by the Group Companies and
reasonably acceptable to CCC to fill such newly created seat. Thereafter, CCC
will use its best efforts to cause such individual (or his successor, who shall
be selected by a vote of a majority of the presidents of the Surviving Group
Companies and who must also be reasonably acceptable to CCC) to remain on the
CCC Board of Directors; provided, however, that CCC shall not be liable should
the stockholders of CCC not re-elect such individual to a new term on the CCC
Board of Directors.
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 TAX FREE REORGANIZATION PROTECTION. Prior to the effective time, CCC,
Newco, the Stockholders 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 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
Stockholders and the Company will refrain from taking any actions that would
cause the stock paid to the Stockholders pursuant to Section 2.3 of this
Agreement to be taxable to the Stockholders upon receipt.
7.16 CONSULTING PAYMENT. At Closing, and in consideration for his agreement
to serve CCC on a consulting basis after the Closing, Neil McCarthy will receive
from CCC, by company check, $250,000 plus options to purchase 50,000 shares of
CCC Common Stock, at a purchase price equal to the fair market value of the
underlying shares of CCC Common Stock on the Closing Date and exercisable
immediately for 25,000 shares and exercisable with respect to the remaining
25,000 shares at the end of the one year period after the Closing Date (it being
agreed that such options shall be issued in accordance with CCC's 1997 Long-Term
Incentive Plan and will have the vesting provisions established by the
Compensation Committee of the Board of Directors of CCC).
7.17 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.
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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.
7.18 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 result in any adjustment to the Base Merger
Consideration or the Contingent Merger Consideration pursuant to Section 2.2(e)
and 2.3(d).
7.19 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 7.19 shall only be made if CCC and
the president of the Company or his successor, in his capacity as an employee of
CCC or any affiliate thereof, shall mutually agree to such amendment,
modification, or termination. Without limitation on the foregoing, CCC or any
successor thereto shall maintain an employee benefit pension plan within the
meaning of ERISA Section 3(2) which plan will continue to hold such qualifying
employer securities, as defined in ERISA Section 407(d)(5), as may be required
to avoid the imposition of any excise tax under Code Section 4978 with respect
to any employee stock ownership plan having engaged in a transaction to which
Code Section 1042 applies for such period as may be required to avoid the
imposition of such excise tax. Notwithstanding the foregoing, it is
acknowledged that CCC and the Surviving Corporation shall not pay for any
country club memberships or the expenses related to more than one vehicle per
employee. At least one of the trustees of the SKC Electric, Inc. Profit Sharing
Plan, formerly the SKC Electric, Inc. Employee Stock Ownership Plan, agrees to
retain his/her position as trustee following the Closing or at least until such
time as soon as practicable following the Closing (but in no event later than 30
days thereafter) as he/she shall have caused to have been fully discharged the
former ESOP's note payable to the Company by paying, out of the proceeds of this
trans action, the full amount of the principal and interest outstanding on such
note to Newco.
7.20 SUPPLEMENTAL FINANCIAL CERTIFICATE. The Stockholders shall, within
thirty (30) days following Closing (a copy of which shall be attached to the
Supplemental Financial Certificate), cause the preparation of a balance sheet
(the "Closing Balance Sheet") for the Company as of February 28, 1998 and
---------------------
deliver to CCC a certificate (the "Supplemental Financial Certificate"; and
----------------------------------
together with the Closing Financial Certificate, the "Financial Certificates"),
----------------------
signed on behalf of the Stockholders by the Representative, setting forth:
(a) the Company's Closing Net Worth; and
(b) a certification that the Closing Balance Sheet (a copy of which
shall be attached to the Supplemental Financial Certificate) presents fairly the
financial condition of the Company as of the Closing Date.
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All costs associated with the preparation of the Supplemental Financial
Certificate (including the costs associated with preparing the Closing Balance
Sheet) shall be borne by the Stockholders and not by the Company or CCC.
7.21 HOLDING COMPANY. Promptly following the Closing, CCC will contribute
all of the shares of capital stock of each Surviving Group Company to
Consolidation Capital Corporation Electrical Services, Inc., a first tier,
wholly-owned subsidiary of CCC (the "Holding Company"). As the sole stockholder
---------------
of Holding Company, CCC will, at Closing, (i) cause William P. Love, Jr. to be
appointed its Chief Executive Officer, (ii) cause the Holding Company to enter
into an employment agreement with Mr. Love substantially in the form attached to
the Group Company Agreement for SKC Electric, Inc. attached as EXHIBIT 7.21, and
(iii) elect William P. Love, Jr., F. Traynor Beck and Timothy Clayton as its
board of directors.
7.22 PROFIT SHARING PLAN CONVERSION COSTS. CCC shall indemnify and hold
harmless any Conversion Indemnitee (defined below) with respect to any Damages
(as defined in Section 10.1) suffered, sustained, incurred, or paid by such
Conversion Indemnitee in connection with, resulting from, or arising out of,
directly or indirectly, any conversion of the ESOP to a Profit Sharing Plan as
described in Section 5.22(j) herein subsequent to the Effective Time with
respect to such Damages, whether arising before, on or after the Effective Time,
or, in the event that this Agreement is terminated by the holders of the
majority of the voting stock of the Company and the Company pursuant to Section
13.1(c). In the event that this Agreement is terminated by CCC pursuant to
Section 13.1(c), then the Company shall indemnify and hold harmless CCC with
respect to any Damages (as defined in Section 10.1) suffered, sustained,
incurred, or paid by CCC in connection with, resulting from, or arising out of,
directly or indirectly, any conversion of the ESOP to a Profit Sharing Plan as
described in Section 5.22(j) herein. The term "Conversion Indemnitee" means the
---------------------
Company, the Stockholders, the former ESOP, any fiduciary of such former ESOP,
or any "party-in-interest" or "disqualified person" with respect to such former
ESOP (as such terms are defined in ERISA Section 3(14) and Code Section 4975).
7.23 INDEMNIFICATION OF STOCKHOLDER'S PURCHASER REPRESENTATIVE. Until the
first anniversary of the Closing, CCC shall pay all costs and expenses
(including the value of any claims or awards) of any Stockholder's purchaser
representative that arise out of any claim or lawsuit related to the
transactions contemplated hereby. On the first anniversary of the Closing, the
Stockholders shall reimburse CCC, by surrender of Pledged Assets or otherwise,
for 50% of such costs and expenses; it being understood and agreed that any such
expense shall not affect the calculation of Group Actual Earn Out EBIT or the
payment of the Contingent Merger Consideration; and provided, however, that the
-------- -------
Stockholders shall not be obligated to reimburse CCC for 50% of any such costs
and expenses that arise out of any lawsuit in which CCC shall be found to be
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act), and the Stockholders shall be obligated to reimburse CCC
for all such costs and expenses that arise out of any lawsuit in which the
Company or any of the Stockholders shall be found to be guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act).
Following the first anniversary of the Closing, the Stockholders and CCC shall
equally share and be obligated to pay equal portions of all such costs and
expenses; provided, however, that the Stockholders on the one hand and CCC on
-------- -------
the other hand shall not be liable to so share and pay any such portion of costs
and expenses that arise out of any lawsuit in which CCC on the one hand or the
Company or the Stockholders on the other hand shall be found to be guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act). CCC and the Stockholders shall direct a third party, mutually
acceptable to CCC and the Stockholders to estimate an amount sufficient to cover
the costs and expenses of any claim pending on the first anniversary of the
Closing Date and the Stockholders shall escrow such amount of shares of CCC
Common Stock or cash from the Pledged Assets to cover their 50% of such costs
and expenses. The terms of the escrow shall be
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mutually satisfactory to CCC and the Stockholders. Notwithstanding anything to
the contrary herein, the Stockholders shall be entitled to satisfy any claim
relating to the Pledged Assets with cash, in lieu of shares of CCC Common Stock
constituting Pledged Assets. If the payment by CCC of all costs and expenses of
any Stockholder's purchaser representative pursuant to the first sentence of
this Section 7.23 is unavailable, then CCC, in lieu of making such payment,
shall contribute to the amount paid or payable by such Stockholder's purchaser
representative as a result of any such claim or lawsuit in such proportion as is
appropriate to reflect the relative fault of such Stockholder's purchaser
representative, on the one hand, and CCC, on the other hand, in connection with
the actions or inactions giving rise to such claim or lawsuit, as well as any
other relevant equitable considerations, including, without limitation, the
parties' relative intent, knowledge and access to information. The obligations
of the Stockholders pursuant to this Section 7.23 shall be on a joint and
several basis.
7.24 GUARANTEED DEBT. It is understood and agreed that the Stockholders
will seek to have all personal guarantees (by pledge of assets or otherwise) of
any Stockholder released in connection with consummation of the Merger and that
CCC will cooperate with the Stockholders 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 Stockholder (by pledge of assets or otherwise) unless and until
such personal guarantee (including any pledge of assets) has been fully
released.
7.25 CLUB MEMBERSHIP. Prior to the Closing, the Company shall distribute
to William P. Love, Jr. and/or Diane L. Love the Company's deposit for a country
club membership in the amount of $25,000.
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 Stockholders 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
Group Material Adverse Effect, as defined below; (b) all of the terms,
covenants, agreements and conditions of this Agreement to be complied with,
performed or satisfied by the Company and the Stockholders 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
Stockholders 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 Stockholders
shall have been delivered to CCC. For purposes of this Agreement, "Group
Material Adverse Effect" means a material adverse effect on the business,
operations, properties, assets or condition, financial or otherwise, of the
Group Companies taken as a whole, provided that the foregoing shall not include
any material adverse effect attributable to (a) factors affecting the electrical
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contracting industry generally, (b) general national, regional or local economic
or financial conditions, (c) change in governmental or legislative laws, rules
or regulations, or (d) actions taken by CCC or any affiliate of 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 Stockholders 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 Stockholders 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 Group 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 Group Companies, taken as a whole, since the date of this
Agreement; and CCC shall have received a certificate signed by each Stockholder
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 Group
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 Stockholders, 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 DELIVERY OF CLOSING FINANCIAL CERTIFICATE. CCC shall have received a
certificate (the "Closing Financial Certificate"), dated as of the Closing Date,
-----------------------------
signed on behalf of the Company and by the Stockholders, setting forth:
(a) the net worth of the Company as of the last day of its most
recently ended fiscal year;
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(b) the net worth of the Company as of January 31, 1998; and
(c) the Company's 1997 Adjusted EBIT.
8.9 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).
8.10 EMPLOYMENT AGREEMENTS. Each of William P. Love, Jr. and Lawrence J.
Malach shall enter into, at Closing, an employment agreement with the Holding
Company and Surviving Corporation, respectively, in substantially the form of
EXHIBIT 8.10 and 7.21, respectively, hereto.
8.11 AFFILIATE AGREEMENTS. The Stockholders listed on SCHEDULE 5.31 shall
have entered into an Affiliate Agreement in the form set forth as EXHIBIT 8.11.
8.12 STOCKHOLDERS' RELEASE. The Stockholders shall each have delivered to
CCC an instrument dated the Closing Date in the form of EXHIBIT 8.12(A) or (B),
as applicable.
8.13 RELATED PARTY RECEIVABLES AND AGREEMENTS. Except with respect to the
items on SCHEDULE 8.13, all employees, stockholders, 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 8.13 shall have been terminated as of the Closing.
8.14 CONSUMMATION OF GROUP MERGER TRANSACTION. The Group Merger Transaction
shall occur contemporaneously with the consummation of the transactions
contemplated by this Agreement.
8.15 EMPLOYEE PLAN FIDUCIARY CONDITION. The appropriate fiduciaries of the
Profit Sharing Plan shall have received a current valuation report and fairness
opinion in such form as may be acceptable to such fiduciaries from a source
acceptable to such fiduciaries and such fiduciaries shall have determined, in
the exercise of their sole discretion, that the consummation of the transactions
contemplated herein at the Closing is fair to and in the best interests of the
participants and beneficiaries of the Profit Sharing Plan.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE STOCKHOLDERS
The obligation of the Stockholders 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 Stockholders.
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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 Stockholders 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 Stockholders, 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
transactions contemplated hereby shall be pending.
9.4 EMPLOYMENT AGREEMENTS. The Surviving Corporation and the Holding
Company shall have afforded Lawrence J. Malach and William P. Love, Jr.,
respectively, the opportunity to enter into, at Closing, an employment agreement
with the Surviving Corporation and the Holding Company, respectively, in
substantially the form of EXHIBIT 8.10 and 7.21, respectively, hereto.
9.5 TAX CERTIFICATE DELIVERY. A certificate substantially in the form
attached hereto as EXHIBIT 9.5, dated the Closing Date and signed by the
President or any Vice President of CCC and Newco, shall have been delivered to
tax counsel for the Shareholders.
9.6 SATISFACTION WITH STOCKHOLDER RELEASE AND AFFILIATE AGREEMENTS. Each
Stockholder shall be reasonably satisfied with the form of the Affiliate
Agreement and Stockholder Release to be executed by them pursuant to Section
8.11 and Section 8.12.
9.7 TAX OPINION. The Stockholders shall have received from Dow, Lohnes &
Albertson, PLLC, tax counsel to the Stockholders, that the Merger qualifies as a
reorganization as defined under Code Section 368(a)(1)(A).
9.8 CONSUMMATION OF GROUP MERGER TRANSACTION. The Group Merger Transaction
shall occur contemporaneously with the consummation of the transactions
contemplated by this Agreement.
9.9 EMPLOYEE PLAN FIDUCIARY CONDITION. The appropriate fiduciaries of the
Profit Sharing Plan shall have received a current valuation report and fairness
opinion in such form as may be acceptable to such fiduciaries from a source
acceptable to such fiduciaries and such fiduciaries shall have determined, in
the exercise of their sole discretion, that the consummation of the transactions
contemplated herein at the Closing is fair to and in the best interests of the
participants and beneficiaries of the Profit Sharing Plan.
9.10 BOARD EXPANSION. CCC shall have increased the size of its Board of
Directors to six members and, as contemplated by Section 7.13, a representative
of the Group Companies shall have been duly elected to such Board of Directors.
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9.11 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.
9.12 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 Stockholders shall have received a certificate signed by
CCC and Newco dated the Closing Date to such effect; provided, however, that the
Stockholders 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 Stockholders 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.
9.13 OFFICER 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 STOCKHOLDERS. The Stockholders (other
than the Stockholders 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, stockholders,
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
Stockholders or the Company set forth in this Agreement or any Schedule or
certificate, delivered by or on behalf of any Stockholder or the Company in
connection herewith; or
(ii) any nonfulfillment of any covenant or agreement by the
Stockholders 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
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(iv) the matters disclosed on SCHEDULES 5.23 (conformity with
law; litigation), 5.24 (taxes), and 5.27 (environmental matters), and any
receivables from related persons that are listed on SCHEDULE 8.13 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.
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 Stockholders and their respective officers, directors, employees,
stockholders, assigns, successors and affiliates (individually, a "Stockholder
-----------
Indemnified Party" and collectively, the "Stockholder Indemnified Parties")
- ----------------- -------------------------------
from, against and in respect of:
(a) all Damages suffered, sustained, incurred or paid by the
Stockholder 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) subsequent to the Effective Time, all Damages (whether arising
before, on or after the Effective Time) suffered, sustained, incurred, or paid
by the Stockholder Indemnified Parties in connection with, resulting from, or
arising out of, directly or indirectly, any conversion of the ESOP to a Profit
Sharing Plan as described in Section 5.22(j) herein; and
(c) 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) adjustments to the
Merger Consideration as set forth in Sections 2.2 and 3.1, which adjustments
shall not constitute Damages; (ii) Damages arising out of any breaches of the
covenants of the Stockholders 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), or 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; (iii) Damages
described in Section 10.1(a)(iv), or (iv) 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);
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(b) the aggregate amount of any liability for Damages of the
Stockholders, 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 Stockholders, 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
(2) (w) with respect to representations and warranties of
the Stockholders 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), (x) with respect to covenants of the Stockholders to be
performed after the Closing Date until fully performed and discharged, (y) with
respect to covenants of CCC and Newco contained in Section 7.15 or the
representations, warranties and covenants set forth in the certificate delivered
by or on behalf of CCC and Newco pursuant to Section 9.5, until the expiration
of the longest applicable federal or state statute of limitations (including
extensions thereof agreed to by the party from whom indemnification is sought),
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
indemnification hereunder for the breach of a representation, warranty or
covenant where the identical subject matter thereof has also resulted in, or
caused, a Merger Consideration Adjustment to the Base Merger Consideration
pursuant to Section 3.1;
(e) in no event will any CCC Indemnified Party be entitled to any
indemnification hereunder from any Stockholder that is an employee benefit plan
within the meaning of ERISA Section 3(3) to the extent that such indemnification
could: (i) result in a transaction prohibited under ERISA Section 406 or Code
Section 4975; (ii) give rise to a claim for breach of any such plan
fiduciaries' duties with respect to such plan; or (iii) otherwise violate any
applicable provision of ERISA or the Code; or
(f) in no event will any CCC Indemnified Party be entitled to joint
and several indemnification hereunder for the breach by any Stockholder 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 Stockholder breaching Article 11 or Article 12, as applicable.
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(g) the Stockholders 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 Stockholders 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 Stockholders any portion of the Contingent Merger
Consideration because of any failure to achieve the targets set forth in Section
2.3(a) (i) herein.
(h) 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 Stockholders, 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 Stockholder
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 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
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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.
(ii) 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 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 Stockholders, 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 Stockholders under
Section 10.1 hereof, and subject to the limitations in Sections 3.2(c) and 10.3
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
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other subsidiary of CCC, each Stockholder 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
business selling any products or services in direct competition with the Holding
Company or any of its subsidiaries within 100 miles of any office of the Holding
Company or any office of any of the Holding Company's subsidiaries (the
"Territory");
---------
(b) call upon any person who is, at that time, within the Territory,
an employee of the Holding Company or any subsidiary of the Holding Company in a
managerial capacity for the purpose or with the intent of enticing such employee
away from or out of the employ of the Holding Company or any subsidiary of the
Holding Company;
(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 the Holding
Company or any subsidiary of the Holding Company, for the purpose of soliciting
or selling products or services in direct competition with the Holding Company
or any subsidiary of the Holding Company 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 Stockholder 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 Stockholder's behalf or on behalf of any competitor,
call upon any person as a prospective acquisition candidate who was, to the
Stockholder's knowledge, either called upon by the Holding Company or a
subsidiary of the Holding Company as a prospective acquisition candidate or was
the subject of an acquisition analysis by the Holding Company or any subsidiary
of the Holding Company. The Stockholder, 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
Holding Company or any subsidiary of the Holding Company 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 Stockholder 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 Stockholder 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 Stockholders
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).
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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 Stockholders
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 Stockholder 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 Stockholders 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 Stockholder 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 Stockholder 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.
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
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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 Stockholders 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 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 March 15, 1998, provided that the
right to terminate this Agreement under this Section 13.1(b) shall not be
available to either party (with the Stockholders 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 Stockholders 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
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(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 Stockholders 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
Section 7.22, Article 12 and Article 13; and
(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
Stockholders, 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
Stockholders.
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.
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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 Stockholder (as a group) each represents and warrants to the other that
except as set forth in this Section 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.
In addition, CCC will pay all fees and expenses relating to obtaining licenses,
permits, surety bonds, insurance, transfer applications, business credit reports
and the related qualifications for Newco, the other subsidiaries newly formed by
CCC to effect the Group Merger Transaction and the Surviving Group Companies,
including the Surviving Corporation, up to an aggregate amount of $100,000. Any
such fees and expenses of the Surviving Group Companies in excess of $100,000
shall be split between CCC on the one hand and the stockholders of the Group
Companies on the other. Except with respect to FMI Corporation and the part of
the fee to Neil McCarthy referred to below, the Stockholders (and not the
Company) have paid and will pay the fees, expenses and disbursements of the
Stockholders, 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 Stockholders on the
other. In addition, it is understood and agreed that CCC shall be solely
responsible to pay to FMI Corporation a fee equal to 3% of the Base Merger
Consideration plus the Contingent Merger Consideration paid pursuant to this
Agreement and Neil McCarthy professional fees equal to $250,000, and the parties
set forth on SCHEDULE 13.7 hereof shall be solely responsible to pay Neil
McCarthy an amount previously agreed to by the parties for professional fees.
At the election of the Stockholders, any of the foregoing fees contemplated
under this SECTION 13.7 payable by them will be paid by CCC or the Company and
not the Stockholders, 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 Group 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:
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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
Linda L. Griggs, Esquire
1800 M Street, NW
Washington, D.C. 20036
(Telefax: 202/467-7176)
If to an individual Stockholder to:
William & Diane Love
c/o William P. Love, Jr.
SKC Electric, Inc.
14335 West 97th Terrace
Lenexa, KS 66215-1150
(Telefax: 913/541-4751)
with a required copy to:
David C. Seitter, Esquire
Levy and Craig
911 Main Street
Commerce Tower, Suite 2000
Kansas City, MO 64105
(Telefax: 816/471-2186)
If to SKC Electric Profit Sharing Plan to:
SKC Electric Profit Sharing Plan
c/o Consulting Fiduciaries', Inc.
Attn: David Heald
2745 Riverwoods Road
Riverwoods, IL 60015
(Telefax: 847/945-5611)
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with a required copy to:
Michael V. Conger, Esquire
Polsinelli, White, Vardeman & Shalton
700 West 47th Street
Suite 1000
Kansas City, MO 64112
(Telefax: 816/753-1536)
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. Except as set forth in
Section 7.11, 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, stockholder,
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 GROUP REPRESENTATIVE AND STOCKHOLDER REPRESENTATIVE. (a) Each of the
Stockholders hereby appoints William P. Love, Jr. 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 calculation of the Merger
Consideration (the "Group Representative"). Each Stockholder understands that
--------------------
the Group Representative will represent the stockholders of the Surviving Group
Companies. Each Stockholder further agrees that (i), in the case of a dispute
regarding the base merger consideration paid by CCC pursuant to the Group
Company Agreements (the "Total Base Merger Consideration"), the approval of the
-------------------------------
former stockholders of the Group Companies which received a majority of the
Total Base Merger Consideration, and (ii), in the case of a dispute regarding
the contingent merger consideration to be paid by CCC pursuant to the Group
Company Agreements (the "Total Contingent Merger Consideration"), the approval
-------------------------------------
of the former stockholders of the Group Companies which would be entitled to
receive a majority of the Total Contingent Merger Consideration (the required
vote pursuant to (i) and (ii) above is referred to as the "Approval of the
---------------
58
<PAGE>
Group Company Stockholders"), the Group Representative shall have the power to
- --------------------------
take any and all actions which the Group Representative believes are necessary
or appropriate or in the best interests of all of the stockholders of the Group
Companies for and on behalf of such stockholders, as fully as if they were
acting on their own behalf, including without limitation, consenting to, and
settling any and all claims, disputes or controversies arising with regard to
the calculation of the Merger Consideration. CCC and the Surviving Group
Companies shall have the right to rely on any actions taken or omitted to be
taken by the Group Representative as being the act or omission of the
Stockholders, without the need for any inquiry, and any such actions or
omissions shall be binding upon the Stockholders. In addition, the stockholders
of the Group Companies shall have the right to change the identity of the Group
Representative upon the Approval of the Group Company Stockholders, and shall
deliver to CCC and the Surviving Group Companies prompt written notice of any
such change of identity, which upon receipt by CCC and the Surviving Group
Companies will effect said change. Except to the extent prohibited by law, the
Stockholders agree to hold the Group Representative free and harmless from and
indemnify the Group 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.
(b) Each of the Stockholders hereby appoints Lawrence J. Malach 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"), other than those contained in Section
--------------
13.14(a) above. Each Stockholder further agrees that upon the vote of the
Stockholders holding a majority of the stock of the Company immediately
preceding the Closing (the "Stockholder 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 Stockholders, as fully
as if the Stockholders were acting on their own behalf, including without
limitation, consenting to, and settling any and all claims, disputes or
controversies arising hereunder, 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 or
omitted to be taken by the Representative as being the act or omission of the
Stockholders, without the need for any inquiry, and any such actions or
omissions shall be binding upon the Stockholders. The Stockholders shall have
the right to change the identity of the Representative upon Stockholder 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 Stockholders 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 STOCKHOLDERS. The execution of this
Agreement by all of the Stockholders shall constitute unanimous written consent
of all of the stockholders of the Company approving the Plan of Merger within
the meaning of the State Corporate Laws.
[Execution Page Following]
59
<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
CCC2 ACQUISITION CO.
By: /s/ F. Traynor Beck
-------------------------------------------
F. Traynor Beck
SKC ELECTRIC, INC.
By: /s/ William P. Love, Jr.
-------------------------------------------
William P. Love, Jr.
President
STOCKHOLDERS:
/s/ William P. Love, Jr.
----------------------------------------------
William P. Love, Jr.
/s/ Diane L. Love
----------------------------------------------
Diane L. Love
/s/ William P. Love, Jr.
----------------------------------------------
By: William P. Love, Jr.
As Trustee of the
SKC Electric, Inc. Profit Sharing Plan
/s/ Lawrence J. Malach
----------------------------------------------
By: Lawrence J. Malach
As Trustee of the SKC Electric, Inc.
Profit Sharing Plan
/s/ David R. Conner
----------------------------------------------
By: David R. Conner
As Trustee of the SKC Electric, Inc.
Profit Sharing Plan
/s/ Richard D. Wilson
----------------------------------------------
By: Richard D. Wilson
As Trustee of the SKC Electric, Inc.
Profit Sharing Plan
60
<PAGE>
Index of Defined Terms
----------------------
<TABLE>
<CAPTION>
Section
-------
<S> <C>
1933 Act.......................................................................2.2(a)
Accounts Receivable..............................................................5.12
Actual Adjusted EBIT...........................................................3.1(a)
Actual Closing Net Worth.......................................................3.1(b)
Actual 1997 Adjusted EBIT......................................................3.1(b)
Actual Merger Consideration Adjustment.........................................3.1(c)
Affiliate........................................................................5.31
Agreement.....................................................................7.10(c)
Approval of the Group Company Stockholders......................................13.14
Audited Financials...............................................................5.10
Balance Sheet Date...............................................................5.10
Base Merger Consideration......................................................2.2(a)
CCC.............................................................................INTRO
CCC Charter Documents.............................................................6.1
CCC Common Stock...............................................................2.1(c)
CCC Indemnified Parties..........................................................10.1
CCC Indemnified Party............................................................10.1
CCC Prospectus...................................................................5.30
CCC's knowledge.....................................................................6
CCC's Accountant............................................................2.3(a)(i)
Certificates...................................................................2.4(b)
Charter Documents.................................................................5.1
Claim Notice..................................................................10.4(a)
Claims...........................................................................10.4
Closing...........................................................................4.1
Closing Balance Sheet............................................................7.20
Closing Date......................................................................4.1
Closing Financial Certificate.....................................................8.8
COBRA.........................................................................5.22(e)
Code.........................................................................Recitals
Company.......................................................................7.10(c)
Company 1....................................................................Recitals
Company 2....................................................................Recitals
Company 3....................................................................Recitals
Company 4....................................................................Recitals
Company 5....................................................................Recitals
Company 6....................................................................Recitals
Company Common Stock.........................................................Recitals
Company Financial Statements.....................................................5.10
Company Hazardous Materials Activities........................................5.27(b)
Company's knowledge.................................................................5
Company's 1997 Adjusted EBIT...................................................2.2(b)
Company's Closing Net Worth....................................................2.2(b)
Constituent Corporations.....................................................Recitals
Contingent Merger Consideration................................................2.3(a)
controlled group.................................................................5.22
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Conversion Indemnitee.................................................................7.22
Damages............................................................................10.1(a)
DOJ.................................................................................7.5(d)
Earn Out EBIT Notice.............................................................2.3(a)(i)
Earn Out Period.....................................................................2.3(f)
Earn Out Period Average Price.......................................................2.3(c)
Earn Out Range.................................................................2.3(a)(iii)
Earn Out Threshold..............................................................2.3(a)(ii)
Earnings before Interest and Taxes..................................................2.2(b)
Earnings before Interest and Taxes of the Surviving Group Companies..............2.3(a)(i)
EBIT Increase.......................................................................2.2(d)
Effective Time.........................................................................4.2
Environmental Permits..............................................................5.27(c)
Equipment.............................................................................5.33
ERISA.................................................................................5.22
ESOP...............................................................................5.22(j)
Financial Adjustment Notice.........................................................3.1(b)
Financial Certificates................................................................7.20
FTC.................................................................................7.5(d)
GAAP................................................................................2.2(b)
golden parachute......................................................................5.22
Group 1997 Adjusted EBIT............................................................2.2(b)
Group 1997 Adjusted EBIT Target.....................................................2.2(b)
Group Actual Earn Out EBIT.......................................................2.3(a)(i)
Group Closing Net Worth.............................................................2.2(b)
Group Companies...................................................................Recitals
Group Company.....................................................................Recitals
Group Company Agreements..........................................................Recitals
group health plans.................................................................5.22(e)
Group Merger Transaction..........................................................Recitals
Group Net Worth Target..............................................................2.2(b)
Group Representative.................................................................13.14
Hazardous Material.................................................................5.27(a)
Holding Company.......................................................................7.21
Indemnification Threshold.............................................................10.3
Indemnified Party..................................................................10.4(a)
Indemnifying Party.................................................................10.4(a)
Intellectual Property..............................................................5.17(a)
Interim Balance Sheet.................................................................5.10
Interim Financials....................................................................5.10
Interim Period Average..............................................................2.2(a)
Inventory.............................................................................5.33
knowledge of CCC.........................................................................6
knowledge of Newco.......................................................................6
knowledge of the Company.................................................................5
Laws..........................................................................5.15(c)(iii)
leased Real Property...............................................................5.15(d)
liabilities........................................................................5.11(d)
Lien...................................................................................5.4
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Material Adverse Effect.............................................................. 5.1
Material Contracts................................................................5.18(a)
Maximum Earn Out Amount.........................................................2.3(a)(i)
Maximum Earn Out Threshold......................................................2.3(a)(i)
Merger...........................................................................Recitals
Merger Consideration...............................................................2.4(a)
Merger Consideration Adjustment....................................................3.1(b)
Merger Documents..................................................................... 4.2
Merger Price.......................................................................2.2(a)
multiemployer pension plan...........................................................5.22
Net Worth..........................................................................2.2(b)
New Accounting Firm................................................................2.3(b)
Newco............................................................................Recitals
Newco's knowledge.......................................................................6
Other Group Companies............................................................Recitals
PBGC.................................................................................5.22
Pending Claims................................................................10.3(c)(ii)
Permits..............................................................................5.14
Permitted Encumbrances.........................................................5.15(c)(i)
Plan of Merger....................................................................... 1.1
Plans................................................................................5.22
Pledged Assets.....................................................................3.2(a)
Post-Closing Audit.................................................................3.1(b)
Prime Rate.........................................................................2.3(b)
Profit Sharing Plan...............................................................5.22(j)
Proposed Numbers.................................................................. 3.1(c)
Qualified Plans......................................................................5.22
Real Property.....................................................................5.15(a)
Registration Statement............................................................... 6.9
Related Party Agreements..........................................................5.18(a)
Release Date.......................................................................3.2(c)
reportable events.................................................................5.22(c)
Representative...................................................................13.14(a)
Required Consents.....................................................................8.4
Revised Earn Out EBIT..............................................................2.3(b)
Revised Numbers....................................................................3.1(c)
Securities Act....................................................................7.10(c)
Specified Percentage..........................................................2.3(a)(iii)
State Corporate Laws..................................................................1.2
Stockholder......................................................................Recitals
Stockholder Approval.............................................................13.14(b)
Stockholder Indemnified Parties......................................................10.2
Stockholder Indemnified Party........................................................10.2
Structures....................................................................5.15(c)(ii)
Supplemental Financial Certificate...................................................7 20
Surviving Corporation.................................................................1.1
Tax............................................................................5.24(c)(i)
Tax Return....................................................................5.24(c)(ii)
tax-free reorganization..........................................................Recitals
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Territory........................................................................11.1(a)
Third Party Claim.............................................................10.4(b)(i)
Title Commitment.....................................................................7.3
Title Policy.........................................................................7.3
Total Base Merger Consideration....................................................13 14
Total Contingent Merger Consideration..............................................13 14
UCC.................................................................................5 33
Year-End Net Worth...................................................................5.9
</TABLE>
iv
<PAGE>
EXHIBIT 2.02
________________________________________________________________________________
________________________________________________________________________________
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CONSOLIDATION CAPITAL CORPORATION,
CCC3 ACQUISITION CO.,
RIVIERA ELECTRIC CONSTRUCTION CO.,
AND
THE SHAREHOLDERS NAMED HEREIN
MADE EFFECTIVE AS OF FEBRUARY 27, 1998.
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. THE MERGER............................................................... 2
1.1 The Merger......................................................... 2
1.2 Articles of Incorporation; By-laws, Directors and Officers......... 2
1.3 Effects of the Merger.............................................. 2
2. CONVERSION AND EXCHANGE OF STOCK......................................... 3
2.1 Manner of Conversion............................................... 3
2.2 Base Merger Consideration.......................................... 4
2.3 Contingent Merger Consideration.................................... 5
2.4 Exchange of Certificates and Payment of Cash....................... 8
3. POST CLOSING ADJUSTMENT; PLEDGED ASSETS.................................. 9
3.1 Post-Closing Adjustment............................................ 9
3.2 Pledged Assets.....................................................11
4. CLOSING..................................................................12
4.1 Location and Date..................................................12
4.2 Effect.............................................................13
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS.......13
5.1 Due Organization...................................................13
5.2 Authorization; Validity............................................13
5.3 No Conflicts.......................................................14
5.4 Capital Stock of the Company.......................................14
5.5 Transactions in Capital Stock......................................15
5.6 Subsidiaries, Stock, and Notes.....................................15
5.7 Predecessor Status.................................................15
5.8 Absence of Claims Against the Company..............................15
5.9 Company Financial Condition........................................15
5.10 Financial Statements...............................................15
5.11 Liabilities and Obligations........................................15
5.12 Accounts and Notes Receivable......................................16
5.13 Books and Records..................................................16
5.14 Permits............................................................17
5.15 Real Property......................................................17
5.16 Personal Property..................................................18
5.17 Intellectual Property..............................................19
5.18 Material Contracts and Commitments.................................19
5.19 Government Contracts...............................................20
5.20 Insurance..........................................................21
5.21 Labor and Employment Matters.......................................21
5.22 Employee Benefit Plans.............................................22
5.23 Conformity with Law; Litigation....................................24
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.24 Taxes..............................................................25
5.25 Absence of Changes.................................................26
5.26 Deposit Accounts; Powers of Attorney...............................28
5.27 Environmental Matters..............................................28
5.28 Relations with Governments.........................................29
5.29 Disclosure.........................................................29
5.30 CCC Prospectus; Securities Representations.........................30
5.31 Affiliates.........................................................30
5.32 Location of Chief Executive Offices................................30
5.33 Location of Equipment and Inventory................................30
6. REPRESENTATIONS OF CCC AND NEWCO.........................................30
6.1 Due Organization...................................................31
6.2 CCC Common Stock...................................................31
6.3 Authorization; Validity of Obligations.............................31
6.4 No Conflicts.......................................................31
6.5 Capitalization of CCC and Ownership of CCC Stock...................32
6.6 Conformity with Law; Litigation....................................32
6.7 Disclosure.........................................................32
6.8 CCC Prospectus.....................................................33
6.9 Registration Statement.............................................33
6.10 Investment Intent..................................................33
7. COVENANTS................................................................33
7.1 Tax Matters........................................................33
7.2 Accounts Receivable................................................34
7.3 Title Insurance and Surveys........................................35
7.4 Related Party Agreements...........................................35
7.5 Cooperation........................................................35
7.6 Conduct of Business Pending Closing................................36
7.7 Access to Information..............................................37
7.8 Prohibited Activities..............................................37
7.9 Notice to Bargaining Agents........................................39
7.10 Sales of CCC Common Stock..........................................39
7.11 CCC Stock Options..................................................41
7.12 Tax Covenant.......................................................41
7.13 CCC Board Seat.....................................................41
7.14 D&O Insurance and Indemnification of Directors and
Officers...........................................................41
7.15 Tax Free Reorganization Protection.................................42
7.16 Consulting Payment.................................................42
7.17 Government Contracts...............................................42
7.18 CCC Stock..........................................................42
7.19 Employee Benefits Matters..........................................42
7.20 Supplemental Financial Certificate.................................43
7.21 Holding Company....................................................43
7.22 Profit Sharing Plan Conversion Costs...............................43
7.23 Indemnification of Shareholder's Purchaser Representative..........44
7.24 Guaranteed Debt....................................................44
</TABLE>
<PAGE>
<TABLE>
<S> <C>
7.25 Indebtedness.......................................................44
7.26 Release of Pledges.................................................45
7.27 Profit Sharing Plan................................................45
7.28 Shareholders' Agreement............................................45
7.29 Real Property......................................................45
7.30 Agreement in Connection with the Shareholder's
Irrevocable Life Insurance Trust...................................45
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CCC AND NEWCO.................45
8.1 Representations and Warranties; Performance of
Obligations........................................................45
8.2 No Litigation......................................................46
8.3 No Material Adverse Change.........................................46
8.4 Consents and Approvals.............................................46
8.5 Opinion of Counsel.................................................46
8.6 Charter Documents..................................................46
8.7 Quarterly Financial Statements.....................................47
8.8 Delivery of Closing Financial Certificate..........................47
8.9 FIRPTA Compliance..................................................47
8.10 Employment Agreements..............................................47
8.11 Affiliate Agreements...............................................47
8.12 Shareholders' Release..............................................47
8.13 Related Party Receivables and Agreements...........................47
8.14 Consummation of Group Merger Transaction...........................47
8.15 Employee Plan Fiduciary Condition..................................47
8.16 Sale of Stock to ESOP and Conversion of ESOP to a
Profit Sharing Plan................................................47
8.17 Sale of Englewood Property and Subsequent Leaseback................48
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDERS.............................................................48
9.1 Representations and Warranties; Performance of Obligations.........48
9.2 No Litigation......................................................48
9.3 Consents and Approvals.............................................48
9.4 Employment Agreements..............................................48
9.5 Tax Certificate Delivery...........................................48
9.6 Satisfaction With Shareholder Release and Affiliate Agreements.....49
9.7 Tax Opinion........................................................49
9.8 Consummation of Group Merger Transaction...........................49
9.9 Employee Plan Fiduciary Condition..................................49
9.10 Board Expansion....................................................49
9.11 Registration Statement.............................................49
9.12 No Material Adverse Change.........................................49
9.13 Officer and Directors of Surviving Corporation.....................49
9.14 Interim Balance Sheet..............................................49
10. INDEMNIFICATION..........................................................50
10.1 General Indemnification by the Shareholders........................50
10.2 General Indemnification by CCC and Newco...........................50
10.3 Limitation and Expiration..........................................51
10.4 Indemnification Procedures.........................................53
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.5 Survival of Representations Warranties............................54
10.6 Right to Set Off..................................................54
11. NONCOMPETITION...........................................................54
11.1 Prohibited Activities.............................................54
11.2 Damages...........................................................55
11.3 Reasonable Restraint..............................................55
11.4 Severability; Reformation.........................................55
11.5 Independent Covenant..............................................56
11.6 Materiality.......................................................56
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION................................56
12.1 Confidentiality...................................................56
12.2 Damages...........................................................57
13. GENERAL..................................................................57
13.1 Termination.......................................................57
13.2 Effect of Termination.............................................58
13.3 Successors and Assigns............................................58
13.4 Entire Agreement; Amendment; Waiver...............................58
13.5 Counterparts......................................................59
13.6 Brokers and Agents................................................59
13.7 Expenses..........................................................59
13.8 Specific Performance; Remedies....................................59
13.9 Notices...........................................................60
13.10 Governing Law.....................................................61
13.11 Severability......................................................61
13.12 Absence of Third Party Beneficiary Rights.........................61
13.13 Further Representations...........................................61
13.14 Group Representative and Shareholder Representative...............61
13.15 Unanimous Written Consent of Shareholders.........................62
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
---------
entered into this 27th day of February, 1998, by and among Consolidation Capital
Corporation, a Delaware corporation ("CCC"), CCC3 Acquisition Co., a Colorado
---
corporation and a newly-formed, wholly-owned subsidiary of CCC ("Newco"), and
-----
Riviera Electric Construction Co., a Colorado corporation (the "Company"), and
-------
Donald G. White, David M. White, Garry Lawrenz, Vicki Waters, Willis T. Wiedel
and Leslie C. Litten (each a "Shareholder" and collectively, the "Shareholders",
----------- ------------
except that at the Closing (as defined in Section 4.1) the Profit Sharing Plan
(as defined in Section 7.19) shall also be a "Shareholder" and the definition of
-----------
"Shareholder" shall include the Profit Sharing Plan, if the Profit Sharing Plan
-----------
is a Shareholder of the Company immediately prior to the Closing).
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 Plan of Merger (defined below) and the
------
applicable provisions of the laws of the State of Colorado;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, CCC is entering into an Agreement and Plan of Reorganization
substantially similar to this Agreement with each of Garfield Electric Company,
an Ohio corporation ("Company 1"), Indecon, Inc., an Ohio corporation ("Company
--------- -------
2"), Tri-City Electrical Contractors, Inc., a Florida corporation ("Company 3"),
- - ---------
SKC Electric, Inc., a Kansas corporation ("Company 4"), Town & Country Electric,
---------
Inc., a Wisconsin corporation ("Company 5") and Wilson Electric, an Arizona
---------
corporation ("Company 6"); and together Company 1, Company 2, Company 3, Company
---------
4, Company 5 and Company 6 shall be known collectively as the "Other Group
-----------
Companies") (the Other Group Companies, together with the Company, shall be
- ---------
known hereafter collectively as the "Group Companies" and each shall be known
---------------
individually as a "Group Company"; and this Agreement together with the other
-------------
agreements referenced in this clause applicable to the Other Group Companies
shall be known hereafter collectively as the "Group Company Agreements");
------------------------
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"); and
----
WHEREAS, in order to induce CCC to enter into this Agreement and the other
agreements comprising the Group Company Agreements, the Company and the
Shareholders desire to execute and deliver this Agreement, the effect of which,
taken together with the transactions contemplated by the remaining Group Company
Agreements (such transactions, including the transaction contemplated by this
Agreement, being known hereafter collectively as the "Group Merger
------------
Transaction"), will have a direct and beneficial impact on the Company and the
- -----------
Shareholders.
<PAGE>
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 a
Plan of Merger (the "Plan 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 new corporations into which
---------------------
each of the Other Group Companies will merge in the Group Merger Transaction are
referred to collectively, together with the Surviving Corporation, as the
Surviving Group Companies. The Surviving Corporation's name will be changed to
that of the Company immediately after the Effective Time.
1.2 ARTICLES OF INCORPORATION; BY-LAWS, 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
Colorado (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 By-laws of Newco, as in effect immediately prior to the
Effective Time, which are attached as EXHIBIT 1.2(B), shall be the By-Laws of
the Surviving Corporation unless and until thereafter amended as provided
therein and under the State Corporate Laws; provided, that the provisions
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 director(s) of the Surviving Corporation shall be as set
forth on SCHEDULE 1.2(C) until his/their successors are elected and qualified,
and the initial officers of the Surviving Corporation shall be as set forth on
SCHEDULE 1.2(C) until his/their successors are elected and qualified.
1.3 EFFECTS OF THE MERGER. The Merger shall have the effects provided
therefor by the Colorado Business Corporation Act. 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
2
<PAGE>
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, 3.1 and 3.2, 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 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 (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
----------------
defined 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 (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(b)), 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 and 2.3 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 (as defined
in Sections 2.2(a) and 2.3(b) respectively), multiplied by the fraction of a
share of CCC Common Stock to
3
<PAGE>
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 $13,650,000, as adjusted pursuant to this Section 2.2 and Section 3.1.
Of the Base Merger Consideration, $6,825,000 shall be paid in cash at Closing
(as defined in Section 4.1) in immediately available funds. The remaining
$6,825,000 of the Base Merger Consideration shall be paid at Closing in shares
of CCC Common Stock valued at a price per share (the "Merger Price") equal to
------------
the sum of (i) the closing price of CCC Common Stock on January 29, 1998, plus
(ii) the closing price of CCC Common Stock on the last trading day prior to the
Closing Date, 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 (subject
to adjustment as provided in this Section 2.2 and Section 3.1) shall be
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
--------
approved for quotation on the Nasdaq National Market.
(b) The calculation of the Base Merger Consideration takes into
account (i) the Net Worth (as defined below) of the Company as of February 28,
1998, calculated in accordance with generally accepted accounting principles
("GAAP") consistently applied, but in any event excluding any increases in
----
intangible assets of the Company since the end of the Company's most recently
ended fiscal year and until February 28, 1998 (as certified pursuant to Section
8.8, the "Company's Closing Net Worth"), and (ii) the Earnings before Interest
---------------------------
and Taxes (as defined below) of the Company, computed in accordance with GAAP
consistently applied throughout the period involved but adjusted to reflect the
nonrecurring items that are specified on SCHEDULE 2.2(B) hereto, for the twelve
month period ended at the close of the Company's most recently ended fiscal year
(as certified pursuant to Section 8.8, the "Company's 1997 Adjusted EBIT"). The
----------------------------
calculation of the Base Merger Consideration assumes that (A) the total (the
"Group Closing Net Worth") of the Company's Closing Net Worth and the net worth
-----------------------
of each of the Other Group Companies as of February 28, 1998 (calculated and
certified in the manner specified in each of the Group Company Agreements) is
equal to or greater than $31,000,000 (the "Group Net Worth Target") and (B) the
----------------------
total (the "Group 1997 Adjusted EBIT") of the Company's 1997 Adjusted EBIT and
------------------------
the Earnings before Interest and Taxes of each of the Other Group Companies for
the twelve month period ended at the close of each Group Company's most recently
ended fiscal year (calculated and certified in the manner specified in each of
the Group Company Agreements) shall have been equal to or greater than
$19,734,000 (the "Group 1997 Adjusted EBIT Target"). For the purposes of this
-------------------------------
Section 2.2, "Net Worth" is equal to total assets less total liabilities,
---------
"Earnings before Interest and Taxes" is equal to net income (A) plus interest
----------------------------------
expense, income taxes, extraordinary items, cumulative effect of accounting
changes and discontinued operations and (B) less interest income, and "Group
Closing Net Worth" shall include the following items related to the ESOP for SKC
Electric, Inc., which are reflected on the balance sheet for SKC Electric, Inc.:
(A) ESOP common stock purchase obligations, and (B) ESOP-related Debt (current
and long term) and (C) Unearned ESOP common stock.
4
<PAGE>
(c) If the Group Closing Net Worth is lower than the Group Net Worth
Target, then the Merger Consideration (as defined in Section 2.4(a)) to be
delivered to the Shareholders may, at CCC's election, be reduced either (i) at
the Closing, by the product of (A) the difference between the Group Net Worth
Target and the Group Closing Net Worth times (B) 10% (which reduction shall be
pro rata in cash and in CCC Common Stock valued at the Merger Price in the same
proportions as the cash and CCC Common Stock components of the Base Merger
Consideration as provided in Section 2.2(a)) or (ii) after completion of the
Post-Closing Audit (as defined in Section 3.1(b)), in accordance with Section
3.1(b).
(d) If the Group 1997 Adjusted EBIT is less than the Group 1997
Adjusted EBIT Target, then the Merger Consideration to be delivered to the
Shareholders may, at CCC's election, be reduced either (i) at the Closing, by
an amount equal to seven multiplied by the product of (A) the difference between
the Group 1997 Adjusted EBIT Target and the Group 1997 Adjusted EBIT times (B)
10% (which reduction shall be pro rata in cash and in CCC Common Stock valued at
the Merger Price in the same proportions as the cash and CCC Common Stock
components of the Base Merger Consideration as provided in Section 2.2(a)) or
(ii) after completion of the Post-Closing Audit (as defined in Section 3.1(b)),
in accordance with Section 3.1(b). If the Group 1997 Adjusted EBIT is higher
than the Group 1997 Adjusted EBIT Target, then the Merger Consideration to be
delivered to the Shareholders at Closing shall be increased at the Closing by an
amount equal to seven multiplied by the product of (A) the difference between
the Group 1997 Adjusted EBIT and the Group 1997 Adjusted EBIT Target up to a
maximum of $1 million times (B) 10%. The amount by which the Group 1997
Adjusted EBIT exceeds the Group 1997 Adjusted EBIT Target, up to a maximum of $1
million, is hereafter referred to as the "EBIT Increase."
-------------
(e) 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.
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 an amount up to $3,900,000.
(i) $3,900,000 (the "Maximum Earn Out Amount") will be paid,
-----------------------
subject to the provisions of subsection (ii) and (iii) below, if the Earnings
before Interest and Taxes of the Surviving Group Companies (as defined below),
for the one year period after February 28, 1998 (the "Group Actual Earn Out
---------------------
EBIT") is at least equal to the sum of $25,020,000 and the amount, if any, of
- ----
the EBIT Increase (the "Maximum Earn Out Threshold"). Price Waterhouse LLP,
--------------------------
CCC's independent accountant ("CCC's Accountant"), will determine the Group
----------------
Actual Earn Out EBIT and deliver prompt notice of such amount to the
Shareholders (the "Earn Out EBIT Notice") with supporting documentation. The
--------------------
Shareholders (through the Group 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 Group 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. For purposes of this Section 2.3,
5
<PAGE>
"Earnings before Interest and Taxes of the Surviving Group Companies" is equal
-------------------------------------------------------------------
to net income computed in accordance with GAAP consistently applied of the Group
Companies reflected on the books and records of the Surviving Group Companies
and the Holding Company (as defined in Section 7.21 below), which net income (A)
shall not reflect (1) the amortization of goodwill and other intangibles
recognized by CCC in connection with the acquisition of the Group Companies or
any future acquisitions, (2) expenses (including corporate overhead) of CCC
other than those expenses incurred for the benefit of the Surviving Group
Companies that do not duplicate expenses incurred by the Surviving Group
Companies nor exceed the amounts of similar expenses incurred in the most
recently ended fiscal year by the Group Companies prior to the Closing or (3)
the tax that arises under Section 4978 of the Code, (B) shall reflect (1)
depreciation and amortization of assets of the Surviving Group Companies except
to the extent such amounts result from an increase in the book value of the
assets resulting from the Group Merger Transaction and (2) the expenses under
the employment agreement of William P. Love, Jr. with the Holding Company and
other expenses reasonably necessary for the operation of the Holding Company in
connection with its actions as parent of the Surviving Group Companies and (C)
shall be adjusted by (1) adding the amounts of any interest expense, income
taxes, extraordinary items, cumulative effect of accounting changes and
discontinued operations of the Surviving Group Companies and (2) subtracting the
amount of any interest income of the Surviving Group Companies. CCC's Accountant
will calculate the Contingent Merger Consideration for each Surviving Group
Company and the Group Actual Earn Out EBIT applying the same accounting
principles applied by such Group Company (on a company by company basis), with
all such computations made (and definitions used) in the same way the
computations were made (and definitions were used) by such Group Company prior
to the Closing and will conform to the methods of accounting utilized
consistently during the calendar years 1996, 1997 and 1998 for each such Group
Company, provided in each case that such computations were in accordance with
GAAP. If, after the Closing, CCC's Accountant makes conforming adjustments to
unify the accounting principles utilized by each of the Group Companies, such
adjustments shall have no effect on the calculations made by CCC's Accountant
for purposes of this Section 2.3. CCC will provide the Surviving Corporation
with a schedule on a quarterly basis detailing expenses incurred for the benefit
of the Surviving Group Companies, such schedule to be prepared on a comparative
basis to expenses incurred in the prior year by the Group Companies for the same
items.
(ii) If the Group Actual Earn Out EBIT is equal to or less than
the sum of $22,043,000 and the amount, if any, of the EBIT Increase (the "Earn
----
Out Threshold"), then no Contingent Merger Consideration will be paid to the
- -------------
Shareholders.
(iii) If the Group Actual Earn Out EBIT is greater than the Earn
Out Threshold but less than the Maximum Earn Out Threshold (the difference
between the Maximum Earn Out Threshold and the Earn Out Threshold being
hereinafter referred to as the "Earn Out Range"), then the Contingent Merger
--------------
Consideration will equal the product determined by multiplying (A) the Specified
Percentage (as defined below) by (B) the Maximum Earn Out Amount. For purposes
of this Agreement, the "Specified Percentage" shall mean a fraction, the
--------------------
numerator of which is the amount by which the Group Actual Earn Out EBIT exceeds
the Earn Out Threshold and the denominator of which is the Earn Out Range.
(b) The shareholders of the Group Companies (through the Group
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 Group Actual Earn
Out EBIT. If CCC has not received notice of any such dispute within such 30-day
period, the Group Actual Earn Out EBIT contained in the Earn Out EBIT Notice
shall be final. If, however, the shareholders (through the Group
Representative) have delivered notice of such a dispute to CCC within such 30-
day period, then CCC shall, pursuant to Section 2.3(c) below, pay such amount of
the Contingent
6
<PAGE>
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 (or four largest firms if the mergers of
accounting firms proposed as of the date of this Agreement have been completed)
(each, a "New Accounting Firm") to review the amount of the Group Actual Earn
-------------------
Out EBIT, the books of the Surviving Group Companies, including the Surviving
Corporation, and the Earn Out EBIT Notice (and related information) to determine
the amount, if any, that the Group Actual Earn Out EBIT is in error. Such New
Accounting Firm shall be confirmed by the former shareholders of the Group
Companies through the Group 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 Group 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
Contingent Merger Consideration accordingly. If the Revised Earn Out EBIT is
higher than the Group 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 fifteen months after the Closing Date. The costs of the New Accounting
Firm shall be borne by CCC if the Revised Earn Out EBIT is higher than the Group
Actual Earn Out EBIT and by the former shareholders of the Group Companies 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.
(c) The Contingent Merger Consideration described in Section 2.3 (a),
reduced as provided in Section 3.1(c) as appropriate, 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 Group Actual Earn Out EBIT by CCC's Accountant, which shall be made in a
timely fashion following expiration of the one (1) year period after the
Closing, but in no event shall such payment be made later than the date that is
fifteen months after the Closing Date unless the Shareholders dispute the Group
Actual Earn Out EBIT in accordance with Section 2.3(b) hereof. 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 Price. 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 the
one year period after the Closing Date (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 Date, 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.
(d) If, on or prior to a Contingent Merger Consideration Payment
Date, 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
7
<PAGE>
issuable as the Contingent Merger Consideration will be appropriately adjusted
to reflect such split, combination, dividend or other distribution or change.
(e) If, at any time on or before the first anniversary of the Closing
Date, Donald G. White's employment agreement with the Surviving Corporation is
terminated by the Surviving Corporation (or its successor), in its capacity as
employer, without cause (as defined in Donald G. White's employment agreement),
CCC immediately thereupon shall pay to the Shareholders an amount equal to the
Maximum Earn Out Amount. CCC acknowledges that such a payment would constitute
liquidated damages and not a penalty.
(f) Except for actions taken by CCC or Newco at the direction of
Donald G. White, in his capacity as President of the Surviving Corporation, or
one of the presidents of the other Surviving Group Companies, in his capacity as
President of such Surviving Group Company, during the one year period after the
Closing (the "Earn Out Period"), CCC and Newco (i) will operate the businesses
---------------
of the Surviving Group Companies diligently and in the ordinary course and (ii)
will not take any actions that would materially change the operations of the
businesses of the Surviving Group Companies, including any action that would
prevent any of the Surviving Group Companies (A) from conducting its business in
the ordinary course or (B) from taking any action necessary to preserve the
businesses of the Surviving Group Companies, to keep available to the Surviving
Group Companies its employees (with the same salary and bonus structure), or to
preserve the Surviving Group Companies' relationships with customers, suppliers
and others having business relations with it.
(g) In the event CCC, Newco or any of their subsidiaries takes any
action or omits to take any action which has a direct, quantifiable, negative
impact on the Earnings before Interest and Taxes of the Surviving Group
Companies or the businesses of the Group Companies as currently being conducted;
then, in any such event, the parties, in good faith, shall make reasonable
adjustments in the calculation of the Group Actual Earn Out EBIT as may be
necessary to neutralize the impact of any such action or omission.
(h) CCC and Newco agree that separate books and records will be kept
for each of the Group Companies during the Earn Out Period.
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)), as adjusted pursuant to Section 2.2, 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 8.11),
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.
8
<PAGE>
(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 3.2(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. 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. POST CLOSING ADJUSTMENT; PLEDGED ASSETS
3.1 POST-CLOSING ADJUSTMENT.
(a) The Base Merger Consideration shall be subject to adjustment as
specified in this Section 3.1.
(b) Within ninety (90) days following the Effective Time, CCC shall
cause CCC's Accountant to audit (the "Post-Closing Audit") the books of the
------------------
Company to determine the accuracy of the information relating to the Company's
Closing Net Worth and the Company's 1997 Adjusted EBIT as set forth on the
Financial Certificates (as defined in Section 7.20) and on the financial
certificates of the Other
9
<PAGE>
Group Companies. In determining the accuracy of such information reflected on
the Financial Certificates in the course of the Post-Closing Audit, CCC's
Accountant shall apply the same accounting methodology used by the Company or
the Shareholders, as applicable, in preparing such information; provided that
CCC's Accountant shall not be obligated to apply such methodology to the extent
inconsistent with GAAP (as modified by Section 2.2(b) above). The Shareholders
shall cooperate with CCC and CCC's Accountant after the Closing Date in
furnishing information, documents, evidence and other assistance to CCC's
Accountant to facilitate the completion of the Post-Closing Audit within the
aforementioned time period. Without limiting the generality of the foregoing,
within two weeks after the Closing, the Shareholders shall provide CCC's
Accountant with the information and/or documents reasonably requested by them.
CCC's Accountant will test the Company's Closing Net Worth, the Group Closing
Net Worth, the Company's 1997 Adjusted EBIT and the Group 1997 Adjusted EBIT
based upon the Post-Closing Audit and the post-closing audits of the Other Group
Companies. In the event that CCC's Accountant determines (i) a different amount
than the Group Closing Net Worth (the "Actual Closing Net Worth") or (ii) a
------------------------
different amount than the Group 1997 Adjusted EBIT (the "Actual 1997 Adjusted
--------------------
EBIT" ), CCC shall promptly deliver a written notice with supporting
- ----
documentation (the "Financial Adjustment Notice") to the shareholders of the
---------------------------
Group Companies, including the Shareholders, setting forth (A) the determination
made by CCC's Accountant of the Actual Closing Net Worth and the Actual 1997
Adjusted EBIT, (B) the amount of the cash portion of the Base Merger
Consideration that would have been payable at Closing pursuant to Section 2.2(c)
had the Actual Closing Net Worth and the Actual 1997 Adjusted EBIT been used
instead of the Group Closing Net Worth and the Group 1997 Adjusted EBIT to
determine the need for any adjustments to the Base Merger Consideration pursuant
to Sections 2.2(c) and 2.2(d), respectively, and (C) the number of shares issued
as part of the Base Merger Consideration that would have been issuable at
Closing had the Actual Closing Net Worth and the Actual Adjusted EBIT been used
to determine the need for any adjustments to the Base Merger Consideration as
set forth in (B) above. The differences between the respective amounts set forth
in (B) and (C) and the amounts of the cash and the CCC Common Stock components
of the Base Merger Consideration paid pursuant to Section 2.2 (a), as adjusted
pursuant to Sections 2.2(c) or 2.2(d), is referred to hereafter as the "Merger
------
Consideration Adjustment." Any increase in the Base Merger Consideration
- ------------------------
resulting from such Merger Consideration Adjustment shall be owed by CCC to the
Shareholders. Any decrease in such Base Merger Consideration resulting from such
Merger Consideration Adjustment shall be owed by the Shareholders to CCC. If, on
or prior to the payment of the Merger Consideration Adjustment, 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 part of the Merger Consideration Adjustment will be
appropriately adjusted to reflect such split, combination, dividend or other
distribution or change. The shares of CCC Common Stock, if any, to be issued in
respect of the Merger Consideration Adjustment shall be registered under the
1933 Act and approved for quotation on the Nasdaq National Market.
(c) The shareholders of the Group Companies, including the
Shareholders, through the Group Representative, shall have thirty (30) days from
the receipt of the Financial Adjustment Notice to notify CCC if they dispute
such Financial Adjustment Notice. If CCC has not received notice of any such
dispute within such 30-day period, (i) CCC shall be entitled to receive promptly
pro rata from the Shareholders (which may, at CCC's sole discretion, be from the
Pledged Assets as defined in, and subject to the provisions of, Section 3.2
and/or the Contingent Merger Consideration) any Merger Consideration Adjustment
owed to CCC and (ii) the Shareholders shall be entitled to receive promptly from
CCC any Merger Consideration Adjustment owed to the Shareholders. If, however,
the Shareholders (through the
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Group Representative) have delivered notice of such a dispute to CCC within such
30-day period, then CCC's Accountant shall select a New Accounting Firm to
review the books of the Group Companies including, the Surviving Corporation,
the Financial Certificates and the Financial Adjustment Notice (and related
information) to determine the amount, if any, of the revised Merger
Consideration Adjustment (the "Actual Merger Consideration Adjustment"). Such
--------------------------------------
New Accounting Firm shall be confirmed by the Shareholders through the Group
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 Merger Consideration Adjustment, if any, within
thirty (30) days of its selection. The determination made by the New Accounting
Firm shall be final and binding on the parties hereto, and, upon such
determination, CCC shall be entitled to receive pro rata from the Shareholders
(which may, at CCC's sole discretion, be from the Pledged Assets as defined in,
and subject to the provisions of, Section 3.2 and/or the Contingent Merger
Consideration) the Actual Merger Consideration Adjustment or the Shareholders
shall be entitled to receive from CCC the Actual Merger Consideration
Adjustment, as applicable. The costs of the New Accounting Firm shall be borne
by the party (either CCC or the shareholders of the Group Companies, including
the Shareholders) whose amounts, on the Financial Adjustment Notice or its
Financial Certificates, as applicable (the "Proposed Numbers"), were further
----------------
from the determination of the New Accounting Firm of what the amounts should
have been (the "Revised Numbers"), or equally by CCC and the shareholders of the
---------------
Group Companies, including the Shareholders, in the event that the Revised
Numbers are equidistant between the original amounts.
3.2 PLEDGED ASSETS.
(a) As collateral security for the payment of any Merger
Consideration Adjustment or any indemnification obligations of the Shareholders
pursuant to (and subject to the limitations of) Article 10, the Shareholders
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) at the option of the Shareholders, such Shareholders' pro
rata portion of cash and/or shares of CCC Common Stock with a value, based on
the Merger Price, equal to ten percent (10%) of the Base Merger Consideration
subject to adjustment pursuant to Section 2.2 or Section 3.1 hereof, 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 bearing 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
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<PAGE>
to CCC, for each such certificate, a stock power duly signed in blank by him.
Any cash comprising a Shareholder's Pledged Assets shall be withheld by CCC from
distribution to the Shareholder and placed by CCC into an interest bearing
custodial account that is not commingled with any assets of CCC or any of its
subsidiaries. All shares of CCC 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 Merger
Consideration Adjustment and 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 the interest earned on any cash
portion of the Pledged Assets of each Shareholder and including dividends and
distributions with respect to shares of CCC Common Stock subject to pledge),
less Pledged Assets having an aggregate value equal to the amount of (i), in the
discretion of CCC, the Actual Merger Consideration Adjustment under Section 3.1,
(ii) 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 (iii) 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 (x) the Merger Price with
respect to the Actual Merger Consideration Adjustment under Section 3.1 and (y)
the average of the closing price on the Nasdaq National Market per share 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. Notwithstanding
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 or any Merger
Consideration Adjustment, 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 3.2, 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.
(e) Notwithstanding the foregoing provisions of this Section 3.2, the
Pledged Assets of any Shareholder that is a Profit Sharing Plan (as defined in
Section 7.19) shall be held by a third party agent and upon terms reasonably
acceptable to CCC and the fiduciaries of such Shareholder.
4. CLOSING
4.1 LOCATION AND DATE. The consummation of the Merger and the other
transactions contemplated 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 10, 1998, providing that all conditions to
12
<PAGE>
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, certificate 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").
--------------
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
To induce CCC and Newco to enter into this Agreement and consummate the
transactions contemplated 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, except for the representations and
warranties with respect to themselves contained in Section 5.2, 5.3, 5.4, 5.8
and 5.30, who shall not be deemed to be making any representations or warranties
under this Agreement), 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 By-laws of the Company. Such
Articles of Incorporation and By-laws 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
13
<PAGE>
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;
(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, franchise, 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, of which
320,200 shares are issued and outstanding. 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).
14
<PAGE>
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.
(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 companies 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 end of its most recently ended fiscal year (the "Year-End Net Worth") was
------------------
not less than $1,104,000.
5.10 FINANCIAL STATEMENTS. SCHEDULE 5.10 includes 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").
------------------
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 (as
defined in Section 9.14) and not previously 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 SCHEDULE
15
<PAGE>
5.18(A) and those liabilities under any contract, commitment or agreement
specifically disclosed on any Schedule to this Agreement.
(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 ninety (90) 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-off, 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.
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<PAGE>
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
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Company has not received any notice that any governmental 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, including 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) As of the Closing Date, 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) Except as set forth on SCHEDULE 5.15(D): (i) the Company holds
no interest as landlord in any Real Property; (ii) the Company 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) the Company 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) the Company has no
knowledge of any default by the landlord under any lease relating to the leased
Real Property; (v) the Company has paid all rent under each lease relating to
the leased Real Property with respect to the period through the Closing Date;
and (vi) the Company has not exercised any termination or purchase
17
<PAGE>
option under any lease relating to the leased Real Property nor has the Company
exercised any renewal or extension under any lease relating to the leased Real
Property with respect to any renewal or extension period that will commence
after the date hereof (other than renewals or extensions that have been
disclosed to CCC).
(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 default thereunder
or provided notice of the exercise of any option granted to such party under
such lease.
(f) Except as provided on SCHEDULES 5.15(C) OR 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.
(g) As soon as possible after the date hereof, the Shareholders or a
Person (as defined in Section 7.10(a) below) controlled by such Shareholders
(the "Englewood Purchaser") will purchase the property known as 2101 and 2107
West College Avenue, Englewood, CO (the "Englewood Property") from the Company
and will fully satisfy the two mortgage loans identified on SCHEDULE 5.8. The
Company and the Shareholders have provided CCC with a [form of purchase
agreement/term sheet] as set forth on EXHIBIT 5.15(G).
(h) Immediately upon the sale of the Englewood Property, the
Englewood Purchaser will lease the Englewood Property to the Company. The
Company and the Shareholders have provided CCC with a [form of lease/term sheet]
as set forth on EXHIBIT 5.15(H).
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).
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<PAGE>
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.
(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
19
<PAGE>
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, $50,000 individually, or
that may generate revenues or income exceeding, during the current term thereof,
$50,000 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. Other
than as disclosed on SCHEDULE 5.18(A), 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.
(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
20
<PAGE>
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.
(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 workmen's 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.
5.20 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:
21
<PAGE>
(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;
(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)
- ----------------
22
<PAGE>
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 7.19 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 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,
23
<PAGE>
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
(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.
24
<PAGE>
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 since the inception of the Company.
(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 three 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
25
<PAGE>
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)
(i) The Company, since January 1981, has been an S corporation
within the meaning of Section 1361 of the Code.
(ii) Except as set forth on SCHEDULE 5.24, the Company does not
have a net recognized built-in gain within the meaning of Section 1374 of the
Code.
(c) 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.
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;
26
<PAGE>
(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;
(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
27
<PAGE>
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.
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.
28
<PAGE>
(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.
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
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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 January 21, 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, or, to the knowledge of such Shareholder, such Shareholder's
purchaser representative, (a) has such knowledge and experience in business and
financial matters and such knowledge concerning the business, operations and
financial condition of the Other Group Companies 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 and the Other Group Companies concerning the business,
operations and financial condition of CCC and the Other Group Companies,
respectively. 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. Each Shareholder
acknowledges and agrees that CCC has not and will not provide such Shareholder
or any other party with a prospectus for the Shareholder's use in selling CCC
Common Stock.
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
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any "inventory" as such term is defined in the Uniform Commercial Code as in
effect on the date hereof in the State of Colorado (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, 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.
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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 By-laws,
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 have been duly and validly authorized by the respective
Boards of Directors of CCC and Newco, and this Agreement has 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. 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 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
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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;
(e) require the consent of any third party; or
(f) conflict with, result in a breach of, or result in a default
under any document, agreement or instrument to which Jonathan J. Ledecky is a
party, or by which Jonathan J. Ledecky is bound.
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
30,292,857 shares were outstanding on February 26, 1998, and 500,000 shares of
Convertible Non-Voting Common Stock, par value $.001 per share, of which 500,000
shares were outstanding on February 26, 1998. The authorized capital stock of
Newco consists of 1,000 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 was 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. 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.
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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
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 January 21, 1998 and declared effective on January
----------------------
26, 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:
(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.
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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 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.
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(b) The Company shall, prior to the Closing, maintain its status as
an S Corporation for federal and state income tax purposes.
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 ninety (90) 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 TITLE INSURANCE AND SURVEYS.
(a) With respect to each parcel of Real Property owned by the Company
at the Closing Date, the Shareholders and the Company shall use their reasonable
efforts to assist CCC in obtaining (i) as soon as practicable after the date of
this Agreement, a title commitment disclosing the condition of title to such fee
estate and all easements, rights of way, and restrictions of record with respect
thereto, as of a date not earlier than the date of this Agreement, accompanied
by copies of all instruments evidencing the scope and extent of all such
easements, rights of way, and restrictions of record (the "Title Commitment"),
----------------
and (ii) at or prior to Closing, an ALTA Owner's Policy of Title Insurance on a
form customarily used in the state in which the Real Property is located, issued
by a title insurer satisfactory to CCC, in an amount equal to the fair market
value of the Real Property (as reasonably determined by CCC), insuring title to
such property to be in the name of the party designated by CCC on SCHEDULE 7.3,
subject only to Permitted Encumbrances (each a "Title Policy").
------------
(b) With respect to each Real Property interest as to which a Title
Policy is to be procured pursuant to this Agreement, the Shareholders and the
Company shall use their reasonable efforts to assist CCC in obtaining as soon
as practicable after the date of this Agreement, a current survey of the
relevant parcel, prepared and certified to CCC and to the title insurer of such
Real Property interest by a licensed surveyor and conforming to current ALTA
Minimum Detail Requirements for Land Title Surveys, disclosing the location of
all improvements, easements, party walls, sidewalks, roadways, utility lines,
and other matters customarily shown on such surveys, and showing access
affirmatively to public streets and roads.
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 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
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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 accountant's 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 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 Newco 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 FTC or 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.
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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;
(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 By-laws, or
authorize or propose the same;
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(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, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock except as provided
above in subsection (b) and except for distributions relating to the payment of
taxes for the 1998 tax year with respect to the Company if it is a Subchapter S
Corporation under the Code;
(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 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;
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(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 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 Party" 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
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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. Notwithstanding
anything in the foregoing to the contrary, no Shareholder that is a Profit
Sharing Plan shall be restricted in the transfer of any shares of CCC Common
Stock received by such Shareholder as part of the Base Merger Consideration or
as part of the Contingent Merger Consideration to the extent the transfer is
required by applicable law or (i) with respect to the shares of CCC Common Stock
received as part of the Base Merger Consideration, following the first
anniversary of the Closing Date or (ii) with respect to the shares of CCC Common
Stock received as part of the Contingent Merger Consideration, following six
months after the receipt of such shares with respect to 100% of such shares and
following three months after the receipt of such shares with respect to 50% of
such shares, it being agreed that any shares of Common Stock received by the
Profit Sharing Plan after the resolution of a dispute as to the amount of the
Group Actual Earn Out EBIT shall be considered to have been received for
purposes of this transfer restriction at the same time as the Profit Sharing
Plan received the rest of the shares of Common Stock issued as Contingent Merger
Consideration.
(b) Each Shareholder acknowledges and agrees that CCC will not
provide such Shareholder with a prospectus for such Shareholder's use in selling
the shares of CCC Common Stock to be received by such Shareholder in the Merger,
and agrees to sell such shares 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 MARCH 10, 1999, THESE SHARES MAY ONLY
BE TRANSFERRED IN 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
MARCH 10, 1999, 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 MARCH 10, 2000, THESE SHARES MAY BE TRANSFERRED
BY NON-AFFILIATES OF THE ISSUER WITHOUT RULE 145 RESTRICTIONS IN
ACCORDANCE WITH RULE 145(D)(3).
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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 FEBRUARY 27, 1998 (THE "AGREEMENT"), BY AND AMONG THE
---------
ISSUER, CCC3 ACQUISITION CO., RIVIERA ELECTRIC CONSTRUCTION CO.
(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 41,400 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, other than Shareholders who, as of the
date of this Agreement, owned less than three and one half (3 1/2) percent of
the capital stock of the Company) on or 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 CCC BOARD SEAT. At the Closing, the Board of Directors of CCC shall
expand its number and elect a representative selected by the Group Companies and
reasonably acceptable to CCC to fill such newly created seat. Thereafter, CCC
will use its best efforts to cause such individual (or his successor, who shall
be selected by a vote of a majority of the presidents of the Surviving Group
Companies and who must also be reasonably acceptable to CCC) to remain on the
CCC Board of Directors; provided, however, that CCC shall not be liable should
the shareholders of CCC not re-elect such individual to a new term on the CCC
Board of Directors.
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 and By-laws, or any other agreement between any such director,
officer,
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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 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 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.
7.16 CONSULTING PAYMENT. At Closing, and in consideration for his
agreement to serve CCC on a consulting basis after the Closing, Neil McCarthy
will receive from CCC, by company check, $250,000 plus options to purchase
50,000 shares of CCC Common Stock, at a purchase price equal to the fair market
value of the underlying shares of CCC Common Stock on the Closing Date and
exercisable immediately for 25,000 shares and exercisable with respect to the
remaining 25,000 shares at the end of the one year period after the Closing Date
(it being agreed that such options shall be issued in accordance with CCC's 1997
Long-Term Incentive Plan and will have the vesting provisions established by the
Compensation Committee of the Board of Directors of CCC).
7.17 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.
7.18 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 result in any adjustment to the Base Merger
Consideration or the Contingent Merger Consideration pursuant to Section 2.2(e)
and 2.3(d).
7.19 EMPLOYEE BENEFITS MATTERS.
(a) 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
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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 7.19
shall only be made if CCC and the president of the Company or his successor, in
his capacity as an employee of CCC or any affiliate thereof, shall mutually
agree to such amendment, modification, or termination. Without limitation on the
foregoing, CCC or any successor thereto shall maintain an employee benefit
pension plan within the meaning of ERISA Section 3(2) which plan will continue
to hold such qualifying employer securities, as defined in ERISA Section
407(d)(5), as may be required to avoid the imposition of any excise tax under
Code Section 4978 with respect to any employee stock ownership plan having
engaged in a transaction to which Code Section 1042 applies for such period as
may be required to avoid the imposition of such excise tax. The Company and
Donald G. White will not make an election under (S)1042 of the Code.
Notwithstanding the foregoing, it is acknowledged that CCC and the Surviving
Corporation shall not pay for any country club memberships or the expenses
related to more than one vehicle per employee.
(b) The Company, Donald G. White and the fiduciaries for the Riviera
Electric, Inc. Employee Stock Ownership Trust (the "ESOP Trust") will offer the
ESOP Trust the right to buy shares prior to Closing of the Company's Common
Stock from Donald G. White (the "ESOP Purchase Right").
(c) If the ESOP Trust exercises the ESOP Purchase Right prior to the
Closing, then Donald G. White shall sell the requisite shares to the ESOP Trust
prior to Closing and immediately following such sale but prior to Closing, the
Company shall convert the Riviera Electric, Inc. Employee Stock Ownership Plan
(the "ESOP") to a profit sharing plan that does not provide for pass-through
voting by its participants (the "Profit Sharing Plan").
7.20 SUPPLEMENTAL FINANCIAL CERTIFICATE. The Shareholders shall, within
thirty (30) days following Closing (a copy of which shall be attached to the
Supplemental Financial Certificate), cause the preparation of a balance sheet
(the "Closing Balance Sheet") for the Company as of February 28, 1998 and
---------------------
deliver to CCC a certificate (the "Supplemental Financial Certificate"; and
----------------------------------
together with the Closing Financial Certificate, the "Financial Certificates"),
----------------------
signed on behalf of the Shareholders by the Representative, setting forth:
(a) the Company's Closing Net Worth; and
(b) a certification that the Closing Balance Sheet (a copy of which
shall be attached to the Supplemental Financial Certificate) presents fairly the
financial condition of the Company as of the Closing Date.
All costs associated with the preparation of the Supplemental Financial
Certificate (including the costs associated with preparing the Closing Balance
Sheet) shall be borne by the Shareholders and not by the Company or CCC.
7.21 HOLDING COMPANY. Promptly following the Closing, CCC will contribute
all of the shares of capital stock of each Surviving Group Company to
Consolidation Capital Corporation Electrical Services, Inc., a first tier,
wholly-owned subsidiary of CCC (the "Holding Company"). As the sole shareholder
of Holding Company, CCC will, at Closing, (i) cause William P. Love, Jr. to be
appointed its Chief Executive Officer, (ii) cause the Holding Company to enter
into an employment agreement with Mr. Love substantially
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in the form attached to the Group Company Agreement for SKC Electric, Inc., and
(iii) elect William P. Love, Jr., F. Traynor Beck and Timothy Clayton as its
board of directors.
7.22 PROFIT SHARING PLAN CONVERSION COSTS. CCC shall indemnify and hold
harmless any Conversion Indemnitee (defined below) with respect to any Damages
(as defined in Section 10.1) suffered, sustained, incurred, or paid by such
Conversion Indemnitee in connection with, resulting from, or arising out of,
directly or indirectly, any conversion of the ESOP to a Profit Sharing Plan as
described in Section 7.19 herein subsequent to the Effective Time with respect
to such Damages, whether arising before, on or after the Effective Time, or, in
the event that this Agreement is terminated by the holders of the majority of
the voting stock of the Company and the Company pursuant to Section 13.1(c). In
the event that this Agreement is terminated by CCC pursuant to Section 13.1(c),
then the Company shall indemnify and hold harmless CCC with respect to any
Damages (as defined in Section 10.1) suffered, sustained, incurred, or paid by
CCC in connection with, resulting from, or arising out of, directly or
indirectly, any conversion of the ESOP to a Profit Sharing Plan as described in
Section 7.19 herein. The term "Conversion Indemnitee" means the Company, the
---------------------
Shareholders, the former ESOP, any fiduciary of such former ESOP, or any "party-
in-interest" or "disqualified person" with respect to such former ESOP (as such
terms are defined in ERISA Section 3(14) and Code Section 4975).
7.23 INDEMNIFICATION OF SHAREHOLDER'S PURCHASER REPRESENTATIVE. Until the
first anniversary of the Closing, CCC shall pay all costs and expenses
(including the value of any claims or awards) of any Shareholder's purchaser
representative that arise out of any claim or lawsuit related to the
transactions contemplated hereby. On the first anniversary of the Closing, the
Shareholders shall reimburse CCC, by surrender of Pledged Assets or otherwise,
for 50% of such costs and expenses; it being understood and agreed that any such
expense shall not affect the calculation of Group Actual Earn Out EBIT or the
payment of the Contingent Merger Consideration; and provided, however, that the
-------- -------
Shareholders shall not be obligated to reimburse CCC for 50% of any such costs
and expenses that arise out of any lawsuit in which CCC shall be found to be
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act), and the Shareholders shall be obligated to reimburse CCC
for all such costs and expenses that arise out of any lawsuit in which the
Company or any of the Shareholders shall be found to be guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act).
Following the first anniversary of the Closing, the Shareholders and CCC shall
equally share and be obligated to pay equal portions of all such costs and
expenses; provided, however, that the Shareholders on the one hand and CCC on
-------- -------
the other hand shall not be liable to so share and pay any such portion of costs
and expenses that arise out of any lawsuit in which CCC on the one hand or the
Company or the Shareholders on the other hand shall be found to be guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act). CCC and the Shareholders shall direct a third party, mutually
acceptable to CCC and the Shareholders to estimate an amount sufficient to cover
the costs and expenses of any claim pending on the first anniversary of the
Closing Date and the Shareholders shall escrow such amount of shares of CCC
Common Stock or cash from the Pledged Assets to cover their 50% of such costs
and expenses. The terms of the escrow shall be mutually satisfactory to CCC and
the Shareholders. Notwithstanding anything to the contrary herein, the
Shareholders shall be entitled to satisfy any claim relating to the Pledged
Assets with cash, in lieu of shares of CCC Common Stock constituting Pledged
Assets. If the payment by CCC of all costs and expenses of any Shareholder's
purchaser representative pursuant to the first sentence of this Section 7.23 is
unavailable, then CCC, in lieu of making such payment, shall contribute to the
amount paid or payable by such Shareholder's purchaser representative as a
result of any such claim or lawsuit in such proportion as is appropriate to
reflect the relative fault of such Shareholder's purchaser representative, on
the one hand, and CCC, on the other hand, in connection with the actions or
inactions giving rise to such claim or lawsuit, as
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well as any other relevant equitable considerations, including, without
limitation, the parties' relative intent, knowledge and access to information.
The obligations of the Shareholders pursuant to this Section 7.23 shall be on a
joint and several basis.
7.24 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 (by pledge of assets or otherwise) unless and until
such personal guarantee (including any pledge of assets) has been fully
released.
7.25 INDEBTEDNESS.
(a) It is understood and agreed that the four demand notes identified
on SCHEDULE 5.11 shall be modified prior to Closing according to the terms and
conditions detailed on SCHEDULE 5.11.
(b) It is understood and agreed that the six notes dated December 31,
1997 identified on SCHEDULE 5.11 will be forgiven by the holders at Closing.
7.26 RELEASE OF PLEDGES. It is understood and agreed that the pledges of
stock identified on SCHEDULE 5.4 will be released on or before the Closing Date
and all outstanding stock of the Company will be free and clear of all Liens.
7.27 PROFIT SHARING PLAN. It is understood and agreed that on or before
the Closing Date, the Profit Sharing Plan will sign as a party to this
Agreement, agreeing to be bound by all the terms and conditions contained
herein.
7.28 SHAREHOLDERS' AGREEMENT. It is understood and agreed that on or
before the Closing Date, the Shareholders' Agreements between the Company and
the Shareholders identified on SCHEDULE 5.4 will be terminated.
7.29 REAL PROPERTY.
(a) It is understood and agreed that on or before the Closing Date,
the Englewood Purchaser will purchase the Englewood Property and will fully
satisfy the two mortgage loans identified on SCHEDULE 5.18.
(b) It is understood and agreed that upon the sale of the Englewood
Property, the Englewood Purchaser will lease the Englewood Property to the
Company on the terms and conditions set forth on EXHIBIT 5.15(H).
7.30 AGREEMENT IN CONNECTION WITH THE SHAREHOLDER'S IRREVOCABLE LIFE
INSURANCE TRUST. It is understood and agreed that prior to the Closing Date, the
Agreement in connection with the Shareholder's Irrevocable Life Insurance Trust
as identified on SCHEDULE 5.4 will be terminated.
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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
Group Material Adverse Effect, as defined below; (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. For purposes of this Agreement, "Group
Material Adverse Effect" means a material adverse effect on the business,
operations, properties, assets or condition, financial or otherwise, of the
Group Companies 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) change in governmental or legislative laws, rules
or regulations, or (d) actions taken by CCC or any affiliate of 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 Group 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 Group Companies, taken as a whole, since 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
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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 Group 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 Department of Justice or Federal Trade Commission
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 By-laws 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 DELIVERY OF CLOSING FINANCIAL CERTIFICATE. CCC shall have received a
certificate (the "Closing Financial Certificate"), dated as of the Closing Date,
-----------------------------
signed on behalf of the Company and by the Shareholders, setting forth:
(a) the net worth of the Company as of the last day of its most
recently ended fiscal year;
(b) the net worth of the Company as of January 31, 1998; and
(c) the Company's 1997 Adjusted EBIT.
8.9 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).
8.10 EMPLOYMENT AGREEMENTS. Donald G. White shall enter into, at Closing,
an employment agreement with the Surviving Corporation in substantially the form
of EXHIBIT 8.10 hereto.
8.11 AFFILIATE AGREEMENTS. The Shareholders listed on SCHEDULE 5.31 shall
have entered into an Affiliate Agreement in the form set forth as EXHIBIT 8.11.
8.12 SHAREHOLDERS' RELEASE. The Shareholders shall each have delivered to
CCC an instrument dated the Closing Date in the form of EXHIBIT 8.12.
8.13 RELATED PARTY RECEIVABLES AND AGREEMENTS. Except with respect to the
items on SCHEDULE 8.13, all employees, shareholders, directors, officers and
Affiliates of the Company shall have repaid in full
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all obligations to the Company in respect of borrowings or advances. The Related
Party Agreements set forth in SCHEDULE 8.13 shall have been terminated as of the
Closing.
8.14 CONSUMMATION OF GROUP MERGER TRANSACTION. The Group Merger
Transaction shall occur contemporaneously with the consummation of the
transactions contemplated by this Agreement.
8.15 EMPLOYEE PLAN FIDUCIARY CONDITION. The appropriate fiduciaries of the
Profit Sharing Plan shall have received a current valuation report and fairness
opinion in such form as may be acceptable to such fiduciaries from a source
acceptable to such fiduciaries and such fiduciaries shall have determined, in
the exercise of their sole discretion, that the consummation of the transactions
contemplated herein at the Closing is fair to and in the best interests of the
participants and beneficiaries of the Profit Sharing Plan.
8.16 SALE OF STOCK TO ESOP AND CONVERSION OF ESOP TO A PROFIT SHARING PLAN.
If Donald G. White has sold shares of the Company to the ESOP Trust, then
following such sale but prior to Closing, the Company shall have converted the
ESOP to a Profit Sharing Plan.
8.17 SALE OF ENGLEWOOD PROPERTY AND SUBSEQUENT LEASEBACK. The Shareholders
or any Person controlled by such Shareholders shall have purchased the Englewood
Property from the Company on terms and conditions as set forth on EXHIBIT
5.15(G). Immediately upon the sale of the Englewood Property, the Englewood
Purchaser will lease the Englewood Property to the Company on the terms and
conditions as set forth on EXHIBIT 5.15(H).
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.
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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 Department of Justice or Federal Trade Commission challenging or seeking to
enjoin the consummation of the transactions contemplated hereby shall be
pending.
9.4 EMPLOYMENT AGREEMENTS. The Surviving Corporation shall have afforded
Donald G. White the opportunity to enter into, at Closing, an employment
agreement with the Surviving Corporation in substantially the form of EXHIBIT
8.10 hereto.
9.5 TAX CERTIFICATE DELIVERY. A certificate substantially in the form
attached hereto as EXHIBIT 9.5, dated the Closing Date and signed by the
President or any Vice President of CCC and Newco, shall have been delivered to
tax counsel for the Shareholders.
9.6 SATISFACTION WITH SHAREHOLDER RELEASE AND AFFILIATE AGREEMENTS. Each
Shareholder shall be reasonably satisfied with the form of the Affiliate
Agreement and Shareholder Release to be executed by them pursuant to Section
8.11 and Section 8.12.
9.7 TAX OPINION. The Shareholders shall have received from Dow, Lohnes &
Albertson, PLLC, tax counsel to the Shareholders, that the Merger qualifies as a
reorganization as defined under Code Section 368(a)(1)(A).
9.8 CONSUMMATION OF GROUP MERGER TRANSACTION. The Group Merger
Transaction shall occur contemporaneously with the consummation of the
transactions contemplated by this Agreement.
9.9 EMPLOYEE PLAN FIDUCIARY CONDITION. The appropriate fiduciaries of the
Profit Sharing Plan shall have received a current valuation report and fairness
opinion in such form as may be acceptable to such fiduciaries from a source
acceptable to such fiduciaries and such fiduciaries shall have determined, in
the exercise of their sole discretion, that the consummation of the transactions
contemplated herein at the Closing is fair to and in the best interests of the
participants and beneficiaries of the Profit Sharing Plan.
9.10 BOARD EXPANSION. CCC shall have increased the size of its Board of
Directors to six members and, as contemplated by Section 7.13, a representative
of the Group Companies shall have been duly elected to such Board of Directors.
9.11 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.
9.12 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 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
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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.
9.13 OFFICER 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.
9.14 INTERIM BALANCE SHEET. The Company shall deliver to CCC true, complete
and correct copies of the Company's unaudited balance sheet (the "Interim
-------
Balance Sheet") as of January 31, 1998 and income statement and statement of
- -------------
cash flows, for the ____-month period then ended (collectively, the "Interim
-------
Financials," 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.
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
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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), 5.24 (taxes), 5.27 (environmental matters), 5.5 (ESOP) and any
receivables from related persons that are listed on Schedule 8.13 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.
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) adjustments to the Merger
Consideration as set forth in Sections 2.2 and 3.1, which adjustments shall not
constitute Damages; (ii) 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; (iii) Damages described in Section
10.1(a)(iv), or (iv) 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);
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(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
(2) (w) 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), (x) with respect to covenants of the Shareholders to be
performed after the Closing Date until fully performed and discharged, (y) with
respect to covenants of CCC and Newco contained in Section 7.15 or the
representations, warranties and covenants set forth in the certificate delivered
by or on behalf of CCC and Newco pursuant to Section 9.5, until the expiration
of the longest applicable federal or state statute of limitations (including
extensions thereof agreed to by the party from whom indemnification is sought),
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
indemnification hereunder for the breach of a representation, warranty or
covenant where the identical subject matter thereof has also resulted in, or
caused, a Merger Consideration Adjustment to the Base Merger Consideration
pursuant to Section 3.1;
(e) in no event will any CCC Indemnified Party be entitled to any
indemnification hereunder from any Shareholder that is an employee benefit plan
within the meaning of ERISA Section 3(3) to the extent that such indemnification
could: (i) result in a transaction prohibited under ERISA Section 406 or Code
Section 4975; (ii) give rise to a claim for breach of any such plan
fiduciaries' duties with respect to such plan; or (iii) otherwise violate any
applicable provision of ERISA or the Code; or
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(f) 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.
(g) 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.
(h) 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 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
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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 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).
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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, and subject to the limitations in Sections 3.2(c) and 10.3
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
business selling any products or services in direct competition with the Holding
Company or any of its subsidiaries within 100 miles of any office of the Holding
Company or any office of any of the Holding Company's subsidiaries (the
"Territory");
- ----------
(b) call upon any person who is, at that time, within the Territory,
an employee of the Holding Company or any subsidiary of the Holding Company in a
managerial capacity for the purpose or with the intent of enticing such employee
away from or out of the employ of the Holding Company or any subsidiary of the
Holding Company;
(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 the Holding
Company or any subsidiary of the Holding Company, for the purpose of soliciting
or selling products or services in direct competition with the Holding Company
or any subsidiary of the Holding Company 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 the Holding Company or a
subsidiary of the Holding Company as a prospective acquisition candidate or was
the subject of an acquisition analysis by the Holding Company or any subsidiary
of the Holding Company. 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 the
Holding Company or any subsidiary of the Holding Company 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.
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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.
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
12. 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,
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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 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
57
<PAGE>
(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 March 15, 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
Section 7.22, Article 12 and Article 13; and
(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
58
<PAGE>
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 this Section 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.
In addition, CCC will pay all fees and expenses relating to obtaining licenses,
permits, surety bonds, insurance, transfer applications, business credit reports
and the related qualifications for Newco, the other subsidiaries newly formed by
CCC to effect the Group Merger Transaction and the Surviving Group Companies,
including the Surviving Corporation, up to an aggregate amount of $100,000. Any
such fees and expenses of the Surviving Group Companies in excess of $100,000
shall be split between CCC on the one hand and the shareholders of the Group
Companies on the other. Except with respect to FMI Corporation and the part of
the fee to Neil McCarthy referred to below, 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. In addition, it is understood and agreed that CCC shall be solely
responsible to pay to FMI Corporation a fee equal to 3% of the Base Merger
Consideration plus the Contingent Merger Consideration paid pursuant to this
Agreement and Neil McCarthy professional fees equal to $250,000, and the parties
set forth on SCHEDULE 13.7 hereof shall be solely responsible to pay Neil
McCarthy an amount previously agreed to by the parties for professional fees.
At the election of the Shareholders, any of the foregoing fees contemplated
under this SECTION 13.7 payable by
59
<PAGE>
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 Group 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
Linda L. Griggs, Esquire
1800 M Street, NW
Washington, D.C. 20036
(Telefax: 202/467-7176)
If to any Shareholder to:
Donald G. White
2107 W. College Avenue
Englewood, CO 80110
(Telefax: 303/975-0104)
with a required copy to:
Steven C. Hoth, Esq.
60
<PAGE>
Berenbaum, Weinshienk & Eason, P.C.
Suite 2600, Republic Place
370 Seventeenth Street
Denver, CO 80202-5626
(Telefax: 303/629-7610)
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. Except as set forth in
Section 7.11, 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 GROUP REPRESENTATIVE AND SHAREHOLDER REPRESENTATIVE. (a) Each of the
Shareholders hereby appoints William P. Love, Jr. 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 calculation of the Merger
Consideration (the "Group Representative"). Each Shareholder understands that
--------------------
the Group Representative will represent the shareholders of the Surviving Group
Companies. Each Shareholder further agrees that (i), in the case of a dispute
regarding the base merger consideration paid by CCC pursuant to the Group
Company Agreements (the "Total Base Merger Consideration"), the approval of the
-------------------------------
former shareholders of the Group Companies which received a majority of the
Total Base Merger Consideration, and (ii), in the case of a dispute regarding
the contingent merger consideration to be paid by CCC pursuant to the Group
Company Agreements (the "Total Contingent Merger Consideration"), the approval
-------------------------------------
of the former shareholders of the Group Companies which would be entitled to
receive a majority of the Total Contingent Merger Consideration (the required
vote pursuant to (i) and (ii) above is referred to as the "Approval of the Group
---------------------
Company Shareholders"), the Group Representative shall have the power to take
- --------------------
any and all actions which the Group Representative believes are necessary or
appropriate or in the best interests of all of the
61
<PAGE>
shareholders of the Group Companies for and on behalf of such shareholders, as
fully as if they were acting on their own behalf, including without limitation,
consenting to, and settling any and all claims, disputes or controversies
arising with regard to the calculation of the Merger Consideration. CCC and the
Surviving Group Companies shall have the right to rely on any actions taken or
omitted to be taken by the Group 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. In addition, the shareholders
of the Group Companies shall have the right to change the identity of the Group
Representative upon the Approval of the Group Company Shareholders, and shall
deliver to CCC and the Surviving Group Companies prompt written notice of any
such change of identity, which upon receipt by CCC and the Surviving Group
Companies will effect said change. Except to the extent prohibited by law, the
Shareholders agree to hold the Group Representative free and harmless from and
indemnify the Group 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.
(b) Each of the Shareholders hereby appoints Donald G. White 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"), other than those contained in Section
--------------
13.14(a) above. 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, 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 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 Plan of Merger within
the meaning of the State Corporate Laws.
[Execution Page Following]
62
<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
CCC3 ACQUISITION CO.
By: /s/F. TRAYNOR BECK
---------------------------------------
F. Traynor Beck
RIVIERA ELECTRIC CONSTRUCTION CO.
By: /s/DONALD G. WHITE
---------------------------------------
Donald G. White
SHAREHOLDERS:
/s/DONALD G. WHITE
---------------------------------------------
Donald G. White
/s/DAVID M. WHITE
---------------------------------------------
David M. White
/s/GARRY LAWRENZ
---------------------------------------------
Garry Lawrenz
/s/LESLIE C. LITTEN
---------------------------------------------
Leslie C. Litten
/s/VICKI WATERS
---------------------------------------------
Vicki Waters
/s/WILLIS T. WIEDEL
---------------------------------------------
Willis T. Wiedel
63
<PAGE>
Index of Defined Terms
----------------------
<TABLE>
<CAPTION>
Section
-------
<S> <C>
1933 Act....................................................... 2.2(a)
Accounts Receivable............................................ 5.12
Actual Closing Net Worth....................................... 3.1(b)
Actual 1997 Adjusted EBIT...................................... 3.1(b)
Actual Merger Consideration Adjustment......................... 3.1(c)
Affiliate...................................................... 5.31
Agreement...................................................... 7.10(c)
Approval of the Group Company Shareholders..................... 13.14
Audited Financials............................................. 5.10
Balance Sheet Date............................................. 5.10
Base Merger Consideration...................................... 2.2(a)
CCC............................................................ INTRO
CCC Charter Documents.......................................... 6.1
CCC Common Stock............................................... 2.1(c)
CCC Indemnified Parties........................................ 10.1
CCC Indemnified Party.......................................... 10.1
CCC Prospectus................................................. 5.30
CCC's knowledge................................................ 6
CCC's Accountant............................................... 2.3(a)(i)
Certificates................................................... 2.4(b)
Charter Documents.............................................. 5.1
Claim Notice................................................... 10.4(a)
Claims......................................................... 10.4
Closing........................................................ 4.1
Closing Balance Sheet.......................................... 7.20
Closing Date................................................... 4.1
Closing Financial Certificate.................................. 8.8
COBRA.......................................................... 5.22(e)
Code........................................................... Recitals
Company........................................................ Recitals
Company 1...................................................... Recitals
Company 2...................................................... Recitals
Company 3...................................................... Recitals
Company 4...................................................... Recitals
Company 5...................................................... Recitals
Company 6...................................................... Recitals
Company Common Stock........................................... Recitals
Company Financial Statements................................... 5.10
Company Hazardous Materials Activities......................... 5.27(b)
Company's knowledge............................................ 5
Company's 1997 Adjusted EBIT................................... 2.2(b)
Company's Closing Net Worth.................................... 2.2(b)
Constituent Corporations....................................... Recitals
Contingent Merger Consideration................................ 2.3(a)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
controlled group...................................................................... 5.22
Conversion Indemnitee................................................................. 7.22
Damages............................................................................... 10.1(a)
Earn Out EBIT Notice.................................................................. 2.3(a)(i)
Earn Out Period....................................................................... 2.3(f)
Earn Out Period Average Price......................................................... 2.3(c)
Earn Out Range........................................................................ 2.3(a)(iii)
Earn Out Threshold.................................................................... 2.3(a)(ii)
Earnings before Interest and Taxes.................................................... 2.2(b)
Earnings before Interest and Taxes of the Surviving Group Companies................... 2.3(a)(i)
EBIT Increase......................................................................... 2.2(d)
Effective Time........................................................................ 4.2
Environmental Permits................................................................. 5.27(c)
Equipment............................................................................. 5.33
ERISA................................................................................. 5.22
ESOP.................................................................................. 7.19
ESOP Purchase Right................................................................... 7.19(b)
ESOP Trust............................................................................ 7.19(b)
Financial Adjustment Notice........................................................... 3.1(b)
Financial Certificates................................................................ 7.20
GAAP.................................................................................. 2.2(b)
golden parachute...................................................................... 5.22
Group 1997 Adjusted EBIT.............................................................. 2.2(b)
Group 1997 Adjusted EBIT Target....................................................... 2.2(b)
Group Actual Earn Out EBIT............................................................ 2.3(a)(i)
Group Closing Net Worth............................................................... 2.2(b)
Group Companies....................................................................... Recitals
Group Company......................................................................... Recitals
Group Company Agreements.............................................................. Recitals
group health plans.................................................................... 5.22(e)
Group Merger Transaction.............................................................. Recitals
Group Net Worth Target................................................................ 2.2(b)
Group Representative.................................................................. 13.14
Hazardous Material.................................................................... 5.27(a)
Holding Company....................................................................... 7.21
Indemnification Threshold............................................................. 10.3
Indemnified Party..................................................................... 10.4(a)
Indemnifying Party.................................................................... 10.4(a)
Intellectual Property................................................................. 5.17(a)
Interim Balance Sheet................................................................. 9.14
Interim Financials.................................................................... 5.10
Interim Period Average................................................................ 2.2(a)
Inventory............................................................................. 5.33
knowledge of CCC...................................................................... 6
knowledge of Newco.................................................................... 6
knowledge of the Company.............................................................. 5
Laws.................................................................................. 5.15(c)(iii)
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
leased Real Property................................................ 5.15(d)
liabilities......................................................... 5.11(d)
Lien................................................................ 5.4
Material Adverse Effect............................................. 5.1
Material Contracts.................................................. 5.18(a)
Maximum Earn Out Amount............................................. 2.3(a)(i)
Maximum Earn Out Threshold.......................................... 2.3(a)(i)
Merger.............................................................. Recitals
Merger Consideration................................................ 2.4(a)
Merger Consideration Adjustment..................................... 3.1(b)
Merger Documents.................................................... 4.2
Merger Price........................................................ 2.2(a)
multiemployer pension plan.......................................... 5.22
Net Worth........................................................... 2.2(b)
New Accounting Firm................................................. 2.3(b)
Newco............................................................... Recitals
Newco's knowledge................................................... 6
Other Group Companies............................................... Recitals
PBGC................................................................ 5.22
Pending Claims...................................................... 10.3(c)(ii)
Permits............................................................. 5.14
Permitted Encumbrances.............................................. 5.15(c)(i)
Plan of Merger...................................................... 1.1
Plans............................................................... 5.22
Pledged Assets...................................................... 3.2(a)
Post-Closing Audit.................................................. 3.1(b)
Prime Rate.......................................................... 2.3(b)
Profit Sharing Plan................................................. 7.19
Proposed Numbers.................................................... 3.1(c)
Qualified Plans..................................................... 5.22
Real Property....................................................... 5.15(a)
Registration Statement.............................................. 6.9
Related Party Agreements............................................ 5.18(a)
Release Date........................................................ 3.2(c)
reportable events................................................... 5.22(c)
Representative...................................................... 13.14(a)
Required Consents................................................... 8.4
Revised Earn Out EBIT............................................... 2.3(b)
Revised Numbers..................................................... 3.1(c)
Securities Act...................................................... 7.10(c)
Specified Percentage................................................ 2.3(a)(iii)
State Corporate Laws................................................ 1.2
Shareholder......................................................... INTRO
Shareholder Approval................................................ 13.14(b)
Shareholder Indemnified Parties..................................... 10.2
Shareholder Indemnified Party....................................... 10.2
Structures.......................................................... 5.15(c)(ii)
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Supplemental Financial Certificate............................. 7.20
Surviving Corporation.......................................... 1.1
Tax............................................................ 5.24(c)(i)
Tax Return..................................................... 5.24(c)(ii)
tax-free reorganization........................................ Recitals
Territory...................................................... 11.1(a)
Third Party Claim.............................................. 10.4(b)(i)
Title Commitment............................................... 7.3(a)
Title Policy................................................... 7.3(a)
Total Base Merger Consideration................................ 13.14
Total Contingent Merger Consideration.......................... 13.14
UCC............................................................ 5.33
Year-End Net Worth............................................. 5.9
</TABLE>
iv
<PAGE>
EXHIBIT 2.03
_______________________________________________________________________________
_______________________________________________________________________________
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CONSOLIDATION CAPITAL CORPORATION,
CCC4 ACQUISITION CO.,
GARFIELD ELECTRIC COMPANY
AND
THE SHAREHOLDERS NAMED HEREIN
MADE EFFECTIVE AS OF FEBRUARY 27, 1998.
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. THE MERGER.......................................................... 2
1.1 The Merger............................................... 2
1.2 Articles of Incorporation; Regulations, Directors
and Officers............................................ 2
1.3 Effects of the Merger.................................... 2
2. CONVERSION AND EXCHANGE OF STOCK.................................... 3
2.1 Manner of Conversion..................................... 3
2.2 Base Merger Consideration................................ 4
2.3 Contingent Merger Consideration.......................... 5
2.4 Exchange of Certificates and Payment of Cash............. 8
3. POST CLOSING ADJUSTMENT; PLEDGED ASSETS............................. 9
3.1 Post-Closing Adjustment.................................. 9
3.2 Pledged Assets........................................... 11
4. CLOSING............................................................. 12
4.1 Location and Date........................................ 12
4.2 Effect................................................... 12
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SHAREHOLDERS........................................................ 12
5.1 Due Organization......................................... 13
5.2 Authorization; Validity.................................. 13
5.3 No Conflicts............................................. 13
5.4 Capital Stock of the Company............................. 14
5.5 Transactions in Capital Stock............................ 14
5.6 Subsidiaries, Stock, and Notes........................... 14
5.7 Predecessor Status....................................... 14
5.8 Absence of Claims Against the Company.................... 15
5.9 Company Financial Condition.............................. 15
5.10 Financial Statements..................................... 15
5.11 Liabilities and Obligations.............................. 15
5.12 Accounts and Notes Receivable............................ 16
5.13 Books and Records........................................ 16
5.14 Permits.................................................. 16
5.15 Real Property............................................ 17
5.16 Personal Property........................................ 18
5.17 Intellectual Property.................................... 18
5.18 Material Contracts and Commitments....................... 19
5.19 Government Contracts..................................... 20
5.20 Insurance................................................ 21
5.21 Labor and Employment Matters............................. 21
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.22 Employee Benefit Plans................................... 21
5.23 Conformity with Law; Litigation.......................... 23
5.24 Taxes.................................................... 24
5.25 Absence of Changes....................................... 25
5.26 Deposit Accounts; Powers of Attorney..................... 27
5.27 Environmental Matters.................................... 27
5.28 Relations with Governments............................... 28
5.29 Disclosure............................................... 28
5.30 CCC Prospectus; Securities Representations............... 28
5.31 Affiliates............................................... 29
5.32 Location of Chief Executive Offices...................... 29
5.33 Location of Equipment and Inventory...................... 29
6. REPRESENTATIONS OF CCC AND NEWCO.................................... 29
6.1 Due Organization......................................... 29
6.2 CCC Common Stock......................................... 30
6.3 Authorization; Validity of Obligations................... 30
6.4 No Conflicts............................................. 30
6.5 Capitalization of CCC and Ownership of CCC Stock......... 31
6.6 Conformity with Law; Litigation.......................... 31
6.7 Disclosure............................................... 31
6.8 CCC Prospectus........................................... 31
6.9 Registration Statement................................... 32
6.10 Investment Intent........................................ 32
7. COVENANTS........................................................... 32
7.1 Tax Matters.............................................. 32
7.2 Accounts Receivable...................................... 33
Intentionally omitted.................................................... 33
7.4 Related Party Agreements................................. 33
7.5 Cooperation.............................................. 34
7.6 Conduct of Business Pending Closing...................... 35
7.7 Access to Information.................................... 35
7.8 Prohibited Activities.................................... 36
7.9 Notice to Bargaining Agents.............................. 37
7.10 Sales of CCC Common Stock................................ 37
7.11 CCC Stock Options........................................ 39
7.12 Tax Covenant............................................. 39
7.13 CCC Board Seat........................................... 39
7.14 D&O Insurance and Indemnification of Directors
and Officers............................................ 39
7.15 Tax Free Reorganization Protection....................... 40
7.16 Consulting Payment....................................... 40
7.17 Government Contracts..................................... 40
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
7.18 CCC Stock................................................ 40
7.19 Employee Benefits Matters................................ 40
7.20 Supplemental Financial Certificate....................... 41
7.21 Holding Company.......................................... 41
7.22 Intentionally Omitted.................................... 41
7.23 Indemnification of Shareholder's Purchaser
Representative.......................................... 41
7.24 Guaranteed Debt.......................................... 42
7.25 Shareholder Debt......................................... 42
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CCC AND NEWCO............ 42
8.1 Representations and Warranties; Performance of
Obligations............................................. 42
8.2 No Litigation............................................ 43
8.3 No Material Adverse Change............................... 43
8.4 Consents and Approvals................................... 43
8.5 Opinion of Counsel....................................... 43
8.6 Charter Documents........................................ 43
8.7 Quarterly Financial Statements........................... 43
8.8 Delivery of Closing Financial Certificate................ 43
8.9 FIRPTA Compliance........................................ 44
8.10 Employment Agreements.................................... 44
8.11 Affiliate Agreements..................................... 44
8.12 Shareholders' Release.................................... 44
8.13 Related Party Receivables and Agreements................. 44
8.14 Consummation of Group Merger Transaction................. 44
8.15 Intentionally Omitted.................................... 44
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDERS........................................................ 44
9.1 Representations and Warranties; Performance of
Obligations............................................. 44
9.2 No Litigation............................................ 44
9.3 Consents and Approvals................................... 45
9.4 Employment Agreements.................................... 45
9.5 Tax Certificate Delivery................................. 45
9.6 Satisfaction With Shareholder Release and Affiliate
Agreements.............................................. 45
9.7 Tax Opinion.............................................. 45
9.8 Consummation of Group Merger Transaction................. 45
9.9 Employee Plan Fiduciary Condition........................ 45
9.10 Board Expansion.......................................... 45
9.11 Registration Statement................................... 45
9.12 No Material Adverse Change............................... 46
9.13 Officers and Directors of Surviving Corporation.......... 46
9.14 Interim Balance Sheet.................................... 46
10. INDEMNIFICATION..................................................... 46
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
10.1 General Indemnification by the Shareholders.............. 46
10.2 General Indemnification by CCC and Newco................. 47
10.3 Limitation and Expiration................................ 47
10.4 Indemnification Procedures............................... 49
10.5 Survival of Representations Warranties................... 50
10.6 Right to Set Off......................................... 50
11. NONCOMPETITION...................................................... 51
11.1 Prohibited Activities.................................... 51
11.2 Damages.................................................. 51
11.3 Reasonable Restraint..................................... 52
11.4 Severability; Reformation................................ 52
11.5 Independent Covenant..................................... 52
11.6 Materiality.............................................. 52
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION........................... 52
12.1 Confidentiality.......................................... 52
12.2 Damages.................................................. 53
13. GENERAL............................................................. 53
13.1 Termination.............................................. 53
13.2 Effect of Termination.................................... 54
13.3 Successors and Assigns................................... 54
13.4 Entire Agreement; Amendment; Waiver...................... 54
13.5 Counterparts............................................. 55
13.6 Brokers and Agents....................................... 55
13.7 Expenses................................................. 55
13.8 Specific Performance; Remedies........................... 55
13.9 Notices.................................................. 56
13.10 Governing Law............................................ 56
13.11 Severability............................................. 57
13.12 Absence of Third Party Beneficiary Rights................ 57
13.13 Further Representations.................................. 57
13.14 Group Representative and Shareholder Representative...... 57
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
---------
entered into this 27th day of February, 1998, by and among Consolidation Capital
Corporation, a Delaware corporation ("CCC"), CCC4 Acquisition Co., an Ohio
---
corporation and a newly-formed, wholly-owned subsidiary of CCC ("Newco"), and
-----
Garfield Electric Company, an Ohio corporation (the "Company"), and Garfield W.
-------
Hartman, William C. Armstrong and Steven R. Ortner (each a "Shareholder" and
-----------
collectively, the "Shareholders").
------------
BACKGROUND
WHEREAS, the Shareholders are the owners of the issued and outstanding
capital stock of the Company as set forth herein (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 Agreement and Plan of Merger (defined
------
below) and the applicable provisions of the laws of the State of Ohio.
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, CCC is entering into an Agreement and Plan of Reorganization
substantially similar to this Agreement with each of SKC Electric, Inc., a
Kansas corporation ("Company 1"), Riviera Electric Construction Co., a Colorado
---------
corporation ("Company 2"), Indecon, Inc., an Ohio corporation ("Company 3"),
--------- ---------
Tri-City Electrical Contractors, Inc., a Florida corporation ("Company 4"),
---------
Wilson Electric, an Arizona corporation ("Company 5") and Town & Country
---------
Electric, Inc., a Wisconsin corporation ("Company 6"); and together with Company
---------
1, Company 2, Company 3, Company 4, Company 5 and Company 6 shall be known
collectively as the "Other Group Companies") (the Other Group Companies,
---------------------
together with the Company, shall be known hereafter collectively as the "Group
-----
Companies" and each shall be known individually as a "Group Company"; and this
- --------- -------------
Agreement together with the other agreements referenced in this clause
applicable to the Other Group Companies shall be known hereafter collectively as
the "Group Company Agreements");
------------------------
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"); and
----
WHEREAS, in order to induce CCC to enter into this Agreement and the other
agreements comprising the Group Company Agreements, the Company and the
Shareholders desire to execute and deliver this Agreement, the effect of which,
taken together with the transactions contemplated by the remaining Group Company
Agreements (such transactions, including the transaction contemplated by this
Agreement, being known hereafter collectively as the "Group Merger
------------
Transaction"), will have a direct and beneficial impact on the Company and the
Shareholders.
<PAGE>
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 the
Agreement and Plan of Merger (the "Plan 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 new corporations into
---------------------
which each of the Other Group Companies will merge in the Group Merger
Transaction are referred to collectively, together with the Surviving
Corporation, as the Surviving Group Companies. The Surviving Corporation's name
will be changed to that of the Company immediately after the Effective Time.
1.2 ARTICLES OF INCORPORATION; REGULATIONS, 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 Ohio
(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 Regulations of Newco, as in effect immediately prior to the
Effective Time, which are attached as EXHIBIT 1.2(B), shall be the Regulations
of the Surviving Corporation unless and until thereafter amended as provided
therein and under the State Corporate Laws; provided, that the provisions
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 Corporation 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;
2
<PAGE>
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, legally or equitably,
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, 3.1 and 3.2, each issued and outstanding
share of Company Common Stock (other than shares to be canceled pursuant to
Section 2.1(b)), 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 defined in Section 2.2(a)) divided by the
number of shares of Company Common Stock held by the Shareholders, (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 defined 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 held by the
Shareholders; (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 held by the Shareholders (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(b)), that is equal
in value to 50% of the Contingent Merger Consideration divided by the number of
shares of Company Common Stock held by the Shareholders (other than shares to be
canceled
3
<PAGE>
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 and 2.3 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 (as defined
in Sections 2.2(a) and 2.3(b) respectively), 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 $5,734,260, as adjusted pursuant to this Section 2.2 and Section 3.1.
Of the Base Merger Consideration, $2,867,130 shall be paid in cash at Closing
(as defined in Section 4.1) in immediately available funds. The remaining
$2,867,130 of the Base Merger Consideration shall be paid at Closing in shares
of CCC Common Stock valued at a price per share (the "Merger Price") equal to
------------
the sum of (i) the closing price of CCC Common Stock on January 29, 1998, plus
(ii) the closing price of CCC Common Stock on the last trading day prior to the
Closing Date, 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 (subject
to adjustment as provided in this Section 2.2 and Section 3.1) shall be
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
--------
approved for quotation on the Nasdaq National Market.
(b) The calculation of the Base Merger Consideration takes into
account (i) the Net Worth (as defined below) of the Company as of February 28,
1998, calculated in accordance with generally accepted accounting principles
("GAAP") consistently applied, but in any event excluding any increases in
----
intangible assets of the Company since the end of the Company's most recently
ended fiscal year and until February 28, 1998 (as certified pursuant to Section
8.8, the "Company's Closing Net Worth"), and (ii) the Earnings before Interest
---------------------------
and Taxes (as defined below) of the Company, computed in accordance with GAAP
consistently applied throughout the period involved but adjusted to reflect the
nonrecurring items that are specified on SCHEDULE 2.2(B) hereto, for the twelve
month period ended at the close of the Company's most recently ended fiscal year
(as
4
<PAGE>
certified pursuant to Section 8.8, the "Company's 1997 Adjusted EBIT"). The
----------------------------
calculation of the Base Merger Consideration assumes that (A) the total (the
"Group Closing Net Worth") of the Company's Closing Net Worth and the net worth
-----------------------
of each of the Other Group Companies as of February 28, 1998 (calculated and
certified in the manner specified in each of the Group Company Agreements) is
equal to or greater than $31,000,000 (the "Group Net Worth Target") and (B) the
----------------------
total (the "Group 1997 Adjusted EBIT") of the Company's 1997 Adjusted EBIT and
------------------------
the Earnings before Interest and Taxes of each of the Other Group Companies for
the twelve month period ended at the close of each Group Company's most recently
ended fiscal year (calculated and certified in the manner specified in each of
the Group Company Agreements) shall have been equal to or greater than
$19,734,000 (the "Group 1997 Adjusted EBIT Target"). For the purposes of this
-------------------------------
Section 2.2, "Net Worth" is equal to total assets less total liabilities,
---------
"Earnings before Interest and Taxes" is equal to net income (A) plus interest
- -----------------------------------
expense, income taxes, extraordinary items, cumulative effect of accounting
changes and discontinued operations and (B) less interest income and the "Group
Closing Net Worth" shall include the following items related to the ESOP for SKC
Electric, Inc. which are reflected on the balance sheet for SKC Electric, Inc.:
(A) "ESOP common stock purchase obligations" and (B) ESOP related Debt (current
and long term) and (C) "Unearned ESOP common stock."
(c) If the Group Closing Net Worth is lower than the Group Net Worth
Target, then the Merger Consideration (as defined in Section 2.4(a)) to be
delivered to the Shareholders may, at CCC's election, be reduced either (i) at
the Closing, by the product of (A) the difference between the Group Net Worth
Target and the Group Closing Net Worth times (B) 4.1% (which reduction shall be
pro rata in cash and in CCC Common Stock valued at the Merger Price in the same
proportions as the cash and CCC Common Stock components of the Base Merger
Consideration as provided in Section 2.2(a)) or (ii) after completion of the
Post-Closing Audit (as defined in Section 3.1(b)), in accordance with Section
3.1(b).
(d) If the Group 1997 Adjusted EBIT is less than the Group 1997
Adjusted EBIT Target, then the Merger Consideration to be delivered to the
Shareholders may, at CCC's election, be reduced either (i) at the Closing, by an
amount equal to seven multiplied by the product of (A) the difference between
the Group 1997 Adjusted EBIT Target and the Group 1997 Adjusted EBIT times (B)
4.1% (which reduction shall be pro rata in cash and in CCC Common Stock valued
at the Merger Price in the same proportions as the cash and CCC Common Stock
components of the Base Merger Consideration as provided in Section 2.2(a)) or
(ii) after completion of the Post-Closing Audit (as defined in Section 3.1(b)),
in accordance with Section 3.1(b). If the Group 1997 Adjusted EBIT is higher
than the Group 1997 Adjusted EBIT Target, then the Merger Consideration to be
delivered to the Shareholders at Closing shall be increased at the Closing by an
amount equal to seven multiplied by the product of (A) the difference between
the Group 1997 Adjusted EBIT and the Group 1997 Adjusted EBIT Target up to a
maximum of $1 million times (B) 4.1%. The amount by which the Group 1997
Adjusted EBIT exceeds the Group 1997 Adjusted EBIT Target, up to a maximum of $1
million, is hereafter referred to as the "EBIT Increase."
-------------
(e) 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 other
5
<PAGE>
wise 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.
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 an amount up to $1,641,600.
(i) $1,641,600 (the "Maximum Earn Out Amount") will be paid,
-----------------------
subject to the provisions of subsection (ii) and (iii) below, if the Earnings
before Interest and Taxes of the Surviving Group Companies (as defined below),
for the one year period after February 28, 1998 (the "Group Actual Earn Out
---------------------
EBIT") is at least equal to the sum of $25,020,000 and the amount, if any, of
- ----
the EBIT Increase (the "Maximum Earn Out Threshold"). Price Waterhouse LLP,
--------------------------
CCC's independent accountant ("CCC's Accountant"), will determine the Group
----------------
Actual Earn Out EBIT and deliver prompt notice of such amount to the
Shareholders (the "Earn Out EBIT Notice") with supporting documentation. The
--------------------
Shareholders (through the Group 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 Group 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. For purposes of this Section 2.3, "Earnings before Interest and Taxes of
-------------------------------------
the Surviving Group Companies" is equal to net income computed in accordance
- -----------------------------
with GAAP consistently applied of the Group Companies reflected on the books and
records of the Surviving Group Companies and the Holding Company (as defined in
Section 7.21 below), which net income (A) shall not reflect (1) the amortization
of goodwill and other intangibles recognized by CCC in connection with the
acquisition of the Group Companies or any future acquisitions, (2) expenses
(including corporate overhead) of CCC other than those expenses incurred for the
benefit of the Surviving Group Companies that do not duplicate expenses incurred
by the Surviving Group Companies nor exceed the amounts of similar expenses
incurred in the most recently ended fiscal year by the Group Companies prior to
the Closing, or (3) the tax that arises under Section 4978 of the Code, (B)
shall reflect (1) depreciation and amortization of assets of the Surviving Group
Companies except to the extent such amounts result from an increase in the book
value of the assets resulting from the Group Merger Transaction and (2) the
expenses under the employment agreement of William P. Love, Jr. with the Holding
Company and other expenses reasonably necessary for the operation of the Holding
Company in connection with its actions as parent of the Surviving Group
Companies and (C) shall be adjusted by (1) adding the amounts of any interest
expense, income taxes, extraordinary items, cumulative effect of accounting
changes and discontinued operations of the Surviving Group Companies and (2)
subtracting the amount of any interest income of the Surviving Group Companies.
CCC's Accountant will calculate the Contingent Merger Consideration for each
Surviving Group Company and the Group Actual Earn Out EBIT applying the same
accounting principles applied by such Group Company (on a company by company
basis),
6
<PAGE>
with all such computations made (and definitions used) in the same way the
computations were made (and definitions were used) by such Group Company prior
to the Closing and will conform to the methods of accounting utilized
consistently during the calendar years 1996, 1997 and 1998 for each such Group
Company, provided in each case that such computations were in accordance with
GAAP. If, after the Closing, CCC's Accountant makes conforming adjustments to
unify the accounting principles utilized by each of the Group Companies, such
adjustments shall have no effect on the calculations made by CCC's Accountant
for purposes of this Section 2.3. CCC will provide the Surviving Corporation
with a schedule on a quarterly basis detailing expenses incurred for the benefit
of the Surviving Group Companies, such schedule to be prepared on a comparative
basis to expenses incurred in the prior year by the Group Companies for the same
items.
(ii) If the Group Actual Earn Out EBIT is equal to or less than
the sum of $22,043,000 and the amount, if any, of the EBIT Increase (the "Earn
----
Out Threshold"), then no Contingent Merger Consideration will be paid to the
- -------------
Shareholders.
(iii) If the Group Actual Earn Out EBIT is greater than the Earn
Out Threshold but less than the Maximum Earn Out Threshold (the difference
between the Maximum Earn Out Threshold and the Earn Out Threshold being
hereinafter referred to as the "Earn Out Range"), then the Contingent Merger
--------------
Consideration will equal the product determined by multiplying (A) the Specified
Percentage (as defined below) by (B) the Maximum Earn Out Amount. For purposes
of this Agreement, the "Specified Percentage" shall mean a fraction, the
--------------------
numerator of which is the amount by which the Group Actual Earn Out EBIT exceeds
the Earn Out Threshold and the denominator of which is the Earn Out Range.
(b) The shareholders of the Group Companies (through the Group
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 Group Actual Earn
Out EBIT. If CCC has not received notice of any such dispute within such 30-day
period, the Group Actual Earn Out EBIT contained in the Earn Out EBIT Notice
shall be final. If, however, the shareholders (through the Group
Representative) have delivered notice of such a dispute to CCC within such 30-
day period, then CCC shall, pursuant to Section 2.3(c) 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 (or four largest firms if the
mergers of accounting firms proposed as of the date of this Agreement have been
completed) (each, a "New Accounting Firm") to review the amount of the Group
-------------------
Actual Earn Out EBIT, the books of the Surviving Group Companies, including the
Surviving Corporation, and the Earn Out EBIT Notice (and related information) to
determine the amount, if any, that the Group Actual Earn Out EBIT is in error.
Such New Accounting Firm shall be confirmed by the former shareholders of the
Group Companies through the Group 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 Group 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
Contingent Merger Consideration
7
<PAGE>
accordingly. If the Revised Earn Out EBIT is higher than the Group 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 fifteen months after the Closing
Date. The costs of the New Accounting Firm shall be borne by CCC if the Revised
Earn Out EBIT is higher than the Group Actual Earn Out EBIT and by the former
shareholders of the Group Companies 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.
(c) The Contingent Merger Consideration described in SECTION 2.3 (A),
reduced as provided in Section 3.1(c) as appropriate, 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 Group Actual Earn Out EBIT by CCC's Accountant, which shall be made in a
timely fashion following expiration of the one (1) year period after the
Closing, but in no event shall such payment be made later than the date that is
fifteen months after the Closing Date unless the Shareholders dispute the Group
Actual Earn Out EBIT in accordance with Section 2.3(b) hereof. 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 Price. 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 the
one year period after the Closing Date (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 Date, 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.
(d) If, on or prior to a Contingent Merger Consideration Payment Date,
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 Contingent Merger Consideration will
be appropriately adjusted to reflect such split, combination, dividend or other
distribution or change.
(e) If, at any time on or before the first anniversary of the Closing
Date, Garfield W. Hartman's employment agreement with the Surviving Corporation
is terminated by the Surviving Corporation (or its successor), in its capacity
as employer, without cause (as defined in Garfield W. Hartman's employment
agreement), CCC immediately thereupon shall pay to the Shareholders an
8
<PAGE>
amount equal to the Maximum Earn Out Amount. CCC acknowledges that such a
payment would constitute liquidated damages and not a penalty.
(f) Except for actions taken by CCC or Newco at the direction of
Garfield W. Hartman, in his capacity as President of the Surviving Corporation,
or one of the Presidents of the other Surviving Group Companies, in his capacity
as President of such Surviving Group Company, during the one year period after
the Closing (the "Earn Out Period"), CCC and Newco (i) will operate the
---------------
businesses of the Surviving Group Companies diligently and in the ordinary
course and (ii) will not take any actions that would materially change the
operations of the businesses of the Surviving Group Companies, including any
action that would prevent any of the Surviving Group Companies (A) from
conducting its business in the ordinary course or (B) from taking any action
necessary to preserve the businesses of the Surviving Group Companies, to keep
available to the Surviving Group Companies its employees (with the same salary
and bonus structure), or to preserve the Surviving Group Companies'
relationships with customers, suppliers and others having business relations
with it.
(g) In the event CCC, Newco or any of their subsidiaries takes any
action or omits to take any action which has a direct, quantifiable, negative
impact on the Earnings before Interest and Taxes of the Surviving Group
Companies or the businesses of the Group Companies as currently being conducted;
then, in any such event, the parties, in good faith, shall make reasonable
adjustments in the calculation of the Group Actual Earn Out EBIT as may be
necessary to neutralize the impact of any such action or omission.
(h) CCC and Newco agree that separate books and records will be kept
for each of the Group Companies during the Earn Out Period.
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)), as adjusted pursuant to Section 2.2, 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 8.11),
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
9
<PAGE>
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 3.2(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. 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. POST CLOSING ADJUSTMENT; PLEDGED ASSETS
3.1 POST-CLOSING ADJUSTMENT.
(a) The Base Merger Consideration shall be subject to adjustment as
specified in this Section 3.1.
(b) Within ninety (90) days following the Effective Time, CCC shall
cause CCC's Accountant to audit (the "Post-Closing Audit") the books of the
------------------
Company to determine the accuracy
10
<PAGE>
of the information relating to the Company's Closing Net Worth and the Company's
1997 Adjusted EBIT as set forth on the Financial Certificates (as defined in
Section 7.20) and on the financial certificates of the Other Group Companies. In
determining the accuracy of such information reflected on the Financial
Certificates in the course of the Post-Closing Audit, CCC's Accountant shall
apply the same accounting methodology used by the Company or the Shareholders,
as applicable, in preparing such information; provided that CCC's Accountant
shall not be obligated to apply such methodology to the extent inconsistent with
GAAP (as modified by Section 2.2(b) above). The Shareholders shall cooperate
with CCC and CCC's Accountant after the Closing Date in furnishing information,
documents, evidence and other assistance to CCC's Accountant to facilitate the
completion of the Post-Closing Audit within the aforementioned time period.
Without limiting the generality of the foregoing, within two weeks after the
Closing, the Shareholders shall provide CCC's Accountant with the information
and/or documents reasonably requested by them. CCC's Accountant will test the
Company's Closing Net Worth, the Group Closing Net Worth, the Company's 1997
Adjusted EBIT and the Group 1997 Adjusted EBIT based upon the Post-Closing Audit
and the post-closing audits of the Other Group Companies. In the event that
CCC's Accountant determines (i) a different amount than the Group Closing Net
Worth (the "Actual Closing Net Worth") or (ii) a different amount than the Group
------------------------
1997 Adjusted EBIT (the "Actual 1997 Adjusted EBIT" ), CCC shall promptly
-------------------------
deliver a written notice with supporting documentation (the "Financial
---------
Adjustment Notice") to the shareholders of the Group Companies, including the
- -----------------
Shareholders, setting forth (A) the determination made by CCC's Accountant of
the Actual Closing Net Worth and the Actual 1997 Adjusted EBIT, (B) the amount
of the cash portion of the Base Merger Consideration that would have been
payable at Closing pursuant to Section 2.2(c) had the Actual Closing Net Worth
and the Actual 1997 Adjusted EBIT been used instead of the Group Closing Net
Worth and the Group 1997 Adjusted EBIT to determine the need for any adjustments
to the Base Merger Consideration pursuant to Sections 2.2(c) and 2.2(d),
respectively, and (C) the number of shares issued as part of the Base Merger
Consideration that would have been issuable at Closing had the Actual Closing
Net Worth and the Actual Adjusted EBIT been used to determine the need for any
adjustments to the Base Merger Consideration as set forth in (B) above. The
differences between the respective amounts set forth in (B) and (C) and the
amounts of the cash and the CCC Common Stock components of the Base Merger
Consideration paid pursuant to Section 2.2 (a), as adjusted pursuant to Sections
2.2(c) or 2.2(d), is referred to hereafter as the "Merger Consideration
--------------------
Adjustment." Any increase in the Base Merger Consideration resulting from such
- ----------
Merger Consideration Adjustment shall be owed by CCC to the Shareholders. Any
decrease in such Base Merger Consideration resulting from such Merger
Consideration Adjustment shall be owed by the Shareholders to CCC. If, on or
prior to the payment of the Merger Consideration Adjustment, 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 part of the Merger Consideration Adjustment will be
appropriately adjusted to reflect such split, combination, dividend or other
distribution or change. The shares of CCC Common Stock, if any, to be issued in
respect of the Merger Consideration Adjustment shall be registered under the
1933 Act and approved for quotation on the Nasdaq National Market.
11
<PAGE>
(c) The shareholders of the Group Companies, including the
Shareholders, through the Group Representative, shall have thirty (30) days from
the receipt of the Financial Adjustment Notice to notify CCC if they dispute
such Financial Adjustment Notice. If CCC has not received notice of any such
dispute within such 30-day period, (i) CCC shall be entitled to receive promptly
pro rata from the Shareholders (which may, at CCC's sole discretion, be from the
Pledged Assets as defined in, and subject to the provisions of, Section 3.2
and/or the Contingent Merger Consideration) any Merger Consideration Adjustment
owed to CCC and (ii) the Shareholders shall be entitled to receive promptly from
CCC any Merger Consideration Adjustment owed to the Shareholders. If, however,
the Shareholders (through the Group Representative) have delivered notice of
such a dispute to CCC within such 30-day period, then CCC's Accountant shall
select a New Accounting Firm to review the books of the Group Companies
including, the Surviving Corporation, the Financial Certificates and the
Financial Adjustment Notice (and related information) to determine the amount,
if any, of the revised Merger Consideration Adjustment (the "Actual Merger
-------------
Consideration Adjustment"). Such New Accounting Firm shall be confirmed by the
- ------------------------
Shareholders through the Group 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 Merger Consideration
Adjustment, if any, within thirty (30) days of its selection. The determination
made by the New Accounting Firm shall be final and binding on the parties
hereto, and, upon such determination, CCC shall be entitled to receive pro rata
from the Shareholders (which may, at CCC's sole discretion, be from the Pledged
Assets as defined in, and subject to the provisions of, Section 3.2 and/or the
Contingent Merger Consideration) the Actual Merger Consideration Adjustment or
the Shareholders shall be entitled to receive from CCC the Actual Merger
Consideration Adjustment, as applicable. The costs of the New Accounting Firm
shall be borne by the party (either CCC or the shareholders of the Group
Companies, including the Shareholders) whose amounts, on the Financial
Adjustment Notice or its Financial Certificates, as applicable (the "Proposed
--------
Numbers"), were further from the determination of the New Accounting Firm of
- -------
what the amounts should have been (the "Revised Numbers"), or equally by CCC and
---------------
the shareholders of the Group Companies, including the Shareholders, in the
event that the Revised Numbers are equidistant between the original amounts.
3.2 PLEDGED ASSETS.
(a) As collateral security for the payment of any Merger Consideration
Adjustment or any indemnification obligations of the Shareholders pursuant to
(and subject to the limitations of) Article 10, the Shareholders 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) at the option of the Shareholders, such Shareholders' pro
rata portion of cash and/or shares of CCC Common Stock with a value, based on
the Merger Price, equal to ten percent (10%) of the Base Merger Consideration
subject to adjustment pursuant to Section 2.2 or Section 3.1 hereof, and the
certificates and instruments, if any, representing or evidencing such
Shareholder's Pledged Assets;
12
<PAGE>
(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 bearing 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. Any cash comprising a Shareholder's
Pledged Assets shall be withheld by CCC from distribution to the Shareholder and
placed by CCC into an interest bearing custodial account that is not commingled
with any assets of CCC or any of its subsidiaries. All shares of CCC 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 Merger
Consideration Adjustment and 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 the interest earned on any cash
portion of the Pledged Assets of each Shareholder and including dividends and
distributions with respect to shares of CCC Common Stock subject to pledge),
less Pledged Assets having an aggregate value equal to the amount of (i), in the
discretion of CCC, the Actual Merger Consideration Adjustment under Section 3.1,
(ii) 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 (iii) 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 (x) the Merger Price with
respect to the Actual Merger Consideration Adjustment under Section 3.1 and (y)
the average of the closing price on the Nasdaq National Market per share 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. Notwithstanding
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
13
<PAGE>
limited to any indemnification pursuant to Article 10 hereof or any Merger
Consideration Adjustment, 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 3.2, 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.
(e) Notwithstanding the foregoing provisions of this Section 3.2, the
Pledged Assets of any Shareholder that is a Profit Sharing Plan (as defined in
Section 5.22(j)) shall be held by a third party agent and upon terms reasonably
acceptable to CCC and the fiduciaries of such Shareholder.
4. CLOSING
4.1 LOCATION AND DATE. The consummation of the Merger and the other
transactions contemplated 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 10, 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, a certificate 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").
--------------
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
To induce CCC and Newco to enter into this Agreement and consummate the
transactions contemplated 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 Section
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
14
<PAGE>
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 5.1 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 Regulations of the Company. Such Articles of
Incorporation and Regulations 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;
(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
15
<PAGE>
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, franchise, 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 5,000 shares of common stock, no par value, SCHEDULE 5.4
sets forth the shares that are issued and outstanding shares of the capital
stock of the Company, such shares 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.
16
<PAGE>
5.6 SUBSIDIARIES, STOCK, AND NOTES.
(a) Except as set forth on SCHEDULE 5.6(A), the Company has no
subsidiaries.
(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 companies 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 end of its most recently ended fiscal year (the "Year-End Net Worth") was
------------------
not less than $1,161,450.
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") together with the Interim Balance Sheet, as defined
- -------------------
herein, 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.
17
<PAGE>
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,
as defined herein, and not previously 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 SCHEDULE 5.18(A) and those
liabilities under any contract, commitment or agreement specifically disclosed
on any Schedule to this Agreement.
(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
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<PAGE>
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 ninety (90) 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-off, 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 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
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<PAGE>
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) Except as set forth on SCHEDULE 5.15(D): (i) the Company holds no
interest as landlord in any Real Property; (ii) the Company 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) the Company 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) the Company has no
knowledge of any default by the landlord under any lease relating to the leased
Real Property; (v) the Company has paid all rent under each lease relating to
the leased Real Property with respect to the period through the Closing Date;
and (vi) the Company has not exercised any termination or purchase option under
any lease relating to the leased Real Property nor has the Company exercised any
renewal or extension under any lease relating to the leased Real Property with
respect to any renewal or extension period that will commence after the date
hereof (other than renewals or extensions that have been disclosed to CCC).
(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 default thereunder
or provided notice of the exercise of any option granted to such party under
such lease.
(f) Except as provided on SCHEDULES 5.15(C) OR 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.
20
<PAGE>
(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.
(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.
21
<PAGE>
(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, $50,000 individually, or that may generate revenues or income
exceeding, during the current term thereof, $50,000 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. Other than as disclosed on SCHEDULE 5.18(A),
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.
(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.
22
<PAGE>
(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
23
<PAGE>
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.
(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;
24
<PAGE>
(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;
(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
25
<PAGE>
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 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
26
<PAGE>
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
(i) the Company has not incurred liability under Section 4062 of
ERISA.
(j) The Company has converted any employee stock ownership Plan (the
"ESOP") maintained by the Company to a profit sharing plan which does not
- -----
provide for pass-through voting by its participants (the "Profit Sharing Plan").
-------------------
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,
27
<PAGE>
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.
(vi) The Company currently utilizes the accural method of
accounting for income Tax purposes and such method of accounting has not changed
since incorporation. 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.
28
<PAGE>
(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) INTENTIONALLY OMITTED.
(c) 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.
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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;
(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;
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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;
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(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.
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 Environ mental 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
32
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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.
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 war
ranties 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 January 21, 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, or, to the knowledge of such Shareholder, such Shareholder's
purchaser representative, (a) has such knowledge and experience in business and
financial matters and such knowledge concerning the business, operations and
financial condition of the Other Group Companies 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
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<PAGE>
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 and the Other Group Companies
concerning the business, operations and financial condition of CCC and the Other
Group Companies, respectively. 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.
Each Shareholder acknowledges and agrees that CCC has not and will not provide
such Shareholder or any other party with a prospectus for the Shareholder's use
in selling CCC Common Stock.
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 Ohio (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, 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
34
<PAGE>
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,
Bylaws and the Regulations, 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 have been duly and validly authorized by the respective
Boards of Directors of CCC and Newco, and this Agreement has 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. 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 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;
35
<PAGE>
(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;
(f) conflict with, result in a breach of, or result in a default under
any document, agreement or instrument to which Jonathan J. Ledecky is a party,
or by which Jonathan J. Ledecky is bound.
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
30,292,857 shares were outstanding on February 26, 1998, and 500,000 shares of
Convertible Non-Voting Common Stock, par value $.001 per share, of which 500,000
shares were outstanding on February 26, 1998. The authorized capital stock of
Newco consists of 1,000 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 was 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. 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
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<PAGE>
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
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 January 21, 1998 and declared effective on January
- -----------------------
26, 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.
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<PAGE>
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:
(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
38
<PAGE>
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 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.
(b) Intentionally Omitted.
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 ninety (90) 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, including, without limitation, the guarantees of
indebtedness by the Company, will be terminated at the Closing by the Company
and/or the Shareholder party thereto and all Accounts Receivable and other
amounts due to the Company from any affiliate of the Company, other than current
amounts due for administrative services, will be paid at or before the Closing.
Reasonably promptly following the Closing and at the expense of CCC, the
Shareholders shall direct a third
39
<PAGE>
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 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 Newco 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
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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") of the 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;
(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
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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 Regulations,
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 ERISA) 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 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;
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(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
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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 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 Party" 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.
Notwithstanding anything in the foregoing to the contrary, no Shareholder that
is a Profit Sharing Plan shall be restricted in the transfer of any shares of
CCC Common Stock received by such Shareholder as part of the Base Merger
Consideration or as part of the Contingent Merger Consideration to the extent
the transfer is required by applicable law or (i) with respect to the shares of
CCC Common Stock received as part of the Base Merger Consideration, following
the first anniversary of the Closing Date or (ii) with respect to the shares of
CCC Common Stock received as part of the Contingent Merger Consideration,
following six months after the receipt of such shares with respect to 100% of
such shares and following three months after the receipt of such shares with
respect to 50% of such shares,
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it being agreed that any shares of Common Stock received by the Profit Sharing
Plan after the resolution of a dispute as to the amount of the Group Actual Earn
Out EBIT shall be considered to have been received for purposes of this transfer
restriction as the same time as the Profit Sharing Plan received the rest of the
shares of Common Stock issued as Contingent Merger Consideration.
(b) Each Shareholder acknowledges and agrees that CCC will not provide
such Shareholder with a prospectus for such Shareholder's use in selling the
shares of CCC Common Stock to be received by such Shareholder in the Merger, and
agrees to sell such shares 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 MARCH 10, 1999, THESE SHARES MAY ONLY
BE TRANSFERRED IN 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
MARCH 10, 1999, 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 MARCH 10, 2000, 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 FEBRUARY 27, 1998 (THE "AGREEMENT"), BY AND AMONG THE
---------
ISSUER, CCC4 ACQUISITION CO., GARFIELD ELECTRIC, COMPANY, (THE
"COMPANY") AND THE SHAREHOLDERS OF THE COMPANY. PRIOR TO THE
-------
EXPIRATION OF SUCH HOLDING PERIOD, SUCH SHARES MAY NOT BE SOLD,
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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.
(d) Intentionally omitted.
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 16,990 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, other than Shareholders who, as of the
date of this Agreement, owned less than three and one half (3 1/2) percent of
the capital stock of the Company) on or 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 CCC BOARD SEAT. At the Closing, the Board of Directors of CCC shall
expand its number and elect a representative selected by the Group Companies and
reasonably acceptable to CCC to fill such newly created seat. Thereafter, CCC
will use its best efforts to cause such individual (or his successor, who shall
be selected by a vote of a majority of the presidents of the Surviving Group
Companies and who must also be reasonably acceptable to CCC) to remain on the
CCC Board of Directors; provided, however, that CCC shall not be liable should
the shareholders of CCC not re-elect such individual to a new term on the CCC
Board of Directors.
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
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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 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 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.
7.16 CONSULTING PAYMENT. At Closing, and in consideration for his
agreement to serve CCC on a consulting basis after the Closing, Neil McCarthy
will receive from CCC, by company check, $250,000 plus options to purchase
50,000 shares of CCC Common Stock, at a purchase price equal to the fair market
value of the underlying shares of CCC Common Stock on the Closing Date and
exercisable immediately for 25,000 shares and exercisable with respect to the
remaining 25,000 shares at the end of the one year period after the Closing Date
(it being agreed that such options shall be issued in accordance with CCC's 1997
Long-Term Incentive Plan and will have the vesting provisions established by the
Compensation Committee of the Board of Directors of CCC).
7.17 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.
7.18 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 result in any adjustment to the Base Merger
Consideration or the Contingent Merger Consideration pursuant to Section 2.2(e)
and 2.3(d).
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7.19 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 7.19 shall only be made if CCC and
the president of the Company or his successor, in his capacity as an employee of
CCC or any affiliate thereof, shall mutually agree to such amendment,
modification, or termination. Without limitation on the foregoing, CCC or any
successor thereto shall maintain an employee benefit pension plan within the
meaning of ERISA Section 3(2) which plan will continue to hold such qualifying
employer securities, as defined in ERISA Section 407(d)(5), as may be required
to avoid the imposition of any excise tax under Code Section 4978 with respect
to any employee stock ownership plan having engaged in a transaction to which
Code Section 1042 applies for such period as may be required to avoid the
imposition of such excise tax. Notwithstanding the foregoing, it is acknowledged
that CCC and the Surviving Corporation shall not pay for any country club
memberships, and any country club memberships, other than the existing
Wetherington Country Club membership, shall be terminated at or before Closing,
or the expenses related to more than one vehicle per employee.
7.20 SUPPLEMENTAL FINANCIAL CERTIFICATE. The Shareholders shall, within
thirty (30) days following Closing (a copy of which shall be attached to the
Supplemental Financial Certificate), cause the preparation of a balance sheet
(the "Closing Balance Sheet") for the Company as of February 28, 1998 and
---------------------
deliver to CCC a certificate (the "Supplemental Financial Certificate"; and
----------------------------------
together with the Closing Financial Certificate, the "Financial Certificates"),
----------------------
signed on behalf of the Shareholders by the Representative, setting forth:
(a) the Company's Closing Net Worth; and
(b) a certification that the Closing Balance Sheet (a copy of which
shall be attached to the Supplemental Financial Certificate) presents fairly the
financial condition of the Company as of the Closing Date.
All costs associated with the preparation of the Supplemental Financial
Certificate (including the costs associated with preparing the Closing Balance
Sheet) shall be borne by the Shareholders and not by the Company or CCC.
7.21 HOLDING COMPANY. Promptly following the Closing, CCC will contribute
all of the shares of capital stock of each Surviving Group Company to
Consolidation Capital Corporation Electrical Services, Inc., a first tier,
wholly-owned subsidiary of CCC (the "Holding Company"). As the sole shareholder
of Holding Company, CCC, at Closing, will (i) cause William P. Love, Jr. to be
appointed its Chief Executive Officer, (ii) cause the Holding Company to enter
into an employment agreement with Mr. Love substantially in the form attached
to the Group Company Agreement
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for Company 1, and (iii) elect William P. Love, Jr., F. Traynor Beck and Timothy
Clayton as its board of directors.
7.22 INTENTIONALLY OMITTED.
7.23 INDEMNIFICATION OF SHAREHOLDER'S PURCHASER REPRESENTATIVE. Until the
first anniversary of the Closing, CCC shall pay all costs and expenses
(including the value of any claims or awards) of any Shareholder's purchaser
representative that arise out of any claim or lawsuit related to the
transactions contemplated hereby. On the first anniversary of the Closing, the
Shareholders shall reimburse CCC, by surrender of Pledged Assets or otherwise,
for 50% of such costs and expenses; it being understood and agreed that any such
expense shall not affect the calculation of Group Actual Earn Out EBIT or the
payment of the Contingent Merger Consideration; and provided, however, that the
-------- -------
Shareholders shall not be obligated to reimburse CCC for 50% of any such costs
and expenses that arise out of any lawsuit in which CCC shall be found to be
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act), and the Shareholders shall be obligated to reimburse CCC
for all such costs and expenses that arise out of any lawsuit in which the
Company or any of the Shareholders shall be found to be guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act).
Following the first anniversary of the Closing, the Shareholders and CCC shall
equally share and be obligated to pay equal portions of all such costs and
expenses; provided, however, that the Shareholders on the one hand and CCC on
-------- -------
the other hand shall not be liable to so share and pay any such portion of costs
and expenses that arise out of any lawsuit in which CCC on the one hand or the
Company or the Shareholders on the other hand shall be found to be guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act). CCC and the Shareholders shall direct a third party, mutually
acceptable to CCC and the Shareholders to estimate an amount sufficient to cover
the costs and expenses of any claim pending on the first anniversary of the
Closing Date and the Shareholders shall such escrow amount of shares of CCC
Common Stock or cash from the Pledged Assets to cover their 50% of such costs
and expenses. The terms of the escrow shall be mutually satisfactory to CCC and
the Shareholders. Notwithstanding anything to the contrary herein, the
Shareholders shall be entitled to satisfy any claim relating to the Pledged
Assets with cash, in lieu of shares of CCC Common Stock constituting Pledged
Assets. If the payment by CCC of all costs and expenses of any Shareholder's
purchaser representative pursuant to the first sentence of this Section 7.23 is
unavailable, then CCC, in lieu of making such payment, shall contribute to the
amount paid or payable by such Shareholder's purchaser representative as a
result of any such claim or lawsuit in such proportion as is appropriate to
reflect the relative fault of such Shareholder's purchaser representative, on
the one hand, and CCC, on the other hand, in connection with the actions or
inactions giving rise to such claim or lawsuit, as well as any other relevant
equitable considerations, including, without limitation, the parties' relative
intent, knowledge and access to information. The obligations of the
Shareholders pursuant to this Section 7.23 shall be on a joint and several
basis.
7.24 GUARANTEED DEBT. It is understood and agreed that the Shareholders
will seek to have all personal guarantees (including any pledge of assets) of
any Shareholder released in connection with consummation of the Merger and that
CCC will cooperate with the Shareholders
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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 (by pledge of
assets or otherwise) unless and until such personal guarantee has been fully
released.
7.25 SHAREHOLDER DEBT. Each Shareholder shall repay in full any
indebtedness owed the Company by such Shareholder at or prior to Closing.
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
Group Material Adverse Effect, as defined below; (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. For purposes of this Agreement, "Group
Material Adverse Effect" means a material adverse effect on the business,
operations, properties, assets or condition, financial or otherwise, of the
Group Companies 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) change in governmental or legislative laws, rules
or regulations, or (d) actions taken by CCC or any affiliate of 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
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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 Group 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 Group Companies, taken as a whole, since 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 Group
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 Regulations 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 DELIVERY OF CLOSING FINANCIAL CERTIFICATE. CCC shall have received a
certificate (the "Closing Financial Certificate"), dated as of the Closing Date,
-----------------------------
signed on behalf of the Company and by the Shareholders, setting forth:
(a) the net worth of the Company as of the last day of its most
recently ended fiscal year;
(b) the net worth of the Company as of January 31, 1998; and
(c) the Company's 1997 Adjusted EBIT.
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8.9 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).
8.10 EMPLOYMENT AGREEMENTS. Garfield W. Hartman shall enter into, at
Closing, an employment agreement with the Surviving Corporation in substantially
the form of EXHIBIT 8.10 hereto.
8.11 AFFILIATE AGREEMENTS. The Shareholders listed on SCHEDULE 5.31 shall
have entered into an Affiliate Agreement in the form set forth as EXHIBIT 8.11.
8.12 SHAREHOLDERS' RELEASE. The Shareholders shall each have delivered to
CCC an instrument dated the Closing Date in the form of EXHIBIT 8.12.
8.13 RELATED PARTY RECEIVABLES AND AGREEMENTS. Except with respect to the
items on SCHEDULE 8.13, 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 8.13 shall have been terminated as of the Closing.
8.14 CONSUMMATION OF GROUP MERGER TRANSACTION. The Group Merger
Transaction shall occur contemporaneously with the consummation of the
transactions contemplated by this Agreement.
8.15 INTENTIONALLY OMITTED.
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
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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 Department of Justice or Federal Trade Commission challenging or seeking to
enjoin the consummation of the transactions contemplated hereby shall be
pending.
9.4 EMPLOYMENT AGREEMENTS. The Surviving Corporation shall have afforded
Garfield W. Hartman the opportunity to enter into, at Closing, an employment
agreement with the Surviving Corporation in substantially the form of EXHIBIT
8.10 hereto.
9.5 TAX CERTIFICATE DELIVERY. A certificate substantially in the form
attached hereto as EXHIBIT 9.5, dated the Closing Date and signed by the
President or any Vice President of CCC and Newco, shall have been delivered to
tax counsel for the Shareholders.
9.6 SATISFACTION WITH SHAREHOLDER RELEASE AND AFFILIATE AGREEMENTS. Each
Shareholder shall be reasonably satisfied with the form of the Affiliate
Agreement and Shareholder Release to be executed by them pursuant to Section
8.11 and Section 8.12.
9.7 TAX OPINION. The Shareholders shall have received from Dow, Lohnes &
Albertson, PLLC, tax counsel to the Shareholders, that the Merger qualifies as a
reorganization as defined under Code Section 368(a)(1)(A).
9.8 CONSUMMATION OF GROUP MERGER TRANSACTION. The Group Merger
Transaction shall occur contemporaneously with the consummation of the
transactions contemplated by this Agreement.
9.9 EMPLOYEE PLAN FIDUCIARY CONDITION. The appropriate fiduciaries of the
Profit Sharing Plan shall have received a current valuation report and fairness
opinion in such form as may be acceptable to such fiduciaries from a source
acceptable to such fiduciaries and such fiduciaries shall have determined, in
the exercise of their sole discretion, that the consummation of the transactions
contemplated herein at the Closing is fair to and in the best interests of the
participants and beneficiaries of the Profit Sharing Plan.
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9.10 BOARD EXPANSION. CCC shall have increased the size of its Board of
Directors to six members and, as contemplated by Section 7.13, a representative
of the Group Companies shall have been duly elected to such Board of Directors.
9.11 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.
9.12 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 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.
9.13 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.
9.14 INTERIM BALANCE SHEET. The Company shall deliver to CCC true,
complete and correct copies of the Company's unaudited balance sheet (the
"Interim Balance Sheet") as of January 31, 1998 and income statement and
statement of cash flow, for the one-month period then ended (collectively the
"Interim Financials").
------------------
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)
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(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), 5.24 (taxes), 5.27 (environmental matters), any receivables
from related persons that are not repaid at or before the Closing and all claims
of Mark C. Armstrong as a shareholder, former shareholder, or former employee
(except, in the case of claims of Mark C. Armstrong, to the extent that Damages
do not exceed $149,096); and
(b) any and all Damages incident to any of the foregoing or to the
enforcement of this Section 10.1.
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) subsequent to the Effective Time, all Damages (whether arising
before, on or after the Effective Time) suffered, sustained, incurred, or paid
by the Shareholder Indemnified
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Parties in connection with, resulting from, or arising out of, directly or
indirectly, any conversion of the ESOP to a Profit Sharing Plan as described in
Section 5.22(j) herein; and
(c) 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) adjustments to the
Merger Consideration as set forth in Sections 2.2 and 3.1, which adjustments
shall not constitute Damages; (ii) 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), or 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; (iii) Damages
described in Section 10.1(a)(iv), or (iv) 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
(2) (w) 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
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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), (x) with respect to covenants of the
Shareholders to be performed after the Closing Date until fully performed and
discharged, (y) with respect to covenants of CCC and Newco contained in Section
7.15 or the representations, warranties and covenants set forth in the
certificate delivered by or on behalf of CCC and Newco pursuant to Section 9.5,
until the expiration of the longest applicable federal or state statute of
limitations (including extensions thereof agreed to by the party from whom
indemnification is sought), 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
indemnification hereunder for the breach of a representation, warranty or
covenant where the identical subject matter thereof has also resulted in, or
caused, a Merger Consideration Adjustment to the Base Merger Consideration
pursuant to Section 3.1;
(e) in no event will any CCC Indemnified Party be entitled to any
indemnification hereunder from any Shareholder that is an employee benefit plan
within the meaning of ERISA Section 3(3) to the extent that such indemnification
could: (i) result in a transaction prohibited under ERISA Section 406 or Code
Section 4975; (ii) give rise to a claim for breach of any such plan
fiduciaries' duties with respect to such plan; or (iii) otherwise violate any
applicable provision of ERISA or the Code; or
(f) 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.
(g) 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.
(h) 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
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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 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
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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 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, and subject to the limitations in Sections 3.2(c) and 10.3
hereof.
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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
business selling any products or services in direct competition with the Holding
Company or any of its subsidiaries within 100 miles of any office of the Holding
Company or any office of any of the Holding Company's subsidiaries (the
"Territory");
- ----------
(b) call upon any person who is, at that time, within the Territory,
an employee of the Holding Company or any subsidiary of the Holding Company in a
managerial capacity for the purpose or with the intent of enticing such employee
away from or out of the employ of the Holding Company or any subsidiary of the
Holding Company;
(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 the Holding
Company or any subsidiary of the Holding Company, for the purpose of soliciting
or selling products or services in direct competition with the Holding Company
or any subsidiary of the Holding Company 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 the Holding Company or a
subsidiary of the Holding Company as a prospective acquisition candidate or was
the subject of an acquisition analysis by the Holding Company or any subsidiary
of the Holding Company. 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 the
Holding Company or any subsidiary of the Holding Company 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
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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.
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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 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 March 15, 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
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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
Section 7.22, Article 12 and Article 13; and
(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.
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<PAGE>
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 this Section 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.
In addition, CCC will pay all fees and expenses relating to obtaining licenses,
permits, surety bonds, insurance, transfer applications, business credit reports
and the related qualifications for Newco, the other subsidiaries newly formed by
CCC to effect the Group Merger Transaction and the Surviving Group Companies,
including the Surviving Corporation, up to an aggregate amount of $100,000. Any
such fees and expenses of the Surviving Group Companies in excess of $100,000
shall be split between CCC on the one hand and the shareholders of the Group
Companies on the other. Except with respect to FMI Corporation and the part of
the fee to Neil McCarthy referred to below, 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. In addition, it is understood and agreed that CCC shall be solely
responsible to pay to FMI Corporation a fee equal to 3% of the Base Merger
Consideration plus the Contingent Merger Consideration paid pursuant to this
Agreement and Neil McCarthy professional fees equal to $250,000, and the parties
set forth on SCHEDULE 13.7 hereof shall be solely responsible to pay Neil
McCarthy an amount previously agreed to by the parties for professional fees.
At the election of the Shareholders, any of the foregoing 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 Group 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
65
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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
Linda L. Griggs, Esquire
1800 M Street, NW
Washington, D.C. 20036
(Telefax: 202/467-7176)
If to any Shareholder to:
Garfield W. Hartman
5301 Lester Road
Cincinnati, Ohio 45213
(Telefax: 513/ 979-7424)
with a required copy to:
Terrence A. Mire, Esquire
Cohen, Todd, Kite & Stanford, LLC
525 Vine Street, 16th Floor
Cincinnati, Ohio 45202
(Telefax: 513/ 241-4490)
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
66
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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. Except as set forth in
Section 7.11, 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 GROUP REPRESENTATIVE AND SHAREHOLDER REPRESENTATIVE. (a) Each of
the Shareholders hereby appoints William P. Love, Jr. 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 calculation of the Merger
Consideration (the "Group Representative"). Each Shareholder understands that
--------------------
the Group Representative will represent the shareholders of the Surviving Group
Companies. Each Shareholder further agrees that (i), in the case of a dispute
regarding the base merger consideration paid by CCC pursuant to the Group
Company Agreements (the "Total Base Merger Consideration"), the approval of the
-------------------------------
former shareholders of the Group Companies which received a majority of the
Total Base Merger Consideration, and (ii), in the case of a dispute regarding
the contingent merger consideration to be paid by CCC pursuant to the Group
Company Agreements (the "Total Contingent Merger Consideration"), the approval
-------------------------------------
of the former shareholders of the Group Companies which would be entitled to
receive a majority of the Total Contingent Merger Consideration (the required
vote pursuant to (i) and (ii) above is referred to as the "Approval of the Group
---------------------
Company Shareholders"), the Group Representative shall have the power to take
- --------------------
any and all actions which the Group Representative believes are necessary or
appropriate or in the best interests of all of the shareholders of the Group
Companies for and on behalf of such shareholders, as fully as if they were
acting on their own behalf, including without limitation, consenting to, and
settling any and all claims, disputes or controversies arising with regard to
the calculation of the Merger Consideration. CCC and the Surviving Group
Companies shall have the right to rely on any actions taken or omitted to be
taken by the Group 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. In addition, the shareholders
of the Group Companies shall have the right to change the identity of the Group
Representative upon the Approval of the Group Company Shareholders, and shall
deliver to CCC and the Surviving Group Companies prompt written notice
67
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of any such change of identity, which upon receipt by CCC and the Surviving
Group Companies will effect said change. Except to the extent prohibited by law,
the Shareholders agree to hold the Group Representative free and harmless from
and indemnify the Group 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.
(b) Each of the Shareholders hereby appoints Garfield W. Hartman 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"), other than those contained in Section
--------------
13.14(a) above. 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, 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 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.
[Execution Page Following]
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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
CCC4 ACQUISITION CO.
By: /s/ F. Traynor Beck
----------------------------------------------
F. Traynor Beck
By: /s/ Garfield W. Hartman
----------------------------------------------
Garfield W. Hartman
President
SHAREHOLDERS:
/s/ Garfield W. Hartman
--------------------------------------------------
Garfield W. Hartman
/s/ William C. Armstrong
--------------------------------------------------
William C. Armstrong
/s/ Steven R. Ortner
--------------------------------------------------
Steven R. Ortner
<PAGE>
Index of Defined Terms
----------------------
<TABLE>
<CAPTION>
Section
-------
<S> <C>
1933 Act...................................................................2.2(a)
Accounts Receivable..........................................................5.12
Actual Adjusted EBIT.......................................................3.1(a)
Actual 1997 Adjusted EBIT..................................................3.1(b)
Actual Merger Consideration Adjustment.....................................3.1(c)
Affiliate....................................................................5.31
Agreement.................................................................7.10(c)
Approval of the Group Company Shareholders..................................13.14
Audited Financials...........................................................5.10
Balance Sheet Date...........................................................5.10
Base Merger Consideration..................................................2.2(a)
CCC.........................................................................INTRO
CCC Charter Documents.........................................................6.1
CCC Common Stock...........................................................2.1(c)
CCC Indemnified Parties......................................................10.1
CCC Indemnified Party........................................................10.1
CCC Prospectus...............................................................5.30
CCC's knowledge.................................................................6
CCC's Accountant........................................................2.3(a)(i)
Certificates...............................................................2.4(b)
Charter Documents.............................................................5.1
Claim Notice..............................................................10.4(a)
Claims.......................................................................10.4
Closing.......................................................................4.1
Closing Balance Sheet........................................................7.20
Closing Date..................................................................4.1
Closing Financial Certificate.................................................8.8
COBRA.....................................................................5.22(e)
Code.....................................................................Recitals
Company..................................................................Recitals
Company 1................................................................Recitals
Company 2................................................................Recitals
Company 3................................................................Recitals
Company 4................................................................Recitals
Company 5................................................................Recitals
Company 6................................................................Recitals
Company Common Stock.....................................................Recitals
Company Financial Statements.................................................5.10
Company Hazardous Materials Activities....................................5.27(b)
Company's knowledge.............................................................5
Company's 1997 Adjusted EBIT...............................................2.2(b)
Company's Closing Net Worth................................................2.2(b)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Constituent Corporations.................................................Recitals
Contingent Merger Consideration............................................2.3(a)
controlled group.............................................................5.22
Conversion Indemnitee........................................................7.22
Damages...................................................................10.1(a)
Earn Out EBIT Notice....................................................2.3(a)(i)
Earn Out Period............................................................2.3(f)
Earn Out Period Average Price..............................................2.3(c)
Earn Out Range........................................................2.3(a)(iii)
Earn Out Threshold.....................................................2.3(a)(ii)
Earnings before Interest and Taxes.........................................2.2(b)
Earnings before Interest and Taxes of the Surviving Group Companies.....2.3(a)(i)
EBIT Increase..............................................................2.2(d)
Effective Time................................................................4.2
Environmental Permits.....................................................5.27(c)
Equipment....................................................................5.33
ERISA........................................................................5.22
ESOP......................................................................5.22(j)
Financial Adjustment Notice................................................3.1(b)
Financial Certificates.......................................................7.20
GAAP.......................................................................2.2(b)
golden parachute.............................................................5.22
Group 1997 Adjusted EBIT...................................................2.2(b)
Group 1997 Adjusted EBIT Target............................................2.2(b)
Group Actual Earn Out EBIT..............................................2.3(a)(i)
Group Closing Net Worth....................................................2.2(b)
Group Companies..........................................................Recitals
Group Company............................................................Recitals
Group Company Agreements.................................................Recitals
group health plans........................................................5.22(e)
Group Merger Transaction.................................................Recitals
Group Net Worth Target.....................................................2.2(b)
Group Representative........................................................13.14
Hazardous Material........................................................5.27(a)
Holding Company..............................................................7.21
Indemnification Threshold....................................................10.3
Indemnified Party.........................................................10.4(a)
Indemnifying Party........................................................10.4(a)
Intellectual Property.....................................................5.17(a)
Interim Balance Sheet........................................................9.14
Interim Financial............................................................9.14
Interim Period Average.....................................................2.2(a)
Inventory....................................................................5.33
knowledge of CCC................................................................6
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
knowledge of Newco..............................................................6
knowledge of the Company........................................................5
Laws.................................................................5.15(c)(iii)
leased Real Property......................................................5.15(d)
liabilities...............................................................5.11(d)
Lien..........................................................................5.4
Material Adverse Effect.......................................................5.1
Material Contracts........................................................5.18(a)
Maximum Earn Out Amount.................................................2.3(a)(i)
Maximum Earn Out Threshold..............................................2.3(a)(i)
Merger...................................................................Recitals
Merger Consideration.......................................................2.4(a)
Merger Consideration Adjustment............................................3.1(b)
Merger Documents..............................................................4.2
Merger Price...............................................................2.2(a)
multiemployer pension plan...................................................5.22
Net Worth..................................................................2.2(b)
New Accounting Firm........................................................2.3(b)
Newco....................................................................Recitals
Newco's knowledge...............................................................6
Other Group Companies....................................................Recitals
PBGC.........................................................................5.22
Pending Claims........................................................10.3(c)(ii)
Permits......................................................................5.14
Permitted Encumbrances.................................................5.15(c)(i)
Agreement and Plan of Merger..................................................1.1
Plans........................................................................5.22
Pledged Assets.............................................................3.2(a)
Post-Closing Audit.........................................................3.1(b)
Prime Rate.................................................................2.3(b)
Profit Sharing Plan.......................................................5.22(j)
Proposed Numbers...........................................................3.1(c)
Qualified Plans..............................................................5.22
Real Property.............................................................5.15(a)
Registration Statement........................................................6.9
Related Party Agreements..................................................5.18(a)
Release Date...............................................................3.2(c)
reportable events.........................................................5.22(c)
Representative...........................................................13.14(a)
Required Consents.............................................................8.4
Revised Earn Out EBIT......................................................2.3(b)
Revised Numbers............................................................3.1(c)
Securities Act............................................................7.10(c)
Specified Percentage..................................................2.3(a)(iii)
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
State Corporate Laws..........................................................1.2
State Corporation Laws........................................................1.2
Shareholder.................................................................Intro
Shareholder Approval.....................................................13.14(b)
Shareholder Indemnified Parties..............................................10.2
Shareholder Indemnified Party................................................10.2
Structures............................................................5.15(c)(ii)
Supplemental Financial Certificate...........................................7.20
Surviving Corporation.........................................................1.1
Tax....................................................................5.24(c)(i)
Tax Return............................................................5.24(c)(ii)
tax-free reorganization..................................................Recitals
Territory.................................................................11.1(a)
Third Party Claim......................................................10.4(b)(i)
Title Commitment..............................................................7.3
Title Policy..................................................................7.3
Total Base Merger Consideration.............................................13.14
Total Contingent Merger Consideration.......................................13.14
UCC..........................................................................5.33
Year-End Net Worth............................................................5.9
</TABLE>
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EXHIBIT 2.04
______________________________________________________________________________
______________________________________________________________________________
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CONSOLIDATION CAPITAL CORPORATION,
CCC5 ACQUISITION CO.,
INDECON, INC.
AND
THE SHAREHOLDERS NAMED HEREIN
MADE EFFECTIVE AS OF FEBRUARY 27, 1998.
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. THE MERGER....................................................... 2
1.1 The Merger............................................ 2
1.2 Articles of Incorporation; Regulations, Directors
and Officers......................................... 2
1.3 Effects of the Merger................................. 2
2. CONVERSION AND EXCHANGE OF STOCK................................. 3
2.1 Manner of Conversion.................................. 3
2.2 Base Merger Consideration............................. 4
2.3 Contingent Merger Consideration....................... 5
2.4 Exchange of Certificates and Payment of Cash.......... 8
3. POST CLOSING ADJUSTMENT; PLEDGED ASSETS.......................... 9
3.1 Post-Closing Adjustment............................... 9
3.2 Pledged Assets........................................ 11
4. CLOSING.......................................................... 12
4.1 Location and Date..................................... 12
4.2 Effect................................................ 12
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SHAREHOLDERS..................................................... 12
5.1 Due Organization...................................... 13
5.2 Authorization; Validity............................... 13
5.3 No Conflicts.......................................... 13
5.4 Capital Stock of the Company.......................... 14
5.5 Transactions in Capital Stock......................... 14
5.6 Subsidiaries, Stock, and Notes........................ 14
5.7 Predecessor Status.................................... 14
5.8 Absence of Claims Against the Company................. 15
5.9 Company Financial Condition........................... 15
5.10 Financial Statements.................................. 15
5.11 Liabilities and Obligations........................... 15
5.12 Accounts and Notes Receivable......................... 16
5.13 Books and Records..................................... 16
5.14 Permits............................................... 16
5.15 Real Property......................................... 17
5.16 Personal Property..................................... 18
5.17 Intellectual Property................................. 18
5.18 Material Contracts and Commitments.................... 19
5.19 Government Contracts.................................. 20
5.20 Insurance............................................. 21
5.21 Labor and Employment Matters.......................... 21
</TABLE>
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5.22 Employee Benefit Plans................................ 21
5.23 Conformity with Law; Litigation....................... 23
5.24 Taxes................................................. 24
5.25 Absence of Changes.................................... 25
5.26 Deposit Accounts; Powers of Attorney.................. 27
5.27 Environmental Matters................................. 27
5.28 Relations with Governments............................ 28
5.29 Disclosure............................................ 28
5.30 CCC Prospectus; Securities Representations............ 28
5.31 Affiliates............................................ 29
5.32 Location of Chief Executive Offices................... 29
5.33 Location of Equipment and Inventory................... 29
6. REPRESENTATIONS OF CCC AND NEWCO................................. 29
6.1 Due Organization...................................... 29
6.2 CCC Common Stock...................................... 30
6.3 Authorization; Validity of Obligations................ 30
6.4 No Conflicts.......................................... 30
6.5 Capitalization of CCC and Ownership of CCC Stock...... 30
6.6 Conformity with Law; Litigation....................... 31
6.7 Disclosure............................................ 31
6.8 CCC Prospectus........................................ 31
6.9 Registration Statement................................ 32
6.10 Investment Intent..................................... 32
7. COVENANTS......................................................... 32
7.1 Tax Matters........................................... 32
7.2 Accounts Receivable................................... 33
7.3 Intentionally Omitted................................. 33
7.4 Related Party Agreements.............................. 33
7.5 Cooperation........................................... 34
7.6 Conduct of Business Pending Closing................... 35
7.7 Access to Information................................. 35
7.8 Prohibited Activities................................. 35
7.9 Notice to Bargaining Agents........................... 37
7.10 Sales of CCC Common Stock............................. 37
7.11 CCC Stock Options..................................... 39
7.12 Tax Covenant.......................................... 39
7.13 CCC Board Seat........................................ 39
7.14 D&O Insurance and Indemnification of Directors
and Officers......................................... 39
7.15 Tax Free Reorganization Protection.................... 40
7.16 Consulting Payment.................................... 40
7.17 Government Contracts.................................. 40
7.18 CCC Stock............................................. 40
</TABLE>
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<PAGE>
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<S> <C>
7.19 Employee Benefits Matters............................. 40
7.20 Supplemental Financial Certificate.................... 41
7.21 Holding Company....................................... 41
7.22 Intentionally Omitted................................. 41
7.23 Indemnification of Shareholder's Purchaser
Representative....................................... 41
7.24 Guaranteed Debt....................................... 42
7.25 Shareholder Debt...................................... 42
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CCC AND NEWCO......... 42
8.1 Representations and Warranties; Performance of
Obligations.......................................... 42
8.2 No Litigation......................................... 43
8.3 No Material Adverse Change............................ 43
8.4 Consents and Approvals................................ 43
8.5 Opinion of Counsel.................................... 43
8.6 Charter Documents..................................... 43
8.7 Quarterly Financial Statements........................ 43
8.8 Delivery of Closing Financial Certificate............. 43
8.9 FIRPTA Compliance..................................... 44
8.10 Employment Agreements................................. 44
8.11 Affiliate Agreements.................................. 44
8.12 Shareholders' Release................................. 44
8.13 Related Party Receivables and Agreements.............. 44
8.14 Consummation of Group Merger Transaction.............. 44
8.15 Employee Plan Fiduciary Condition..................... 44
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDERS..................................................... 44
9.1 Representations and Warranties; Performance of
Obligations.......................................... 44
9.2 No Litigation......................................... 44
9.3 Consents and Approvals................................ 45
9.4 Employment Agreements................................. 45
9.5 Tax Certificate Delivery.............................. 45
9.6 Satisfaction With Shareholder Release and Affiliate
Agreements........................................... 45
9.7 Tax Opinion........................................... 45
9.8 Consummation of Group Merger Transaction.............. 45
9.9 Employee Plan Fiduciary Condition..................... 45
9.10 Board Expansion....................................... 45
9.11 Registration Statement................................ 45
9.12 No Material Adverse Change............................ 46
9.13 Officer and Directors of Surviving Corporation........ 46
10. INDEMNIFICATION.................................................. 46
10.1 General Indemnification by the Shareholders........... 46
10.2 General Indemnification by CCC and Newco.............. 47
</TABLE>
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10.3 Limitation and Expiration............................. 47
10.4 Indemnification Procedures............................ 49
10.5 Survival of Representations Warranties................ 50
10.6 Right to Set Off...................................... 50
11. NONCOMPETITION................................................... 50
11.1 Prohibited Activities................................. 50
11.2 Damages............................................... 51
11.3 Reasonable Restraint.................................. 51
11.4 Severability; Reformation............................. 52
11.5 Independent Covenant.................................. 52
11.6 Materiality........................................... 52
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION........................ 52
12.1 Confidentiality....................................... 52
12.2 Damages............................................... 53
13. GENERAL.......................................................... 53
13.1 Termination.......................................... 53
13.2 Effect of Termination................................ 54
13.3 Successors and Assigns............................... 54
13.4 Entire Agreement; Amendment; Waiver.................. 54
13.5 Counterparts......................................... 55
13.6 Brokers and Agents................................... 55
13.7 Expenses............................................. 55
13.8 Specific Performance; Remedies....................... 55
13.9 Notices.............................................. 55
13.10 Governing Law........................................ 56
13.11 Severability......................................... 56
13.12 Absence of Third Party Beneficiary Rights............ 57
13.13 Further Representations.............................. 57
13.14 Group Representative and Shareholder Representative.. 57
13.15 Unanimous Written Consent of Shareholders............ 58
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
---------
entered into this 27th day of February, 1998, by and among Consolidation Capital
Corporation, a Delaware corporation ("CCC"), CCC5 Acquisition Co., an Ohio
---
corporation and a newly-formed, wholly-owned subsidiary of CCC ("Newco"), and
-----
Indecon, Inc., an Ohio corporation (the "Company"), and David E. Larkins,
-------
Donald Lemker, Garfield Hartman and Steven Ortner (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 Agreement and Plan of Merger (defined
------
below) and the applicable provisions of the laws of the State of Ohio;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, CCC is entering into an Agreement and Plan of Reorganization
substantially similar to this Agreement with each of SKC Electric, Inc., a
Kansas corporation ("Company 1"), Riviera Electric Construction Co., a Colorado
---------
corporation ("Company 2"), Garfield Electric Company, an Ohio corporation
---------
("Company 3"), Tri-City Electrical Contractors, Inc., a Florida corporation
- -----------
("Company 4"), Wilson Electric, an Arizona corporation ("Company 5") and Town &
- ----------- ---------
Country Electric, Inc., a Wisconsin corporation ("Company 6"); and together with
---------
Company 1, Company 2, Company 3, Company 4, Company 5 and Company 6 shall be
known collectively as the "Other Group Companies") (the Other Group Companies,
---------------------
together with the Company, shall be known hereafter collectively as the "Group
-----
Companies" and each shall be known individually as a "Group Company"; and this
- --------- -------------
Agreement together with the other agreements referenced in this clause
applicable to the Other Group Companies shall be known hereafter collectively as
the "Group Company Agreements");
------------------------
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"); and
----
WHEREAS, in order to induce CCC to enter into this Agreement and the other
agreements comprising the Group Company Agreements, the Company and the
Shareholders desire to execute and deliver this Agreement, the effect of which,
taken together with the transactions contemplated by the remaining Group Company
Agreements (such transactions, including the transaction contemplated by this
Agreement, being known hereafter collectively as the "Group Merger
------------
Transaction"), will have a direct and beneficial impact on the Company and the
Shareholders.
<PAGE>
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 the
Agreement and Plan of Merger (the "Plan 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 new corporations into
---------------------
which each of the Other Group Companies will merge in the Group Merger
Transaction are referred to collectively, together with the Surviving
Corporation, as the Surviving Group Companies. The Surviving Corporation's name
will be changed to that of the Company immediately after the Effective Time.
1.2 ARTICLES OF INCORPORATION; REGULATIONS, 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 Ohio
(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 Regulations, as in effect immediately prior to the Effective
Time, which are attached as EXHIBIT 1.2(B), shall be the Regulations of the
Surviving Corporation unless and until thereafter amended as provided therein
and under the State Corporate Laws; provided, that the provisions 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 Corporation 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
2
<PAGE>
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, 3.1 and 3.2, 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 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 (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
----------------
defined 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 (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(b)), 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)).
3
<PAGE>
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 and 2.3 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 (as defined
in Sections 2.2(a) and 2.3(b) respectively), 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 $6,865,740, as adjusted pursuant to this Section 2.2 and Section 3.1.
Of the Base Merger Consideration, $3,432,870 shall be paid in cash at Closing
(as defined in Section 4.1) in immediately available funds. The remaining
$3,432,870 of the Base Merger Consideration shall be paid at Closing in shares
of CCC Common Stock valued at a price per share (the "Merger Price") equal to
------------
the sum of (i) the closing price of CCC Common Stock on January 29, 1998, plus
(ii) the closing price of CCC Common Stock on the last trading day prior to the
Closing Date, 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 (subject
to adjustment as provided in this Section 2.2 and Section 3.1) shall be
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
--------
approved for quotation on the Nasdaq National Market.
(b) The calculation of the Base Merger Consideration takes into
account (i) the Net Worth (as defined below) of the Company as of February 28,
1998, calculated in accordance with generally accepted accounting principles
("GAAP") consistently applied, but in any event excluding any increases in
----
intangible assets of the Company since the end of the Company's most recently
ended fiscal year and until February 28, 1998 (as certified pursuant to Section
8.8, the "Company's Closing Net Worth"), and (ii) the Earnings before Interest
---------------------------
and Taxes (as defined below) of the Company, computed in accordance with GAAP
consistently applied throughout the period involved but adjusted to reflect the
nonrecurring items that are specified on SCHEDULE 2.2(B) hereto, for the twelve
month period ended at the close of the Company's most recently ended fiscal year
(as
4
<PAGE>
certified pursuant to Section 8.8, the "Company's 1997 Adjusted EBIT"). The
----------------------------
calculation of the Base Merger Consideration assumes that (A) the total (the
"Group Closing Net Worth") of the Company's Closing Net Worth and the net worth
- ------------------------
of each of the Other Group Companies as of February 28, 1998 (calculated and
certified in the manner specified in each of the Group Company Agreements) is
equal to or greater than $31,000,000 (the "Group Net Worth Target") and (B) the
----------------------
total (the "Group 1997 Adjusted EBIT") of the Company's 1997 Adjusted EBIT and
------------------------
the Earnings before Interest and Taxes of each of the Other Group Companies for
the twelve month period ended at the close of each Group Company's most recently
ended fiscal year (calculated and certified in the manner specified in each of
the Group Company Agreements) shall have been equal to or greater than
$19,734,000 (the "Group 1997 Adjusted EBIT Target"). For the purposes of this
-------------------------------
Section 2.2, "Net Worth" is equal to total assets less total liabilities,
---------
"Earnings before Interest and Taxes" is equal to net income (A) plus interest
- -----------------------------------
expense, income taxes, extraordinary items, cumulative effect of accounting
changes and discontinued operations and (B) less interest income, and "Group
-----
Closing Net Worth" shall include the following items related to the ESOP for SKC
- -----------------
Electric, Inc., which are reflected on the balance sheet for SKC Electric, Inc.:
(A) "ESOP common stock purchase obligations", and (B) ESOP related Debt (current
and long term), and (C) "Unearned ESOP common stock."
(c) If the Group Closing Net Worth is lower than the Group Net Worth
Target, then the Merger Consideration (as defined in Section 2.4(a)) to be
delivered to the Shareholders may, at CCC's election, be reduced either (i) at
the Closing, by the product of (A) the difference between the Group Net Worth
Target and the Group Closing Net Worth times (B) 4.9% (which reduction shall be
prorata in cash and in CCC Common Stock valued at the Merger Price in the same
proportions as the cash and CCC Common Stock components of the Base Merger
Consideration as provided in Section 2.2(a)) or (ii) after completion of the
Post-Closing Audit (as defined in Section 3.1(b)), in accordance with Section
3.1(b).
(d) If the Group 1997 Adjusted EBIT is less than the Group 1997
Adjusted EBIT Target, then the Merger Consideration to be delivered to the
Shareholders may, at CCC's election, be reduced either (i) at the Closing, by
an amount equal to seven multiplied by the product of (A) the difference between
the Group 1997 Adjusted EBIT Target and the Group 1997 Adjusted EBIT times (B)
4.9% (which reduction shall be pro rata in cash and in CCC Common Stock valued
at the Merger Price in the same proportions as the cash and CCC Common Stock
components of the Base Merger Consideration as provided in Section 2.2(a)) or
(ii) after completion of the Post-Closing Audit (as defined in Section 3.1(b)),
in accordance with Section 3.1(b). If the Group 1997 Adjusted EBIT is higher
than the Group 1997 Adjusted EBIT Target, then the Merger Consideration to be
delivered to the Shareholders at Closing shall be increased at the Closing by an
amount equal to seven multiplied by the product of (A) the difference between
the Group 1997 Adjusted EBIT and the Group 1997 Adjusted EBIT Target up to a
maximum of $1 million times (B) 4.9%. The amount by which the Group 1997
Adjusted EBIT exceeds the Group 1997 Adjusted EBIT Target, up to a maximum of $1
million, is hereafter referred to as the "EBIT Increase."
-------------
(e) 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 other
5
<PAGE>
wise 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.
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 an amount up to $1,958,400.
(i) $1,958,400 (the "Maximum Earn Out Amount") will be paid, subject
-----------------------
to the provisions of subsection (ii) and (iii) below, if the Earnings before
Interest and Taxes of the Surviving Group Companies (as defined below), for the
one year period after February 28, 1998 (the "Group Actual Earn Out EBIT") is at
--------------------------
least equal to the sum of $25,020,000 and the amount, if any, of the EBIT
Increase (the "Maximum Earn Out Threshold"). Price Waterhouse LLP, CCC's
--------------------------
independent accountant ("CCC's Accountant"), will determine the Group Actual
----------------
Earn Out EBIT and deliver prompt notice of such amount to the Shareholders (the
"Earn Out EBIT Notice") with supporting documentation. The Shareholders
--------------------
(through the Group 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 Group 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. For
purposes of this Section 2.3, "Earnings before Interest and Taxes of the
-----------------------------------------
Surviving Group Companies" is equal to net income computed in accordance with
- -------------------------
GAAP consistently applied of the Group Companies reflected on the books and
records of the Surviving Group Companies and the Holding Company (as defined in
Section 7.21 below), which net income (A) shall not reflect (1) the amortization
of goodwill and other intangibles recognized by CCC in connection with the
acquisition of the Group Companies or any future acquisitions, (2) expenses
(including corporate overhead) of CCC other than those expenses incurred for the
benefit of the Surviving Group Companies that do not duplicate expenses incurred
by the Surviving Group Companies nor exceed the amounts of similar expenses
incurred in the most recently ended fiscal year by the Group Companies prior to
the Closing or (3) the tax that arises under Section 4978 of the Code, (B) shall
reflect (1) depreciation and amortization of assets of the Surviving Group
Companies except to the extent such amounts result from an increase in the book
value of the assets resulting from the Group Merger Transaction and (2) the
expenses under the employment agreement of William P. Love, Jr. with the Holding
Company and other expenses reasonably necessary for the operation of the Holding
Company in connection with its actions as parent of the Surviving Group
Companies and (C) shall be adjusted by (1) adding the amounts of any interest
expense, income taxes, extraordinary items, cumulative effect of accounting
changes and discontinued operations of the Surviving Group Companies and (2)
subtracting the amount of any interest income of the Surviving Group Companies.
CCC's Accountant will calculate the Contingent Merger Consideration for each
Surviving Group Company and the Group Actual Earn Out EBIT applying the same
accounting principles applied by such Group Company (on a company by company
basis),
6
<PAGE>
with all such computations made (and definitions used) in the same way the
computations were made (and definitions were used) by such Group Company prior
to the Closing and will conform to the methods of accounting utilized
consistently during the calendar years 1996, 1997 and 1998 for each such Group
Company, provided in each case that such computations were in accordance with
GAAP. If, after the Closing, CCC's Accountant makes conforming adjustments to
unify the accounting principles utilized by each of the Group Companies, such
adjustments shall have no effect on the calculations made by CCC's Accountant
for purposes of this Section 2.3. CCC will provide the Surviving Corporation
with a schedule on a quarterly basis detailing expenses incurred for the benefit
of the Surviving Group Companies, such schedule to be prepared on a comparative
basis to expenses incurred in the prior year by the Group Companies for the same
items.
(ii) If the Group Actual Earn Out EBIT is equal to or less than
the sum of $22,043,000 and the amount, if any, of the EBIT Increase (the "Earn
----
Out Threshold"), then no Contingent Merger Consideration will be paid to the
- -------------
Shareholders.
(iii) If the Group Actual Earn Out EBIT is greater than the Earn
Out Threshold but less than the Maximum Earn Out Threshold (the difference
between the Maximum Earn Out Threshold and the Earn Out Threshold being
hereinafter referred to as the "Earn Out Range"), then the Contingent Merger
--------------
Consideration will equal the product determined by multiplying (A) the Specified
Percentage (as defined below) by (B) the Maximum Earn Out Amount. For purposes
of this Agreement, the "Specified Percentage" shall mean a fraction, the
--------------------
numerator of which is the amount by which the Group Actual Earn Out EBIT exceeds
the Earn Out Threshold and the denominator of which is the Earn Out Range.
(b) The shareholders of the Group Companies (through the Group
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 Group Actual Earn
Out EBIT. If CCC has not received notice of any such dispute within such 30-day
period, the Group Actual Earn Out EBIT contained in the Earn Out EBIT Notice
shall be final. If, however, the shareholders (through the Group
Representative) have delivered notice of such a dispute to CCC within such 30-
day period, then CCC shall, pursuant to Section 2.3(c) 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 (or four largest firms if the
mergers of accounting firms proposed as of the date of this Agreement have been
completed) (each, a "New Accounting Firm") to review the amount of the Group
-------------------
Actual Earn Out EBIT, the books of the Surviving Group Com panies, including
the Surviving Corporation, and the Earn Out EBIT Notice (and related
information) to determine the amount, if any, that the Group Actual Earn Out
EBIT is in error. Such New Accounting Firm shall be confirmed by the former
shareholders of the Group Companies through the Group 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
Group 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 Contingent Merger Consideration
7
<PAGE>
accordingly. If the Revised Earn Out EBIT is higher than the Group 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 fifteen months after the Closing
Date. The costs of the New Accounting Firm shall be borne by CCC if the Revised
Earn Out EBIT is higher than the Group Actual Earn Out EBIT and by the former
shareholders of the Group Companies 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.
(c) The Contingent Merger Consideration described in SECTION 2.3 (A),
reduced as provided in Section 3.1(c) as appropriate, 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 Group Actual Earn Out EBIT by CCC's Accountant, which shall be made in a
timely fashion following expiration of the one (1) year period after the
Closing, but in no event shall such payment be made later than the date that is
fifteen months after the Closing Date unless the Shareholders dispute the Group
Actual Earn Out EBIT in accordance with Section 2.3(b) hereof. 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 Price. 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 the
one year period after the Closing Date (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 Date, 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.
(d) If, on or prior to a Contingent Merger Consideration Payment Date,
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 Contingent Merger Consideration will
be appropriately adjusted to reflect such split, combination, dividend or other
distribution or change.
(e) If, at any time on or before the first anniversary of the Closing
Date, David E. Larkin's employment agreement with the Surviving Corporation is
terminated by the Surviving Corporation (or its successor), in its capacity as
employer, without cause (as defined in David E. Larkin's employment agreement),
CCC immediately thereupon shall pay to the Shareholders an
8
<PAGE>
amount equal to the Maximum Earn Out Amount. CCC acknowledges that such a
payment would constitute liquidated damages and not a penalty.
(f) Except for actions taken by CCC or Newco at the direction of David
E. Larkin, in his capacity as President of the Surviving Corporation, or one of
the Presidents of the other Surviving Group Companies, in his capacity as
President of such Surviving Group Company, during the one year period after the
Closing (the "Earn Out Period"), CCC and Newco (i) will operate the businesses
---------------
of the Surviving Group Companies diligently and in the ordinary course and (ii)
will not take any actions that would materially change the operations of the
businesses of the Surviving Group Companies, including any action that would
prevent any of the Surviving Group Companies (A) from conducting its business in
the ordinary course or (B) from taking any action necessary to preserve the
businesses of the Surviving Group Companies, to keep available to the Surviving
Group Companies its employees (with the same salary and bonus structure), or to
preserve the Surviving Group Companies' relationships with customers, suppliers
and others having business relations with it.
(g) In the event CCC, Newco or any of their subsidiaries takes any
action or omits to take any action which has a direct, quantifiable, negative
impact on the Earnings before Interest and Taxes of the Surviving Group
Companies or the businesses of the Group Companies as currently being conducted;
then, in any such event, the parties, in good faith, shall make reasonable
adjustments in the calculation of the Group Actual Earn Out EBIT as may be
necessary to neutralize the impact of any such action or omission.
(h) CCC and Newco agree that separate books and records will be kept
for each of the Group Companies during the Earn Out Period.
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)), as adjusted pursuant to Section 2.2, 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 8.11),
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
9
<PAGE>
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 3.2(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. 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. POST CLOSING ADJUSTMENT; PLEDGED ASSETS
3.1 POST-CLOSING ADJUSTMENT.
(a) The Base Merger Consideration shall be subject to adjustment as
specified in this Section 3.1.
(b) Within ninety (90) days following the Effective Time, CCC shall
cause CCC's Accountant to audit (the "Post-Closing Audit") the books of the
------------------
Company to determine the accuracy
10
<PAGE>
of the information relating to the Company's Closing Net Worth and the Company's
1997 Adjusted EBIT as set forth on the Financial Certificates (as defined in
Section 7.20) and on the financial certificates of the Other Group Companies. In
determining the accuracy of such information reflected on the Financial
Certificates in the course of the Post-Closing Audit, CCC's Accountant shall
apply the same accounting methodology used by the Company or the Shareholders,
as applicable, in preparing such information; provided that CCC's Accountant
shall not be obligated to apply such methodology to the extent inconsistent with
GAAP (as modified by Section 2.2(b) above). The Shareholders shall cooperate
with CCC and CCC's Accountant after the Closing Date in furnishing information,
documents, evidence and other assistance to CCC's Accountant to facilitate the
completion of the Post-Closing Audit within the aforementioned time period.
Without limiting the generality of the foregoing, within two weeks after the
Closing, the Shareholders shall provide CCC's Accountant with the information
and/or documents reasonably requested by them. CCC's Accountant will test the
Company's Closing Net Worth, the Group Closing Net Worth, the Company's 1997
Adjusted EBIT and the Group 1997 Adjusted EBIT based upon the Post-Closing Audit
and the post-closing audits of the Other Group Companies. In the event that
CCC's Accountant determines (i) a different amount than the Group Closing Net
Worth (the "Actual Closing Net Worth") or (ii) a different amount than the Group
------------------------
1997 Adjusted EBIT (the "Actual 1997 Adjusted EBIT" ), CCC shall promptly
---- -------------------------
deliver a written notice with supporting documentation (the "Financial
---------
Adjustment Notice") to the shareholders of the Group Companies, including the
- -----------------
Shareholders, setting forth (A) the determination made by CCC's Accountant of
the Actual Closing Net Worth and the Actual 1997 Adjusted EBIT, (B) the amount
of the cash portion of the Base Merger Consideration that would have been
payable at Closing pursuant to Section 2.2(c) had the Actual Closing Net Worth
and the Actual 1997 Adjusted EBIT been used instead of the Group Closing Net
Worth and the Group 1997 Adjusted EBIT to determine the need for any adjustments
to the Base Merger Consideration pursuant to Sections 2.2(c) and 2.2(d),
respectively, and (C) the number of shares issued as part of the Base Merger
Consideration that would have been issuable at Closing had the Actual Closing
Net Worth and the Actual Adjusted EBIT been used to determine the need for any
adjustments to the Base Merger Consideration as set forth in (B) above. The
differences between the respective amounts set forth in (B) and (C) and the
amounts of the cash and the CCC Common Stock components of the Base Merger
Consideration paid pursuant to Section 2.2 (a), as adjusted pursuant to Sections
2.2(c) or 2.2(d), is referred to hereafter as the "Merger Consideration
--------------------
Adjustment." Any increase in the Base Merger Consideration resulting from such
- ----------
Merger Consideration Adjustment shall be owed by CCC to the Shareholders. Any
decrease in such Base Merger Consideration resulting from such Merger
Consideration Adjustment shall be owed by the Shareholders to CCC. If, on or
prior to the payment of the Merger Consideration Adjustment, 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 part of the Merger Consideration Adjustment will be
appropriately adjusted to reflect such split, combination, dividend or other
distribution or change. The shares of CCC Common Stock, if any, to be issued in
respect of the Merger Consideration Adjustment shall be registered under the
1933 Act and approved for quotation on the Nasdaq National Market.
11
<PAGE>
(c) The shareholders of the Group Companies, including the
Shareholders, through the Group Representative, shall have thirty (30) days from
the receipt of the Financial Adjustment Notice to notify CCC if they dispute
such Financial Adjustment Notice. If CCC has not received notice of any such
dispute within such 30-day period, (i) CCC shall be entitled to receive promptly
pro rata from the Shareholders (which may, at CCC's sole discretion, be from the
Pledged Assets as defined in, and subject to the provisions of, Section 3.2
and/or the Contingent Merger Consideration) any Merger Consideration Adjustment
owed to CCC and (ii) the Shareholders shall be entitled to receive promptly from
CCC any Merger Consideration Adjustment owed to the Shareholders. If, however,
the Shareholders (through the Group Representative) have delivered notice of
such a dispute to CCC within such 30-day period, then CCC's Accountant shall
select a New Accounting Firm to review the books of the Group Companies
including, the Surviving Corporation, the Financial Certificates and the
Financial Adjustment Notice (and related information) to determine the amount,
if any, of the revised Merger Consideration Adjustment (the "Actual Merger
-------------
Consideration Adjustment"). Such New Accounting Firm shall be confirmed by the
- ------------------------
Shareholders through the Group 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 Merger Consideration
Adjustment, if any, within thirty (30) days of its selection. The determination
made by the New Accounting Firm shall be final and binding on the parties
hereto, and, upon such determination, CCC shall be entitled to receive pro rata
from the Shareholders (which may, at CCC's sole discretion, be from the Pledged
Assets as defined in, and subject to the provisions of, Section 3.2 and/or the
Contingent Merger Consideration) the Actual Merger Consideration Adjustment or
the Shareholders shall be entitled to receive from CCC the Actual Merger
Consideration Adjustment, as applicable. The costs of the New Accounting Firm
shall be borne by the party (either CCC or the shareholders of the Group
Companies, including the Shareholders) whose amounts, on the Financial
Adjustment Notice or its Financial Certificates, as applicable (the "Proposed
--------
Numbers"), were further from the determination of the New Accounting Firm of
- -------
what the amounts should have been (the "Revised Numbers"), or equally by CCC and
---------------
the shareholders of the Group Companies, including the Shareholders, in the
event that the Revised Numbers are equidistant between the original amounts.
3.2 PLEDGED ASSETS.
(a) As collateral security for the payment of any Merger
Consideration Adjustment or any indemnification obligations of the Shareholders
pursuant to (and subject to the limitations of) Article 10, the Shareholders
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) at the option of the Shareholders, such Shareholders' pro
rata portion of cash and/or shares of CCC Common Stock with a value, based on
the Merger Price, equal to ten percent (10%) of the Base Merger Consideration
subject to adjustment pursuant to Section 2.2 or Section 3.1 hereof, and the
certificates and instruments, if any, representing or evidencing such
Shareholder's Pledged Assets;
12
<PAGE>
(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 bearing 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. Any cash comprising a Shareholder's
Pledged Assets shall be withheld by CCC from distribution to the Shareholder and
placed by CCC into an interest bearing custodial account that is not commingled
with any assets of CCC or any of its subsidiaries. All shares of CCC 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 Merger
Consideration Adjustment and 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 the interest earned on any cash
portion of the Pledged Assets of each Shareholder and including dividends and
distributions with respect to shares of CCC Common Stock subject to pledge),
less Pledged Assets having an aggregate value equal to the amount of (i), in the
discretion of CCC, the Actual Merger Consideration Adjustment under Section 3.1,
(ii) 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 (iii) 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 (x) the Merger Price with
respect to the Actual Merger Consideration Adjustment under Section 3.1 and (y)
the average of the closing price on the Nasdaq National Market per share 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. Notwithstanding
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
13
<PAGE>
limited to any indemnification pursuant to Article 10 hereof or any Merger
Consideration Adjustment 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 3.2, 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.
(e) Notwithstanding the foregoing provisions of this Section 3.2, the
Pledged Assets of any Shareholder that is a Profit Sharing Plan (as defined in
Section 5.22(j)) shall be held by a third party agent and upon terms reasonably
acceptable to CCC and the fiduciaries of such Shareholder.
4. CLOSING
4.1 LOCATION AND DATE. The consummation of the Merger and the other
transactions contemplated 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 10, 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 certificate 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").
--------------
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
To induce CCC and Newco to enter into this Agreement and consummate the
transactions contemplated 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 Section
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
14
<PAGE>
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 Regulations 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 auth ority 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;
(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
15
<PAGE>
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, franchise, 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 750 shares of common stock, without par value, of which 500
shares are issued and out standing and 250 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.
16
<PAGE>
5.6 SUBSIDIARIES, STOCK, AND NOTES.
(a) Except as set forth on SCHEDULE 5.6(A), the Company has no
subsidiaries.
(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 companies 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 end of its most recently ended fiscal year (the "Year-End Net Worth") was
------------------
not less than $1,419,550.
5.10 FINANCIAL STATEMENTS. SCHEDULE 5.10 includes (a) true, complete and
correct copies of the Company's unaudited balance sheet as of December 31, 1997
(the "Balance Sheet Date") and audited balance sheets as of December 31, 1996
------------------
and 1995 (December 31, 1997 and 1995 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 (unaudited), 1996 and 1995 (collectively, the
"Audited Financials"), together with the Interim Balance Sheet, as defined
------------------
herein, the "Company Financial Statements"). Except as noted on the auditor's
----------------------------
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.
17
<PAGE>
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,
as defined herein, and not previously 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 SCHEDULE 5.18(A) and those
liabilities under any contract, commitment or agreement specifically disclosed
on any Schedule to this Agreement.
(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
18
<PAGE>
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 ninety (90) 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-off, 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 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
19
<PAGE>
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) Except as set forth on SCHEDULE 5.15(D): (i) the Company holds no
interest as landlord in any Real Property; (ii) the Company 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) the Company 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) the Company has no
knowledge of any default by the landlord under any lease relating to the leased
Real Property; (v) the Company has paid all rent under each lease relating to
the leased Real Property with respect to the period through the Closing Date;
and (vi) the Company has not exercised any termination or purchase option under
any lease relating to the leased Real Property nor has the Company exercised any
renewal or extension under any lease relating to the leased Real Property with
respect to any renewal or extension period that will commence after the date
hereof (other than renewals or extensions that have been disclosed to CCC).
(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 default thereunder
or provided notice of the exercise of any option granted to such party under
such lease.
(f) Except as provided on SCHEDULES 5.15(C) OR 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.
20
<PAGE>
(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.
(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.
21
<PAGE>
(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, $50,000 individually, or that may generate revenues or income
exceeding, during the current term thereof, $50,000 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. Other than as disclosed on SCHEDULE
5.18(A), 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.
(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.
22
<PAGE>
(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
23
<PAGE>
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.
(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;
24
<PAGE>
(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;
(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
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<PAGE>
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 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
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Closing Date will have complied), in all material respects with
26
<PAGE>
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
(i) the Company has not incurred liability under Section 4062 of
ERISA.
(j) The Company has converted any employee stock ownership Plan (the
"ESOP") maintained by the Company to a profit sharing plan which does not
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provide for pass-through voting by its participants (the "Profit Sharing Plan").
-------------------
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,
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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.
(vi) The Company currently utilizes the accural method of
accounting for income Tax purposes and such method of accounting has not changed
since incorporation. 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.
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(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) Intentionally Omitted.
(c) 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.
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5.2 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;
(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;
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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;
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(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.
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
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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.
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 January 21, 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, or, to the knowledge of such Shareholder, such Shareholder's
purchaser representative, (a) has such knowledge and experience in business and
financial matters and such knowledge concerning the business, operations and
financial condition of the Other Group Companies 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
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<PAGE>
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 and the Other Group Companies
concerning the business, operations and financial condition of CCC and the Other
Group Companies, respectively. 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.
Each Shareholder acknowledges and agrees that CCC has not and will not provide
such Shareholder or any other party with a prospectus for the Shareholder's use
in selling CCC Common Stock.
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 Ohio (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, 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
34
<PAGE>
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,
Bylaws and Regulations, 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 have been duly and validly authorized by the respective
Boards of Directors of CCC and Newco, and this Agreement has 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. 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 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;
35
<PAGE>
(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;
(f) conflict with, result in a breach of, or result in default under
any document, agreement or instrument to which Jonathan J. Ledecky is a party,
or by which Jonathan J. Ledecky is bound.
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
30,292,857 shares were outstanding on February 26, 1998, and 500,000 shares of
Convertible Non-Voting Common Stock, par value $.001 per share, of which 500,000
shares were outstanding on February 26, 1998. The authorized capital stock of
Newco consists of 1,000 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 was 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. 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
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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
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 January 21, 1998 and declared effective on January
- -----------------------
26, 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.
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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:
(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
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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 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.
(b) Intentionally Omitted.
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 ninety (90) 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 party thereto and all Accounts Receivable and other amounts
due to the Company from any affiliate of the Company, other than current amounts
due for administrative services, will be paid at or before the Closing.
Reasonably promptly following the Closing and at the expense of CCC, the
Shareholders shall 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
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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 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 Newco 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
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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 the 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;
(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
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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 Regulations,
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 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;
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(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
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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 bargaining agreements, if requested
by CCC, and shall provide CCC with proof that any required notice has been sent.
7.1 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 Party" 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.
Notwithstanding anything in the foregoing to the contrary, no Shareholder that
is a Profit Sharing Plan shall be restricted in the transfer of any shares of
CCC Common Stock received by such Shareholder as part of the Base Merger
Consideration or as part of the Contingent Merger Consideration to the extent
the transfer is required by applicable law or (i) with respect to the shares of
CCC Common Stock received as part of the Base Merger Consideration, following
the first anniversary of the Closing Date or (ii) with respect to the shares of
CCC Common Stock received as part of the Contingent Merger Consideration,
following six months after the receipt of such shares with respect to 100% of
such shares and following three months after the receipt of such shares with
respect to 50% of such shares,
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it being agreed that any shares of Common Stock received by the Profit Sharing
Plan after the resolution of a dispute as to the amount of the Group Actual Earn
Out EBIT shall be considered to have been received for purposes of this transfer
restriction as the same time as the Profit Sharing Plan received the rest of the
shares of Common Stock issued as Contingent Merger Consideration.
(b) Each Shareholder acknowledges and agrees that CCC will not provide
such Shareholder with a prospectus for such Shareholder's use in selling the
shares of CCC Common Stock to be received by such Shareholder in the Merger, and
agrees to sell such shares 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 MARCH10, 1999, THESE SHARES MAY ONLY
BE TRANSFERRED IN 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
MARCH 10, 1999, 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 MARCH 10, 2000, 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 FEBRUARY 27, 1998 (THE "AGREEMENT"), BY AND AMONG THE
---------
ISSUER, CCC5 ACQUISITION CO., INDECON, 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
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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.
(d) Intentionally Omitted.
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 20,270 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, other than Shareholders who, as of the
date of this Agreement, owned less than three and one half (3 1/2) percent of
the capital stock of the Company) on or 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 CCC BOARD SEAT. At the Closing, the Board of Directors of CCC shall
expand its number and elect a representative selected by the Group Companies and
reasonably acceptable to CCC to fill such newly created seat. Thereafter, CCC
will use its best efforts to cause such individual (or his successor, who shall
be selected by a vote of a majority of the presidents of the Surviving Group
Companies and who must also be reasonably acceptable to CCC) to remain on the
CCC Board of Directors; provided, however, that CCC shall not be liable should
the shareholders of CCC not re-elect such individual to a new term on the CCC
Board of Directors.
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, 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
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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 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 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.
7.16 CONSULTING PAYMENT. At Closing, and in consideration for his
agreement to serve CCC on a consulting basis after the Closing, Neil McCarthy
will receive from CCC, by company check, $250,000 plus options to purchase
50,000 shares of CCC Common Stock, at a purchase price equal to the fair market
value of the underlying shares of CCC Common Stock on the Closing Date and
exercisable immediately for 25,000 shares and exercisable with respect to the
remaining 25,000 shares at the end of the one year period after the Closing Date
(it being agreed that such options shall be issued in accordance with CCC's 1997
Long-Term Incentive Plan and will have the vesting provisions established by the
Compensation Committee of the Board of Directors of CCC).
7.17 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.
7.18 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 result in any adjustment to the Base Merger
Consideration or the Contingent Merger Consideration pursuant to Section 2.2(e)
and 2.3(d).
7.19 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
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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 7.19 shall only be made if CCC and the president of the Company or his
successor, in his capacity as an employee of CCC or any affiliate thereof, shall
mutually agree to such amendment, modification, or termination. Without
limitation on the foregoing, CCC or any successor thereto shall maintain an
employee benefit pension plan within the meaning of ERISA Section 3(2) which
plan will continue to hold such qualifying employer securities, as defined in
ERISA Section 407(d)(5), as may be required to avoid the imposition of any
excise tax under Code Section 4978 with respect to any employee stock ownership
plan having engaged in a transaction to which Code Section 1042 applies for such
period as may be required to avoid the imposition of such excise tax.
Notwithstanding the foregoing, it is acknowledged that CCC and the Surviving
Corporation shall not pay for any country club memberships or the expenses
related to more than one vehicle per employee.
7.20 SUPPLEMENTAL FINANCIAL CERTIFICATE. The Shareholders shall, within
thirty (30) days following Closing (a copy of which shall be attached to the
Supplemental Financial Certificate), cause the preparation of a balance sheet
(the "Closing Balance Sheet") for the Company as of February 28, 1998 and
---------------------
deliver to CCC a certificate (the "Supplemental Financial Certificate"; and
----------------------------------
together with the Closing Financial Certificate, the "Financial Certificates"),
----------------------
signed on behalf of the Shareholders by the Representative, setting forth:
(a) the Company's Closing Net Worth; and
(b) a certification that the Closing Balance Sheet (a copy of which
shall be attached to the Supplemental Financial Certificate) presents fairly the
financial condition of the Company as of the Closing Date.
All costs associated with the preparation of the Supplemental Financial
Certificate (including the costs associated with preparing the Closing Balance
Sheet) shall be borne by the Shareholders and not by the Company or CCC.
7.21 HOLDING COMPANY. Promptly following the Closing, CCC will contribute
all of the shares of capital stock of each Surviving Group Company to
Consolidation Capital Corporation Electrical Services, Inc., a first tier,
wholly-owned subsidiary of CCC (the "Holding Company"). As the sole shareholder
of Holding Company, CCC will, at Closing, (i) cause William P. Love, Jr. to be
appointed its Chief Executive Officer, (ii) cause the Holding Company to enter
into an employment agreement with Mr. Love substantially in the form attached
to the Group Company Agreement for SKC Electric, Inc., and (iii) elect William
P. Love, Jr., F. Traynor Beck and Timothy Clayton as its board of directors.
7.22 INTENTIONALLY OMITTED.
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7.23 INDEMNIFICATION OF SHAREHOLDER'S PURCHASER REPRESENTATIVE. Until the
first anniversary of the Closing, CCC shall pay all costs and expenses
(including the value of any claims or awards) of any Shareholder's purchaser
representative that arise out of any claim or lawsuit related to the
transactions contemplated hereby. On the first anniversary of the Closing, the
Shareholders shall reimburse CCC, by surrender of Pledged Assets or otherwise,
for 50% of such costs and expenses; it being understood and agreed that any such
expense shall not affect the calculation of Group Actual Earn Out EBIT or the
payment of the Contingent Merger Consideration; and provided, however, that the
-------- -------
Shareholders shall not be obligated to reimburse CCC for 50% of any such costs
and expenses that arise out of any lawsuit in which CCC shall be found to be
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act), and the Shareholders shall be obligated to reimburse CCC
for all such costs and expenses that arise out of any lawsuit in which the
Company or any of the Shareholders shall be found to be guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act).
Following the first anniversary of the Closing, the Shareholders and CCC shall
equally share and be obligated to pay equal portions of all such costs and
expenses; provided, however, that the Shareholders on the one hand and CCC on
-------- -------
the other hand shall not be liable to so share and pay any such portion of costs
and expenses that arise out of any lawsuit in which CCC on the one hand or the
Company or the Shareholders on the other hand shall be found to be guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act). CCC and the Shareholders shall direct a third party, mutually
acceptable to CCC and the Shareholders to estimate an amount sufficient to cover
the costs and expenses of any claim pending on the first anniversary of the
Closing Date and the Shareholders shall escrow a sufficient amount of shares of
CCC Common Stock or cash from the Pledged Assets to cover their 50% of such
anticipated costs and expenses. The terms of the escrow shall be mutually
satisfactory to CCC and the Shareholders. Notwithstanding anything to the
contrary herein, the Shareholders shall be entitled to satisfy any claim
relating to the Pledged Assets with cash, in lieu of shares of CCC Common Stock
constituting Pledged Assets. If the payment by CCC of all costs and expenses of
any Shareholder's purchaser representative pursuant to the first sentence of
this Section 7.23 is unavailable, then CCC, in lieu of making such payment,
shall contribute to the amount paid or payable by such Shareholder's purchaser
representative as a result of any such claim or lawsuit in such proportion as is
appropriate to reflect the relative fault of such Shareholder's purchaser
representative, on the one hand, and CCC, on the other hand, in connection with
the actions or inactions giving rise to such claim or lawsuit, as well as any
other relevant equitable considerations, including, without limitation, the
parties' relative intent, knowledge and access to information. The obligations
of the Shareholders pursuant to this Section 7.23 shall be on a joint and
several basis.
7.24 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 (by pledge of assets or otherwise) unless and until
such personal guarantee (including any pledge of assets) has been fully
released.
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7.25 SHAREHOLDER DEBT. Each Shareholder shall repay in full any
indebtedness owned the Company by such Shareholder at or prior to Closing.
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
Group Material Adverse Effect, as defined below; (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. For purposes of this Agreement, "Group
Material Adverse Effect" means a material adverse effect on the business,
operations, properties, assets or condition, financial or otherwise, of the
Group Companies 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) change in governmental or legislative laws, rules
or regulations, or (d) actions taken by CCC or any affiliate of 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
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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 Group 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 Group Companies, taken as a whole, since 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 Group
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 Regulations 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 DELIVERY OF CLOSING FINANCIAL CERTIFICATE. CCC shall have received a
certificate (the "Closing Financial Certificate"), dated as of the Closing Date,
-----------------------------
signed on behalf of the Company and by the Shareholders, setting forth:
(a) the net worth of the Company as of the last day of its most
recently ended fiscal year;
(b) the net worth of the Company as of January 31, 1998; and
(c) the Company's 1997 Adjusted EBIT.
8.9 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).
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8.10 EMPLOYMENT AGREEMENTS. David E. Larkins shall enter into, at
Closing, an employment agreement with the Surviving Corporation in substantially
the form of EXHIBIT 8.10 hereto.
8.11 AFFILIATE AGREEMENTS. The Shareholders listed on SCHEDULE 5.31 shall
have entered into an Affiliate Agreement in the form set forth as EXHIBIT 8.11.
8.12 SHAREHOLDERS' RELEASE. The Shareholders shall each have delivered to
CCC an instrument dated the Closing Date in the form of EXHIBIT 8.12.
8.13 RELATED PARTY RECEIVABLES AND AGREEMENTS. Except with respect to the
items on SCHEDULE 8.13, 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 8.13 shall have been terminated as of the Closing.
8.14 CONSUMMATION OF GROUP MERGER TRANSACTION. The Group Merger
Transaction shall occur contemporaneously with the consummation of the
transactions contemplated by this Agreement.
8.15 INTENTIONALLY OMITTED.
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
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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 Department of Justice or Federal Trade Commission challenging or seeking to
enjoin the consummation of the transactions contemplated hereby shall be
pending.
9.4 EMPLOYMENT AGREEMENTS. The Surviving Corporation shall have afforded
David E. Larkins the opportunity to enter into, at Closing, an employment
agreement with the Surviving Corporation in substantially the form of EXHIBIT
8.10 hereto.
9.5 TAX CERTIFICATE DELIVERY. A certificate substantially in the form
attached hereto as EXHIBIT 9.5, dated the Closing Date and signed by the
President or any Vice President of CCC and Newco, shall have been delivered to
tax counsel for the Shareholders.
9.6 SATISFACTION WITH SHAREHOLDER RELEASE AND AFFILIATE AGREEMENTS. Each
Shareholder shall be reasonably satisfied with the form of the Affiliate
Agreement and Shareholder Release to be executed by them pursuant to Section
8.11 and Section 8.12.
9.7 TAX OPINION. The Shareholders shall have received from Dow, Lohnes, &
Albertson, PLLC, tax counsel to the Shareholders, that the Merger qualifies as a
reorganization as defined under Code Section 368(a)(1)(A).
9.8 CONSUMMATION OF GROUP MERGER TRANSACTION. The Group Merger
Transaction shall occur contemporaneously with the consummation of the
transactions contemplated by this Agreement.
9.9 EMPLOYEE PLAN FIDUCIARY CONDITION. The appropriate fiduciaries of the
Profit Sharing Plan shall have received a current valuation report and fairness
opinion in such form as may be acceptable to such fiduciaries from a source
acceptable to such fiduciaries and such fiduciaries shall have determined, in
the exercise of their sole discretion, that the consummation of the transactions
contemplated herein at the Closing is fair to and in the best interests of the
participants and beneficiaries of the Profit Sharing Plan.
9.10 BOARD EXPANSION. CCC shall have increased the size of its Board of
Directors to six members and, as contemplated by Section 7.13, a representative
of the Group Companies shall have been duly elected to such Board of Directors.
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9.11 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.
9.12 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 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.
9.13 OFFICER 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.
9.14 INTERIM BALANCE SHEET. The Companys shall deliver to CCC true,
complete and correct copies of the Company's unaudited balance sheet (the
"Interim Balance Sheet") as of January 31, 1998 and income statement and
---------------------
statement of cash flow, for the one-month period then ended (collectively the
"Interim Financials").
------------------
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
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<PAGE>
(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), 5.24 (taxes), 5.27 (environmental matters), and any
receivables from related persons that are listed on Schedule 8.13 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.
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) subsequent to the Effective Time, all Damages (whether arising
before, on or after the Effective Time) suffered, sustained, incurred, or paid
by the Shareholder Indemnified Parties in connection with, resulting from, or
arising out of, directly or indirectly, any conversion of the ESOP to a Profit
Sharing Plan as described in Section 5.22(j) herein; and
(c) any and all Damages incident to any of the foregoing or to the
enforcement of this Section 10.2.
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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) adjustments to the
Merger Consideration as set forth in Sections 2.2 and 3.1, which adjustments
shall not constitute Damages; (ii) 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; (iii) Damages described in
Section 10.1(a)(iv), or (iv) 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
(2) (w) 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), (x) with respect to covenants of the Shareholders to be
performed after the Closing Date until fully performed and discharged, (y) with
respect to covenants of CCC and Newco contained in Section 7.15 or the
representations, warranties and covenants set forth in the certificate delivered
by or on behalf of CCC and Newco
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pursuant to Section 9.5, until the expiration of the longest applicable federal
or state statute of limitations (including extensions thereof agreed to by the
party from whom indemnification is sought), 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
indemnification hereunder for the breach of a representation, warranty or
covenant where the identical subject matter thereof has also resulted in, or
caused, a Merger Consideration Adjustment to the Base Merger Consideration
pursuant to Section 3.1;
(e) in no event will any CCC Indemnified Party be entitled to any
indemnification hereunder from any Shareholder that is an employee benefit plan
within the meaning of ERISA Section 3(3) to the extent that such indemnification
could: (i) result in a transaction prohibited under ERISA Section 406 or Code
Section 4975; (ii) give rise to a claim for breach of any such plan
fiduciaries' duties with respect to such plan; or (iii) otherwise violate any
applicable provision of ERISA or the Code; or
(f) 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.
(g) 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.
(h) 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:
------
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(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 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
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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 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, and subject to the limitations in Sections 3.2(c) and 10.3
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:
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(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
business selling any products or services in direct competition with the Holding
Company or any of its subsidiaries within 100 miles of any office of the Holding
Company or any office of any of the Holding Company's subsidiaries (the
"Territory");
---------
(b) call upon any person who is, at that time, within the Territory,
an employee of the Holding Company or any subsidiary of the Holding Company in a
managerial capacity for the purpose or with the intent of enticing such employee
away from or out of the employ of the Holding Company or any subsidiary of the
Holding Company;
(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 the Holding Company
or any subsidiary of the Holding Company, for the purpose of soliciting or
selling products or services in direct competition with the Holding Company or
any subsidiary of the Holding Company 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 the Holding Company or a
subsidiary of the Holding Company as a prospective acquisition candidate or was
the subject of an acquisition analysis by the Holding Company or any subsidiary
of the Holding Company. 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 the
Holding Company or any subsidiary of the Holding Company 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.
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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.
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
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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 as prohibiting any party from pursuing any other
available remedy for such breach or threatened breach, including the recovery of
damages.
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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 March 15, 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 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
Section 7.22, Article 12 and Article 13; and
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(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 this Section 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
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<PAGE>
the subject matter of this Agreement. In addition, CCC will pay all fees and
expenses relating to obtaining licenses, permits, surety bonds, insurance,
transfer applications, business credit reports and the related qualifications
for Newco, the other subsidiaries newly formed by CCC to effect the Group Merger
Transaction and the Surviving Group Companies, including the Surviving
Corporation, up to an aggregate amount of $100,000. Any such fees and expenses
of the Surviving Group Companies in excess of $100,000 shall be split between
CCC on the one hand and the shareholders of the Group Companies on the other.
Except with respect to FMI Corporation and the part of the fee to Neil McCarthy
referred to below, 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. In addition, it is understood
and agreed that CCC shall be solely responsible to pay to FMI Corporation a fee
equal to 3% of the Base Merger Consideration plus the Contingent Merger
Consideration paid pursuant to this Agreement and Neil McCarthy professional
fees equal to $250,000, and the parties set forth on SCHEDULE 13.7 hereof shall
be solely responsible to pay Neil McCarthy an amount previously agreed to by the
parties for professional fees. At the election of the Shareholders, any of the
foregoing 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
Group 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:
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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
Linda L. Griggs, Esquire
1800 M Street, NW
Washington, DC 20036
(Telefax: 202/467-7176)
If to any Shareholder to:
David E. Larkins
5301 Lester Road
Cincinnati, OH 45213
(Telefax: 513/ 979-7424)
with a required copy to:
Terrence A. Mire, Esq.
Cohen, Todd, Kite & Stanford, LLC
525 Vine Street, 16th Floor
Cincinnati, OH 45202
(Telefax: 513/ 241-4490)
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.
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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. Except as set forth in
Section 7.11, 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 GROUP REPRESENTATIVE AND SHAREHOLDER REPRESENTATIVE. (a) Each of
the Shareholders hereby appoints William P. Love, Jr. 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 calculation of the Merger
Consideration (the "Group Representative"). Each Shareholder understands that
--------------------
the Group Representative will represent the shareholders of the Surviving Group
Companies. Each Shareholder further agrees that (i), in the case of a dispute
regarding the base merger consideration paid by CCC pursuant to the Group
Company Agreements (the "Total Base Merger Consideration"), the approval of the
-------------------------------
former shareholders of the Group Companies which received a majority of the
Total Base Merger Consideration, and (ii), in the case of a dispute regarding
the contingent merger consideration to be paid by CCC pursuant to the Group
Company Agreements (the "Total Contingent Merger Consideration"), the approval
-------------------------------------
of the former shareholders of the Group Companies which would be entitled to
receive a majority of the Total Contingent Merger Consideration (the required
vote pursuant to (i) and (ii) above is referred to as the "Approval of the Group
---------------------
Company Shareholders"), the Group Representative shall have the power to take
- --------------------
any and all actions which the Group Representative believes are necessary or
appropriate or in the best interests of all of the shareholders of the Group
Companies for and on behalf of such shareholders, as fully as if they were
acting on their own behalf, including without limitation, consenting to, and
settling any and all claims, disputes or controversies arising with regard to
the calculation of the Merger Consideration. CCC and the Surviving Group
Companies shall have the right to rely on any actions taken or omitted to be
taken by the Group 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. In addition, the shareholders
of the Group Companies shall have the right to change the identity of the Group
Representative upon the Approval of the Group Company Shareholders, and shall
deliver to CCC and the Surviving Group Companies prompt written notice of any
such change of identity, which upon receipt by CCC and the Surviving Group
Companies will effect said change. Except to the extent prohibited by law, the
Shareholders agree to hold the Group Representative free and harmless from and
indemnify the Group Representative against any and all
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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.
(b) Each of the Shareholders hereby appoints David E. Larkins 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"), other than those contained in Section
--------------
13.14(a) above. 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, 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 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 Plan of Merger within
the meaning of the State Corporate Laws.
[Execution Page Following]
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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
CCC5 ACQUISITION CO.
By: /s/ F. Traynor Beck
------------------------------------------
F. Traynor Beck
INDECON, INC.
By: /s/ Garfield W. Hartman
------------------------------------------
Garfield W. Hartman
Secretary Treasurer
SHAREHOLDERS:
/s/ David E. Larkins by GW Hartman POA
----------------------------------------------
David E. Larkins
/s/ Donald Lemker by GW Hartman POA
----------------------------------------------
Donald Lemker
/s/ Garfield Hartman
----------------------------------------------
Garfield Hartman
/s/ Steven Ortner
----------------------------------------------
Steven Ortner
<PAGE>
Index of Defined Terms
----------------------
<TABLE>
<CAPTION>
Section
-------
<S> <C>
1933 Act....................................................................2.2(a)
Accounts Receivable...........................................................5.12
Actual Adjusted EBIT........................................................3.1(a)
Actual 1997 Adjusted EBIT...................................................3.1(b)
Actual Merger Consideration Adjustment......................................3.1(c)
Affiliate.....................................................................5.31
Agreement..................................................................7.10(c)
Approval of the Group Company Shareholders...................................13.14
Audited Financials............................................................5.10
Balance Sheet Date............................................................5.10
Base Merger Consideration...................................................2.2(a)
CCC..........................................................................INTRO
CCC Charter Documents..........................................................6.1
CCC Common Stock............................................................2.1(c)
CCC Indemnified Parties.......................................................10.1
CCC Indemnified Party.........................................................10.1
CCC Prospectus................................................................5.30
CCC's knowledge..................................................................6
CCC's Accountant.........................................................2.3(a)(i)
Certificates................................................................2.4(b)
Charter Documents..............................................................5.1
Claim Notice...............................................................10.4(a)
Claims........................................................................10.4
Closing........................................................................4.1
Closing Balance Sheet.........................................................7.20
Closing Date...................................................................4.1
Closing Financial Certificate..................................................8.8
COBRA......................................................................5.22(e)
Code......................................................................Recitals
Company...................................................................Recitals
Company 1.................................................................Recitals
Company 2.................................................................Recitals
Company 3.................................................................Recitals
Company 4.................................................................Recitals
Company 5.................................................................Recitals
Company 6.................................................................Recitals
Company Common Stock......................................................Recitals
Company Financial Statements..................................................5.10
Company Hazardous Materials Activities.....................................5.27(b)
Company's knowledge..............................................................5
Company's 1997 Adjusted EBIT................................................2.2(b)
Company's Closing Net Worth.................................................2.2(b)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Constituent Corporations..................................................Recitals
Contingent Merger Consideration.............................................2.3(a)
controlled group..............................................................5.22
Conversion Indemnitee.........................................................7.22
Damages....................................................................10.1(a)
Earn Out EBIT Notice.....................................................2.3(a)(i)
Earn Out Period.............................................................2.3(f)
Earn Out Period Average Price...............................................2.3(c)
Earn Out Range.........................................................2.3(a)(iii)
Earn Out Threshold......................................................2.3(a)(ii)
Earnings before Interest and Taxes..........................................2.2(b)
Earnings before Interest and Taxes of the Surviving Group Companies......2.3(a)(i)
EBIT Increase...............................................................2.2(d)
Effective Time.................................................................4.2
Environmental Permits......................................................5.27(c)
Equipment.....................................................................5.33
ERISA.........................................................................5.22
ESOP.......................................................................5.22(j)
Financial Adjustment Notice.................................................3.1(b)
Financial Certificates........................................................7.20
GAAP........................................................................2.2(b)
golden parachute..............................................................5.22
Group 1997 Adjusted EBIT....................................................2.2(b)
Group 1997 Adjusted EBIT Target.............................................2.2(b)
Group Actual Earn Out EBIT...............................................2.3(a)(i)
Group Closing Net Worth.....................................................2.2(b)
Group Companies...........................................................Recitals
Group Company.............................................................Recitals
Group Company Agreements..................................................Recitals
group health plans.........................................................5.22(e)
Group Merger Transaction..................................................Recitals
Group Net Worth Target......................................................2.2(b)
Group Representative.........................................................13.14
Hazardous Material.........................................................5.27(a)
Holding Company...............................................................7.21
Indemnification Threshold.....................................................10.3
Indemnified Party..........................................................10.4(a)
Indemnifying Party.........................................................10.4(a)
Intellectual Property......................................................5.17(a)
Interim Balance Sheet.........................................................9.14
Interim Financials............................................................9.14
Interim Period Average......................................................2.2(a)
Inventory.....................................................................5.33
knowledge of CCC.................................................................6
knowledge of Newco...............................................................6
knowledge of the Company.........................................................5
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Laws..................................................................5.15(c)(iii)
leased Real Property.......................................................5.15(d)
liabilities................................................................5.11(d)
Lien...........................................................................5.4
Material Adverse Effect........................................................5.1
Material Contracts.........................................................5.18(a)
Maximum Earn Out Amount..................................................2.3(a)(i)
Maximum Earn Out Threshold...............................................2.3(a)(i)
Merger....................................................................Recitals
Merger Consideration........................................................2.4(a)
Merger Consideration Adjustment.............................................3.1(b)
Merger Documents...............................................................4.2
Merger Price................................................................2.2(a)
multiemployer pension plan....................................................5.22
Net Worth...................................................................2.2(b)
New Accounting Firm.........................................................2.3(b)
Newco.....................................................................Recitals
Newco's knowledge................................................................6
Other Group Companies.....................................................Recitals
PBGC..........................................................................5.22
Pending Claims.........................................................10.3(c)(ii)
Permits.......................................................................5.14
Permitted Encumbrances..................................................5.15(c)(i)
Agreement and Plan of Merger...................................................1.1
Plans.........................................................................5.22
Pledged Assets..............................................................3.2(a)
Post-Closing Audit..........................................................3.1(b)
Prime Rate..................................................................2.3(b)
Profit Sharing Plan........................................................5.22(j)
Proposed Numbers............................................................3.1(c)
Qualified Plans...............................................................5.22
Real Property..............................................................5.15(a)
Registration Statement.........................................................6.9
Related Party Agreements...................................................5.18(a)
Release Date................................................................3.2(c)
reportable events..........................................................5.22(c)
Representative............................................................13.14(a)
Required Consents..............................................................8.4
Revised Earn Out EBIT.......................................................2.3(b)
Revised Numbers.............................................................3.1(c)
Securities Act.............................................................7.10(c)
Specified Percentage...................................................2.3(a)(iii)
State Corporate Laws...........................................................1.2
State Corporation Laws.........................................................1.2
Shareholder..................................................................Intro
Shareholder Approval......................................................13.14(b)
</TABLE>
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<TABLE>
<S> <C>
Shareholder Indemnified Parties...............................................10.2
Shareholder Indemnified Party.................................................10.2
Structures.............................................................5.15(c)(ii)
Supplemental Financial Certificate............................................7.20
Surviving Corporation..........................................................1.1
Tax.....................................................................5.24(c)(i)
Tax Return.............................................................5.24(c)(ii)
tax-free reorganization...................................................Recitals
Territory..................................................................11.1(a)
Third Party Claim.......................................................10.4(b)(i)
Title Commitment...............................................................7.3
Title Policy...................................................................7.3
Total Base Merger Consideration..............................................13.14
Total Contingent Merger Consideration........................................13.14
UCC...........................................................................5.33
Year-End Net Worth.............................................................5.9
</TABLE>
<PAGE>
EXHIBIT 2.05
________________________________________________________________________________
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CONSOLIDATION CAPITAL CORPORATION,
CCC6 ACQUISITION CO.,
TRI-CITY ELECTRICAL CONTRACTORS, INC.
AND
THE SHAREHOLDERS NAMED HEREIN
MADE EFFECTIVE AS OF FEBRUARY 27, 1998.
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C>
1. THE MERGER............................................................. 2
1.1 The Merger................................................. 2
1.2 Articles of Incorporation; Bylaws, Directors and Officers.. 2
1.3 Effects of the Merger...................................... 2
2. CONVERSION AND EXCHANGE OF STOCK...................................... 3
2.1 Manner of Conversion....................................... 3
2.2 Base Merger Consideration.................................. 4
2.3 Contingent Merger Consideration............................ 5
2.4 Exchange of Certificates and Payment of Cash............... 8
3. POST CLOSING ADJUSTMENT; PLEDGED ASSETS............................... 9
3.1 Post-Closing Adjustment.................................... 9
3.2 Pledged Assets............................................. 11
4. CLOSING............................................................... 12
4.1 Location and Date.......................................... 12
4.2 Effect..................................................... 12
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS.... 12
5.1 Due Organization........................................... 12
5.2 Authorization; Validity.................................... 13
5.3 No Conflicts............................................... 13
5.4 Capital Stock of the Company............................... 14
5.5 Transactions in Capital Stock.............................. 14
5.6 Subsidiaries, Stock, and Notes............................. 14
5.7 Predecessor Status......................................... 14
5.8 Absence of Claims Against the Company...................... 14
5.9 Company Financial Condition................................ 14
5.10 Financial Statements....................................... 15
5.11 Liabilities and Obligations................................ 15
5.12 Accounts and Notes Receivable.............................. 16
5.13 Books and Records.......................................... 16
5.14 Permits.................................................... 16
5.15 Real Property.............................................. 16
5.16 Personal Property.......................................... 17
5.17 Intellectual Property...................................... 18
5.18 Material Contracts and Commitments......................... 19
5.19 Government Contracts....................................... 19
5.20 Insurance.................................................. 20
</TABLE>
i
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5.21 Labor and Employment Matters....................................... 21
5.22 Employee Benefit Plans............................................. 21
5.23 Conformity with Law; Litigation.................................... 23
5.24 Taxes.............................................................. 23
5.25 Absence of Changes................................................. 25
5.26 Deposit Accounts; Powers of Attorney............................... 27
5.27 Environmental Matters.............................................. 27
5.28 Relations with Governments......................................... 28
5.29 Disclosure......................................................... 28
5.30 CCC Prospectus; Securities Representations......................... 28
5.31 Affiliates......................................................... 29
5.32 Location of Chief Executive Offices................................ 29
5.33 Location of Equipment and Inventory................................ 29
6. REPRESENTATIONS OF CCC AND NEWCO.............................................. 29
6.1 Due Organization................................................... 29
6.2 CCC Common Stock................................................... 30
6.3 Authorization; Validity of Obligations............................. 30
6.4 No Conflicts....................................................... 30
6.5 Capitalization of CCC and Ownership of CCC Stock................... 30
6.6 Conformity with Law; Litigation.................................... 31
6.7 Disclosure......................................................... 31
6.8 CCC Prospectus..................................................... 31
6.9 Registration Statement............................................. 31
6.10 Investment Intent.................................................. 32
7. COVENANTS..................................................................... 32
7.1 Tax Matters........................................................ 32
7.2 Accounts Receivable................................................ 33
7.3 Title Insurance and Surveys........................................ 33
7.4 Related Party Agreements........................................... 34
7.5 Cooperation........................................................ 34
7.6 Conduct of Business Pending Closing................................ 35
7.7 Access to Information.............................................. 36
7.8 Prohibited Activities.............................................. 36
7.9 Notice to Bargaining Agents........................................ 37
7.10 Sales of CCC Common Stock.......................................... 38
7.11 CCC Stock Options.................................................. 39
7.12 Tax Covenant....................................................... 39
7.13 CCC Board Seat..................................................... 39
7.14 D&O Insurance and Indemnification of Directors and Officers........ 40
7.15 Tax Free Reorganization Protection................................. 40
7.16 Consulting Payment................................................. 40
7.17 Government Contracts............................................... 40
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
7.18 CCC Stock.......................................................... 40
7.19 Employee Benefits Matters.......................................... 41
7.20 Supplemental Financial Certificate................................. 41
7.21 Holding Company.................................................... 41
7.22 Intentionally Omitted.............................................. 41
7.23 Indemnification of Shareholder's Purchaser Representative.......... 42
7.24 Guaranteed Debt.................................................... 42
7.25 Tri-City/B&S Diversified J.V....................................... 42
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CCC AND NEWCO...................... 43
8.1 Representations and Warranties; Performance of Obligations......... 43
8.2 No Litigation...................................................... 43
8.3 No Material Adverse Change......................................... 43
8.4 Consents and Approvals............................................. 44
8.5 Opinion of Counsel................................................. 44
8.6 Charter Documents.................................................. 44
8.7 Quarterly Financial Statements..................................... 44
8.8 Delivery of Closing Financial Certificate.......................... 44
8.9 FIRPTA Compliance.................................................. 44
8.10 Employment Agreements.............................................. 44
8.11 Affiliate Agreements............................................... 44
8.12 Shareholders' Release.............................................. 44
8.13 Related Party Receivables and Agreements........................... 44
8.14 Consummation of Group Merger Transaction........................... 45
8.15 Employee Plan Fiduciary Condition.................................. 45
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDERS.................................................................. 45
9.1 Representations and Warranties; Performance of Obligations......... 45
9.2 No Litigation...................................................... 45
9.3 Consents and Approvals............................................. 45
9.4 Employment Agreements.............................................. 45
9.5 Tax Certificate Delivery........................................... 46
9.6 Satisfaction With Shareholder Release and Affiliate Agreements..... 46
9.7 Tax Opinion........................................................ 46
9.8 Consummation of Group Merger Transaction........................... 46
9.9 Employee Plan Fiduciary Condition.................................. 46
9.10 Board Expansion.................................................... 46
9.11 Registration Statement............................................. 46
9.12 No Material Adverse Change......................................... 46
9.13 Officers and Directors of Surviving Corporation.................... 46
10. INDEMNIFICATION............................................................... 46
10.1 General Indemnification by the Shareholders........................ 46
</TABLE>
iii
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<TABLE>
<S> <C>
10.2 General Indemnification by CCC and Newco.......................... 47
10.3 Limitation and Expiration......................................... 48
10.4 Indemnification Procedures........................................ 49
10.5 Survival of Representations Warranties............................ 51
10.6 Right to Set Off.................................................. 51
11. NONCOMPETITION................................................................ 51
11.1 Prohibited Activities............................................. 51
11.2 Damages........................................................... 52
11.3 Reasonable Restraint.............................................. 52
11.4 Severability; Reformation......................................... 52
11.5 Independent Covenant.............................................. 52
11.6 Materiality....................................................... 52
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION..................................... 53
12.1 Confidentiality................................................... 53
12.2 Damages........................................................... 53
13. GENERAL....................................................................... 54
13.1 Termination....................................................... 54
13.2 Effect of Termination............................................. 54
13.3 Successors and Assigns............................................ 55
13.4 Entire Agreement; Amendment; Waiver............................... 55
13.5 Counterparts...................................................... 55
13.6 Brokers and Agents................................................ 55
13.7 Expenses.......................................................... 55
13.8 Specific Performance; Remedies.................................... 56
13.9 Notices........................................................... 56
13.10 Governing Law..................................................... 57
13.11 Severability...................................................... 57
13.12 Absence of Third Party Beneficiary Rights......................... 57
13.13 Further Representations........................................... 57
13.14 Group Representative and Shareholder Representative............... 57
13.15 Unanimous Written Consent of Shareholders......................... 57
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
---------
entered into this 27th day of February, 1998, by and among Consolidation Capital
Corporation, a Delaware corporation ("CCC"), CCC6 Acquisition Co., a Florida
---
corporation and a newly-formed, wholly-owned subsidiary of CCC ("Newco"), and
-----
Tri-City Electrical Contractors, Inc., a Florida corporation (the "Company"),
-------
and Helmuth L. Eidel, Paula N. Eidel and The Elizabeth-Helmuth L. Eidel Family
Trust (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 Plan of Merger (defined below) and the
------
applicable provisions of the laws of the State of Florida;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, CCC is entering into an Agreement and Plan of Reorganization
substantially similar to this Agreement with each of Garfield Electric Company,
an Ohio corporation ("Company 1"), Indecon, Inc., an Ohio corporation ("Company
--------- -------
2"), Riviera Electric Construction Co., a Colorado corporation ("Company 3"),
- -- ---------
SKC Electric, Inc., a Kansas corporation ("Company 4"), Town & Country Electric,
---------
Inc., a Wisconsin corporation ("Company 5"), and Wilson Electric, an Arizona
---------
corporation ("Company 6"); and together Company 1, Company 2, Company 3, Company
----------
4, Company 5 and Company 6 shall be known collectively as the "Other Group
-----------
Companies") (the Other Group Companies, together with the Company, shall be
- ---------
known hereafter collectively as the "Group Companies" and each shall be known
---------------
individually as a "Group Company"; and this Agreement together with the other
-------------
agreements referenced in this clause applicable to the Other Group Companies
shall be known hereafter collectively as the "Group Company Agreements");
------------------------
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"); and
----
WHEREAS, in order to induce CCC to enter into this Agreement and the other
agreements comprising the Group Company Agreements, the Company and the
Shareholders desire to execute and deliver this Agreement, the effect of which,
taken together with the transactions contemplated by the remaining Group Company
Agreements (such transactions, including the transaction contem-
<PAGE>
plated by this Agreement, being known hereafter collectively as the "Group
-----
Merger Transaction"), will have a direct and beneficial impact on the Company
- ------------------
and the Shareholders.
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 a
Plan of Merger (the "Plan 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 new corporations into which
---------------------
each of the Other Group Companies will merge in the Group Merger Transaction are
referred to collectively, together with the Surviving Corporation, as the
Surviving Group Companies. 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
Florida (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 By-Laws of
the Surviving Corporation unless and until thereafter amended as provided
therein and under the State Corporate Laws; provided, that the provisions
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 director(s) of the Surviving Corporation shall be as set
forth on SCHEDULE 1.2(C) until his/their successors are elected and qualified,
and the initial officers of the Surviving Corporation shall be as set forth on
SCHEDULE 1.2(C) until his/their successors are elected and qualified.
1.3 EFFECTS OF THE MERGER. The Merger shall have the effects provided
therefor by the Florida General Corporation Act. 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,
2
<PAGE>
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, 3.1 and 3.2, 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 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 (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
----------------
defined 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 (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
3
<PAGE>
Period Average Price (as defined in Section 2.3(b)), 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
and 2.3 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 (as defined
in Sections 2.2(a) and 2.3(b) respectively), 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 $32,550,000, as adjusted pursuant to this Section 2.2 and Section 3.1.
Of the Base Merger Consideration, $16,275,000 shall be paid in cash at Closing
(as defined in Section 4.1) in immediately available funds. The remaining
$16,275,000 of the Base Merger Consideration shall be paid at Closing in shares
of CCC Common Stock valued at a price per share (the "Merger Price") equal to
------------
the sum of (i) the closing price of CCC Common Stock on January 29, 1998, plus
(ii) the closing price of CCC Common Stock on the last trading day prior to the
Closing Date, 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 (subject
to adjustment as provided in this Section 2.2 and Section 3.1) shall be
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
--------
approved for quotation on the Nasdaq National Market.
(b) The calculation of the Base Merger Consideration takes into
account (i) the Net Worth (as defined below) of the Company as of February 28,
1998, calculated in accordance with generally accepted accounting principles
("GAAP") consistently applied, but in any event excluding any increases in
----
intangible assets of the Company since the end of the Company's most recently
ended fiscal year and until February 28, 1998 (as certified pursuant to Section
8.8, the "Company's Closing Net Worth"), and (ii) the Earnings before Interest
---------------------------
and Taxes (as defined below)
4
<PAGE>
of the Company, computed in accordance with GAAP consistently applied throughout
the period involved but adjusted to reflect the nonrecurring items that are
specified on SCHEDULE 2.2(B) hereto, for the twelve month period ended at the
close of the Company's most recently ended fiscal year (as certified pursuant to
Section 8.8, the "Company's 1997 Adjusted EBIT"). The calculation of the Base
----------------------------
Merger Consideration assumes that (A) the total (the "Group Closing Net Worth")
------------------------
of the Company's Closing Net Worth and the net worth of each of the Other Group
Companies as of February 28, 1998 (calculated and certified in the manner
specified in each of the Group Company Agreements) is equal to or greater than
$31,000,000 (the "Group Net Worth Target") and (B) the total (the "Group 1997
---------------------- ----------
Adjusted EBIT") of the Company's 1997 Adjusted EBIT and the Earnings before
- -------------
Interest and Taxes of each of the Other Group Companies for the twelve month
period ended at the close of each Group Company's most recently ended fiscal
year (calculated and certified in the manner specified in each of the Group
Company Agreements) shall have been equal to or greater than $19,734,000 (the
"Group 1997 Adjusted EBIT Target"). For the purposes of this Section 2.2, "Net
------------------------------- ---
Worth" is equal to total assets less total liabilities, "Earnings before
- ----- ---------------
Interest and Taxes" is equal to net income (A) plus interest expense, income
- ------------------
taxes, extraordinary items, cumulative effect of accounting changes and
discontinued operations and (B) less interest income, and "Group Closing Net
Worth" shall include the following items related to the ESOP for SKC Electric,
Inc., which are reflected on the balance sheet for SKC Electric, Inc.: (A) ESOP
common stock purchase obligations, and (B) ESOP-related Debt (current and long
term) and (C) Unearned ESOP common stock.
(c) If the Group Closing Net Worth is lower than the Group Net Worth
Target, then the Merger Consideration (as defined in Section 2.4(a)) to be
delivered to the Shareholders may, at CCC's election, be reduced either (i) at
the Closing, by the product of (A) the difference between the Group Net Worth
Target and the Group Closing Net Worth times (B) 24% (which reduction shall be
pro rata in cash and in CCC Common Stock valued at the Merger Price in the same
proportions as the cash and CCC Common Stock components of the Base Merger
Consideration as provided in Section 2.2(a)) or (ii) after completion of the
Post-Closing Audit (as defined in Section 3.1(b)), in accordance with Section
3.1(b).
(d) If the Group 1997 Adjusted EBIT is less than the Group 1997
Adjusted EBIT Target, then the Merger Consideration to be delivered to the
Shareholders may, at CCC's election, be reduced either (i) at the Closing, by
an amount equal to seven multiplied by the product of (A) the difference between
the Group 1997 Adjusted EBIT Target and the Group 1997 Adjusted EBIT times (B)
24% (which reduction shall be pro rata in cash and in CCC Common Stock valued at
the Merger Price in the same proportions as the cash and CCC Common Stock
components of the Base Merger Consideration as provided in Section 2.2(a)) or
(ii) after completion of the Post-Closing Audit (as defined in Section 3.1(b)),
in accordance with Section 3.1(b). If the Group 1997 Adjusted EBIT is higher
than the Group 1997 Adjusted EBIT Target, then the Merger Consideration to be
delivered to the Shareholders at Closing shall be increased at the Closing by an
amount equal to seven multiplied by the product of (A) the difference between
the Group 1997 Adjusted EBIT and the Group 1997 Adjusted EBIT Target up to a
maximum of $1 million times (B) 24%. The amount by which the Group 1997 Adjusted
EBIT exceeds the Group 1997 Adjusted EBIT Target, up to a maximum of $1 million,
is hereafter referred to as the "EBIT Increase."
-------------
5
<PAGE>
(e) 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.
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 an amount up to $9,300,000.
(i) $9,300,000 (the "Maximum Earn Out Amount") will be paid,
-----------------------
subject to the provisions of subsection (ii) and (iii) below, if the Earnings
before Interest and Taxes of the Surviving Group Companies (as defined below),
for the one year period after February 28, 1998 (the "Group Actual Earn Out
---------------------
EBIT") is at least equal to the sum of $25,020,000 and the amount, if any, of
- ----
the EBIT Increase (the "Maximum Earn Out Threshold"). Price Waterhouse LLP,
--------------------------
CCC's independent accountant ("CCC's Accountant"), will determine the Group
----------------
Actual Earn Out EBIT and deliver prompt notice of such amount to the
Shareholders (the "Earn Out EBIT Notice") with supporting documentation. The
--------------------
Shareholders (through the Group 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 Group 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. For purposes of this Section 2.3, "Earnings before Interest and Taxes of
-------------------------------------
the Surviving Group Companies" is equal to net income computed in accordance
- -----------------------------
with GAAP consistently applied of the Group Companies reflected on the books and
records of the Surviving Group Companies and the Holding Company (as defined in
Section 7.21 below), which net income (A) shall not reflect (1) the amortization
of goodwill and other intangibles recognized by CCC in connection with the
acquisition of the Group Companies or any future acquisitions, (2) expenses
(including corporate overhead) of CCC other than those expenses incurred for the
benefit of the Surviving Group Companies that do not duplicate expenses incurred
by the Surviving Group Companies nor exceed the amounts of similar expenses
incurred in the most recently ended fiscal year by the Group Companies prior to
the Closing or (3) the tax that arises under Section 4978 of the Code, (B) shall
reflect (1) depreciation and amortization of assets of the Surviving Group
Companies except to the extent such amounts result from an increase in the book
value of the assets resulting from the Group Merger Transaction and (2) the
expenses under the employment agreement of William P. Love, Jr. with the Holding
Company and other expenses reasonably necessary for the operation of the Holding
Company in connection with its actions as parent of the Surviving Group
Companies and (C) shall be adjusted by (1) adding the amounts of any interest
expense, income taxes, extraordinary items, cumulative effect of accounting
changes and discontinued operations of the Surviving Group Companies and (2)
subtracting the amount of any interest income of the Surviving Group Companies.
CCC's Accountant will calculate the Contingent Merger Consideration
6
<PAGE>
for each Surviving Group Company and the Group Actual Earn Out EBIT applying the
same accounting principles applied by such Group Company (on a company by
company basis), with all such computations made (and definitions used) in the
same way the computations were made (and definitions were used) by such Group
Company prior to the Closing and will conform to the methods of accounting
utilized consistently during the calendar years 1996, 1997 and 1998 for each
such Group Company, provided in each case that such computations were in
accordance with GAAP. If, after the Closing, CCC's Accountant makes conforming
adjustments to unify the accounting principles utilized by each of the Group
Companies, such adjustments shall have no effect on the calculations made by
CCC's Accountant for purposes of this Section 2.3. CCC will provide the
Surviving Corporation with a schedule on a quarterly basis detailing expenses
incurred for the benefit of the Surviving Group Companies, such schedule to be
prepared on a comparative basis to expenses incurred in the prior year by the
Group Companies for the same items.
(ii) If the Group Actual Earn Out EBIT is equal to or less than
the sum of $22,043,000 and the amount, if any, of the EBIT Increase (the "Earn
----
Out Threshold"), then no Contingent Merger Consideration will be paid to the
- -------------
Shareholders.
(iii) If the Group Actual Earn Out EBIT is greater than the Earn
Out Threshold but less than the Maximum Earn Out Threshold (the difference
between the Maximum Earn Out Threshold and the Earn Out Threshold being
hereinafter referred to as the "Earn Out Range"), then the Contingent Merger
--------------
Consideration will equal the product determined by multiplying (A) the Specified
Percentage (as defined below) by (B) the Maximum Earn Out Amount. For purposes
of this Agreement, the "Specified Percentage" shall mean a fraction, the
--------------------
numerator of which is the amount by which the Group Actual Earn Out EBIT exceeds
the Earn Out Threshold and the denominator of which is the Earn Out Range.
(b) The shareholders of the Group Companies (through the Group
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 Group Actual Earn
Out EBIT. If CCC has not received notice of any such dispute within such 30-day
period, the Group Actual Earn Out EBIT contained in the Earn Out EBIT Notice
shall be final. If, however, the shareholders (through the Group Representative)
have delivered notice of such a dispute to CCC within such 30-day period, then
CCC shall, pursuant to Section 2.3(c) 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 (or four largest firms if the mergers of
accounting firms proposed as of the date of this Agreement have been completed)
(each, a "New Accounting Firm") to review the amount of the Group Actual Earn
-------------------
Out EBIT, the books of the Surviving Group Companies, including the Surviving
Corporation, and the Earn Out EBIT Notice (and related information) to determine
the amount, if any, that the Group Actual Earn Out EBIT is in error. Such New
Accounting Firm shall be confirmed by the former shareholders of the Group
Companies through the Group 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 Group Earn Out EBIT (the
"Revised Earn Out EBIT") if any, within thirty (30) days of its selection. The
---------------------
7
<PAGE>
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
Contingent Merger Consideration accordingly. If the Revised Earn Out EBIT is
higher than the Group 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 fifteen months after the Closing Date. The costs of the New Accounting
Firm shall be borne by CCC if the Revised Earn Out EBIT is higher than the Group
Actual Earn Out EBIT and by the former shareholders of the Group Companies 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.
(c) The Contingent Merger Consideration described in Section 2.3 (a),
reduced as provided in Section 3.1(c) as appropriate, 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 Group Actual Earn Out EBIT by CCC's Accountant, which shall be made in a
timely fashion following expiration of the one (1) year period after the
Closing, but in no event shall such payment be made later than the date that is
fifteen months after the Closing Date unless the Shareholders dispute the Group
Actual Earn Out EBIT in accordance with Section 2.3(b) hereof. 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 Price. 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 the
one year period after the Closing Date (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 Date, 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.
(d) If, on or prior to a Contingent Merger Consideration Payment
Date, 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 Contingent Merger
Consideration will be appropriately adjusted to reflect such split, combination,
dividend or other distribution or change.
(e) If, at any time on or before the first anniversary of the Closing
Date, Helmuth L. Eidel's employment agreement with the Surviving Corporation is
terminated by the Surviving Corporation (or its successor), in its capacity as
employer, without cause (as defined in Helmuth L.
8
<PAGE>
Eidel's employment agreement), CCC immediately thereupon shall pay to the
Shareholders an amount equal to the Maximum Earn Out Amount. CCC acknowledges
that such a payment would constitute liquidated damages and not a penalty.
(f) Except for actions taken by CCC or Newco at the direction of
Helmuth L. Eidel, in his capacity as President of the Surviving Corporation, or
one of the presidents of the other Surviving Group Companies, in his capacity as
president of such Surviving Group Company, during the one year period after the
Closing (the "Earn Out Period"), CCC and Newco (i) will operate the businesses
---------------
of the Surviving Group Companies diligently and in the ordinary course and (ii)
will not take any actions that would materially change the operations of the
businesses of the Surviving Group Companies, including any action that would
prevent any of the Surviving Group Companies (A) from conducting its business in
the ordinary course or (B) from taking any action necessary to preserve the
businesses of the Surviving Group Companies, to keep available to the Surviving
Group Companies its employees (with the same salary and bonus structure), or to
preserve the Surviving Group Companies' relationships with customers, suppliers
and others having business relations with it.
(g) In the event CCC, Newco or any of their subsidiaries takes any
action or omits to take any action which has a direct, quantifiable, negative
impact on the Earnings before Interest and Taxes of the Surviving Group
Companies or the businesses of the Group Companies as currently being conducted;
then, in any such event, the parties, in good faith, shall make reasonable
adjustments in the calculation of the Group Actual Earn Out EBIT as may be
necessary to neutralize the impact of any such action or omission.
(h) CCC and Newco agree that separate books and records will be kept
for each of the Group Companies during the Earn Out Period.
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)), as adjusted pursuant to Section 2.2, 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 8.11),
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.
9
<PAGE>
(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 3.2(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. 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. POST CLOSING ADJUSTMENT; PLEDGED ASSETS
3.1 POST-CLOSING ADJUSTMENT.
(a) The Base Merger Consideration shall be subject to adjustment as
specified in this Section 3.1.
10
<PAGE>
(b) Within ninety (90) days following the Effective Time, CCC shall
cause CCC's Accountant to audit (the "Post-Closing Audit") the books of the
------------------
Company to determine the accuracy of the information relating to the Company's
Closing Net Worth and the Company's 1997 Adjusted EBIT as set forth on the
Financial Certificates (as defined in Section 7.20) and on the financial
certificates of the Other Group Companies. In determining the accuracy of such
information reflected on the Financial Certificates in the course of the Post-
Closing Audit, CCC's Accountant shall apply the same accounting methodology used
by the Company or the Shareholders, as applicable, in preparing such
information; provided that CCC's Accountant shall not be obligated to apply such
methodology to the extent inconsistent with GAAP (as modified by Section 2.2(b)
above). The Shareholders shall cooperate with CCC and CCC's Accountant after the
Closing Date in furnishing information, documents, evidence and other assistance
to CCC's Accountant to facilitate the completion of the Post-Closing Audit
within the aforementioned time period. Without limiting the generality of the
foregoing, within two weeks after the Closing, the Shareholders shall provide
CCC's Accountant with the information and/or documents reasonably requested by
them. CCC's Accountant will test the Company's Closing Net Worth, the Group
Closing Net Worth, the Company's 1997 Adjusted EBIT and the Group 1997 Adjusted
EBIT based upon the Post-Closing Audit and the post-closing audits of the Other
Group Companies. In the event that CCC's Accountant determines (i) a different
amount than the Group Closing Net Worth (the "Actual Closing Net Worth") or (ii)
------------------------
a different amount than the Group 1997 Adjusted EBIT (the "Actual 1997 Adjusted
--------------------
EBIT" ), CCC shall promptly deliver a written notice with supporting
- ----
documentation (the "Financial Adjustment Notice") to the shareholders of the
Group Companies, including the Shareholders, setting forth (A) the determination
made by CCC's Accountant of the Actual Closing Net Worth and the Actual 1997
Adjusted EBIT, (B) the amount of the cash portion of the Base Merger
Consideration that would have been payable at Closing pursuant to Section 2.2(c)
had the Actual Closing Net Worth and the Actual 1997 Adjusted EBIT been used
instead of the Group Closing Net Worth and the Group 1997 Adjusted EBIT to
determine the need for any adjustments to the Base Merger Consideration pursuant
to Sections 2.2(c) and 2.2(d), respectively, and (C) the number of shares issued
as part of the Base Merger Consideration that would have been issuable at
Closing had the Actual Closing Net Worth and the Actual Adjusted EBIT been used
to determine the need for any adjustments to the Base Merger Consideration as
set forth in (B) above. The differences between the respective amounts set forth
in (B) and (C) and the amounts of the cash and the CCC Common Stock components
of the Base Merger Consideration paid pursuant to Section 2.2 (a), as adjusted
pursuant to Sections 2.2(c) or 2.2(d), is referred to hereafter as the "Merger
------
Consideration Adjustment." Any increase in the Base Merger Consideration
- ------------------------
resulting from such Merger Consideration Adjustment shall be owed by CCC to the
Shareholders. Any decrease in such Base Merger Consideration resulting from such
Merger Consideration Adjustment shall be owed by the Shareholders to CCC. If, on
or prior to the payment of the Merger Consideration Adjustment, 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 part of the Merger Consideration Adjustment will be
appropriately adjusted to reflect such split, combination, dividend or other
distribution or change. The shares of CCC Common Stock, if any, to be issued in
respect of the Merger
11
<PAGE>
Consideration Adjustment shall be registered under the 1933 Act and approved for
quotation on the Nasdaq National Market.
(c) The shareholders of the Group Companies, including the
Shareholders, through the Group Representative, shall have thirty (30) days from
the receipt of the Financial Adjustment Notice to notify CCC if they dispute
such Financial Adjustment Notice. If CCC has not received notice of any such
dispute within such 30-day period, (i) CCC shall be entitled to receive promptly
pro rata from the Shareholders (which may, at CCC's sole discretion, be from the
Pledged Assets as defined in, and subject to the provisions of, Section 3.2
and/or the Contingent Merger Consideration) any Merger Consideration Adjustment
owed to CCC and (ii) the Shareholders shall be entitled to receive promptly from
CCC any Merger Consideration Adjustment owed to the Shareholders. If, however,
the Shareholders (through the Group Representative) have delivered notice of
such a dispute to CCC within such 30-day period, then CCC's Accountant shall
select a New Accounting Firm to review the books of the Group Companies
including, the Surviving Corporation, the Financial Certificates and the
Financial Adjustment Notice (and related information) to determine the amount,
if any, of the revised Merger Consideration Adjustment (the "Actual Merger
-------------
Consideration Adjustment"). Such New Accounting Firm shall be confirmed by the
- ------------------------
Shareholders through the Group 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 Merger Consideration
Adjustment, if any, within thirty (30) days of its selection. The determination
made by the New Accounting Firm shall be final and binding on the parties
hereto, and, upon such determination, CCC shall be entitled to receive pro rata
from the Shareholders (which may, at CCC's sole discretion, be from the Pledged
Assets as defined in, and subject to the provisions of, Section 3.2 and/or the
Contingent Merger Consideration) the Actual Merger Consideration Adjustment or
the Shareholders shall be entitled to receive from CCC the Actual Merger
Consideration Adjustment, as applicable. The costs of the New Accounting Firm
shall be borne by the party (either CCC or the shareholders of the Group
Companies, including the Shareholders) whose amounts, on the Financial
Adjustment Notice or its Financial Certificates, as applicable (the "Proposed
--------
Numbers"), were further from the determination of the New Accounting Firm of
- -------
what the amounts should have been (the "Revised Numbers"), or equally by CCC and
---------------
the shareholders of the Group Companies, including the Shareholders, in the
event that the Revised Numbers are equidistant between the original amounts.
3.2 PLEDGED ASSETS.
(a) As collateral security for the payment of any Merger
Consideration Adjustment or any indemnification obligations of the Shareholders
pursuant to (and subject to the limitations of) Article 10, the Shareholders
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) at the option of the Shareholders, such Shareholders' pro
rata portion of cash and/or shares of CCC Common Stock with a value, based on
the Merger Price, equal to ten percent (10%) of the Base Merger Consideration
subject to adjustment pursuant to Section 2.2 or
12
<PAGE>
Section 3.1 hereof, 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 bearing 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. Any cash comprising a Shareholder's
Pledged Assets shall be withheld by CCC from distribution to the Shareholder and
placed by CCC into an interest bearing custodial account that is not commingled
with any assets of CCC or any of its subsidiaries. All shares of CCC 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 Merger
Consideration Adjustment and 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 the interest earned on any cash
portion of the Pledged Assets of each Shareholder and including dividends and
distributions with respect to shares of CCC Common Stock subject to pledge),
less Pledged Assets having an aggregate value equal to the amount of (i), in the
discretion of CCC, the Actual Merger Consideration Adjustment under Section 3.1,
(ii) 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 (iii) 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 (x) the Merger Price with
respect to the Actual Merger Consideration Adjustment under Section 3.1 and (y)
the average of the closing price on the Nasdaq National Market per share 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. Notwithstanding
the foregoing or anything to the contrary herein, the
13
<PAGE>
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 or any Merger Consideration Adjustment, 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 3.2, 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.
(e) Notwithstanding the foregoing provisions of this Section 3.2, the
Pledged Assets of any Shareholder that is a Profit Sharing Plan (as defined in
Section 5.22(j)) shall be held by a third party agent and upon terms reasonably
acceptable to CCC and the fiduciaries of such Shareholder.
4. CLOSING
4.1 LOCATION AND DATE. The consummation of the Merger and the other
transactions contemplated 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 10, 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, certificate 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").
--------------
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
To induce CCC and Newco to enter into this Agreement and consummate the
transactions contemplated 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, except for the representations and
warranties with respect to themselves contained in SCHEDULES 5.2, 5.3, 5.4, 5.8
AND 5.30, who shall not be deemed to be making any representations or warranties
under this Agreement), jointly and severally, represent and warrant to CCC and
Newco, as follows (for
14
<PAGE>
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;
15
<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, franchise, 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 10,000 shares of common stock, $1.00 par value, of which
10,000 shares are issued and outstanding. 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
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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.
(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 companies 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 end of its most recently ended fiscal year (the "Year-End Net Worth") was
------------------
not less than $9,810,688.
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 (the "Interim Balance Sheet") as of January 31, 1998 and
---------------------
income statement and statement of cash flows, for the one-month period then
ended (collectively, the "Interim Financials," 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.
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<PAGE>
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 previously 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 SCHEDULE 5.18(A) and those
liabilities under any contract, commitment or agreement specifically disclosed
on any Schedule to this Agreement.
(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
18
<PAGE>
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 ninety (90) 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-off, 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
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Company has not received any notice that any governmental 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, including 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
19
<PAGE>
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) Except as set forth on SCHEDULE 5.15(D): (i) the Company holds no
interest as landlord in any Real Property; (ii) the Company 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) the Company 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) the Company has no
knowledge of any default by the landlord under any lease relating to the leased
Real Property; (v) the Company has paid all rent under each lease relating to
the leased Real Property with respect to the period through the Closing Date;
and (vi) the Company has not exercised any termination or purchase option under
any lease relating to the leased Real Property nor has the Company exercised any
renewal or extension under any lease relating to the leased Real Property with
respect to any renewal or extension period that will commence after the date
hereof (other than renewals or extensions that have been disclosed to CCC).
(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 default thereunder
or provided notice of the exercise of any option granted to such party under
such lease.
(f) Except as provided on SCHEDULES 5.15(C) OR 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.
20
<PAGE>
(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.
(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.
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<PAGE>
(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, $50,000 individually, or that may generate revenues or income
exceeding, during the current term thereof, $50,000 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. Other than as disclosed on SCHEDULE
5.18(A), 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.
(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.
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<PAGE>
(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
23
<PAGE>
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.
(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 workmen's 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;
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<PAGE>
(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;
(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
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<PAGE>
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 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
26
<PAGE>
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
(i) the Company has not incurred liability under Section 4062 of
ERISA.
(j) [This Section was intentionally left blank.]
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
27
<PAGE>
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 from the inception of the Company.
(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 five 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.
28
<PAGE>
(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)
(i) The Company, since January 1, 1997, been an S corporation
within the meaning of Section 1361 of the Code.
(ii) Except as set forth on SCHEDULE 5.24, the Company does not
have a net recognized built-in gain within the meaning of Section 1374 of the
Code.
(c) 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.
29
<PAGE>
5.2 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;
30
<PAGE>
(k) any waiver of any material rights or claims of the Company;
(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;
31
<PAGE>
(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.
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 Environ mental 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
32
<PAGE>
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.
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 January 21, 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, or, to the knowledge of such Shareholder, such Shareholder's
purchaser representative, (a) has such knowledge and experience in business and
financial matters and such knowledge concerning the business, operations and
financial condition of the Other Group Companies 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
33
<PAGE>
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 and the Other
Group Companies concerning the business, operations and financial condition of
CCC and the Other Group Companies, respectively. 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. Each Shareholder acknowledges and agrees that CCC has
not and will not provide such Shareholder or any other party with a prospectus
for the Shareholder's use in selling CCC Common Stock.
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 Florida (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, 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
34
<PAGE>
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 have been duly and validly authorized by the respective
Boards of Directors of CCC and Newco, and this Agreement has 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. 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 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;
35
<PAGE>
(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;
(e) require the consent of any third party; or
(f) conflict with, result in a breach of, or result in a default
under any document, agreement or instrument to which Jonathan J. Ledecky is a
party, or by which Jonathan J. Ledecky is bound.
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
30,292,857 shares were outstanding on February 20, 1998, and 500,000 shares of
Convertible Non-Voting Common Stock, par value $.001 per share, of which 500,000
shares were outstanding on February 20, 1998. The authorized capital stock of
Newco consists of 1,000 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 was 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. 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
36
<PAGE>
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
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 January 21, 1998 and declared effective on January
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26, 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.
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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:
(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. Each item of
the Company's income, gain, deduction, expense and credit for the period January
1, 1998 up to and including the Closing Date shall be allocated to the
Shareholders as described in (S) 1377 (a)(2) of the Code. 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
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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 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.
(b) The Company shall, prior to the Closing, maintain its status as
an S Corporation for federal and state income tax purposes.
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 ninety (90) 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 TITLE INSURANCE AND SURVEYS.
(a) With respect to each parcel of Real Property owned by the
Company, the Shareholders and the Company shall use their reasonable efforts to
assist CCC in obtaining (i) as soon as practicable after the date of this
Agreement, a title commitment disclosing the condition of title to such fee
estate and all easements, rights of way, and restrictions of record with respect
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thereto, as of a date not earlier than the date of this Agreement, accompanied
by copies of all instruments evidencing the scope and extent of all such
easements, rights of way, and restrictions of record (the "Title Commitment"),
----------------
and (ii) at or prior to Closing, an ALTA Owner's Policy of Title Insurance on a
form customarily used in the state in which the Real Property is located, issued
by a title insurer satisfactory to CCC, in an amount equal to the fair market
value of the Real Property (as reasonably determined by CCC), insuring title to
such property to be in the name of the party designated by CCC on SCHEDULE 7.3,
subject only to Permitted Encumbrances (each a "Title Policy").
------------
(b) With respect to each Real Property interest as to which a Title
Policy is to be procured pursuant to this Agreement, the Shareholders and the
Company shall use their reasonable efforts to assist CCC in obtaining as soon
as practicable after the date of this Agreement, a current survey of the
relevant parcel, prepared and certified to CCC and to the title insurer of such
Real Property interest by a licensed surveyor and conforming to current ALTA
Minimum Detail Requirements for Land Title Surveys, disclosing the location of
all improvements, easements, party walls, sidewalks, roadways, utility lines,
and other matters customarily shown on such surveys, and showing access
affirmatively to public streets and roads.
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 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
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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 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 Newco 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 FTC or 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;
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(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;
(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
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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, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock except as provided
above in subsection (b) and except for distributions relating to the payment of
taxes for the 1998 tax year with respect to the Company if it is a Subchapter S
Corporation under the Code;
(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 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;
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(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 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
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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 Party" 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. Notwithstanding
anything in the foregoing to the contrary, no Shareholder that is a Profit
Sharing Plan shall be restricted in the transfer of any shares of CCC Common
Stock received by such Shareholder as part of the Base Merger Consideration or
as part of the Contingent Merger Consideration to the extent the transfer is
required by applicable law or (i) with respect to the shares of CCC Common Stock
received as part of the Base Merger Consideration, following the first
anniversary of the Closing Date or (ii) with respect to the shares of CCC Common
Stock Received as part of the Contingent merger Consideration, Following six
months after the receipt of such shares with respect to 100% of such shares and
following three months after the receipt of such shares with respect to 50% of
such shares, it being agreed that any shares of Common Stock received by the
Profit Sharing Plan after the resolution of a dispute as to the amount of the
Group Actual Earn Out EBIT shall be considered to have been received for
purposes of this transfer restriction at the same time as the Profit Sharing
Plan received the rest of the shares of Common Stock issued as Contingent Merger
Consideration.
(b) Each Shareholder acknowledges and agrees that CCC will not
provide such Shareholder with a prospectus for such Shareholder's use in selling
the shares of CCC Common Stock to be received by such Shareholder in the Merger,
and agrees to sell such shares 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:
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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
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RULE 145 APPLIES, PRIOR TO MARCH 10, 1999, THESE SHARES MAY ONLY
BE TRANSFERRED IN 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
MARCH 10, 1999, 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 MARCH 10, 2000, 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 FEBRUARY 27, 1998 (THE "AGREEMENT"), BY AND AMONG THE
---------
ISSUER, CCC6 ACQUISITION CO., TRI-CITY ELECTRICAL CONTRACTORS,
INC. (THE "COMPANY") AND THE SHAREHOLDERS OF THE COMPANY. PRIOR
-------
TO THE EXPIRATION OF SUCH HOLDING PERIOD, SUCH SHARES MAY 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 99,360 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, other than Shareholders who, as of the
date of this Agreement, owned less than three and one half (3 1/2) percent of
the capital stock of the Company) on or 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
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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 CCC BOARD SEAT. At the Closing, the Board of Directors of CCC shall
expand its number and elect a representative selected by the Group Companies and
reasonably acceptable to CCC to fill such newly created seat. Thereafter, CCC
will use its best efforts to cause such individual (or his successor, who shall
be selected by a vote of a majority of the presidents of the Surviving Group
Companies and who must also be reasonably acceptable to CCC) to remain on the
CCC Board of Directors; provided, however, that CCC shall not be liable should
the shareholders of CCC not re-elect such individual to a new term on the CCC
Board of Directors.
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 and bylaws, 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 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 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.
7.16 CONSULTING PAYMENT. At Closing, and in consideration for his
agreement to serve CCC on a consulting basis after the Closing, Neil McCarthy
will receive from CCC, by company check, $250,000 plus options to purchase
50,000 shares of CCC Common Stock, at a purchase price equal to the fair market
value of the underlying shares of CCC Common Stock on the Closing Date
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and exercisable immediately for 25,000 shares and exercisable with respect to
the remaining 25,000 shares at the end of the one year period after the Closing
Date (it being agreed that such options shall be issued in accordance with CCC's
1997 Long-Term Incentive Plan and will have the vesting provisions established
by the Compensation Committee of the Board of Directors of CCC). Prior to the
Closing Date, Helmuth L. Eidel will assume the agreement dated November 21, 1997
between Mid-Atlantic Companies and the Company, as detailed on Schedule 13.6,
and thus assume full responsibility for the finders fee due to Mid-Atlantic
Companies in connection with this Agreement.
7.17 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.
7.18 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 result in any adjustment to the Base Merger
Consideration or the Contingent Merger Consideration pursuant to Section 2.2(e)
and 2.3(d).
7.19 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 7.19 shall only be made if CCC and
the president of the Company or his successor, in his capacity as an employee of
CCC or any affiliate thereof, shall mutually agree to such amendment,
modification, or termination. Without limitation on the foregoing, CCC or any
successor thereto shall maintain an employee benefit pension plan within the
meaning of ERISA Section 3(2) which plan will continue to hold such qualifying
employer securities, as defined in ERISA Section 407(d)(5), as may be required
to avoid the imposition of any excise tax under Code Section 4978 with respect
to any employee stock ownership plan having engaged in a transaction to which
Code Section 1042 applies for such period as may be required to avoid the
imposition of such excise tax. Notwithstanding the foregoing, it is acknowledged
that CCC and the Surviving Corporation shall not pay for any country club
memberships or the expenses related to more than one vehicle per employee.
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7.20 SUPPLEMENTAL FINANCIAL CERTIFICATE. The Shareholders shall, within
thirty (30) days following Closing (a copy of which shall be attached to the
Supplemental Financial Certificate), cause the preparation of a balance sheet
(the "Closing Balance Sheet") for the Company as of February 28, 1998 and
---------------------
deliver to CCC a certificate (the "Supplemental Financial Certificate"; and
----------------------------------
together with the Closing Financial Certificate, the "Financial Certificates"),
----------------------
signed on behalf of the Shareholders by the Representative, setting forth:
(a) the Company's Closing Net Worth; and
(b) a certification that the Closing Balance Sheet (a copy of which
shall be attached to the Supplemental Financial Certificate) presents fairly the
financial condition of the Company as of the Closing Date.
All costs associated with the preparation of the Supplemental Financial
Certificate (including the costs associated with preparing the Closing Balance
Sheet) shall be borne by the Shareholders and not by the Company or CCC.
7.21 HOLDING COMPANY. Promptly following the Closing, CCC will contribute
all of the shares of capital stock of each Surviving Group Company to
Consolidation Capital Corporation Electrical Services, Inc., a first tier,
wholly-owned subsidiary of CCC (the "Holding Company"). As the sole shareholder
of Holding Company, CCC will, at Closing, (i) cause William P. Love, Jr. to be
appointed its Chief Executive Officer, (ii) cause the Holding Company to enter
into an employment agreement with Mr. Love substantially in the form attached to
the Group Company Agreement for SKC Electric, Inc., and (iii) elect William P.
Love, Jr., F. Traynor Beck and Timothy Clayton as its board of directors.
7.22 Intentionally Omitted
7.23 INDEMNIFICATION OF SHAREHOLDER'S PURCHASER REPRESENTATIVE. Until the
first anniversary of the Closing, CCC shall pay all costs and expenses
(including the value of any claims or awards) of any Shareholder's purchaser
representative that arise out of any claim or lawsuit related to the
transactions contemplated hereby. On the first anniversary of the Closing, the
Shareholders shall reimburse CCC, by surrender of Pledged Assets or otherwise,
for 50% of such costs and expenses; it being understood and agreed that any such
expense shall not affect the calculation of Group Actual Earn Out EBIT or the
payment of the Contingent Merger Consideration; and provided, however, that the
-------- -------
Shareholders shall not be obligated to reimburse CCC for 50% of any such costs
and expenses that arise out of any lawsuit in which CCC shall be found to be
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act), and the Shareholders shall be obligated to reimburse CCC
for all such costs and expenses that arise out of any lawsuit in which the
Company or any of the Shareholders shall be found to be guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act).
Following the first anniversary of the Closing, the Shareholders and CCC shall
equally share and be obligated to pay equal portions of all such costs and
expenses; provided, however, that the Shareholders on the one hand and CCC on
-------- -------
the other hand shall not be liable to so share and pay any such portion of
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costs and expenses that arise out of any lawsuit in which CCC on the one hand or
the Company or the Shareholders on the other hand shall be found to be guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act). CCC and the Shareholders shall direct a third party, mutually
acceptable to CCC and the Shareholders to estimate an amount sufficient to cover
the costs and expenses of any claim pending on the first anniversary of the
Closing Date and the Shareholders shall escrow such amount of shares of CCC
Common Stock or cash from the Pledged Assets to cover their 50% of such costs
and expenses. The terms of the escrow shall be mutually satisfactory to CCC and
the Shareholders. Notwithstanding anything to the contrary herein, the
Shareholders shall be entitled to satisfy any claim relating to the Pledged
Assets with cash, in lieu of shares of CCC Common Stock constituting Pledged
Assets. If the payment by CCC of all costs and expenses of any Shareholder's
purchaser representative pursuant to the first sentence of this Section 7.23 is
unavailable, then CCC, in lieu of making such payment, shall contribute to the
amount paid or payable by such Shareholder's purchaser representative as a
result of any such claim or lawsuit in such proportion as is appropriate to
reflect the relative fault of such Shareholder's purchaser representative, on
the one hand, and CCC, on the other hand, in connection with the actions or
inactions giving rise to such claim or lawsuit, as well as any other relevant
equitable considerations, including, without limitation, the parties' relative
intent, knowledge and access to information. The obligations of the Shareholders
pursuant to this Section 7.23 shall be on a joint and several basis.
7.24 GUARANTEED DEBT.
(a) It is understood and agreed that the Shareholders will seek to
have all personal guarantees (by pledge of assets of 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 (by pledge of assets or otherwise) unless and until
such personal guarantee (including any pledge of assets) has been fully
released.
(b) It is understood and agreed that the Company will have all
corporate guarantees (including, but not limited to, the corporate guarantees
listed on SCHEDULE __) released in connection with the Merger on or before the
Closing Date.
7.25 TRI-CITY/B&S DIVERSIFIED J.V. It is understood and agreed that on or
before the Closing Date, the Company may be permitted to enter into the
transaction detailed on SCHEDULE 7.25.
7.26 ACCOUNTS RECEIVABLES FOR TAX REFUND.
(a) On or after the Date of this Agreement, the Company or the
Surviving Corporation may receive a tax refund from the Company's 1997 federal
income tax return as detailed on SCHEDULE 7.4 (the "Tax Refund Receivable"). It
is understood and agreed before signing or by
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February 28, 1998, this Tax Refund Receivable may be assigned to one or more the
Shareholders of the Company.
(b) If the Tax Refund Receivable is assigned to the Shareholders of
the Company, then the Company will provide evidence of the assignment to CCC
prior to Closing.
(c) If the Tax Refund Receivable is assigned to the Shareholders of
the Company and the Surviving Company does receive the Tax Refund Receivable,
then the Surviving Company will distribute the amount received less any costs,
fees, taxes, penalties or interest that were incurred hereunder.
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
Group Material Adverse Effect, as defined below; (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. For purposes of this Agreement, "Group
Material Adverse Effect" means a material adverse effect on the business,
operations, properties, assets or condition, financial or otherwise, of the
Group Companies 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) change in governmental or legislative laws, rules
or regulations, or (d) actions taken by CCC or any affiliate of 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
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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 Group 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 Group Companies, taken as a whole, since 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 Group
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 Department of Justice or Federal Trade Commission
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 DELIVERY OF CLOSING FINANCIAL CERTIFICATE. CCC shall have received a
certificate (the "Closing Financial Certificate"), dated as of the Closing Date,
-----------------------------
signed on behalf of the Company and by the Shareholders, setting forth:
(a) the net worth of the Company as of the last day of its most
recently ended fiscal year;
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(b) the net worth of the Company as of January 31, 1998; and
(c) the Company's 1997 Adjusted EBIT.
8.9 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).
8.10 EMPLOYMENT AGREEMENTS. Helmuth L. Eidel shall enter into, at
Closing, an employment agreement with the Surviving Corporation in substantially
the form of EXHIBIT 8.10 hereto.
8.11 AFFILIATE AGREEMENTS. The Shareholders listed on SCHEDULE 5.31 shall
have entered into an Affiliate Agreement in the form set forth as EXHIBIT 8.11.
8.12 SHAREHOLDERS' RELEASE. The Shareholders shall each have delivered to
CCC an instrument dated the Closing Date in the form of EXHIBIT 8.12.
8.13 RELATED PARTY RECEIVABLES AND AGREEMENTS. Except with respect to the
items on SCHEDULE 8.13, 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 8.13 shall have been terminated as of the Closing.
8.14 CONSUMMATION OF GROUP MERGER TRANSACTION. The Group Merger
Transaction shall occur contemporaneously with the consummation of the
transactions contemplated by this Agreement.
8.15 EMPLOYEE PLAN FIDUCIARY CONDITION. The appropriate fiduciaries of the
Profit Sharing Plan shall have received a current valuation report and fairness
opinion in such form as may be acceptable to such fiduciaries from a source
acceptable to such fiduciaries and such fiduciaries shall have determined, in
the exercise of their sole discretion, that the consummation of the transactions
contemplated herein at the Closing is fair to and in the best interests of the
participants and beneficiaries of the Profit Sharing Plan.
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
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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 Department of Justice or Federal Trade Commission challenging or seeking to
enjoin the consummation of the transactions contemplated hereby shall be
pending.
9.4 EMPLOYMENT AGREEMENTS. The Surviving Corporation shall have afforded
Helmuth L. Eidel the opportunity to enter into, at Closing, an employment
agreement with the Surviving Corporation in substantially the form of EXHIBIT
8.10 hereto.
9.5 TAX CERTIFICATE DELIVERY. A certificate substantially in the form
attached hereto as EXHIBIT 9.5, dated the Closing Date and signed by the
President or any Vice President of CCC and Newco, shall have been delivered to
tax counsel for the Shareholders.
9.6 SATISFACTION WITH SHAREHOLDER RELEASE AND AFFILIATE AGREEMENTS. Each
Shareholder shall be reasonably satisfied with the form of the Affiliate
Agreement and Shareholder Release to be executed by them pursuant to Section
8.11 and Section 8.12.
9.7 TAX OPINION. The Shareholders shall have received from Dow, Lohnes &
Albertson, PLLC, tax counsel to the Shareholders, that the Merger qualifies as a
reorganization as defined under Code Section 368(a)(1)(A).
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9.8 CONSUMMATION OF GROUP MERGER TRANSACTION. The Group Merger
Transaction shall occur contemporaneously with the consummation of the
transactions contemplated by this Agreement.
9.9 EMPLOYEE PLAN FIDUCIARY CONDITION. The appropriate fiduciaries of the
Profit Sharing Plan shall have received a current valuation report and fairness
opinion in such form as may be acceptable to such fiduciaries from a source
acceptable to such fiduciaries and such fiduciaries shall have determined, in
the exercise of their sole discretion, that the consummation of the transactions
contemplated herein at the Closing is fair to and in the best interests of the
participants and beneficiaries of the Profit Sharing Plan.
9.10 BOARD EXPANSION. CCC shall have increased the size of its Board of
Directors to six members and, as contemplated by Section 7.13, a representative
of the Group Companies shall have been duly elected to such Board of Directors.
9.11 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.
9.12 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 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.
9.13 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:
-----------------------
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(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), 5.24 (taxes), 5.27 (environmental matters), and 13.6 (brokers
and agents) and any receivables from related persons that are listed on Schedule
8.13 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.
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;
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(b) subsequent to the Effective Time, all Damages (whether arising
before, on or after the Effective Time) suffered, sustained, incurred, or paid
by the Shareholder Indemnified Parties in connection with, resulting from, or
arising out of, directly or indirectly, any conversion of the ESOP to a Profit
Sharing Plan as described in Section 5.22(j) herein; and
(c) any and all Damages incident to any of the foregoing or to the
enforcement of this Section 10.2.
10. 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) adjustments to the
Merger Consideration as set forth in Sections 2.2 and 3.1, which adjustments
shall not constitute Damages; (ii) 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; (iii) Damages described in
Section 10.1(a)(iv), or (iv) 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
(2) (w) 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
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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),
(x) with respect to covenants of the Shareholders to be performed after the
Closing Date until fully performed and discharged, (y) with respect to covenants
of CCC and Newco contained in Section 7.15 or the representations, warranties
and covenants set forth in the certificate delivered by or on behalf of CCC and
Newco pursuant to Section 9.5, until the expiration of the longest applicable
federal or state statute of limitations (including extensions thereof agreed to
by the party from whom indemnification is sought), 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
indemnification hereunder for the breach of a representation, warranty or
covenant where the identical subject matter thereof has also resulted in, or
caused, a Merger Consideration Adjustment to the Base Merger Consideration
pursuant to Section 3.1;
(e) in no event will any CCC Indemnified Party be entitled to any
indemnification hereunder from any Shareholder that is an employee benefit plan
within the meaning of ERISA Section 3(3) to the extent that such indemnification
could: (i) result in a transaction prohibited under ERISA Section 406 or Code
Section 4975; (ii) give rise to a claim for breach of any such plan
fiduciaries' duties with respect to such plan; or (iii) otherwise violate any
applicable provision of ERISA or the Code; or
(f) 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.
(g) 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.
(h) 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
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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. 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 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
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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 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, and subject to the limitations in Sections 3.2(c) and 10.3
hereof.
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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
business selling any products or services in direct competition with the Holding
Company or any of its subsidiaries within 100 miles of any office of the Holding
Company or any office of any of the Holding Company's subsidiaries (the
Territory");
- ----------
(b) call upon any person who is, at that time, within the Territory,
an employee of the Holding Company or any subsidiary of the Holding Company in a
managerial capacity for the purpose or with the intent of enticing such employee
away from or out of the employ of the Holding Company or any subsidiary of the
Holding Company;
(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 the Holding Company
or any subsidiary of the Holding Company, for the purpose of soliciting or
selling products or services in direct competition with the Holding Company or
any subsidiary of the Holding Company 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 the Holding Company or a
subsidiary of the Holding Company as a prospective acquisition candidate or was
the subject of an acquisition analysis by the Holding Company or any subsidiary
of the Holding Company. 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 the
Holding Company or any subsidiary of the Holding Company 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.
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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. 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.
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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 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 March 15, 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 non-appealable 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
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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
Section 7.22, Article 12 and Article 13; and
(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.
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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 this Section 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.
In addition, CCC will pay all fees and expenses relating to obtaining licenses,
permits, surety bonds, insurance, transfer applications, business credit reports
and the related qualifications for Newco, the other subsidiaries newly formed by
CCC to effect the Group Merger Transaction and the Surviving Group Companies,
including the Surviving Corporation, up to an aggregate amount of $100,000. Any
such fees and expenses of the Surviving Group Companies in excess of $100,000
shall be split between CCC on the one hand and the shareholders of the Group
Companies on the other. Except with respect to FMI Corporation and the part of
the fee to Neil McCarthy referred to below, 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. In addition, it is understood and agreed that CCC shall be solely
responsible to pay to FMI Corporation a fee equal to 3% of the Base Merger
Consideration plus the Contingent Merger Consideration paid pursuant to this
Agreement and Neil McCarthy professional fees equal to $250,000, and the parties
set forth on SCHEDULE 13.7 hereof shall be solely responsible to pay Neil
McCarthy an amount previously agreed to by the parties for professional fees.
At the election of the Shareholders, any of the foregoing 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 Group 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
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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
Linda L. Griggs, Esquire
1800 M Street, NW
Washington, D.C. 20036
(Telefax: 202/467-7176)
If to any Shareholder to:
Helmuth L. Eidel
430 West Drive
Altamonte Springs, FL 32714
(Telefax: 407/788-8555)
with a required copy to:
J. Gregory Humphries
Shutts & Bowen LLP
20 North Orange Avenue
Suite 1000
P.O. Box 2064
Orlando, FL 32801
(Telefax: 407/425-8316)
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.
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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. Except as set forth in
Section 7.11, 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 GROUP REPRESENTATIVE AND SHAREHOLDER REPRESENTATIVE. (a) Each of
the Shareholders hereby appoints William P. Love, Jr. 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 calculation of the Merger
Consideration (the "Group Representative"). Each Shareholder understands that
--------------------
the Group Representative will represent the shareholders of the Surviving Group
Companies. Each Shareholder further agrees that (i), in the case of a dispute
regarding the base merger consideration paid by CCC pursuant to the Group
Company Agreements (the "Total Base Merger Consideration"), the approval of the
-------------------------------
former shareholders of the Group Companies which received a majority of the
Total Base Merger Consideration, and (ii), in the case of a dispute regarding
the contingent merger consideration to be paid by CCC pursuant to the Group
Company Agreements (the "Total Contingent Merger Consideration"), the approval
-------------------------------------
of the former shareholders of the Group Companies which would be entitled to
receive a majority of the Total Contingent Merger Consideration (the required
vote pursuant to (i) and (ii) above is referred to as the "Approval of the Group
---------------------
Company Shareholders"), the Group Representative shall have the power to take
- --------------------
any and all actions which the Group Representative believes are necessary or
appropriate or in the best interests of all of the shareholders of the Group
Companies for and on behalf of such shareholders, as fully as if they were
acting on their own behalf, including without limitation, consenting to, and
settling any and all claims, disputes or controversies arising with regard to
the calculation of the Merger Consideration. CCC and the Surviving Group
Companies shall have the right to rely on any actions taken or omitted to be
taken by the Group 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. In addition, the shareholders
of the Group Companies shall have the right
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to change the identity of the Group Representative upon the Approval of the
Group Company Shareholders, and shall deliver to CCC and the Surviving Group
Companies prompt written notice of any such change of identity, which upon
receipt by CCC and the Surviving Group Companies will effect said change. Except
to the extent prohibited by law, the Shareholders agree to hold the Group
Representative free and harmless from and indemnify the Group 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.
(b) Each of the Shareholders hereby appoints Helmuth L. Eidel 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"), other than those contained in Section
--------------
13.14(a) above. 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, 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 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 Plan of merger within
the meaning of the State Corporate Laws.
[Execution Page Following]
69
<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
CCC6 ACQUISITION CO.
By: /s/F. TRAYNOR BECK
-----------------------------
F. Traynor Beck
TRI-CITY ELECTRICAL CONTRACTORS, INC.
By: /s/HELMUTH L. EIDEL
-----------------------------
Helmuth L. Eidel
SHAREHOLDERS:
/s/HELMUTH L. EIDEL
----------------------------------
Helmuth L. Eidel
/s/PAULA N. EIDEL
----------------------------------
Paula N. Eidel
THE ELIZABETH-HELMUTH L. EIDEL
FAMILY TRUST
By: /s/HELMUTH L. EIDEL
-----------------------------
Helmuth L. Eidel
Trust
70
<PAGE>
Index of Defined Terms
----------------------
<TABLE>
<CAPTION>
Section
-------
<S> <C>
1933 Act..................................................................2.2(a)
Accounts Receivable.........................................................5.12
Actual Closing Net Worth..................................................3.1(b)
Actual 1997 Adjusted EBIT.................................................3.1(b)
Actual Merger Consideration Adjustment....................................3.1(c)
Affiliate...................................................................5.31
Agreement................................................................7.10(c)
Approval of the Group Company Shareholders.................................13.14
Audited Financials..........................................................5.10
Balance Sheet Date..........................................................5.10
Base Merger Consideration.................................................2.2(a)
CCC........................................................................INTRO
CCC Charter Documents........................................................6.1
CCC Common Stock..........................................................2.1(c)
CCC Indemnified Parties.....................................................10.1
CCC Indemnified Party.......................................................10.1
CCC Prospectus..............................................................5.30
CCC's knowledge................................................................6
CCC's Accountant.......................................................2.3(a)(i)
Certificates..............................................................2.4(b)
Charter Documents............................................................5.1
Claim Notice.............................................................10.4(a)
Claims......................................................................10.4
Closing......................................................................4.1
Closing Balance Sheet.......................................................7.20
Closing Date.................................................................4.1
Closing Financial Certificate................................................8.8
COBRA....................................................................5.22(e)
Code....................................................................Recitals
Company....................................................................INTRO
Company 1...............................................................Recitals
Company 2...............................................................Recitals
Company 3...............................................................Recitals
Company 4...............................................................Recitals
Company 5...............................................................Recitals
Company 6...............................................................Recitals
Company Common Stock....................................................Recitals
Company Financial Statements................................................5.10
Company Hazardous Materials Activities...................................5.27(b)
Company's knowledge............................................................5
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Company's 1997 Adjusted EBIT..............................................2.2(b)
Company's Closing Net Worth...............................................2.2(b)
Constituent Corporations................................................Recitals
Contingent Merger Consideration...........................................2.3(a)
controlled group............................................................5.22
Damages..................................................................10.1(a)
Earn Out EBIT Notice...................................................2.3(a)(i)
Earn Out Period...........................................................2.3(f)
Earn Out Period Average Price.............................................2.3(c)
Earn Out Range.......................................................2.3(a)(iii)
Earn Out Threshold....................................................2.3(a)(ii)
Earnings before Interest and Taxes........................................2.2(b)
Earnings before Interest and Taxes of the Surviving Group Companies....2.3(a)(i)
EBIT Increase.............................................................2.2(d)
Effective Time...............................................................4.2
Environmental Permits....................................................5.27(c)
Equipment...................................................................5.33
ERISA.......................................................................5.22
ESOP.....................................................................5.22(j)
Financial Adjustment Notice...............................................3.1(b)
Financial Certificates......................................................7.20
GAAP......................................................................2.2(b)
golden parachute............................................................5.22
Group 1997 Adjusted EBIT..................................................2.2(b)
Group 1997 Adjusted EBIT Target...........................................2.2(b)
Group Actual Earn Out EBIT.............................................2.3(a)(i)
Group Closing Net Worth...................................................2.2(b)
Group Companies.........................................................Recitals
Group Company...........................................................Recitals
Group Company Agreements................................................Recitals
group health plans.......................................................5.22(e)
Group Merger Transaction................................................Recitals
Group Net Worth Target....................................................2.2(b)
Group Representative.......................................................13.14
Hazardous Material.......................................................5.27(a)
Holding Company.............................................................7.21
Indemnification Threshold...................................................10.3
Indemnified Party........................................................10.4(a)
Indemnifying Party.......................................................10.4(a)
Intellectual Property....................................................5.17(a)
Interim Balance Sheet.......................................................5.10
Interim Financials..........................................................5.10
Interim Period Average....................................................2.2(a)
Inventory...................................................................5.33
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
knowledge of CCC...............................................................6
knowledge of Newco.............................................................6
knowledge of the Company.......................................................5
Laws................................................................5.15(c)(iii)
leased Real Property.....................................................5.15(d)
liabilities..............................................................5.11(d)
Lien.........................................................................5.4
Material Adverse Effect......................................................5.1
Material Contracts.......................................................5.18(a)
Maximum Earn Out Amount..................................................3(a)(i)
Maximum Earn Out Threshold...............................................3(a)(i)
Merger..................................................................Recitals
Merger Consideration......................................................2.4(a)
Merger Consideration Adjustment...........................................3.1(b)
Merger Documents.............................................................4.2
Merger Price..............................................................2.2(a)
multi-employer pension plan.................................................5.22
Net Worth.................................................................2.2(b)
New Accounting Firm.......................................................2.3(b)
Newco...................................................................Recitals
Newco's knowledge..............................................................6
Other Group Companies....................................................ecitals
PBGC........................................................................5.22
Pending Claims...........................................................(c)(ii)
Permits.....................................................................5.14
Permitted Encumbrances................................................5.15(c)(i)
Plan of Merger...............................................................1.1
Plans.......................................................................5.22
Pledged Assets............................................................3.2(a)
Post-Closing Audit........................................................3.1(b)
Prime Rate................................................................2.3(b)
Profit Sharing Plan......................................................5.22(j)
Proposed Numbers..........................................................3.1(c)
Qualified Plans.............................................................5.22
Real Property............................................................5.15(a)
Registration Statement.......................................................6.9
Related Party Agreements.................................................5.18(a)
Release Date..............................................................3.2(c)
reportable events........................................................5.22(c)
Representative...........................................................3.14(a)
Required Consents............................................................8.4
Revised Earn Out EBIT.....................................................2.3(b)
Revised Numbers...........................................................3.1(c)
Securities Act...........................................................7.10(c)
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Specified Percentage.................................................2.3(a)(iii)
State Corporate Laws.........................................................1.2
Shareholder................................................................INTRO
Shareholder Approval.....................................................3.14(b)
Shareholder Indemnified Parties.............................................10.2
Shareholder Indemnified Party...............................................10.2
Structures...........................................................5.15(c)(ii)
Supplemental Financial Certificate..........................................7.20
Surviving Corporation........................................................1.1
Tax...................................................................5.24(c)(i)
Tax Return...........................................................5.24(c)(ii)
tax-free reorganization.................................................Recitals
Territory................................................................11.1(a)
Third Party Claim.....................................................10.4(b)(i)
Title Commitment..........................................................7.3(a)
Title Policy..............................................................7.3(a)
Total Base Merger Consideration............................................13.14
Total Contingent Merger Consideration......................................13.14
UCC.........................................................................5.33
Year-End Net Worth...........................................................5.9
</TABLE>
iv
<PAGE>
EXHIBIT 2.06
________________________________________________________________________________
________________________________________________________________________________
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CONSOLIDATION CAPITAL CORPORATION,
CCC ACQUISITION CO., 6,
TOWN & COUNTRY ELECTRIC, INC.
AND
THE SHAREHOLDERS NAMED HEREIN
MADE EFFECTIVE AS OF FEBRUARY 27, 1998.
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. THE MERGER..................................................... 2
1.1 The Merger.......................................... 2
1.2 Certificate of Incorporation; Bylaws, Directors
and Officers....................................... 2
1.3 Effects of the Merger............................... 2
2. CONVERSION AND EXCHANGE OF STOCK............................... 3
2.1 Manner of Conversion................................ 3
2.2 Base Merger Consideration........................... 4
2.3 Contingent Merger Consideration..................... 5
2.4 Exchange of Certificates and Payment of Cash........ 8
3. POST CLOSING ADJUSTMENT; PLEDGED ASSETS........................ 9
3.1 Post-Closing Adjustment............................. 9
3.2 Pledged Assets...................................... 11
4. CLOSING........................................................ 12
4.1 Location and Date................................... 12
4.2 Effect.............................................. 12
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE SHAREHOLDERS............................................... 12
5.1 Due Organization.................................... 13
5.2 Authorization; Validity............................. 13
5.3 No Conflicts........................................ 13
5.4 Capital Stock of the Company........................ 14
5.5 Transactions in Capital Stock....................... 14
5.6 Subsidiaries, Stock, and Notes...................... 14
5.7 Predecessor Status.................................. 14
5.8 Absence of Claims Against the Company............... 15
5.9 Company Financial Condition......................... 15
5.10 Financial Statements................................ 15
5.11 Liabilities and Obligations......................... 15
5.12 Accounts and Notes Receivable....................... 16
5.13 Books and Records................................... 16
5.14 Permits............................................. 16
5.15 Real Property....................................... 17
5.16 Personal Property................................... 19
5.17 Intellectual Property............................... 19
5.18 Material Contracts and Commitments.................. 20
5.19 Government Contracts................................ 21
5.20 Insurance........................................... 22
5.21 Labor and Employment Matters........................ 22
5.22 Employee Benefit Plans.............................. 23
5.23 Conformity with Law; Litigation..................... 25
5.24 Taxes............................................... 25
5.25 Absence of Changes.................................. 27
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.26 Deposit Accounts; Powers of Attorney................. 28
5.27 Environmental Matters................................ 28
5.28 Relations with Governments........................... 29
5.29 Disclosure........................................... 29
5.30 CCC Prospectus; Securities Representations........... 30
5.31 Affiliates........................................... 30
5.32 Location of Chief Executive Offices.................. 30
5.33 Location of Equipment and Inventory.................. 30
6. REPRESENTATIONS OF CCC AND NEWCO................................ 31
6.1 Due Organization..................................... 31
6.2 CCC Common Stock..................................... 31
6.3 Authorization; Validity of Obligations............... 31
6.4 No Conflicts......................................... 31
6.5 Capitalization of CCC and Ownership of CCC Stock..... 32
6.6 Conformity with Law; Litigation...................... 32
6.7 Disclosure........................................... 32
6.8 CCC Prospectus....................................... 33
6.9 Registration Statement............................... 33
6.10 Investment Intent.................................... 33
7. COVENANTS....................................................... 33
7.1 Tax Matters.......................................... 33
7.2 Accounts Receivable.................................. 34
7.3 Title Insurance and Surveys.......................... 35
7.4 Related Party Agreements............................. 35
7.5 Cooperation.......................................... 35
7.6 Conduct of Business Pending Closing.................. 36
7.7 Access to Information................................ 37
7.8 Prohibited Activities................................ 37
7.9 Notice to Bargaining Agents.......................... 39
7.10 Sales of CCC Common Stock............................ 39
7.11 CCC Stock Options.................................... 40
7.12 Tax Covenant......................................... 41
7.13 CCC Board Seat....................................... 41
7.14 D&O Insurance and Indemnification of Directors
and Officers........................................ 41
7.15 Tax Free Reorganization Protection................... 41
7.16 Consulting Payment................................... 41
7.17 Government Contracts................................. 42
7.18 CCC Stock............................................ 42
7.19 Employee Benefits Matters............................ 42
7.20 Supplemental Financial Certificate................... 42
7.21 Holding Company...................................... 43
7.22 Intentionally Omitted................................ 43
7.23 Indemnification of Shareholder's Purchaser
Representative...................................... 43
7.24 Guaranteed Debt...................................... 44
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CCC AND NEWCO........ 44
8.1 Representations and Warranties; Performance of
Obligations......................................... 44
8.2 No Litigation........................................ 44
8.3 No Material Adverse Change........................... 45
8.4 Consents and Approvals............................... 45
8.5 Opinion of Counsel................................... 45
8.6 Charter Documents.................................... 45
8.7 Quarterly Financial Statements....................... 45
8.8 Delivery of Closing Financial Certificate............ 45
8.9 FIRPTA Compliance.................................... 45
8.10 Employment Agreements................................ 45
8.11 Affiliate Agreements................................. 46
8.12 Shareholders' Release................................ 46
8.13 Related Party Receivables and Agreements............. 46
8.14 Consummation of Group Merger Transaction............. 46
8.15 Employee Plan Fiduciary Condition.................... 46
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY
AND THE SHAREHOLDERS............................................ 46
9.1 Representations and Warranties; Performance
of Obligations...................................... 46
9.2 No Litigation........................................ 46
9.3 Consents and Approvals............................... 46
9.4 Employment Agreements................................ 47
9.5 Tax Certificate Delivery............................. 47
9.6 Satisfaction With Shareholder Release and Affiliate
Agreements.......................................... 47
9.7 Tax Opinion.......................................... 47
9.8 Consummation of Group Merger Transaction............. 47
9.9 Employee Plan Fiduciary Condition.................... 47
9.10 Board Expansion...................................... 47
9.11 Registration Statement............................... 47
9.12 No Material Adverse Change........................... 47
9.13 Officers and Directors of Surviving Corporation...... 48
10. INDEMNIFICATION................................................. 48
10.1 General Indemnification by the Shareholders.......... 48
10.2 General Indemnification by CCC and Newco............. 48
10.3 Limitation and Expiration............................ 49
10.4 Indemnification Procedures........................... 51
10.5 Survival of Representations Warranties............... 52
10.6 Right to Set Off..................................... 52
11. NONCOMPETITION.................................................. 52
11.1 Prohibited Activities................................ 52
11.2 Damages.............................................. 53
11.3 Reasonable Restraint................................. 53
11.4 Severability; Reformation............................ 53
11.5 Independent Covenant................................. 53
11.6 Materiality.......................................... 54
</TABLE>
iii
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<TABLE>
<S> <C>
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION....................... 54
12.1 Confidentiality...................................... 54
12.2 Damages.............................................. 55
13. GENERAL......................................................... 55
13.1 Termination.......................................... 55
13.2 Effect of Termination................................ 55
13.3 Successors and Assigns............................... 56
13.4 Entire Agreement; Amendment; Waiver.................. 56
13.5 Counterparts......................................... 56
13.6 Brokers and Agents................................... 56
13.7 Expenses............................................. 57
13.8 Specific Performance; Remedies....................... 57
13.9 Notices.............................................. 57
13.10 Governing Law........................................ 58
13.11 Severability......................................... 58
13.12 Absence of Third Party Beneficiary Rights............ 59
13.13 Further Representations.............................. 59
13.14 Group Representative and Shareholder
Representative...................................... 59
13.15 Unanimous Written Consent of Shareholders............ 60
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
---------
entered into this 27th day of February, 1998, by and among Consolidation Capital
Corporation, a Delaware corporation ("CCC"), CCC Acquisition Co., 6 , a
---
("Newco"), and Town & Country Electric, Inc., a Wisconsin corporation (the
-----
"Company"), and Roland G. Stephenson, Gary F. Lodholz, Richard Vander Heiden,
-------
Connie Hurley, Timothy Hurley, Richard A. Schinke, Jr., Thomas Baumgartner,
Daniel J. Siebers, James H. Bell, James H. Schlater, Michael J. Jansen, Darryl
L. Betro, Associated Bank, N.A., as Trustee of the Town & Country Electric,
Inc., 401 (k) Savings and Profit Sharing Plan, Robert C. Stephenson, James
Stephenson, Eliott Elfner, Daniel Spalding, Anthony F. Rosecky, Daniel Napuck &
Beverly S. Napuck Joint Revocable Living Trust, Robert Torgerson, Bruce D.
Baseman, Dennis D. Defferding, Richard D. Merbach, Charles J. Seghers, Michael
A. Blise, Brenda J. Severa, Kathleen P. Dahlen, Darla J. Lorenson, Dale W.
Myers, Rick L. Kryzaniak, Mary Jo A. Van Dyke, George J. Vander Linden, Robert
P. Graves, and Jimmy J. Spang (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 Wisconsin;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, CCC is entering into an Agreement and Plan of Reorganization
substantially similar to this Agreement with each of SKC Electric, Inc., a
Kansas corporation ("Company 1"), Riviera Electric Construction Co., a Colorado
---------
corporation ("Company 2"), Garfield Electric Company, an Ohio corporation
---------
("Company 3"), Indecon, Inc., an Ohio corporation ("Company 4"), Tri-City
- ----------- ---------
Electrical Contractors, Inc., a Florida corporation ("Company 5") and Wilson
---------
Electric, an Arizona corporation ("Company 6"); and together with Company 1,
---------
Company 2, Company 3, Company 4, Company 5 and Company 6 shall be known
collectively as the "Other Group Companies") (the Other Group Companies,
---------------------
together with the Company, shall be known hereafter collectively as the "Group
-----
Companies" and each shall be known individually as a "Group Company"; and this
- --------- -------------
Agreement together with the other agreements referenced in this clause
applicable to the Other Group Companies shall be known hereafter collectively as
the "Group Company Agreements");
------------------------
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"); and
----
WHEREAS, in order to induce CCC to enter into this Agreement and the other
agreements comprising the Group Company Agreements, the Company and the
Shareholders desire to execute and deliver this Agreement, the effect of which,
taken together with the transactions contemplated by the remaining Group Company
Agreements (such transactions, including the transaction contemplated by this
Agreement,
1
<PAGE>
being known hereafter collectively as the "Group Merger Transaction"), will have
------------------------
a direct and beneficial impact on the Company and the Shareholders.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, cove 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 the
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 new corporations into which each
---------------------
of the Other Group Companies will merge in the Group Merger Transaction are
referred to collectively, together with the Surviving Corporation, as the
Surviving Group Companies. 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
Wisconsin (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 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 Corporation 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,
2
<PAGE>
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, 3.1 and 3.2, 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 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 (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
----------------
defined 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 (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(b)), 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 and 2.3 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
(as defined in Sections 2.2(a) and 2.3(b) respectively), 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
3
<PAGE>
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 $26,250,000, as adjusted pursuant to this Section 2.2 and Section 3.1.
Of the Base Merger Consideration, $13,125,000 shall be paid in cash at Closing
(as defined in Section 4.1) in immediately available funds. The remaining
$13,125,000 of the Base Merger Consideration shall be paid at Closing in shares
of CCC Common Stock valued at a price per share (the "Merger Price") equal to
------------
the sum of (i) the closing price of CCC Common Stock on January 29, 1998, plus
(ii) the closing price of CCC Common Stock on the last trading day prior to the
Closing Date, 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 (subject
to adjustment as provided in this Section 2.2 and Section 3.1) shall be
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
--------
approved for quotation on the Nasdaq National Market.
(b) The calculation of the Base Merger Consideration takes into
account (i) the Net Worth (as defined below) of the Company as of February 28,
1998, calculated in accordance with generally accepted accounting principles
("GAAP") consistently applied, but in any event excluding any increases in
----
intangible assets of the Company since the end of the Company's most recently
ended fiscal year and until February 28, 1998 (as certified pursuant to Section
8.8, the "Company's Closing Net Worth"), and (ii) the Earnings before Interest
---------------------------
and Taxes (as defined below) of the Company, computed in accordance with GAAP
consistently applied throughout the period involved but adjusted to reflect the
nonrecurring items that are specified on SCHEDULE 2.2(B) hereto, for the twelve
month period ended at the close of the Company's most recently ended fiscal year
(as certified pursuant to Section 8.8, the "Company's 1997 Adjusted EBIT"). The
----------------------------
calculation of the Base Merger Consideration assumes that (A) the total (the
"Group Closing Net Worth") of the Company's Closing Net Worth and the net worth
-----------------------
of each of the Other Group Companies as of February 28, 1998 (calculated and
certified in the manner specified in each of the Group Company Agreements) is
equal to or greater than $31,000,000 (the "Group Net Worth Target") and (B) the
----------------------
total (the "Group 1997 Adjusted EBIT") of the Company's 1997 Adjusted EBIT and
------------------------
the Earnings before Interest and Taxes of each of the Other Group Companies for
the twelve month period ended at the close of each Group Company's most recently
ended fiscal year (calculated and certified in the manner specified in each of
the Group Company Agreements) shall have been equal to or greater than
$19,734,000 (the "Group 1997 Adjusted EBIT Target"). For the purposes of this
-------------------------------
Section 2.2, "Net Worth" is equal to total assets less total liabilities,
---------
"Earnings before Interest and Taxes" is equal to net income (A) plus interest
- -----------------------------------
expense, income taxes, extraordinary items, cumulative effect of accounting
changes and discontinued operations and (B) less interest income, and "Group
Closing Net Worth" shall include the following items related to the ESOP for SKC
Electric, Inc., which are reflected on the balance sheet for SKC Electric, Inc.:
(A) "ESOP common stock purchase obligations, " and (B) ESOP-related Debt
(current and long term) and (C) "Unearned ESOP common stock".
(c) If the Group Closing Net Worth is lower than the Group Net Worth
Target, then the Merger Consideration (as defined in Section 2.4(a)) to be
delivered to the Shareholders may, at CCC's
4
<PAGE>
election, be reduced either (i) at the Closing, by the product of (A) the
difference between the Group Net Worth Target and the Group Closing Net Worth
times (B) 19% (which reduction shall be pro rata in cash and in CCC Common Stock
valued at the Merger Price in the same proportions as the cash and CCC Common
Stock components of the Base Merger Consideration as provided in Section 2.2(a))
or (ii) after completion of the Post-Closing Audit (as defined in Section
3.1(b)), in accordance with Section 3.1(b).
(d) If the Group 1997 Adjusted EBIT is less than the Group 1997
Adjusted EBIT Target, then the Merger Consideration to be delivered to the
Shareholders may, at CCC's election, be reduced either (i) at the Closing, by an
amount equal to seven multiplied by the product of (A) the difference between
the Group 1997 Adjusted EBIT Target and the Group 1997 Adjusted EBIT times (B)
19% (which reduction shall be pro rata in cash and in CCC Common Stock valued at
the Merger Price in the same proportions as the cash and CCC Common Stock
components of the Base Merger Consideration as provided in Section 2.2(a)) or
(ii) after completion of the Post-Closing Audit (as defined in Section 3.1(b)),
in accordance with Section 3.1(b). If the Group 1997 Adjusted EBIT is higher
than the Group 1997 Adjusted EBIT Target, then the Merger Consideration to be
delivered to the Shareholders at Closing shall be increased at the Closing by an
amount equal to seven multiplied by the product of (A) the difference between
the Group 1997 Adjusted EBIT and the Group 1997 Adjusted EBIT Target up to a
maximum of $1 million times (B) 19%, the amount by which the Group 1997 Adjusted
EBIT exceeds the Group 1997 Adjusted EBIT Target, up to a maximum of $1 million,
is hereafter referred to as the "EBIT Increase."
-------------
(e) 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.
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 an amount up to $7,500,000.
(i) $7,500,000 (the "Maximum Earn Out Amount") will be paid,
-----------------------
subject to the provisions of subsection (ii) and (iii) below, if the Earnings
before Interest and Taxes of the Surviving Group Companies (as defined below),
for the one year period after February 28, 1998 (the "Group Actual Earn Out
---------------------
EBIT") is at least equal to the sum of $25,020,000 and the amount, if any, of
- ----
the EBIT Increase (the "Maximum Earn Out Threshold"). Price Waterhouse LLP,
--------------------------
CCC's independent accountant ("CCC's Accountant"), will determine the Group
----------------
Actual Earn Out EBIT and deliver prompt notice of such amount to the
Shareholders (the "Earn Out EBIT Notice") with supporting documentation. The
--------------------
Shareholders (through the Group 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 Group 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. For purposes of this Section 2.3, "Earnings before Interest and Taxes of
-------------------------------------
the Surviving Group Companies" is equal to net income computed in accordance
- -----------------------------
with GAAP consistently applied of the Group Companies reflected on the books and
records of the Surviving Group Companies and the Holding Company (as defined in
Section 7.21 below), which net income (A) shall not reflect (1) the amortization
of goodwill and other intangibles recognized by CCC in connection with the
acquisition of the Group Companies or any future acquisitions (2) expenses
(including
5
<PAGE>
corporate overhead) of CCC other than those expenses incurred for the benefit of
the Surviving Group Companies that do not duplicate expenses incurred by the
Surviving Group Companies nor exceed the amounts of similar expenses incurred in
the most recently ended fiscal year by the Group Companies prior to the Closing,
or (3) the tax that arises under Section 4978 of the Code, (B) shall reflect (1)
depreciation and amortization of assets of the Surviving Group Companies except
to the extent such amounts result from an increase in the book value of the
assets resulting from the Group Merger Transaction and (2) the expenses under
the employment agreement of William P. Love, Jr. with the Holding Company and
other expenses reasonably necessary for the operation of the Holding Company in
connection with its actions as parent of the Surviving Group Companies and (C)
shall be adjusted by (1) adding the amounts of any interest expense, income
taxes, extraordinary items, cumulative effect of accounting changes and
discontinued operations of the Surviving Group Companies and (2) subtracting the
amount of any interest income of the Surviving Group Companies. CCC's Accountant
will calculate the Contingent Merger Consideration for each Surviving Group
Company and the Group Actual Earn Out EBIT applying the same accounting
principles applied by such Group Company (on a company by company basis), with
all such computations made (and definitions used) in the same way the
computations were made (and definitions were used) by such Group Company prior
to the Closing and will conform to the methods of accounting utilized
consistently during the calendar years 1996, 1997 and 1998 for each such Group
Company, provided in each case that such computations were in accordance with
GAAP. If, after the Closing, CCC's Accountant makes conforming adjustments to
unify the accounting principles utilized by each of the Group Companies, such
adjustments shall have no effect on the calculations made by CCC's Accountant
for purposes of this Section 2.3. CCC will provide the Surviving Corporation
with a schedule on a quarterly basis detailing expenses incurred for the benefit
of the Surviving Group Companies, such schedule to be prepared on a comparative
basis to expenses incurred in the prior year by the Group Companies for the same
items.
(ii) If the Group Actual Earn Out EBIT is equal to or less than
the sum of $22,043,000 and the amount, if any, of the EBIT Increase (the "Earn
----
Out Threshold"), then no Contingent Merger Consideration will be paid to the
- -------------
Shareholders.
(iii) If the Group Actual Earn Out EBIT is greater than the Earn
Out Threshold but less than the Maximum Earn Out Threshold (the difference
between the Maximum Earn Out Threshold and the Earn Out Threshold being
hereinafter referred to as the "Earn Out Range"), then the Contingent Merger
--------------
Consideration will equal the product determined by multiplying (A) the Specified
Percentage (as defined below) by (B) the Maximum Earn Out Amount. For purposes
of this Agreement, the "Specified Percentage" shall mean a fraction, the
--------------------
numerator of which is the amount by which the Group Actual Earn Out EBIT exceeds
the Earn Out Threshold and the denominator of which is the Earn Out Range.
(b) The shareholders of the Group Companies (through the Group
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 Group Actual Earn
Out EBIT. If CCC has not received notice of any such dispute within such 30-day
period, the Group Actual Earn Out EBIT contained in the Earn Out EBIT Notice
shall be final. If, however, the shareholders (through the Group Representative)
have delivered notice of such a dispute to CCC within such 30-day period, then
CCC shall, pursuant to Section 2.3(c) 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 (or four largest firms if the mergers of
accounting firms proposed as of the date of this Agreement have been completed)
(each, a "New Accounting Firm") to review the amount of the Group Actual Earn
-------------------
Out EBIT, the books of the Surviving Group Companies, including the Surviving
Corporation, and the Earn Out EBIT Notice (and related information) to determine
the amount, if any, that the Group Actual Earn Out EBIT is in error. Such New
Accounting Firm shall be
6
<PAGE>
confirmed by the former shareholders of the Group Companies through the Group
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 Group 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 Contingent Merger Consideration
accordingly. If the Revised Earn Out EBIT is higher than the Group 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 fifteen months after the Closing
Date. The costs of the New Accounting Firm shall be borne by CCC if the Revised
Earn Out EBIT is higher than the Group Actual Earn Out EBIT and by the former
shareholders of the Group Companies 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.
(c) The Contingent Merger Consideration described in Section 2.3 (a),
reduced as provided in Section 3.1(c) as appropriate, 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 Group Actual Earn Out EBIT by CCC's Accountant, which shall be made in a
timely fashion following expiration of the one (1) year period after the
Closing, but in no event shall such payment be made later than the date that is
fifteen months after the Closing Date unless the Shareholders dispute the Group
Actual Earn Out EBIT in accordance with Section 2.3(b) hereof. 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 Price. 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 the
one year period after the Closing Date (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 Date, 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.
(d) If, on or prior to a Contingent Merger Consideration Payment
Date, 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 Contingent Merger
Consideration will be appropriately adjusted to reflect such split, combination,
dividend or other distribution or change.
(e) If, at any time on or before the first anniversary of the Closing
Date, Roland G. Stephenson's employment agreement with the Surviving Corporation
is terminated by the Surviving Corporation (or its successor), in its capacity
as employer, without cause (as defined in Roland G. Stephenson's employment
agreement), CCC immediately thereupon shall pay to the Shareholders an amount
equal to the Maximum Earn Out Amount. CCC acknowledges that such a payment would
constitute liquidated damages and not a penalty.
7
<PAGE>
(f) Except for actions taken by CCC or Newco at the direction of
Roland G. Stephenson, in his capacity as President of the Surviving Corporation,
or one of the Presidents of the other Surviving Group Companies, in his capacity
as President of such Surviving Group Company, during the one year period after
the Closing (the "Earn Out Period"), CCC and Newco (i) will operate the
---------------
businesses of the Surviving Group Companies diligently and in the ordinary
course and (ii) will not take any actions that would materially change the
operations of the businesses of the Surviving Group Companies, including any
action that would prevent any of the Surviving Group Companies (A) from
conducting its business in the ordinary course or (B) from taking any action
necessary to preserve the businesses of the Surviving Group Companies, to keep
available to the Surviving Group Companies its employees (with the same salary
and bonus structure), or to preserve the Surviving Group Companies'
relationships with customers, suppliers and others having business relations
with it.
(g) In the event CCC, Newco or any of their subsidiaries takes any
action or omits to take any action which has a direct, quantifiable, negative
impact on the Earnings before Interest and Taxes of the Surviving Group
Companies or the businesses of the Group Companies as currently being conducted;
then, in any such event, the parties, in good faith, shall make reasonable
adjustments in the calculation of the Group Actual Earn Out EBIT as may be
necessary to neutralize the impact of any such action or omission.
(h) CCC and Newco agree that separate books and records will be kept
for each of the Group Companies during the Earn Out Period.
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)), as adjusted pursuant to Section 2.2, 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 8.11),
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, with all necessary transfer tax
and other revenue stamps, acquired at the Shareholder's expense, affixed and
canceled. 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 3.2(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
8
<PAGE>
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.
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. POST CLOSING ADJUSTMENT; PLEDGED ASSETS
3.1 POST-CLOSING ADJUSTMENT.
(a) The Base Merger Consideration shall be subject to adjustment as
specified in this Section 3.1.
(b) Within ninety (90) days following the Effective Time, CCC shall
cause CCC's Accountant to audit (the "Post-Closing Audit") the books of the
------------------
Company to determine the accuracy of the information relating to the Company's
Closing Net Worth and the Company's 1997 Adjusted EBIT as set forth on the
Financial Certificates (as defined in Section 7.20) and on the financial
certificates of the Other Group Companies. In determining the accuracy of such
information reflected on the Financial Certificates in the course of the Post-
Closing Audit, CCC's Accountant shall apply the same accounting methodology used
by the Company or the Shareholders, as applicable, in preparing such
information; provided that CCC's Accountant shall not be obligated to apply such
methodology to the extent inconsistent with GAAP (as modified by Section 2.2(b)
above). The Shareholders shall cooperate with CCC and CCC's Accountant after the
Closing Date in furnishing information, documents, evidence and other assistance
to CCC's Accountant to facilitate the completion of the Post-Closing Audit
within the aforementioned time period. Without limiting the generality of the
foregoing, within two weeks after the Closing, the Shareholders shall provide
CCC's Accountant with the information and/or documents reasonably requested by
them. CCC's Accountant will test the Company's Closing Net Worth, the Group
Closing Net Worth, the Company's 1997 Adjusted EBIT and the Group 1997 Adjusted
EBIT based upon the Post-Closing Audit and the post-closing audits of the Other
Group Companies. In the event that CCC's Accountant determines (i) a different
amount than the Group Closing Net Worth (the "Actual Closing Net Worth") or (ii)
------------------------
a different amount than the Group 1997 Adjusted EBIT (the "Actual 1997 Adjusted
--------------------
EBIT" ), CCC shall promptly deliver a written notice with supporting
- ----
documentation (the "Financial Adjustment Notice") to the shareholders of the
---------------------------
Group Companies, including the Shareholders, setting forth (A) the determination
made by CCC's Accountant of the Actual
9
<PAGE>
Closing Net Worth and the Actual 1997 Adjusted EBIT, (B) the amount of the cash
portion of the Base Merger Consideration that would have been payable at Closing
pursuant to Section 2.2(c) had the Actual Closing Net Worth and the Actual 1997
Adjusted EBIT been used instead of the Group Closing Net Worth and the Group
1997 Adjusted EBIT to determine the need for any adjustments to the Base Merger
Consideration pursuant to Sections 2.2(c) and 2.2(d), respectively, and (C) the
number of shares issued as part of the Base Merger Consideration that would have
been issuable at Closing had the Actual Closing Net Worth and the Actual
Adjusted EBIT been used to determine the need for any adjustments to the Base
Merger Consideration as set forth in (B) above. The differences between the
respective amounts set forth in (B) and (C) and the amounts of the cash and the
CCC Common Stock components of the Base Merger Consideration paid pursuant to
Section 2.2 (a), as adjusted pursuant to Sections 2.2(c) or 2.2(d), is referred
to hereafter as the "Merger Consideration Adjustment." Any increase in the Base
-------------------------------
Merger Consideration resulting from such Merger Consideration Adjustment shall
be owed by CCC to the Shareholders. Any decrease in such Base Merger
Consideration resulting from such Merger Consideration Adjustment shall be owed
by the Shareholders to CCC. If, on or prior to the payment of the Merger
Consideration Adjustment, 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 part
of the Merger Consideration Adjustment will be appropriately adjusted to reflect
such split, combination, dividend or other distribution or change. The shares of
CCC Common Stock, if any, to be issued in respect of the Merger Consideration
Adjustment shall be registered under the 1933 Act and approved for quotation on
the Nasdaq National Market.
(c) The shareholders of the Group Companies, including the
Shareholders, through the Group Representative, shall have thirty (30) days from
the receipt of the Financial Adjustment Notice to notify CCC if they dispute
such Financial Adjustment Notice. If CCC has not received notice of any such
dispute within such 30-day period, (i) CCC shall be entitled to receive promptly
pro rata from the Shareholders (which may, at CCC's sole discretion, be from the
Pledged Assets as defined in, and subject to the provisions of, Section 3.2
and/or the Contingent Merger Consideration) any Merger Consideration Adjustment
owed to CCC and (ii) the Shareholders shall be entitled to receive promptly from
CCC any Merger Consideration Adjustment owed to the Shareholders. If, however,
the Shareholders (through the Group Representative) have delivered notice of
such a dispute to CCC within such 30-day period, then CCC's Accountant shall
select a New Accounting Firm to review the books of the Group Companies
including, the Surviving Corporation, the Financial Certificates and the
Financial Adjustment Notice (and related information) to determine the amount,
if any, of the revised Merger Consideration Adjustment (the "Actual Merger
-------------
Consideration Adjustment"). Such New Accounting Firm shall be confirmed by the
- ------------------------
Shareholders through the Group 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 Merger Consideration
Adjustment, if any, within thirty (30) days of its selection. The determination
made by the New Accounting Firm shall be final and binding on the parties
hereto, and, upon such determination, CCC shall be entitled to receive pro rata
from the Shareholders (which may, at CCC's sole discretion, be from the Pledged
Assets as defined in, and subject to the provisions of, Section 3.2 and/or the
Contingent Merger Consideration) the Actual Merger Consideration Adjustment or
the Shareholders shall be entitled to receive from CCC the Actual Merger
Consideration Adjustment, as applicable. The costs of the New Accounting Firm
shall be borne by the party (either CCC or the shareholders of the Group
Companies, including the Shareholders) whose amounts, on the Financial
Adjustment Notice or its Financial Certificates, as applicable (the "Proposed
--------
Numbers"), were further from the determination of the New Accounting Firm of
- -------
what the amounts should have been (the "Revised Numbers"), or equally by CCC and
---------------
the shareholders of the Group
10
<PAGE>
Companies, including the Shareholders, in the event that the Revised Numbers are
equidistant between the original amounts.
3.2 PLEDGED ASSETS.
(a) As collateral security for the payment of any Merger
Consideration Adjustment or any indemnification obligations of the Shareholders
pursuant to (and subject to the limitations of) Article 10, the Shareholders
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) at the option of the Shareholders, such Shareholders' pro
rata portion of cash and/or shares of CCC Common Stock with a value, based on
the Merger Price, equal to ten percent (10%) of the Base Merger Consideration
subject to adjustment pursuant to Section 2.2 or Section 3.1 hereof, 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 bearing 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. Any cash comprising a Shareholder's
Pledged Assets shall be withheld by CCC from distribution to the Shareholder and
placed by CCC into an interest bearing custodial account that is not commingled
with any assets of CCC or any of its subsidiaries. All shares of CCC 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 Merger
Consideration Adjustment and 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 the interest earned on any cash
portion of the Pledged Assets of each Shareholder and including dividends and
distributions with respect to shares of CCC Common Stock subject to pledge),
less Pledged Assets having an aggregate value equal to the amount of (i), in the
discretion of CCC, the Actual Merger Consideration Adjustment under Section 3.1,
(ii) 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 (iii) 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 (x) the Merger Price with
respect to the Actual Merger Consideration Adjustment under
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Section 3.1 and (y) the average of the closing price on the Nasdaq National
Market per share 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.
Notwithstanding 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 or any Merger Consideration Adjustment, 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 3.2, 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.
(e) Notwithstanding the foregoing provisions of this Section 3.2, the
Pledged Assets of any Shareholder that is a Profit Sharing Plan (as defined in
Section 5.22(j)) shall be held by a third party agent and upon terms reasonably
acceptable to CCC and the fiduciaries of such Shareholder.
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
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the offices of Morgan, Lewis & Bockius LLP, 1800 M Street, NW, Washington, D.C.
20036, on March 10, 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").
--------------
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.
12
<PAGE>
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 5.1 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;
(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, franchise, surety bond, insurance coverage, contractual right or other
authorization of the Company;
13
<PAGE>
(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 200,000 shares of class A stock, no par value, of which
49,871.058 shares are issued and outstanding and 400,000 shares of class B
stock, no par value, of which 264,710 share 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.
(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 companies 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.
14
<PAGE>
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 end of its most recently ended fiscal year (the "Year-End Net Worth") was
------------------
not less than $8,219,000.
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 (the "Interim Balance Sheet") as of January 31, 1998 and
---------------------
income statement and statement of cash flows, for the one-month period then
ended (collectively, the "Interim Financials," 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 previously 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 SCHEDULE 5.18(A) and those
liabilities under any contract, commitment or agreement specifically disclosed
on any Schedule to this Agreement.
(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
15
<PAGE>
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 ninety (90) 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-off, 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 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.
16
<PAGE>
5.15 REAL PROPERTY.
(a) For purposes of this Agreement, "Real Property" means all of the
-------------
Company's interest in real property including, 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) SCHEDULE 5.15(B) 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 Permitted Encumbrances (defined
below). SCHEDULE 5.15(B) indicates whether the Real Property is owned or leased.
The Real Property listed on SCHEDULE 5.15(B) includes all interests in real
property necessary to conduct the business and operations of the Company as the
business and operations are currently conducted.
(c) Except as set forth on SCHEDULE 5.15(C):
(i) The Company has good and marketable title to the owned
Real Property free and clear of any Liens other than (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").
----------------------
(ii) To the knowledge of the Company and each Shareholder, the
legal descriptions for the owned Real Property contained in the respective deeds
thereof describe the properties fully and adequately. Except as may be a
Permitted Encumbrance or disclosed by the surveys to be obtained pursuant to
Section 7.3(b), to the Company's knowledge, all structures, facilities and
improvements to the Real Property ("Structures") are located within the boundary
----------
lines of the Real Property and no Structures, facilities or other improvements
on any parcel adjacent to the Real Property encroach onto any portion of the
Real Property. Except as may be a Permitted Encumbrance or disclosed by the
surveys to be obtained pursuant to Section 7.3(b), to the Company's knowledge,
the Structures do not encroach on any easement which burdens any portion of the
Real Property, and none of the Real Property serves any adjacent parcel for any
purpose inconsistent with the use of the Real Property.
(iii) To the knowledge of the Company and the Shareholders, the
Company has good and valid rights of ingress and egress to and from all owned
and leased Real Property from and to the public street systems for all usual
street, road and utility purposes.
(iv) The owned Real Property and all of the Company's present
uses and operations of the Real Property comply, in all material respects, with
all applicable statutes, rules, regulations, ordinances, orders, writs,
injunctions, judgments, decrees, awards or restrictions of any government entity
having jurisdiction over any portion of the Real Property (including, without
limitation,
17
<PAGE>
applicable statutes, rules, regulations, orders and restrictions relating to
zoning, land use, safety, health, employment and employment practices and access
by the handicapped) (collectively, "Laws"), covenants, conditions, restrictions,
----
easements, disposition agreements and similar matters affecting the owned Real
Property. The Company has obtained all material approvals of governmental
authorities (including certificates of use and occupancy, licenses and permits)
required in connection with the Company's construction, ownership (if
applicable), use, occupation and operation of the owned Real Property.
(v) Except for Permitted Encumbrances and except as set forth
on the surveys in the possession of the Company or obtained pursuant to Section
7.3, to the knowledge of the Company, none of the Structures, the appurtenances
thereto or the equipment therein or the operation or maintenance thereof, or the
conduct of the Company's business as currently operated and conducted, violates
in any material respect any restrictive covenant or encroaches in any material
respect on any property owned by others or any easement, right of way or other
Lien or restriction affecting owned Real Property in any respect. To the
knowledge of the Company, the owned Real Property and its continued use,
occupancy and operation as used, occupied and operated in the conduct of the
Company's business does not constitute a nonpermitted nonconforming use in any
material respect and is not the subject of a special use permit under any
applicable Law.
(vi) There are no pending or, to the Company's knowledge,
threatened condemnation, fire, health, safety, building, zoning or other land
use regulatory proceedings, lawsuits or administrative actions relating to any
portion of the owned Real Property, nor has the Company or any of the
Shareholders received notice of any pending or threatened special assessment
proceedings affecting any portion of the owned Real Property.
(vii) Except as may be a Permitted Encumbrance or disclosed by
the Title Commitment as defined in Section 7.3(a), there are no parties other
than the Company in possession of any of the owned Real Property or any portion
thereof, and there are no leases, subleases, licenses, concessions or other
agreements, written or oral, granting to any party or parties the right of use
or occupancy of any portion of the owned Real Property or any portion thereof.
(viii) To the knowledge of the Company and the Shareholders,
there are no outstanding options or rights of first refusal to purchase the
owned Real Property, or any portion thereof or interest therein. Except for
Permitted Encumbrances, the Company has not transferred any air rights or
development rights relating to the owned Real Property.
(ix) Other than those disclosed herein and on SCHEDULE 5.15(C),
there are no service contracts or other agreements relating to the use or
operation of the owned Real Property.
(x) All real property taxes and assessments that are due and
payable with respect to the owned Real Property have been paid or will be paid
at or prior to Closing.
(d) Except as set forth on SCHEDULE 5.15(D): (i) the Company holds no
interest as landlord in any Real Property; (ii) the Company has a valid
leasehold interest in all the Real Property listed as leased by the Company on
SCHEDULE 5.15(B) (the "leased Real Property"); (iii) the Company 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) the Company has no
knowledge of any default by the landlord under any lease relating to the leased
Real Property; (v) the Company has paid all rent under each lease relating to
the leased Real Property with respect to the period through the Closing Date;
and (vi) the Company has not exercised any termination or purchase
18
<PAGE>
option under any lease relating to the leased Real Property nor has the Company
exercised any renewal or extension under any lease relating to the leased Real
Property with respect to any renewal or extension period that will commence
after the date hereof (other than renewals or extensions that have been
disclosed to CCC).
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 default thereunder or provided notice
of the exercise of any option granted to such party under such lease.
(e) Except as provided on SCHEDULES 5.15(B) OR 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
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<PAGE>
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.
(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, $50,000 individually, or that may generate revenues or income
exceeding, during the current term thereof, $50,000 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. Other than as disclosed on SCHEDULE
5.18(A), 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
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<PAGE>
Shareholders, is not subject to any default thereunder by any party obligated to
the Company pursuant thereto.
(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
21
<PAGE>
agency or instrumentality of the United States Government or any state or local
government that would be contrary to any current rules and regulations.
(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;
22
<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 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
23
<PAGE>
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
(i) the Company has not incurred liability under Section 4062 of
ERISA.
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<PAGE>
(j) The Company has converted any employee stock ownership Plan (the
"ESOP") maintained by the Company to a profit sharing plan which does not
-----
provide for pass-through voting by its participants (the "Profit Sharing Plan").
-------------------
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.
(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
25
<PAGE>
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) Intentionally omitted.
(c) 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.
26
<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;
(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;
27
<PAGE>
(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.
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
28
<PAGE>
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.
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
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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 January 21, 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, or, to the knowledge of such Shareholder, such Shareholder's
purchaser representative, (a) has such knowledge and experience in business and
financial matters and such knowledge concerning the business, operations and
financial condition of the Other Group Companies 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 and the Other Group Companies concerning the business,
operations and financial condition of CCC and the Other Group Companies,
respectively. 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. Each Shareholder
acknowledges and agrees that CCC has not and will not provide such Shareholder
or any other party with a prospectus for the Shareholder's use in selling CCC
Common Stock.
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 Wisconsin (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, 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.
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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 have been duly and validly authorized by the respective
Boards of Directors of CCC and Newco, and this Agreement has 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. 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 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
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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;
(f) conflict with, result in a breach of, or result in a default under
any document, agreement or instrument to which Jonathan J. Ledecky is a party,
or by which Jonathan J. Ledecky is bound.
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
30,292,857 shares were outstanding on February 26, 1998, and 500,000 shares of
Convertible Non-Voting Common Stock, par value $.001 per share, of which 500,000
shares were outstanding on February 26, 1998. The authorized capital stock of
Newco consists of 1,000 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 was 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. 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.
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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
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 January 21, 1998 and declared effective on January
- -----------------------
26, 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:
(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
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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 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 ninety (90) 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
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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 TITLE INSURANCE AND SURVEYS.
(a) With respect to each parcel of Real Property owned by the Company,
the Shareholders and the Company shall use their reasonable efforts to assist
CCC in obtaining (i) as soon as practicable after the date of this Agreement, a
title commitment disclosing the condition of title to such fee estate and all
easements, rights of way, and restrictions of record with respect thereto, as of
a date not earlier than the date of this Agreement, accompanied by copies of all
instruments evidencing the scope and extent of all such easements, rights of
way, and restrictions of record (the "Title Commitment"), and (ii) at or prior
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to Closing, an ALTA Owner's Policy of Title Insurance on a form customarily used
in the state in which the Real Property is located, issued by a title insurer
satisfactory to CCC, in an amount equal to the fair market value of the Real
Property (as reasonably determined by CCC), insuring title to such property to
be in the name of the party designated by CCC on SCHEDULE 7.3, subject only to
Permitted Encumbrances (each a "Title Policy").
------------
(b) With respect to each Real Property interest as to which a Title
Policy is to be procured pursuant to this Agreement, the Shareholders and the
Company shall use their reasonable efforts to assist CCC in obtaining as soon
as practicable after the date of this Agreement, a current survey of the
relevant parcel, prepared and certified to CCC and to the title insurer of such
Real Property interest by a licensed surveyor and conforming to current ALTA
Minimum Detail Requirements for Land Title Surveys, disclosing the location of
all improvements, easements, party walls, sidewalks, roadways, utility lines,
and other matters customarily shown on such surveys, and showing access
affirmatively to public streets and roads.
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 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
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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 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 Newco 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;
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(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;
(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;
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(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 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
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(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 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 Party" 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.
Notwithstanding anything in the foregoing to the contrary, no Shareholder that
is a Profit Sharing Plan shall be restricted in the transfer of any shares of
CCC Common Stock received by such Shareholder as part of the Base Merger
Consideration or as part of the Contingent Merger Consideration to the extent
the transfer is required by applicable law or (i) with respect to the shares of
CCC Common Stock received as part of the Base Merger Consideration, following
the first anniversary of the Closing Date or (ii) with respect to the shares of
CCC Common Stock received as part of the Contingent Merger Consideration,
following six months after the receipt of such shares with respect to 100% of
such shares and following three months after the receipt of such shares with
respect to 50% of such shares, it being agreed that any shares of Common Stock
received by the Profit Sharing Plan after the resolution of a dispute as to the
amount of the Group Actual Earn Out EBIT shall be considered to have been
received for purposes of this transfer restriction at the same time as the
Profit Sharing Plan received the rest of the shares of Common Stock issued as
Contingent Merger Consideration.
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(b) Each Shareholder acknowledges and agrees that CCC will not provide
such Shareholder with a prospectus for such Shareholder's use in selling the
shares of CCC Common Stock to be received by such Shareholder in the Merger, and
agrees to sell such shares 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 TRANS
ACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), MAY APPLY. IF RULE 145
--------------
APPLIES, PRIOR TO MARCH 10, 1999, THESE SHARES MAY ONLY BE
TRANSFERRED IN 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 MARCH 10,
1999, 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 MARCH 10,
2000, 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 CON
TRACTUAL RESTRICTIONS ON TRANSFER EXPIRING ON ______________,
PURSUANT TO THAT CERTAIN AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF FEBRUARY 27, 1998 (THE "AGREEMENT"), BY AND AMONG THE
---------
ISSUER, CCC ACQUISITION CO., 6, TOWN & COUNTRY ELECTRIC, 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.
(d) Notwithstanding anything in this Section 7.10 to the contrary, no
Shareholder that is Profit Sharing Plan shall be restricted by this Agreement
from transferring, selling or otherwise disposing of shares of CCC Common Stock
received by such Shareholder as part of the Base Merger Consideration.
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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 78,660 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, other than Richard A. Schinke, Jr. and
Shareholders who, as of the date of this Agreement, owned less than three and
one half (3 1/2) percent of the capital stock of the Company) on or 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 CCC BOARD SEAT. At the Closing, the Board of Directors of CCC shall
expand its number and elect a representative selected by the Group Companies and
reasonably acceptable to CCC to fill such newly created seat. Thereafter, CCC
will use its best efforts to cause such individual (or his successor, who shall
be selected by a vote of a majority of the presidents of the Surviving Group
Companies and who must also be reasonably acceptable to CCC) to remain on the
CCC Board of Directors; provided, however, that CCC shall not be liable should
the shareholders of CCC not re-elect such individual to a new term on the CCC
Board of Directors.
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 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 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.
7.16 CONSULTING PAYMENT. At Closing, and in consideration for his
agreement to serve CCC on a consulting basis after the Closing, Neil McCarthy
will receive from CCC, by company check, $250,000
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plus options to purchase 50,000 shares of CCC Common Stock, at a purchase price
equal to the fair market value of the underlying shares of CCC Common Stock on
the Closing Date and exercisable immediately for 25,000 shares and exercisable
with respect to the remaining 25,000 shares at the end of the one year period
after the Closing Date (it being agreed that such options shall be issued in
accordance with CCC's 1997 Long-Term Incentive Plan and will have the vesting
provisions established by the Compensation Committee of the Board of Directors
of CCC).
7.17 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.
7.18 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 result in any adjustment to the Base Merger
Consideration or the Contingent Merger Consideration pursuant to Section 2.2(e)
and 2.3(d).
7.19 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 7.19 shall only be made if CCC and
the president of the Company or his successor, in his capacity as an employee of
CCC or any affiliate thereof, shall mutually agree to such amendment,
modification, or termination. Without limitation on the foregoing, CCC or any
successor thereto shall maintain an employee benefit pension plan within the
meaning of ERISA Section 3(2) which plan will continue to hold such qualifying
employer securities, as defined in ERISA Section 407(d)(5), as may be required
to avoid the imposition of any excise tax under Code Section 4978 with respect
to any employee stock ownership plan having engaged in a transaction to which
Code Section 1042 applies for such period as may be required to avoid the
imposition of such excise tax. Notwithstanding the foregoing, it is
acknowledged that CCC and the Surviving Corporation shall not pay for any
country club memberships except for the, Buttes Morts membership, or the
expenses related to more than one vehicle per employee.
7.20 SUPPLEMENTAL FINANCIAL CERTIFICATE. The Shareholders shall, within
thirty (30) days following Closing (a copy of which shall be attached to the
Supplemental Financial Certificate), cause the preparation of a balance sheet
(the "Closing Balance Sheet") for the Company as of February 28, 1998 and
---------------------
deliver to CCC a certificate (the "Supplemental Financial Certificate"; and
----------------------------------
together with the Closing Financial Certificate, the "Financial Certificates"),
----------------------
signed on behalf of the Shareholders by the Representative, setting forth:
(a) the Company's Closing Net Worth; and
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(b) a certification that the Closing Balance Sheet (a copy of which
shall be attached to the Supplemental Financial Certificate) presents fairly the
financial condition of the Company as of the Closing Date.
All costs associated with the preparation of the Supplemental Financial
Certificate (including the costs associated with preparing the Closing Balance
Sheet) shall be borne by the Shareholders and not by the Company or CCC.
7.21 HOLDING COMPANY. Promptly following the Closing CCC will contribute
all of the shares of capital stock of each Surviving Group Company to
Consolidation Capital Corporation Electric Services, Inc., a first tier wholly-
owned subsidiary of CCC (the "Holding Company"). As the sole shareholder of
Holding Company, CCC will, at the Closing, (i) cause William P. Love, Jr. to be
appointed its Chief Executive Officer, (ii) cause the Holding Company to enter
into an employment agreement with Mr. Love substantially in the form attached to
the Group Company Agreement for SKC Electric, Inc., and (iii) elect William P.
Love, Jr., F. Traynor Beck and Timothy Clayton as its board of directors.
7.22 INTENTIONALLY OMITTED
7.23 INDEMNIFICATION OF SHAREHOLDER'S PURCHASER REPRESENTATIVE. Until the
first anniversary of the Closing, CCC shall pay all costs and expenses
(including the value of any claims or awards) of any Shareholder's purchaser
representative that arise out of any claim or lawsuit related to the
transactions contemplated hereby. On the first anniversary of the Closing, the
Shareholders shall reimburse CCC, by surrender of Pledged Assets or otherwise,
for 50% of such costs and expenses; it being understood and agreed that any such
expense shall not affect the calculation of Group Actual Earn Out EBIT or the
payment of the Contingent Merger Consideration; and provided, however, that the
-------- -------
Shareholders shall not be obligated to reimburse CCC for 50% of any such costs
and expenses that arise out of any lawsuit in which CCC shall be found to be
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act), and the Shareholders shall be obligated to reimburse CCC
for all such costs and expenses that arise out of any lawsuit in which the
Company or any of the Shareholders shall be found to be guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act).
Following the first anniversary of the Closing, the Shareholders and CCC shall
equally share and be obligated to pay equal portions of all such costs and
expenses; provided, however, that the Shareholders on the one hand and CCC on
-------- -------
the other hand shall not be liable to so share and pay any such portion of costs
and expenses that arise out of any lawsuit in which CCC on the one hand or the
Company or the Shareholders on the other hand shall be found to be guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act). CCC and the Shareholders shall direct a third party, mutually
acceptable to CCC and the Shareholders to estimate an amount sufficient to cover
the costs and expenses of any claim pending on the first anniversary of the
Closing Date and the Shareholders shall escrow such amount of shares of CCC
Common Stock or cash from the Pledged Assets to cover their 50% of such costs
and expenses. The terms of the escrow shall be mutually satisfactory to CCC and
the Shareholders. Notwithstanding anything to the contrary herein, the
Shareholders shall be entitled to satisfy any claim relating to the Pledged
Assets with cash, in lieu of shares of CCC Common Stock constituting Pledged
Assets. If the payment by CCC of all costs and expenses of any Shareholder's
purchaser representative pursuant to the first sentence of this Section 7.23 is
unavailable, then CCC, in lieu of making such payment, shall contribute to the
amount paid or payable by such Shareholder's purchaser representative as a
result of any such claim or lawsuit in such proportion as is appropriate to
reflect the relative fault of such Shareholder's purchaser representative, on
the one hand, and CCC, on the other hand, in connection with the actions or
inactions giving rise to such claim or lawsuit, as well as any other relevant
equitable considerations, including, without limitation, the parties' relative
intent,
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knowledge and access to information. The obligations of the Shareholders
pursuant to this Section 7.23 shall be on a joint and several basis.
7.24 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 (by pledge of assets or otherwise) unless and until
such personal guarantee (including any pledge of assets) has been fully
released.
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
Group Material Adverse Effect, as defined below; (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. For purposes of this Agreement, "Group
Material Adverse Effect" means a material adverse effect on the business,
operations, properties, assets or condition, financial or otherwise, of the
Group Companies 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) change in governmental or legislative laws, rules
or regulations, or (d) actions taken by CCC or any affiliate of 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
44
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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 Group
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 Group Companies, taken as a whole, since 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
Group 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 DELIVERY OF CLOSING FINANCIAL CERTIFICATE. CCC shall have received a
certificate (the "Closing Financial Certificate"), dated as of the Closing Date,
-----------------------------
signed on behalf of the Company and by the Shareholders, setting forth:
(a) the net worth of the Company as of the last day of its most
recently ended fiscal year;
(b) the net worth of the Company as of January 31, 1998; and
(c) the Company's 1997 Adjusted EBIT.
8.9 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).
8.10 EMPLOYMENT AGREEMENTS. Roland G. Stephenson shall enter into, at
Closing, an employment agreement with the Surviving Corporation in substantially
the form of EXHIBIT 8.10 hereto.
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8.11 AFFILIATE AGREEMENTS. The Shareholders listed on SCHEDULE 5.31 shall
have entered into an Affiliate Agreement in the form set forth as EXHIBIT 8.11.
8.12 SHAREHOLDERS' RELEASE. The Shareholders shall each have delivered to
CCC an instrument dated the Closing Date in the form of EXHIBIT 8.12.
8.13 RELATED PARTY RECEIVABLES AND AGREEMENTS. Except with respect to the
items on SCHEDULE 8.13, 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 8.13 shall have been terminated as of the Closing.
8.14 CONSUMMATION OF GROUP MERGER TRANSACTION. The Group Merger
Transaction shall occur contemporaneously with the consummation of the
transactions contemplated by this Agreement.
8.15 EMPLOYEE PLAN FIDUCIARY CONDITION. The appropriate fiduciaries of
the Profit Sharing Plan shall have received a current valuation report and
fairness opinion in such form as may be acceptable to such fiduciaries from a
source acceptable to such fiduciaries and such fiduciaries shall have
determined, in the exercise of their sole discretion, that the consummation of
the transactions contemplated herein at the Closing is fair to and in the best
interests of the participants and beneficiaries of the Profit Sharing Plan.
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 PEPRESENTATIONS 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
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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 transactions contemplated hereby shall
be pending.
9.4 EMPLOYMENT AGREEMENTS. The Surviving Corporation shall have afforded
Roland G. Stephenson the opportunity to enter into, at Closing, an employment
agreement with the Surviving Corporation in substantially the form of EXHIBIT
8.10 hereto.
9.5 TAX CERTIFICATE DELIVERY. A certificate substantially in the form
attached hereto as EXHIBIT 9.5, dated the Closing Date and signed by the
President or any Vice President of CCC and Newco, shall have been delivered to
tax counsel for the Shareholders.
9.6 SATISFACTION WITH SHAREHOLDER RELEASE AND AFFILIATE AGREEMENTS. Each
Shareholder shall be reasonably satisfied with the form of the Affiliate
Agreement and Shareholder Release to be executed by them pursuant to Section
8.11 and Section 8.12.
9.7 TAX OPINION. The Shareholders shall have received from Dow, Lohnes,
Albertson, PLLC, tax counsel to the Shareholders, that the Merger qualifies as a
reorganization as defined under Code Section 368(a)(1)(A).
9.8 CONSUMMATION OF GROUP MERGER TRANSACTION. The Group Merger
Transaction shall occur contemporaneously with the consummation of the
transactions contemplated by this Agreement.
9.9 EMPLOYEE PLAN FIDUCIARY CONDITION. The appropriate fiduciaries of
the Profit Sharing Plan shall have received a current valuation report and
fairness opinion in such form as may be acceptable to such fiduciaries from a
source acceptable to such fiduciaries and such fiduciaries shall have
determined, in the exercise of their sole discretion, that the consummation of
the transactions contemplated herein at the Closing is fair to and in the best
interests of the participants and beneficiaries of the Profit Sharing Plan.
9.10 BOARD EXPANSION. CCC shall have increased the size of its Board of
Directors to six members and, as contemplated by Section 7.13, a representative
of the Group Companies shall have been duly elected to such Board of Directors.
9.11 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.
9.12 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 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.
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9.13 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), 5.24 (taxes), 5.27 (environmental matters), and any
receivables from related persons that are listed on SCHEDULE 8.13 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.
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:
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(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) subsequent to the Effective Time, all Damages (whether arising
before, on or after the Effective Time) suffered, sustained, incurred, or paid
by the Shareholder Indemnified Parties in connection with, resulting from, or
arising out of, directly or indirectly, any conversion of the ESOP to a Profit
Sharing Plan as described in Section 5.22(j) herein; and
(c) 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) adjustments to the
Merger Consideration as set forth in Sections 2.2 and 3.1, which adjustments
shall not constitute Damages; (ii) 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; (iii) Damages
described in Section 10.1(a)(iv), or (iv) 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) (w) 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), (x) with respect to covenants of the Shareholders to be
performed after the Closing Date until fully performed and discharged, (y) with
respect to covenants of CCC and Newco contained in Section 7.15 or the
representations, warranties and covenants set forth in the certificate delivered
by or on behalf of CCC and Newco pursuant to Section 9.5, until the expiration
of the longest applicable federal or state statute of limitations (including
extensions thereof agreed to by the party from whom indemnification is sought),
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
indemnification hereunder for the breach of a representation, warranty or
covenant where the identical subject matter thereof has also resulted in, or
caused, a Merger Consideration Adjustment to the Base Merger Consideration
pursuant to Section 3.1;
(e) in no event will any CCC Indemnified Party be entitled to any
indemnification hereunder from any Shareholder that is an employee benefit plan
within the meaning of ERISA Section 3(3) to the extent that such indemnification
could: (i) result in a transaction prohibited under ERISA Section 406 or Code
Section 4975; (ii) give rise to a claim for breach of any such plan
fiduciaries' duties with respect to such plan; or (iii) otherwise violate any
applicable provision of ERISA or the Code; or
(f) 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.
(g) 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.
(h) 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
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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 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.
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(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 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, and subject to the limitations in Sections 3.2(c) and 10.3
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
business selling any products or services in direct competition with the Holding
Company or any of its subsidiaries within 100 miles of any office of the Holding
Company or any office of any of the Holding Company's subsidiaries (the
"Territory");
- ----------
(b) call upon any person who is, at that time, within the Territory,
an employee of the Holding Company or any subsidiary of the Holding Company in a
managerial capacity for the purpose or
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with the intent of enticing such employee away from or out of the employ of the
Holding Company or any subsidiary of the Holding Company;
(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 the Holding
Company or any subsidiary of the Holding Company, for the purpose of soliciting
or selling products or services in direct competition with the Holding Company
or any subsidiary of the Holding Company 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 the Holding Company or a
subsidiary of the Holding Company as a prospective acquisition candidate or was
the subject of an acquisition analysis by the Holding Company or any subsidiary
of the Holding Company. 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 the
Holding Company or any subsidiary of the Holding Company 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
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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.
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.
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(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 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 March 15, 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
55
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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
Section 7.22, Article 12 and Article 13; and
(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 this Section 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.
56
<PAGE>
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.
In addition, CCC will pay all fees and expenses relating to obtaining licenses,
permits, surety bonds, insurance, transfer applications, business credit reports
and the related qualifications for Newco, the other subsidiaries newly formed by
CCC to effect the Group Merger Transaction and the Surviving Group Companies,
including the Surviving Corporation, up to an aggregate amount of $100,000. Any
such fees and expenses of the Surviving Group Companies in excess of $100,000
shall be split between CCC on the one hand and the shareholders of the Group
Companies on the other. Except with respect to FMI Corporation and the part of
the fee to Neil McCarthy referred to below, 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. In addition, it is understood and agreed that CCC shall be solely
responsible to pay to FMI Corporation a fee equal to 3% of the Base Merger
Consideration plus the Contingent Merger Consideration paid pursuant to this
Agreement and Neil McCarthy professional fees equal to $250,000, and the parties
set forth on SCHEDULE 13.7 hereof shall be solely responsible to pay Neil
McCarthy an amount previously agreed to by the parties for professional fees.
At the election of the Shareholders, any of the foregoing 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 Group 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)
57
<PAGE>
with a required copy to:
Morgan, Lewis & Bockius LLP
Linda L. Griggs, Esquire
1800 M Street, NW
Washington, D.C. 20036
(Telefax: 202/467-7176)
If to any Shareholder to:
Roland G. Stephenson
2662 American Drive
P.O. Box 627
Appleton, WI 54912-0627
(Telefax: 920/738-1515)
with a required copy to:
Joseph F. Franzoi IV, Esq.
Franzoi & Franzoi, S.C.
514 Racine Street
Menasha, WI 54952
(Telefax: 920/725-0998)
and to:
Steven P. Krause, Esq.
Krause, Metz & Snyder
15 Park Place
Appleton, WI 54915
(Telefax: 920/739-2927)
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.
58
<PAGE>
13.12 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. Except as set forth in
Section 7.11, 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 GROUP REPRESENTATIVE AND SHAREHOLDER REPRESENTATIVE. (a) Each of
the Shareholders hereby appoints William P. Love, Jr. 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 calculation of the Merger
Consideration (the "Group Representative"). Each Shareholder understands that
--------------------
the Group Representative will represent the shareholders of the Surviving Group
Companies. Each Shareholder further agrees that (i), in the case of a dispute
regarding the base merger consideration paid by CCC pursuant to the Group
Company Agreements (the "Total Base Merger Consideration"), the approval of the
-------------------------------
former shareholders of the Group Companies which received a majority of the
Total Base Merger Consideration, and (ii), in the case of a dispute regarding
the contingent merger consideration to be paid by CCC pursuant to the Group
Company Agreements (the "Total Contingent Merger Consideration"), the approval
-------------------------------------
of the former shareholders of the Group Companies which would be entitled to
receive a majority of the Total Contingent Merger Consideration (the required
vote pursuant to (i) and (ii) above is referred to as the "Approval of the Group
---------------------
Company Shareholders"), the Group Representative shall have the power to take
- --------------------
any and all actions which the Group Representative believes are necessary or
appropriate or in the best interests of all of the shareholders of the Group
Companies for and on behalf of such shareholders, as fully as if they were
acting on their own behalf, including without limitation, consenting to, and
settling any and all claims, disputes or controversies arising with regard to
the calculation of the Merger Consideration. CCC and the Surviving Group
Companies shall have the right to rely on any actions taken or omitted to be
taken by the Group 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. In addition, the shareholders
of the Group Companies shall have the right to change the identity of the Group
Representative upon the Approval of the Group Company Shareholders, and shall
deliver to CCC and the Surviving Group Companies prompt written notice of any
such change of identity, which upon receipt by CCC and the Surviving Group
Companies will effect said change. Except to the extent prohibited by law, the
Shareholders agree to hold the Group Representative free and harmless from and
indemnify the Group 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.
(b) Each of the Shareholders hereby appoints Roland G. Stephenson 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"), other than those contained in Section
--------------
13.14(a) above. 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, conducting all negotiations with and otherwise
dealing with CCC and the Surviving Corporation and engaging counsel, accountants
and other representatives in connection
59
<PAGE>
with the foregoing matters. CCC and the Surviving Corporation shall have the
right to rely on any actions taken 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]
60
<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 ACQUISITION CO., 6
By: /s/ F. Traynor Beck
-----------------------------------------
F. Traynor Beck
TOWN & COUNTRY ELECTRIC, INC.
By: /s/ Roland G. Stepnehson
-----------------------------------------
Roland G. Stephenson
President
SHAREHOLDERS:
/s/ Roland G. Stephenson
---------------------------------------------
Roland G. Stephenson
/s/ Gary F. Lodholz
---------------------------------------------
Gary F. Lodholz
/s/ Richard Vander Heiden
---------------------------------------------
Richard Vander Heiden
/s/ Connie Hurley
---------------------------------------------
Connie Hurley
/s/ Timothy Hurley
---------------------------------------------
Timothy Hurley
/s/ Richard A. Schinke, Jr.
---------------------------------------------
Richard A. Schinke, Jr.
<PAGE>
/s/ Thomas Baumgartner
---------------------------------------------
Thomas Baumgartner
/s/ Daniel J. Siebers
---------------------------------------------
Daniel J. Siebers
/s/ James H. Bell
---------------------------------------------
James H. Bell
/s/ James H. Schlater
---------------------------------------------
James H. Schlater
/s/ Michael J. Jansen
---------------------------------------------
Michael J. Jansen
/s/ Darryl L. Betro
---------------------------------------------
Darryl L. Betro
/s/ Associated Bank N.A.
---------------------------------------------
Associated Bank N.A., as Trustee of the Town &
Country Electric, Inc., 401 (k) Savings and
Profit Sharing Plan
/s/ Robert C. Stephenson
----------------------------------------------
Robert C. Stephenson
/s/ James Stephenson
----------------------------------------------
James Stephenson
/s/ Eliot Elfner
----------------------------------------------
Eliot Elfner
/s/ Daniel Spalding
----------------------------------------------
Daniel Spalding
/s/ Anthony F. Rosecky
----------------------------------------------
Anthony F. Rosecky
/s/ Daniel Napuck & Beverly S. Napuck
-------------------------------------------
Daniel Napuck & Beverly S. Napuck Joint Revocable
Living Trust
/s/ Robert Torgerson
-------------------------------------------
Robert Torgerson
/s/ Bruce D. Baseman
-------------------------------------------
Bruce D. Baseman
<PAGE>
/s/ Dennis D. Defferding
-------------------------------------------
Dennis D. Defferding
/s/ Richard D. Merbach
-------------------------------------------
Richard D. Merbach
/s/ Charles J. Seghers
-------------------------------------------
Charles J. Seghers
/s/ Michael A. Blise
-------------------------------------------
Michael A. Blise
/s/ Brenda J. Sevrea
-------------------------------------------
Brenda J. Severa
/s/ Kathleen P. Dahlen
-------------------------------------------
Kathleen P. Dahlen
/s/ Darla J. Lorenson
-------------------------------------------
Darla J. Lorenson
/s/ Dale W. Myers
-------------------------------------------
Dale W. Myers
/s/ Rick L. Kryzaniak
-------------------------------------------
Rick L. Kryzaniak
/s/ Mary Jo A. Van Dyke
-------------------------------------------
Mary Jo A. Van Dyke
/s/ George J. Vander Linden
-------------------------------------------
George J. Vander Linden
/s/ Robert P. Graves
-------------------------------------------
Robert P. Graves
/s/ Jimmy J. Spang
-------------------------------------------
Jimmy J. Spang
<PAGE>
Index of Defined Terms
----------------------
<TABLE>
<CAPTION>
Section
-------
<S> <C>
1933 Act........................................................... 2.2(a)
Accounts Receivable................................................ 5.12
Actual Closing Net Worth........................................... 3.1(b)
Actual 1997 Adjusted EBIT.......................................... 3.1(b)
Actual Merger Consideration Adjustment............................. 3.1(c)
Affiliate.......................................................... 5.31
Agreement.......................................................... 7.10(c)
Approval of the Group Company Shareholders......................... 13.14
Audited Financials................................................. 5.10
Balance Sheet Date................................................. 5.10
Base Merger Consideration.......................................... 2.2(a)
CCC................................................................ INTRO
CCC Charter Documents.............................................. 6.1
CCC Common Stock................................................... 2.1(c)
CCC Indemnified Parties............................................ 10.1
CCC Indemnified Party.............................................. 10.1
CCC Prospectus..................................................... 5.30
CCC's knowledge.................................................... 6
CCC's Accountant................................................... 2.3(a)(i)
Certificates....................................................... 2.4(b)
Charter Documents.................................................. 5.1
Claim Notice....................................................... 10.4(a)
Claims............................................................. 10.4
Closing............................................................ 4.1
Closing Balance Sheet.............................................. 7.20
Closing Date....................................................... 4.1
Closing Financial Certificate...................................... 8.8
COBRA.............................................................. 5.22(e)
Code............................................................... Recitals
Company............................................................ Recitals
Company 1.......................................................... Recitals
Company 2.......................................................... Recitals
Company 3.......................................................... Recitals
Company 4.......................................................... Recitals
Company 5.......................................................... Recitals
Company 6.......................................................... Recitals
Company Common Stock............................................... Recitals
Company Financial Statements....................................... 5.10
Company Hazardous Materials Activities............................. 5.27(b)
Company's knowledge................................................ 5
Company's 1997 Adjusted EBIT....................................... 2.2(b)
Company's Closing Net Worth........................................ 2.2(b)
Constituent Corporations........................................... Recitals
Contingent Merger Consideration.................................... 2.3(a)
controlled group................................................... 5.22
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Damages............................................................ 10.1(a)
Earn Out EBIT Notice............................................... 2.3(a)(i)
Earn Out Period.................................................... 2.3(f)
Earn Out Period Average Price...................................... 2.3(c)
Earn Out Range..................................................... 2.3(a)(iii)
Earn Out Threshold................................................. 2.3(a)(ii)
Earnings before Interest and Taxes................................. 2.2(b)
Earnings before Interest and Taxes of the Surviving
Group Companies................................................... 2.3(a)(i)
EBIT Increase...................................................... 2.2(d)
Effective Time..................................................... 4.2
Environmental Permits.............................................. 5.27(c)
Equipment.......................................................... 5.33
ERISA.............................................................. 5.22
ESOP............................................................... 5.22(j)
Financial Adjustment Notice........................................ 3.1(b)
Financial Certificates............................................. 7.20
GAAP............................................................... 2.2(b)
golden parachute................................................... 5.22
Group 1997 Adjusted EBIT........................................... 2.2(b)
Group 1997 Adjusted EBIT Target.................................... 2.2(b)
Group Actual Earn Out EBIT......................................... 2.3(a)(i)
Group Closing Net Worth............................................ 2.2(b)
Group Companies.................................................... Recitals
Group Company...................................................... Recitals
Group Company Agreements........................................... Recitals
group health plans................................................. 5.22(e)
Group Merger Transaction........................................... Recitals
Group Net Worth Target............................................. 2.2(b)
Group Representative............................................... 3.14
Hazardous Material................................................. 5.27(a)
Holding Company.................................................... 7.21
Indemnification Threshold.......................................... 0.3
Indemnified Party.................................................. 0.4(a)
Indemnifying Party................................................. 0.4(a)
Intellectual Property.............................................. 5.17(a)
Interim Balance Sheet.............................................. 5.10
Interim Financials................................................. 5.10
Interim Period Average............................................. 2.2(a)
Inventory.......................................................... 5.33
knowledge of CCC................................................... 6
knowledge of Newco................................................. 6
knowledge of the Company........................................... 5
Laws...............................................................5.15(c)(iii)
leased Real Property............................................... 5.15(d)
liabilities........................................................ 5.11(d)
Lien............................................................... 5.4
Material Adverse Effect............................................ 5.1
Material Contracts................................................. 5.18(a)
Maximum Earn Out Amount............................................ 2.3(a)(i)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Maximum Earn Out Threshold......................................... 2.3(a)(i)
Merger............................................................. Recitals
Merger Consideration............................................... 2.4(a)
Merger Consideration Adjustment.................................... 3.1(b)
Merger Documents................................................... 4.2
Merger Price....................................................... 2.2(a)
multiemployer pension plan......................................... 5.22
Net Worth.......................................................... 2.2(b)
New Accounting Firm................................................ 2.3(b)
Newco.............................................................. Recitals
Newco's knowledge.................................................. 6
Other Group Companies.............................................. Recitals
PBGC............................................................... 5.22
Pending Claims..................................................... 0.3(c)(ii)
Permits............................................................ 5.14
Permitted Encumbrances............................................. 5.15(c)(i)
Articles of Merger................................................. 1.1
Plans.............................................................. 5.22
Pledged Assets..................................................... 3.2(a)
Post-Closing Audit................................................. 3.1(b)
Prime Rate2.3(b)
Profit Sharing Plan................................................ 5.22(j)
Proposed Numbers................................................... 3.1(c)
Qualified Plans.................................................... 5.22
Real Property...................................................... 5.15(a)
Registration Statement............................................. 6.9
Related Party Agreements........................................... 5.18(a)
Release Date....................................................... 3.2(c)
reportable events.................................................. 5.22(c)
Representative..................................................... 3.14(a)
Required Consents.................................................. 8.4
Revised Earn Out EBIT.............................................. 2.3(b)
Revised Numbers.................................................... 3.1(c)
Securities Act..................................................... 7.10(c)
Specified Percentage............................................... 2.3(a)(iii)
State Corporate Laws............................................... 1.2
Shareholder........................................................ Intro
Shareholder Approval............................................... 13.14(b)
Shareholder Indemnified Parties.................................... 10.2
Shareholder Indemnified Party...................................... 10.2
Structures5.15(c)(ii)
Supplemental Financial Certificate................................. 7.20
Surviving Corporation.............................................. 1.1
Tax................................................................ 5.24(c)(i)
Tax Return5.24(c)(ii)
tax-free reorganization............................................ Recitals
Territory.......................................................... 11.1(a)
Third Party Claim.................................................. 10.4(b)(i)
Title Commitment................................................... 7.3(a)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Title Policy....................................................... 7.3(a)
Total Base Merger Consideration.................................... 13.14
Total Contingent Merger Consideration.............................. 13.14
UCC................................................................ 5.33
Year-End Net Worth................................................. 5.9
</TABLE>
<PAGE>
EXHIBIT 2.07
________________________________________________________________________________
________________________________________________________________________________
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CONSOLIDATION CAPITAL CORPORATION,
CCC 8 ACQUISITION CO.,
WILSON ELECTRIC COMPANY, INC.,
AND
THE STOCKHOLDERS NAMED HEREIN
MADE EFFECTIVE AS OF FEBRUARY 27, 1998.
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. THE MERGER........................................................... 2
1.1 The Merger..................................................... 2
1.2 Certificate of Incorporation; Bylaws, Directors and Officers... 2
1.3 Effects of the Merger.......................................... 2
2. CONVERSION AND EXCHANGE OF STOCK..................................... 3
2.1 Manner of Conversion........................................... 3
2.2 Base Merger Consideration...................................... 4
2.3 Contingent Merger Consideration................................ 5
2.4 Exchange of Certificates and Payment of Cash................... 8
3. POST CLOSING ADJUSTMENT; PLEDGED ASSETS.............................. 9
3.1 Post-Closing Adjustment........................................ 9
3.2 Pledged Assets................................................. 11
4. CLOSING.............................................................. 12
4.1 Location and Date.............................................. 12
4.2 Effect......................................................... 12
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS. 12
5.1 Due Organization............................................... 13
5.2 Authorization; Validity........................................ 13
5.3 No Conflicts................................................... 13
5.4 Capital Stock of the Company................................... 14
5.5 Transactions in Capital Stock.................................. 14
5.6 Subsidiaries, Stock, and Notes................................. 14
5.7 Predecessor Status............................................. 14
5.8 Absence of Claims Against the Company.......................... 15
5.9 Company Financial Condition.................................... 15
5.10 Financial Statements........................................... 15
5.11 Liabilities and Obligations.................................... 15
5.12 Accounts and Notes Receivable.................................. 16
5.13 Books and Records.............................................. 16
5.14 Permits........................................................ 16
5.15 Real Property.................................................. 16
5.16 Personal Property.............................................. 17
5.17 Intellectual Property.......................................... 18
5.18 Material Contracts and Commitments............................. 19
5.19 Government Contracts........................................... 20
5.20 Insurance...................................................... 20
5.21 Labor and Employment Matters................................... 21
5.22 Employee Benefit Plans......................................... 21
5.23 Conformity with Law; Litigation................................ 23
5.24 Taxes.......................................................... 24
5.25 Absence of Changes............................................. 25
5.26 Deposit Accounts; Powers of Attorney........................... 27
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.27 Environmental Matters......................................... 27
5.28 Relations with Governments.................................... 28
5.29 Disclosure.................................................... 28
5.30 CCC Prospectus; Securities Representations.................... 28
5.31 Affiliates.................................................... 29
5.32 Location of Chief Executive Offices........................... 29
5.33 Location of Equipment and Inventory........................... 29
6. REPRESENTATIONS OF CCC AND NEWCO..................................... 29
6.1 Due Organization.............................................. 29
6.2 CCC Common Stock.............................................. 30
6.3 Authorization; Validity of Obligations........................ 30
6.4 No Conflicts.................................................. 30
6.5 Capitalization of CCC and Ownership of CCC Stock.............. 30
6.6 Conformity with Law; Litigation............................... 31
6.7 Disclosure.................................................... 31
6.8 CCC Prospectus................................................ 31
6.9 Registration Statement........................................ 32
6.10 Investment Intent............................................. 32
7. COVENANTS............................................................ 32
7.1 Tax Matters................................................... 32
7.2 Accounts Receivable........................................... 33
7.3 Title Insurance and Surveys................................... 33
7.4 Related Party Agreements...................................... 34
7.5 Cooperation................................................... 34
7.6 Conduct of Business Pending Closing........................... 35
7.7 Access to Information......................................... 35
7.8 Prohibited Activities......................................... 36
7.9 Notice to Bargaining Agents................................... 37
7.10 Sales of CCC Common Stock..................................... 37
7.11 CCC Stock Options............................................. 39
7.12 Tax Covenant.................................................. 39
7.13 CCC Board Seat................................................ 39
7.14 D&O Insurance and Indemnification of Directors and Officers... 40
7.15 Tax Free Reorganization Protection............................ 40
7.16 Consulting Payment............................................ 40
7.17 Government Contracts.......................................... 40
7.18 CCC Stock..................................................... 40
7.19 Employee Benefits Matters..................................... 41
7.20 Supplemental Financial Certificate............................ 41
7.21 Holding Company............................................... 41
7.22 Profit Sharing Plan Conversion Costs.......................... 41
7.23 Indemnification of Stockholder's Purchaser Representative..... 42
7.24 Guaranteed Debt............................................... 42
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CCC AND NEWCO............. 43
8.1 Representations and Warranties; Performance of Obligations.... 43
8.2 No Litigation................................................. 43
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
8.3 No Material Adverse Change..................................... 44
8.4 Consents and Approvals......................................... 44
8.5 Opinion of Counsel............................................. 44
8.6 Charter Documents.............................................. 44
8.7 Quarterly Financial Statements................................. 44
8.8 Delivery of Closing Financial Certificate...................... 44
8.9 FIRPTA Compliance.............................................. 44
8.10 Employment Agreements.......................................... 44
8.11 Affiliate Agreements........................................... 44
8.12 Stockholders' Release.......................................... 44
8.13 Related Party Receivables and Agreements....................... 45
8.14 Consummation of Group Merger Transaction....................... 45
8.15 Employee Plan Fiduciary Condition.............................. 45
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS......................................................... 45
9.1 Representations and Warranties; Performance of Obligations..... 45
9.2 No Litigation.................................................. 45
9.3 Consents and Approvals......................................... 45
9.4 Employment Agreements.......................................... 46
9.5 Tax Certificate Delivery....................................... 46
9.6 Satisfaction With Stockholder Release and Affiliate Agreements. 46
9.7 Tax Opinion.................................................... 46
9.8 Consummation of Group Merger Transaction....................... 46
9.9 Employee Plan Fiduciary Condition.............................. 46
9.10 Board Expansion................................................ 46
9.11 Registration Statement......................................... 46
9.12 No Material Adverse Change..................................... 46
9.13 Officer and Directors of Surviving Corporation................. 46
10. INDEMNIFICATION...................................................... 47
10.1 General Indemnification by the Stockholders.................... 47
10.2 General Indemnification by CCC and Newco....................... 47
10.3 Limitation and Expiration...................................... 48
10.4 Indemnification Procedures..................................... 49
10.5 Survival of Representations Warranties......................... 51
10.6 Right to Set Off............................................... 51
11. NONCOMPETITION....................................................... 51
11.1 Prohibited Activities.......................................... 51
11.2 Damages........................................................ 52
11.3 Reasonable Restraint........................................... 52
11.4 Severability; Reformation...................................... 52
11.5 Independent Covenant........................................... 52
11.6 Materiality.................................................... 53
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION............................ 53
12.1 Confidentiality................................................ 53
12.2 Damages........................................................ 54
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
13. GENERAL.............................................................. 54
13.1 Termination................................................... 54
13.2 Effect of Termination......................................... 54
13.3 Successors and Assigns........................................ 55
13.4 Entire Agreement; Amendment; Waiver........................... 55
13.5 Counterparts.................................................. 55
13.6 Brokers and Agents............................................ 55
13.7 Expenses...................................................... 55
13.8 Specific Performance; Remedies................................ 56
13.9 Notices....................................................... 56
13.10 Governing Law................................................. 57
13.11 Severability.................................................. 57
13.12 Absence of Third Party Beneficiary Rights..................... 58
13.13 Further Representations....................................... 58
13.14 Group Representative and Stockholder Representative........... 58
13.15 Unanimous Written Consent of Stockholders..................... 59
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
---------
entered into this 27th day of February, 1998, by and among Consolidation Capital
Corporation, a Delaware corporation ("CCC"), CCC 8 Acquisition Co., an Arizona
---
corporation and a newly-formed, wholly-owned subsidiary of CCC ("Newco"), Wilson
-----
Electric Company, Inc., an Arizona corporation, (the "Company"), and Stephen J.
-------
Gubin, Gordon and Kathleen Jensen Family Trust, Wes McClure, Steve Grosvenor and
the Wilson Electric Company, Inc. Profit Sharing Trust (each a "Stockholder" and
-----------
collectively, the "Stockholders").
------------
BACKGROUND
WHEREAS, the Stockholders 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 stockholders that the Company merge with and into Newco (the
"Merger") pursuant to this Agreement, the Plan of Merger (defined below) and the
------
applicable provisions of the laws of the State of Arizona;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, CCC is entering into an Agreement and Plan of Reorganization
substantially similar to this Agreement with each of Garfield Electric Company,
an Ohio corporation ("Company 1"), Indecon, Inc., an Ohio corporation ("Company
--------- -------
2"), Riviera Electric Construction Co., a Colorado corporation ("Company 3"),
- - ---------
SKC Electric, Inc., a Kansas corporation ("Company 4"), Town & Country Electric
---------
Inc., a Wisconsin corporation ("Company 5") and Tri-City Electrical Contractors,
---------
Inc., a Florida corporation ("Company 6"); and together with Company 1, Company
---------
2, Company 3, Company 4 and Company 5 shall be known collectively as the "Other
-----
Group Companies") (the Other Group Companies, together with the Company, shall
- ---------------
be known hereafter collectively as the "Group Companies" and each shall be known
---------------
individually as a "Group Company"; and this Agreement together with the other
-------------
agreements referenced in this clause applicable to the Other Group Companies
shall be known hereafter collectively as the "Group Company Agreements");
------------------------
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"); and
----
WHEREAS, in order to induce CCC to enter into this Agreement and the other
agreements comprising the Group Company Agreements, the Company and the
Stockholders desire to execute and deliver this Agreement, the effect of which,
taken together with the transactions contemplated by the remaining Group Company
Agreements (such transactions, including the transaction contemplated by this
Agreement, being known hereafter collectively as the "Group Merger
------------
Transaction"), will have a direct and beneficial impact on the Company and the
- -----------
Stockholders.
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:
<PAGE>
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 a
Plan of Merger (the "Plan 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 new corporations into which
---------------------
each of the Other Group Companies will merge in the Group Merger Transaction are
referred to collectively, together with the Surviving Corporation, as the
Surviving Group Companies. The Surviving Corporation's name will be changed to
that of the Company immediately after the Effective Time.
1.2 CERTIFICATE 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 Title 10 of the Arizona Revised
Statutes (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 By-Laws of
the Surviving Corporation unless and until thereafter amended as provided
therein and under the State Corporate Laws; provided, that the provisions
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 Corporation 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
<PAGE>
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
Stockholders, 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, 3.1 and 3.2, 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 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 (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
----------------
defined 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 (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(b)), 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 and 2.3 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 (as defined
in Sections 2.2(a) and 2.3(b) respectively), 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 Stockholder shall be aggregated, so that no
Stockholder shall receive cash in an amount greater than the value of one full
share of CCC Common Stock.
3
<PAGE>
2.2 BASE MERGER CONSIDERATION.
(a) For purposes of this Agreement, the "Base Merger Consideration"
-------------------------
shall be $33,138,000, as adjusted pursuant to this Section 2.2 and Section 3.1.
Of the Base Merger Consideration, $16,569,000 shall be paid in cash at Closing
(as defined in Section 4.1) in immediately available funds. The remaining
$16,569,000 of the Base Merger Consideration shall be paid at Closing in shares
of CCC Common Stock valued at a price per share (the "Merger Price") equal to
------------
the sum of (i) the closing price of CCC Common Stock on January 29, 1998, plus
(ii) the closing price of CCC Common Stock on the last trading day prior to the
Closing Date, 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 (subject
to adjustment as provided in this Section 2.2 and Section 3.1) shall be
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
--------
approved for quotation on the Nasdaq National Market.
(b) The calculation of the Base Merger Consideration takes into
account (i) the Net Worth (as defined below) of the Company as of February 28,
1998, calculated in accordance with generally accepted accounting principles
("GAAP") consistently applied, but in any event excluding any increases in
----
intangible assets of the Company since the end of the Company's most recently
ended fiscal year and until February 28, 1998 (as certified pursuant to Section
8.8, the "Company's Closing Net Worth"), and (ii) the Earnings before Interest
---------------------------
and Taxes (as defined below) of the Company, computed in accordance with GAAP
consistently applied throughout the period involved but adjusted to reflect the
nonrecurring items that are specified on SCHEDULE 2.2(B) hereto, for the twelve
month period ended at the close of the Company's most recently ended fiscal year
(as certified pursuant to Section 8.8, the "Company's 1997 Adjusted EBIT"). The
----------------------------
calculation of the Base Merger Consideration assumes that (A) the total (the
"Group Closing Net Worth") of the Company's Closing Net Worth and the net worth
-----------------------
of each of the Other Group Companies as of February 28, 1998 (calculated and
certified in the manner specified in each of the Group Company Agreements) is
equal to or greater than $31,000,000 (the "Group Net Worth Target") and (B) the
----------------------
total (the "Group 1997 Adjusted EBIT") of the Company's 1997 Adjusted EBIT and
------------------------
the Earnings before Interest and Taxes of each of the Other Group Companies for
the twelve month period ended at the close of each Group Company's most recently
ended fiscal year (calculated and certified in the manner specified in each of
the Group Company Agreements) shall have been equal to or greater than
$19,734,000 (the "Group 1997 Adjusted EBIT Target"). For the purposes of this
-------------------------------
Section 2.2, "Net Worth" is equal to total assets less total liabilities,
---------
"Earnings before Interest and Taxes" is equal to net income (A) plus interest
----------------------------------
expense, income taxes, extraordinary items, cumulative effect of accounting
changes and discontinued operations and (B) less interest income, and "Group
-----
Closing Net Worth" shall be adjusted by the net amount of the following items
- -----------------
related to the ESOP for SKC Electric, Inc., which are reflected on the balance
sheet for SKC Electric, Inc.: (A) "ESOP common stock purchase obligation", (B)
ESOP-related Debt (current and long-term, and (C) "Unearned ESOP common stock".
(c) If the Group Closing Net Worth is lower than the Group Net Worth
Target, then the Merger Consideration (as defined in Section 2.4(a)) to be
delivered to the Stockholders may, at CCC's election, be reduced either (i) at
the Closing, by the product of (A) the difference between the Group Net Worth
Target and the Group Closing Net Worth times (B) 24% (which reduction shall be
pro rata in cash and in CCC Common Stock valued at the Merger Price in the same
proportions as the cash and CCC
4
<PAGE>
Common Stock components of the Base Merger Consideration as provided in Section
2.2(a)) or (ii) after completion of the Post-Closing Audit (as defined in
Section 3.1(b)), in accordance with Section 3.1(b).
(d) If the Group 1997 Adjusted EBIT is less than the Group 1997
Adjusted EBIT Target, then the Merger Consideration to be delivered to the
Stockholders may, at CCC's election, be reduced either (i) at the Closing, by
an amount equal to seven multiplied by the product of (A) the difference between
the Group 1997 Adjusted EBIT Target and the Group 1997 Adjusted EBIT times (B)
24% (which reduction shall be pro rata in cash and in CCC Common Stock valued at
the Merger Price in the same proportions as the cash and CCC Common Stock
components of the Base Merger Consideration as provided in Section 2.2(a)) or
(ii) after completion of the Post-Closing Audit (as defined in Section 3.1(b)),
in accordance with Section 3.1(b). If the Group 1997 Adjusted EBIT is higher
than the Group 1997 Adjusted EBIT Target, then the Merger Consideration to be
delivered to the Stockholders at Closing shall be increased at the Closing by an
amount equal to seven multiplied by the product of (A) the difference between
the Group 1997 Adjusted EBIT and the Group 1997 Adjusted EBIT Target up to a
maximum of $1 million times (B) 24%. The amount by which the Group 1997
Adjusted EBIT exceeds the Group 1997 Adjusted EBIT Target, up to a maximum of $1
million, is hereafter referred to as the "EBIT Increase."
-------------
(e) 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.
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 an amount up to $7,002,000.
(i) $7,002,000 (the "Maximum Earn Out Amount") will be paid,
-----------------------
subject to the provisions of subsection (ii) and (iii) below, if the Earnings
before Interest and Taxes of the Surviving Group Companies (as defined below),
for the one year period after February 28, 1998 (the "Group Actual Earn Out
---------------------
EBIT") is at least equal to the sum of $25,020,000 and the amount, if any,
- -----
of the EBIT Increase (the "Maximum Earn Out Threshold"). Price Waterhouse LLP,
--------------------------
CCC's independent accountant ("CCC's Accountant"), will determine the Group
----------------
Actual Earn Out EBIT and deliver prompt notice of such amount to the
Stockholders (the "Earn Out EBIT Notice") with supporting documentation. The
--------------------
Stockholders (through the Group 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 Group 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. For purposes of this Section 2.3, "Earnings before Interest and Taxes of
-------------------------------------
the Surviving Group Companies" is equal to net income computed in accordance
- -----------------------------
with GAAP consistently applied of the Group Companies reflected on the books and
records of the Surviving Group Companies and the Holding Company (as defined in
Section 7.21 below), which net income (A) shall not reflect (1) the amortization
of goodwill and other intangibles recognized by CCC in connection with the
acquisition of the Group Companies or any future acquisitions, (2) expenses
(including corporate overhead) of CCC other than those expenses incurred for the
benefit of the Surviving Group Companies that do not duplicate expenses incurred
by the Surviving Group Companies nor exceed the amounts of similar expenses
incurred in the most recently ended fiscal year by the Group Companies prior
5
<PAGE>
to the Closing, or (3) the tax that arises under Section 4978 of the Code, (B)
shall reflect (1) depreciation and amortization of assets of the Surviving Group
Companies except to the extent such amounts result from an increase in the book
value of the assets resulting from the Group Merger Transaction and (2) the
expenses under the employment agreement of William P. Love, Jr. with the Holding
Company and other expenses reasonably necessary for the operation of the Holding
Company in connection with its actions as parent of the Surviving Group
Companies and (C) shall be adjusted by (1) adding the amounts of any interest
expense, income taxes, extraordinary items, cumulative effect of accounting
changes and discontinued operations of the Surviving Group Companies and (2)
subtracting the amount of any interest income of the Surviving Group Companies.
CCC's Accountant will calculate the Contingent Merger Consideration for each
Surviving Group Company and the Group Actual Earn Out EBIT applying the same
accounting principles applied by such Group Company (on a company by company
basis), with all such computations made (and definitions used) in the same way
the computations were made (and definitions were used) by such Group Company
prior to the Closing and will conform to the methods of accounting utilized
consistently during the calendar years 1996, 1997 and 1998 for each such Group
Company, provided in each case that such computations were in accordance with
GAAP. If, after the Closing, CCC's Accountant makes conforming adjustments to
unify the accounting principles utilized by each of the Group Companies, such
adjustments shall have no effect on the calculations made by CCC's Accountant
for purposes of this Section 2.3. CCC will provide the Surviving Corporation
with a schedule on a quarterly basis detailing expenses incurred for the benefit
of the Surviving Group Companies, such schedule to be prepared on a comparative
basis to expenses incurred in the prior year by the Group Companies for the same
items.
(ii) If the Group Actual Earn Out EBIT is equal to or less than
the sum of $22,043,000 and the amount, if any, of the EBIT Increase (the "Earn
----
Out Threshold"), then no Contingent Merger Consideration will be paid to the
- -------------
Stockholders.
(iii) If the Group Actual Earn Out EBIT is greater than the Earn
Out Threshold but less than the Maximum Earn Out Threshold (the difference
between the Maximum Earn Out Threshold and the Earn Out Threshold being
hereinafter referred to as the "Earn Out Range"), then the Contingent Merger
--------------
Consideration will equal the product determined by multiplying (A) the Specified
Percentage (as defined below) by (B) the Maximum Earn Out Amount. For purposes
of this Agreement, the "Specified Percentage" shall mean a fraction, the
--------------------
numerator of which is the amount by which the Group Actual Earn Out EBIT exceeds
the Earn Out Threshold and the denominator of which is the Earn Out Range.
(b) The stockholders of the Group Companies (through the Group
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 Group Actual Earn
Out EBIT. If CCC has not received notice of any such dispute within such 30-day
period, the Group Actual Earn Out EBIT contained in the Earn Out EBIT Notice
shall be final. If, however, the stockholders (through the Group
Representative) have delivered notice of such a dispute to CCC within such 30-
day period, then CCC shall, pursuant to Section 2.3(c) 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 (or four largest firms if the
mergers of accounting firms proposed as of the date of this Agreement have been
completed) (each, a "New Accounting Firm") to review the amount of the Group
-------------------
Actual Earn Out EBIT, the books of the Surviving Group Companies, including the
Surviving Corporation, and the Earn Out EBIT Notice (and related information) to
determine the amount, if any, that the Group Actual Earn Out EBIT is in error.
Such New Accounting Firm shall be confirmed by the former stockholders of the
Group Companies through the Group 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 Group Earn Out EBIT
(the "Revised Earn Out EBIT") if any,
---------------------
6
<PAGE>
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 Contingent Merger Consideration
accordingly. If the Revised Earn Out EBIT is higher than the Group Actual Earn
Out EBIT, CCC shall pay to the Stockholders interest, at the Prime Rate (defined
below), on the deficiency from the date that is fifteen months after the Closing
Date. The costs of the New Accounting Firm shall be borne by CCC if the Revised
Earn Out EBIT is higher than the Group Actual Earn Out EBIT and by the former
stockholders of the Group Companies 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.
(c) The Contingent Merger Consideration described in SECTION 2.3 (A),
reduced as provided in Section 3.1(c) as appropriate, 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 Group Actual Earn Out EBIT by CCC's Accountant, which shall be made in a
timely fashion following expiration of the one (1) year period after the
Closing, but in no event shall such payment be made later than the date that is
fifteen months after the Closing Date unless the Stockholders dispute the Group
Actual Earn Out EBIT in accordance with Section 2.3(b) hereof. 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 Price. 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 the
one year period after the Closing Date (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 Stockholders 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 Stockholders as set forth in written instructions
delivered by the Stockholders to CCC at least five (5) business days prior to
the Closing Date and the Contingent Merger Consideration Date, 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.
(d) If, on or prior to a Contingent Merger Consideration Payment Date,
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 Contingent Merger Consideration will
be appropriately adjusted to reflect such split, combination, dividend or other
distribution or change.
(e) If, at any time on or before the first anniversary of the Closing
Date, Stephen J. Gubin's employment agreement with the Surviving Corporation is
terminated by the Surviving Corporation (or its successor), in its capacity as
employer, without cause (as defined in Stephen J. Gubin's employment agreement),
CCC immediately thereupon shall pay to the Stockholders an amount equal to the
Maximum Earn Out Amount. CCC acknowledges that such a payment would constitute
liquidated damages and not a penalty.
(f) Except for actions taken by CCC or Newco at the direction of
Stephen J. Gubin, in his capacity as President of the Surviving Corporation, or
one of the presidents of the other Surviving Group
7
<PAGE>
Companies, in his capacity as president of such Surviving Group Company, during
the one year period after the Closing (the "Earn Out Period"), CCC and Newco (i)
---------------
will operate the businesses of the Surviving Group Companies diligently and in
the ordinary course and (ii) will not take any actions that would materially
change the operations of the businesses of the Surviving Group Companies,
including any action that would prevent any of the Surviving Group Companies (A)
from conducting its business in the ordinary course or (B) from taking any
action necessary to preserve the businesses of the Surviving Group Companies, to
keep available to the Surviving Group Companies its employees (with the same
salary and bonus structure), or to preserve the Surviving Group Companies'
relationships with customers, suppliers and others having business relations
with it.
(g) In the event CCC, Newco or any of their subsidiaries takes any
action or omits to take any action which has a direct, quantifiable, negative
impact on the Earnings before Interest and Taxes of the Surviving Group
Companies or the businesses of the Group Companies as currently being conducted;
then, in any such event, the parties, in good faith, shall make reasonable
adjustments in the calculation of the Group Actual Earn Out EBIT as may be
necessary to neutralize the impact of any such action or omission.
(h) CCC and Newco agree that separate books and records will be kept
for each of the Group Companies during the Earn Out Period.
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 Stockholders the Base Merger Consideration (including cash in
an amount sufficient for payment in lieu of fractional shares pursuant to
Section 2.1(d)), as adjusted pursuant to Section 2.2, with all cash payments to
be made by federal wire transfer of immediately available funds pursuant to wire
transfer instructions provided by the Stockholders 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 8.11),
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
---------------------------------
Stockholders 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 Stockholder and with all necessary
transfer tax and other revenue stamps, acquired at the Stockholder's expense,
affixed and canceled. Each Stockholder 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 3.2(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
8
<PAGE>
Company Common Stock, and, following the Effective Time, the Stockholders 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.
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. POST CLOSING ADJUSTMENT; PLEDGED ASSETS
3.1 POST-CLOSING ADJUSTMENT.
(a) The Base Merger Consideration shall be subject to adjustment as
specified in this Section 3.1.
(b) Within ninety (90) days following the Effective Time, CCC shall
cause CCC's Accountant to audit (the "Post-Closing Audit") the books of the
------------------
Company to determine the accuracy of the information relating to the Company's
Closing Net Worth and the Company's 1997 Adjusted EBIT as set forth on the
Financial Certificates (as defined in Section 7.20) and on the financial
certificates of the Other Group Companies. In determining the accuracy of such
information reflected on the Financial Certificates in the course of the Post-
Closing Audit, CCC's Accountant shall apply the same accounting methodology used
by the Company or the Stockholders, as applicable, in preparing such
information; provided that CCC's Accountant shall not be obligated to apply such
methodology to the extent inconsistent with GAAP (as modified by Section 2.2(b)
above). The Stockholders shall cooperate with CCC and CCC's Accountant after
the Closing Date in furnishing information, documents, evidence and other
assistance to CCC's Accountant to facilitate the completion of the Post-Closing
Audit within the aforementioned time period. Without limiting the generality
of the foregoing, within two weeks after the Closing, the Stockholders shall
provide CCC's Accountant with the information and/or documents reasonably
requested by them. CCC's Accountant will test the Company's Closing Net Worth,
the Group Closing Net Worth, the Company's 1997 Adjusted EBIT and the Group 1997
Adjusted EBIT based upon the Post-Closing Audit and the post-closing audits of
the Other Group Companies. In the event that CCC's Accountant determines (i) a
different amount than the Group Closing Net Worth (the "Actual Closing Net
------------------
Worth") or (ii) a different amount than the Group 1997 Adjusted EBIT (the
"Actual 1997 Adjusted EBIT" ), CCC shall promptly deliver a written notice with
-------------------------
supporting documentation (the "Financial Adjustment Notice") to the stockholders
---------------------------
of the Group Companies, including the Stockholders, setting forth (A) the
determination made by CCC's Accountant of the Actual
9
<PAGE>
Closing Net Worth and the Actual 1997 Adjusted EBIT, (B) the amount of the cash
portion of the Base Merger Consideration that would have been payable at Closing
pursuant to Section 2.2(c) had the Actual Closing Net Worth and the Actual 1997
Adjusted EBIT been used instead of the Group Closing Net Worth and the Group
1997 Adjusted EBIT to determine the need for any adjustments to the Base Merger
Consideration pursuant to Sections 2.2(c) and 2.2(d), respectively, and (C) the
number of shares issued as part of the Base Merger Consideration that would have
been issuable at Closing had the Actual Closing Net Worth and the Actual
Adjusted EBIT been used to determine the need for any adjustments to the Base
Merger Consideration as set forth in (B) above. The differences between the
respective amounts set forth in (B) and (C) and the amounts of the cash and the
CCC Common Stock components of the Base Merger Consideration paid pursuant to
Section 2.2 (a), as adjusted pursuant to Sections 2.2(c) or 2.2(d), is referred
to hereafter as the "Merger Consideration Adjustment." Any increase in the Base
-------------------------------
Merger Consideration resulting from such Merger Consideration Adjustment shall
be owed by CCC to the Stockholders. Any decrease in such Base Merger
Consideration resulting from such Merger Consideration Adjustment shall be owed
by the Stockholders to CCC. If, on or prior to the payment of the Merger
Consideration Adjustment, 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 part
of the Merger Consideration Adjustment will be appropriately adjusted to reflect
such split, combination, dividend or other distribution or change. The shares of
CCC Common Stock, if any, to be issued in respect of the Merger Consideration
Adjustment shall be registered under the 1933 Act and approved for quotation on
the Nasdaq National Market.
(c) The stockholders of the Group Companies, including the
Stockholders, through the Group Representative, shall have thirty (30) days from
the receipt of the Financial Adjustment Notice to notify CCC if they dispute
such Financial Adjustment Notice. If CCC has not received notice of any such
dispute within such 30-day period, (i) CCC shall be entitled to receive promptly
pro rata from the Stockholders (which may, at CCC's sole discretion, be from the
Pledged Assets as defined in, and subject to the provisions of, Section 3.2
and/or the Contingent Merger Consideration) any Merger Consideration Adjustment
owed to CCC and (ii) the Stockholders shall be entitled to receive promptly from
CCC any Merger Consideration Adjustment owed to the Stockholders. If, however,
the Stockholders (through the Group Representative) have delivered notice of
such a dispute to CCC within such 30-day period, then CCC's Accountant shall
select a New Accounting Firm to review the books of the Group Companies
including, the Surviving Corporation, the Financial Certificates and the
Financial Adjustment Notice (and related information) to determine the amount,
if any, of the revised Merger Consideration Adjustment (the "Actual Merger
-------------
Consideration Adjustment"). Such New Accounting Firm shall be confirmed by the
- ------------------------
Stockholders through the Group 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 Merger Consideration
Adjustment, if any, within thirty (30) days of its selection. The determination
made by the New Accounting Firm shall be final and binding on the parties
hereto, and, upon such determination, CCC shall be entitled to receive pro rata
from the Stockholders (which may, at CCC's sole discretion, be from the Pledged
Assets as defined in, and subject to the provisions of, Section 3.2 and/or the
Contingent Merger Consideration) the Actual Merger Consideration Adjustment or
the Stockholders shall be entitled to receive from CCC the Actual Merger
Consideration Adjustment, as applicable. The costs of the New Accounting Firm
shall be borne by the party (either CCC or the stockholders of the Group
Companies, including the Stockholders) whose amounts, on the Financial
Adjustment Notice or its Financial Certificates, as applicable (the "Proposed
--------
Numbers"), were further from the determination of the New Accounting Firm of
- -------
what the amounts should have been (the "Revised Numbers"), or equally by CCC and
---------------
the stockholders of the Group
10
<PAGE>
Companies, including the Stockholders, in the event that the Revised Numbers are
equidistant between the original amounts.
3.2 PLEDGED ASSETS.
(a) As collateral security for the payment of any Merger Consideration
Adjustment or any indemnification obligations of the Stockholders pursuant to
(and subject to the limitations of) Article 10, the Stockholders 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 Stockholders, the "Pledged Assets"):
--------------
(i) at the option of the Stockholders, such Stockholders' pro
rata portion of cash and/or shares of CCC Common Stock with a value, based on
the Merger Price, equal to ten percent (10%) of the Base Merger Consideration
subject to adjustment pursuant to Section 2.2 or Section 3.1 hereof, and the
certificates and instruments, if any, representing or evidencing such
Stockholder's Pledged Assets;
(ii) all securities hereafter delivered to any Stockholder with
respect to or in substitution for the Stockholder'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 Stockholder receives any such property, such Stockholder
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 Stockholder's Pledged
Assets issued in his or her name in the Merger shall be delivered to CCC
directly by the transfer agent, such certificate bearing 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
Stockholder shall, at the Closing, deliver to CCC, for each such certificate, a
stock power duly signed in blank by him. Any cash comprising a Stockholder's
Pledged Assets shall be withheld by CCC from distribution to the Stockholder and
placed by CCC into an interest bearing custodial account that is not commingled
with any assets of CCC or any of its subsidiaries. All shares of CCC Common
Stock comprising a Stockholder'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 Merger
Consideration Adjustment and any indemnification obligations of each
Stockholder 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 Stockholders the Pledged Assets (including the interest earned on any
cash portion of the Pledged Assets of each Stockholder and including dividends
and distributions with respect to shares of CCC Common Stock subject to pledge),
less Pledged Assets having an aggregate value equal to the amount of (i), in the
discretion of CCC, the Actual Merger Consideration Adjustment under Section 3.1,
(ii) 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 (iii) any
indemnification obligations of any Stockholder 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 (x) the Merger Price with
respect to the Actual Merger Consideration Adjustment under
11
<PAGE>
Section 3.1 and (y) the average of the closing price on the Nasdaq National
Market per share 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.
Notwithstanding the foregoing or anything to the contrary herein, the
Stockholders shall be entitled to satisfy any claims relating to the Pledged
Assets, including but not limited to any indemnification pursuant to Article 10
hereof or any Merger Consideration Adjustment, 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 3.2, the Stockholders shall have all the rights of stockholders 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.
(e) Notwithstanding the foregoing provisions of this Section 3.2, the
Pledged Assets of any Stockholder that is a Profit Sharing Plan (as defined in
Section 5.22(j)) shall be held by a third party agent and upon terms reasonably
acceptable to CCC and the fiduciaries of such Stockholder.
4. CLOSING
4.1 LOCATION AND DATE. The consummation of the Merger and the other
transactions contemplated 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 10, 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 Stockholders may mutually agree, which date shall be referred to
as the "Closing Date."
------------
4.2 EFFECT. On the Closing Date, the articles of merger, certificate 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").
--------------
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
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 Stockholders (other than
those Stockholders set forth on SCHEDULE 5 who shall not be deemed to be making
any representations or warranties under this Agreement except with respect to
themselves 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.
12
<PAGE>
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 Stockholder 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 Stockholders 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 Stockholders, enforceable against
the Company and the Stockholders 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;
(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 Stockholder is a party or by which the Company or any Stockholder
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 Stockholder or any of their respective
property is subject, or (ii) any judgment, order or decree to which the Company
or any Stockholder is bound or any of their respective property is subject;
(c) result in termination or any impairment of any material permit,
license, franchise, surety bond, insurance coverage, contractual right or other
authorization of the Company;
13
<PAGE>
(d) violate any material law, order, judgment, rule, regulation,
decree or ordinance to which the Company or any Stockholder is subject or by
which the Company or any Stockholder 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, $1.00 par value, of which
10,550 shares are issued and outstanding. 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 Stockholders 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 out
standing 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 fore going 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.
(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 companies 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.
14
<PAGE>
5.8 ABSENCE OF CLAIMS AGAINST THE COMPANY. Except as set forth in
SCHEDULE 5.8, no Stockholder 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 end of its most recently ended fiscal year (the "Year-End Net Worth") was
------------------
not less than $5,460,147.
5.10 FINANCIAL STATEMENTS. SCHEDULE 5.10 includes (a) true, complete and
correct copies of the Company's audited balance sheet as of November 30, 1997
(the "Balance Sheet Date") and 1996 (November 30, 1997 being the end of its most
------------------
recently completed fiscal year), and income statements and statements of cash
flows for the years ended November 30, 1997, 1996 and 1995 (collectively, the
"Audited Financials") and (b) true, complete and correct copies of the Company's
------------------
unaudited balance sheet (the "Interim Balance Sheet") as of January 31, 1998 and
---------------------
income statement and statement of cash flows, for the two-month period then
ended (collectively, the "Interim Financials," 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 previously 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 SCHEDULE 5.18(A) and those
liabilities under any contract, commitment or agreement specifically disclosed
on any Schedule to this Agreement.
(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.
15
<PAGE>
(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 Stockholders), 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
Stockholders. 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 ninety (90) 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-off, 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
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Company has not received any notice that any governmental 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, including, without limitation, fee estates,
leaseholds and subleaseholds, purchase options,
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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) Except as set forth on SCHEDULE 5.15(D): (i) the Company holds no
interest as landlord in any Real Property; (ii) the Company 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) the Company 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) the Company has no
knowledge of any default by the landlord under any lease relating to the leased
Real Property; (v) the Company has paid all rent under each lease relating to
the leased Real Property with respect to the period through the Closing Date;
and (vi) the Company has not exercised any termination or purchase option under
any lease relating to the leased Real Property nor has the Company exercised any
renewal or extension under any lease relating to the leased Real Property with
respect to any renewal or extension period that will commence after the date
hereof (other than renewals or extensions that have been disclosed to CCC).
(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 default thereunder
or provided notice of the exercise of any option granted to such party under
such lease.
(f) Except as provided on SCHEDULES 5.15(C) OR 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
17
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for material equipment and an indication as to which assets are currently owned,
or were formerly owned, by any Stockholder or business or personal affiliates of
any Stockholder 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.
(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
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<PAGE>
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
stockholder of the Company are parties ("Related Party Agreements"); (ii) that
------------------------
may give rise to obligations or liabilities exceeding, during the current term
thereof, $50,000 individually, or that may generate revenues or income
exceeding, during the current term thereof, $50,000 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. Other than as disclosed on SCHEDULE 5.18(A),
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 Stockholders, is not subject to any
default thereunder by any party obligated to the Company pursuant thereto.
(c) The outstanding balance on all loans or credit agreements either
(i) between the Company and any Person in which any Stockholder owns a material
interest, or (ii) guaranteed by the Company for the benefit of any Person in
which any Stockholder 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.
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<PAGE>
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 Stockholders, has any suspension or debarment action been
threatened or commenced. To the knowledge of the Company and the Stockholders,
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 Stockholders, 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.
(g) To the knowledge of the Company and the Stockholders, 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 workmen's compensation claims received for the past
two policy years. The Company has delivered to CCC or given CCC access to true,
20
<PAGE>
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;
(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
21
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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 Stockholder; (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 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
22
<PAGE>
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
(i) the Company has not incurred liability under Section 4062 of
ERISA.
(j) The Company has converted any employee stock ownership Plan (the
"ESOP") maintained by the Company to a profit sharing plan which does not
----
provide for pass-through voting by its participants (the "Profit Sharing Plan").
-------------------
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
23
<PAGE>
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 November 30, in
each year commencing May, 1988.
(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.
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<PAGE>
(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 Stockholders,
neither the Company nor any Stockholder 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) Except as set forth on SCHEDULE 5.24, the Company does not have a
net recognized built-in gain within the meaning of Section 1374 of the Code
(c) 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.
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;
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(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, Stockholders, 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 Stockholder 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 Stockholder 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;
(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;
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(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 Stock holders, 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.
5.27 ENVIRONMENTAL MATTERS.
(a) Hazardous Material. To the knowledge of the Company and its
------------------
Stockholders, 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
Stockholders, 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,
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27
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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 Stockholders, 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.
5.28 RELATIONS WITH GOVERNMENTS. To the knowledge of the Company and the
Stockholders, 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
Stockholder becomes aware of any fact or circumstance which would change a
representation or warranty of any Stockholder in this Agreement or any
representation made on behalf of the Company, the Stockholders (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 Stockholders of their respective
obligations under this Agreement.
5.30 CCC PROSPECTUS; SECURITIES REPRESENTATIONS. Each Stockholder has
received and reviewed a copy of the prospectus dated January 21, 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
Stockholder, or, to the knowledge of such Stockholder, such Stockholder's
purchaser representative, (a) has such knowledge and experience in business and
financial matters and such knowledge
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concerning the business, operations and financial condition of the Other Group
Companies that such Stockholder 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 Stockholder, or such
Stockholders' 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 and the Other Group Companies
concerning the business, operations and financial condition of CCC and the Other
Group Companies, respectively. Except as required by applicable law, the
Stockholders 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 Stockholder in the Merger.
Each Stockholder acknowledges and agrees that CCC has not and will not provide
such Stockholder or any other party with a prospectus for the Stockholder's use
in selling CCC Common Stock.
5.31 AFFILIATES. SCHEDULE 5.31 lists each of the persons who is, in the
reasonable judgment of the Company and the Stockholders, 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 Arizona (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, 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 Stockholder to enter into this Agreement and
consummate the transactions contemplated hereby, each of CCC and Newco
represents and warrants to the Company and the Stockholders 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
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<PAGE>
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 Stockholders 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 Stockholders 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
stockholder 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
have been duly and validly authorized by the respective Boards of Directors of
CCC and Newco, and this Agreement has 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. 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 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
30,292,857 shares were outstanding on February 26, 1998, and 500,000 shares of
Convertible Non-Voting Common Stock, par value $.001 per share, of which 500,000
shares were outstanding on February 26, 1998. The authorized capital stock of
30
<PAGE>
Newco consists of 1,000 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 was issued in violation of the preemptive rights of any
stockholder 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. 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
furnished to the Company, the Stockholders 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
Stockholders 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
Stockholders 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
Stockholders 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.
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<PAGE>
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 January 21, 1998 and declared effective on January
- -----------------------
26, 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 Stockholders, on the one hand, and the Surviving
Corporation, on the other, for certain tax matters following the Closing Date:
(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 Stockholders 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 Stockholders 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 Stockholders
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 Stockholders 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
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<PAGE>
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
Stockholders 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 Stockholders 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
Stockholders 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 Stockholders shall timely pay all transfer,
documentary, sales, use, stamp, registration and other Taxes and fees arising
from or relating to the transactions contemplated by this Agreement, and the
Stockholders 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 ninety (90) 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 Stockholders 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 Stockholders 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 Stockholders with
collections of the uncollected Accounts Receivable.
7.3 TITLE INSURANCE AND SURVEYS.
(a) With respect to each parcel of Real Property owned by the Company,
the Stockholders and the Company shall use their reasonable efforts to assist
CCC in obtaining (i) as soon as practicable after the date of this Agreement, a
title commitment disclosing the condition of title to such fee estate and all
easements, rights of way, and restrictions of record with respect thereto, as of
a date not earlier than the date of this Agreement, accompanied by copies of all
instruments evidencing the scope and extent of all such easements, rights of
way, and restrictions of record (the "Title Commitment"), and (ii) at or prior
----------------
to Closing, an ALTA Owner's Policy of Title Insurance on a form customarily used
in the state in which the Real Property is located, issued by a title insurer
satisfactory to CCC, in an amount equal to the fair market
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value of the Real Property (as reasonably determined by CCC), insuring title to
such property to be in the name of the party designated by CCC on SCHEDULE 7.3,
subject only to Permitted Encumbrances (each a "Title Policy").
------------
(b) With respect to each Real Property interest as to which a Title
Policy is to be procured pursuant to this Agreement, the Stockholders and the
Company shall use their reasonable efforts to assist CCC in obtaining as soon
as practicable after the date of this Agreement, a current survey of the
relevant parcel, prepared and certified to CCC and to the title insurer of such
Real Property interest by a licensed surveyor and conforming to current ALTA
Minimum Detail Requirements for Land Title Surveys, disclosing the location of
all improvements, easements, party walls, sidewalks, roadways, utility lines,
and other matters customarily shown on such surveys, and showing access
affirmatively to public streets and roads.
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 Stockholder parties thereto. Reasonably promptly following the Closing
and at the expense of CCC, the Stockholders shall 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 Stockholders, 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 Stockholders 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 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 Stockholders 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 Newco than those pertaining under the
contract or license as in effect on the
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date of this Agreement. The Company and Stockholders 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 Stockholders 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 Stockholders 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 the 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;
(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
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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
Stockholder, 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, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock except as provided
above in subsection (b);
(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, Stockholder, employee, agent,
representative or independent contractor; make any bonus or 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;
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(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 Stockholder 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
Stockholders 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 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 Stockholder will, directly or
indirectly, offer, sell, contract to sell, pledge or otherwise dispose of any
shares of CCC Common Stock received by such Stockholder 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
Stockholder 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 Stockholder and the
remaining
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one-third may be resold beginning on the second anniversary of the Closing.
Except with the consent of CCC, no stockholder will, directly or indirectly,
offer, sell, contract to sell, pledge or otherwise dispose of any shares of CCC
Common Stock received by such Stockholder 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 Stockholder 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 Stockholder
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 Party" 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. Notwithstanding
anything in the foregoing to the contrary, no Stockholder that is a Profit
Sharing Plan shall be restricted in the transfer of any shares of CCC Common
Stock received by such Stockholder as part of the Base Merger Consideration or
as part of the Contingent Merger Consideration to the extent the transfer is
required by applicable law or (i) with respect to the shares of CCC Common Stock
received as part of the Base Merger Consideration, following the first
anniversary of the Closing Date or (ii) with respect to the shares of CCC Common
Stock received as part of the Contingent Merger Consideration, following six
months after the receipt of such shares with respect to 100% of such shares and
following three months after the receipt of such shares with respect to 50% of
such shares, it being agreed that any shares of CCC Common Stock received by the
Profit Sharing Plan after the resolution of a dispute as to the amount of the
Group Actual Earn Out EBIT shall be considered to have been received for
purposes of this transfer restriction at the same time as the rest of the shares
of CCC Common Stock issued as Contingent Merger Consideration was received.
(b) Each Stockholder acknowledges and agrees that CCC will not provide
such Stockholder with a prospectus for such Stockholder's use in selling the
shares of CCC Common Stock to be received by such Stockholder in the Merger, and
agrees to sell such shares 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 Stockholder of the
CCC Common Stock that the Stockholder may acquire pursuant to the Merger by a
broker's letter and a letter from the Stockholder 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 Stockholders 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 TRANS
ACTION 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 DATE OF ACQUISITION], THESE
-----------------------------------
SHARES MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE
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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 DATE OF ACQUISITION], 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 DATE OF ACQUISITION], 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 CON
TRACTUAL RESTRICTIONS ON TRANSFER EXPIRING ON ______________,
PURSUANT TO THAT CERTAIN AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF FEBRUARY 27, 1998 (THE "AGREEMENT"), BY AND AMONG THE
---------
ISSUER, CCC 8 ACQUISITION CO., WILSON ELECTRIC COMPANY, INC. (THE
"COMPANY") AND THE STOCKHOLDERS 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 95,220 shares of CCC Common Stock to be
granted to the key employees of the Surviving Corporation (who were not, unless
otherwise approved by CCC, Stockholders, other than Stockholders who, as of the
date of this Agreement, owned less than three and one half (3 1/2) percent of
the capital stock of the Company) on or 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 CCC BOARD SEAT. At the Closing, the Board of Directors of CCC shall
expand its number and elect a representative selected by the Group Companies and
reasonably acceptable to CCC to fill such newly created seat. Thereafter, CCC
will use its best efforts to cause such individual (or his successor, who
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<PAGE>
shall be selected by a vote of a majority of the presidents of the Surviving
Group Companies and who must also be reasonably acceptable to CCC) to remain on
the CCC Board of Directors; provided, however, that CCC shall not be liable
should the stockholders of CCC not re-elect such individual to a new term on the
CCC Board of Directors.
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 TAX FREE REORGANIZATION PROTECTION. Prior to the effective time,
CCC, Newco, the Stockholders 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 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
Stockholders and the Company will refrain from taking any actions that would
cause the stock paid to the Stockholders pursuant to Section 2.3 of this
Agreement to be taxable to the Stockholders upon receipt.
7.16 CONSULTING PAYMENT. At Closing, and in consideration for his
agreement to serve CCC on a consulting basis after the Closing, Neil McCarthy
will receive from CCC, by company check, $250,000 plus options to purchase
50,000 shares of CCC Common Stock, at a purchase price equal to the fair market
value of the underlying shares of CCC Common Stock on the Closing Date and
exercisable immediately for 25,000 shares and exercisable with respect to the
remaining 25,000 shares at the end of the one year period after the Closing Date
(it being agreed that such options shall be issued in accordance with CCC's 1997
Long-Term Incentive Plan and will have the vesting provisions established by the
Compensation Committee of the Board of Directors of CCC).
7.17 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.
7.18 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 result in any adjustment to the Base Merger
Consideration or the Contingent Merger Consideration pursuant to Section 2.2(e)
and 2.3(c).
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7.19 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 7.19 shall only be made if CCC and
the president of the Company or his successor, in his capacity as an employee of
CCC or any affiliate thereof, shall mutually agree to such amendment,
modification, or termination. Without limitation on the foregoing, CCC or any
successor thereto shall maintain an employee benefit pension plan within the
meaning of ERISA Section 3(2) which plan will continue to hold such qualifying
employer securities, as defined in ERISA Section 407(d)(5), as may be required
to avoid the imposition of any excise tax under Code Section 4978, other than
any such excise tax that may arise as a result of the Merger. Notwithstanding
the foregoing, it is acknowledged that CCC and the Surviving Corporation shall
not pay for any country club memberships or the expenses related to more than
one vehicle per employee. At least one of the trustees of the Wilson Electric
Company, Inc. Profit Sharing Plan, formerly the Wilson Employee Stock Ownership
Plan, agrees to retain his/her position as trustee following the Closing or at
least until such time as soon as practicable following the Closing (but in no
event later than 30 days thereafter) as he/she shall have caused to have been
fully discharged the former ESOP's note payable to the Company by paying, out of
the proceeds of this transaction, the full amount of the principal and interest
outstanding on such note to Newco.
7.20 SUPPLEMENTAL FINANCIAL CERTIFICATE. The Stockholders shall, within
thirty (30) days following Closing (a copy of which shall be attached to the
Supplemental Financial Certificate), cause the preparation of a balance sheet
(the "Closing Balance Sheet") for the Company as of February 28, 1998 and
---------------------
deliver to CCC a certificate (the "Supplemental Financial Certificate"; and
----------------------------------
together with the Closing Financial Certificate, the "Financial Certificates"),
----------------------
signed on behalf of the Stockholders by the Representative, setting forth:
(a) the Company's Closing Net Worth; and
(b) a certification that the Closing Balance Sheet (a copy of which
shall be attached to the Supplemental Financial Certificate) presents fairly the
financial condition of the Company as of the Closing Date.
All costs associated with the preparation of the Supplemental Financial
Certificate (including the costs associated with preparing the Closing Balance
Sheet) shall be borne by the Stockholders and not by the Company or CCC.
7.21 HOLDING COMPANY. Promptly following the Closing, CCC will contribute
all of the shares of capital stock of each Surviving Group Company to
Consolidation Capital Corporation Electrical Services, Inc., a first tier,
wholly-owned subsidiary of CCC (the "Holding Company"). As the sole stockholder
---------------
of Holding Company, CCC will, at Closing, (i) cause William P. Love, Jr. to be
appointed its Chief Executive Officer, (ii) cause the Holding Company to enter
into an employment agreement with Mr. Love substantially in the form attached to
the Group Company Agreement for SKC Electric, Inc., and (iii) elect William P.
Love, Jr., F. Traynor Beck and Timothy Clayton as its board of directors.
7.22 PROFIT SHARING PLAN CONVERSION COSTS. CCC shall indemnify and hold
harmless any Conversion Indemnitee (defined below) with respect to any Damages
(as defined in Section 10.1) suffered,
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<PAGE>
sustained, incurred, or paid by such Conversion Indemnitee in connection with,
resulting from, or arising out of, directly or indirectly, any conversion of the
ESOP to a Profit Sharing Plan as described in Section 5.22(j) herein subsequent
to the Effective Time with respect to such Damages, whether arising before, on
or after the Effective Time, or, in the event that this Agreement is terminated
by the holders of the majority of the voting stock of the Company and the
Company pursuant to Section 13.1(c). In the event that this Agreement is
terminated by CCC pursuant to Section 13.1(c), then the Company shall indemnify
and hold harmless CCC with respect to any Damages (as defined in Section 10.1)
suffered, sustained, incurred, or paid by CCC in connection with, resulting
from, or arising out of, directly or indirectly, any conversion of the ESOP to a
Profit Sharing Plan as described in Section 5.22(j) herein. The term "Conversion
----------
Indemnitee" means the Company, the Stockholders, the former ESOP, any fiduciary
- ----------
of such former ESOP, or any "party-in-interest" or "disqualified person" with
respect to such former ESOP (as such terms are defined in ERISA Section 3(14)
and Code Section 4975).
7.23 INDEMNIFICATION OF STOCKHOLDER'S PURCHASER REPRESENTATIVE. Until the
first anniversary of the Closing, CCC shall pay all costs and expenses
(including the value of any claims or awards) of any Stockholder's purchaser
representative that arise out of any claim or lawsuit related to the
transactions contemplated hereby. On the first anniversary of the Closing, the
Stockholders shall reimburse CCC, by surrender of Pledged Assets or otherwise,
for 50% of such costs and expenses; it being understood and agreed that any such
expense shall not affect the calculation of Group Actual Earn Out EBIT or the
payment of the Contingent Merger Consideration; and provided, however, that the
-------- -------
Stockholders shall not be obligated to reimburse CCC for 50% of any such costs
and expenses that arise out of any lawsuit in which CCC shall be found to be
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act), and the Stockholders shall be obligated to reimburse CCC
for all such costs and expenses that arise out of any lawsuit in which the
Company or any of the Stockholders shall be found to be guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act).
Following the first anniversary of the Closing, the Stockholders and CCC shall
equally share and be obligated to pay equal portions of all such costs and
expenses; provided, however, that the Stockholders on the one hand and CCC on
-------- -------
the other hand shall not be liable to so share and pay any such portion of costs
and expenses that arise out of any lawsuit in which CCC on the one hand or the
Company or the Stockholders on the other hand shall be found to be guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act). CCC and the Stockholders shall direct a third party, mutually
acceptable to CCC and the Stockholders to estimate an amount sufficient to cover
the costs and expenses of any claim pending on the first anniversary of the
Closing Date and the Stockholders shall escrow such amount of shares of CCC
Common Stock or cash from the Pledged Assets to cover their 50% of such costs
and expenses. The terms of the escrow shall be mutually satisfactory to CCC and
the Stockholders. Notwithstanding anything to the contrary herein, the
Stockholders shall be entitled to satisfy any claim relating to the Pledged
Assets with cash, in lieu of shares of CCC Common Stock constituting Pledged
Assets. If the payment by CCC of all costs and expenses of any Stockholder's
purchaser representative pursuant to the first sentence of this Section 7.23 is
unavailable, then CCC, in lieu of making such payment, shall contribute to the
amount paid or payable by such Stock holder's purchaser representative as a
result of any such claim or lawsuit in such proportion as is appropriate to
reflect the relative fault of such Stockholder's purchaser representative, on
the one hand, and CCC, on the other hand, in connection with the actions or
inactions giving rise to such claim or lawsuit, as well as any other relevant
equitable considerations, including, without limitation, the parties' relative
intent, knowledge and access to information. The obligations of the
Stockholders pursuant to this Section 7.23 shall be on a joint and several
basis.
7.24 GUARANTEED DEBT. It is understood and agreed that the Stockholders
will seek to have all personal guarantees (by pledge of assets or otherwise) of
any Stockholder released in connection with consummation of the Merger and that
CCC will cooperate with the Stockholders in such effort. Following
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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 Stockholder (by pledge of assets or otherwise) unless
and until such personal guarantee (including any pledge of assets) has been
fully released.
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 Stockholders 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
Group Material Adverse Effect, as defined below; (b) all of the terms,
covenants, agreements and conditions of this Agreement to be complied with,
performed or satisfied by the Company and the Stockholders 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
Stockholders 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 Stockholders
shall have been delivered to CCC. For purposes of this Agreement, "Group
Material Adverse Effect" means a material adverse effect on the business,
operations, properties, assets or condition, financial or otherwise, of the
Group Companies 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) change in governmental or legislative laws, rules
or regulations, or (d) actions taken by CCC or any affiliate of 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 Stockholders 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 Stockholders 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 Group Material Adverse Effect.
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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 Group Companies, taken as a whole, since the date of this
Agreement; and CCC shall have received a certificate signed by each Stockholder
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 Group
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 Stockholders, 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 DELIVERY OF CLOSING FINANCIAL CERTIFICATE. CCC shall have received a
certificate (the "Closing Financial Certificate"), dated as of the Closing Date,
-----------------------------
signed on behalf of the Company and by the Stockholders, setting forth:
(a) the net worth of the Company as of the last day of its most
recently ended fiscal year;
(b) the net worth of the Company as of January 31, 1998; and
(c) the Company's 1997 Adjusted EBIT.
8.9 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).
8.10 EMPLOYMENT AGREEMENTS. Stephen J. Gubin shall enter into, at
Closing, an employment agreement with the Surviving Corporation in substantially
the form of EXHIBIT 8.10 hereto.
8.11 AFFILIATE AGREEMENTS. The Stockholders listed on SCHEDULE 5.31 shall
have entered into an Affiliate Agreement in the form set forth as EXHIBIT 8.11.
8.12 STOCKHOLDERS' RELEASE. The Stockholders shall each have delivered to
CCC an instrument dated the Closing Date in the form of EXHIBIT 8.12(A) or (B),
as applicable.
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8.13 RELATED PARTY RECEIVABLES AND AGREEMENTS. Except with respect to the
items on SCHEDULE 8.13, all employees, stockholders, 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 8.13 shall have been terminated as of the Closing.
8.14 CONSUMMATION OF GROUP MERGER TRANSACTION. The Group Merger
Transaction shall occur contemporaneously with the consummation of the
transactions contemplated by this Agreement.
8.15 EMPLOYEE PLAN FIDUCIARY CONDITION. The appropriate fiduciaries of
the Profit Sharing Plan shall have received a current valuation report and
fairness opinion in such form as may be acceptable to such fiduciaries from a
source acceptable to such fiduciaries and such fiduciaries shall have
determined, in the exercise of their sole discretion, that the consummation of
the transactions contemplated herein at the Closing is fair to and in the best
interests of the participants and beneficiaries of the Profit Sharing Plan.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE STOCKHOLDERS
The obligation of the Stockholders 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 Stockholders.
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 Stockholders 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 Stockholders, 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
transactions contemplated hereby shall be pending.
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9.4 EMPLOYMENT AGREEMENTS. The Surviving Corporation shall have afforded
Stephen J. Gubin the opportunity to enter into, at Closing, an employment
agreement with the Surviving Corporation in substantially the form of EXHIBIT
8.10 hereto.
9.5 TAX CERTIFICATE DELIVERY. A certificate substantially in the form
attached hereto as EXHIBIT 9.5, dated the Closing Date and signed by the
President or any Vice President of CCC and Newco, shall have been delivered to
tax counsel for the Shareholders.
9.6 SATISFACTION WITH STOCKHOLDER RELEASE AND AFFILIATE AGREEMENTS. Each
Stockholder shall be reasonably satisfied with the form of the Affiliate
Agreement and Stockholder Release to be executed by them pursuant to Section
8.11 and Section 8.12.
9.7 TAX OPINION. The Stockholders shall have received from Sacks Tierney,
tax counsel to the Stockholders, that the Merger qualifies as a reorganization
as defined under Code Section 368(a)(1)(A).
9.8 CONSUMMATION OF GROUP MERGER TRANSACTION. The Group Merger
Transaction shall occur contemporaneously with the consummation of the
transactions contemplated by this Agreement.
9.9 EMPLOYEE PLAN FIDUCIARY CONDITION. The appropriate fiduciaries of the
Profit Sharing Plan shall have received a current valuation report and fairness
opinion in such form as may be acceptable to such fiduciaries from a source
acceptable to such fiduciaries and such fiduciaries shall have determined, in
the exercise of their sole discretion, that the consummation of the transactions
contemplated herein at the Closing is fair to and in the best interests of the
participants and beneficiaries of the Profit Sharing Plan.
9.10 Board Expansion. CCC shall have increased the size of its Board of
Directors to six members and, as contemplated by Section 7.13, a representative
of the Group Companies shall have been duly elected to such Board of Directors.
9.11 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.
9.12 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 Stockholders shall have received a certificate signed by
CCC and Newco dated the Closing Date to such effect; provided, however, that the
Stockholders 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 Stockholders 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.
9.13 OFFICER 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.
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10. INDEMNIFICATION
10.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders (other
than the Stockholders 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, stockholders,
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
Stockholders or the Company set forth in this Agreement or any Schedule or
certificate, delivered by or on behalf of any Stockholder or the Company in
connection herewith; or
(ii) any nonfulfillment of any covenant or agreement by the
Stockholders 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), 5.24 (taxes), and 5.27 (environmental matters) and any
receivables from related persons that are listed on Schedule 8.13 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.
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 Stockholders and their respective officers, directors, employees,
stockholders, assigns, successors and affiliates (individually, a "Stockholder
-----------
Indemnified Party" and collectively, the "Stockholder Indemnified Parties")
- ----------------- -------------------------------
from, against and in respect of:
(a) all Damages suffered, sustained, incurred or paid by the
Stockholder 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
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(ii) any nonfulfillment of any covenant or agreement by CCC or
Newco under this Agreement;
(b) subsequent to the Effective Time, all Damages (whether arising
before, on or after the Effective Time) suffered, sustained, incurred, or paid
by the Stockholder Indemnified Parties in connection with, resulting from, or
arising out of, directly or indirectly, any conversion of the ESOP to a Profit
Sharing Plan as described in Section 5.22(j) herein; and
(c) 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) adjustments to the
Merger Consideration as set forth in Sections 2.2 and 3.1, which adjustments
shall not constitute Damages; (ii) Damages arising out of any breaches of the
covenants of the Stockholders 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), or 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; (iii) Damages
described in Section 10.1(a)(iv), or (iv) 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
Stockholders, 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 Stockholders, 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
(2) (w) with respect to representations and warranties of
the Stockholders 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
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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), (x) with respect to covenants of the Stockholders to be
performed after the Closing Date until fully performed and discharged, (y) with
respect to covenants of CCC and Newco contained in Section 7.15 or the
representations, warranties and covenants set forth in the certificate delivered
by or on behalf of CCC and Newco pursuant to Section 9.5, until the expiration
of the longest applicable federal or state statute of limitations (including
extensions thereof agreed to by the party from whom indemnification is sought),
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
indemnification hereunder for the breach of a representation, warranty or
covenant where the identical subject matter thereof has also resulted in, or
caused, a Merger Consideration Adjustment to the Base Merger Consideration
pursuant to Section 3.1;
(e) in no event will any CCC Indemnified Party be entitled to any
indemnification hereunder from any Stockholder that is an employee benefit plan
within the meaning of ERISA Section 3(3) to the extent that such indemnification
could: (i) result in a transaction prohibited under ERISA Section 406 or Code
Section 4975; (ii) give rise to a claim for breach of any such plan
fiduciaries' duties with respect to such plan; or (iii) otherwise violate any
applicable provision of ERISA or the Code; or
(f) in no event will any CCC Indemnified Party be entitled to joint
and several indemnification hereunder for the breach by any Stockholder 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 Stockholder breaching Article 11 or Article 12, as applicable.
(g) the Stockholders 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 Stockholders 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 Stockholders any portion of the Contingent Merger
Consideration because of any failure to achieve the targets set forth in Section
2.3(a) (i) herein.
(h) 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 Stockholders, 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:
------
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(a) In the event that any CCC Indemnified Party or Stockholder
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 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
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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 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 Stockholders, 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 Stockholders under
Section 10.1 hereof, and subject to the limitations in Sections 3.2(c) and 10.3
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 Stockholder
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
business selling any products or services in direct competition with the Holding
Company or any of its subsidiaries within 100 miles of any office of the Holding
Company or any office of any of the Holding Company's subsidiaries (the
"Territory");
- ----------
(b) call upon any person who is, at that time, within the Territory,
an employee of the Holding Company or any subsidiary of the Holding Company in a
managerial capacity for the purpose or with the intent of enticing such employee
away from or out of the employ of the Holding Company or any subsidiary of the
Holding Company;
(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 the Holding
Company or any subsidiary of the Holding Company, for the purpose of soliciting
or selling products or services in direct competition with the Holding Company
or any subsidiary of the Holding Company within the Territory;
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(d) all 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 Stockholder 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 Stockholder's behalf or on behalf of any competitor,
call upon any person as a prospective acquisition candidate who was, to the
Stockholder's knowledge, either called upon by the Holding Company or a
subsidiary of the Holding Company as a prospective acquisition candidate or was
the subject of an acquisition analysis by the Holding Company or any subsidiary
of the Holding Company. The Stockholder, 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
Holding Company or any subsidiary of the Holding Company 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 Stockholder 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 Stockholder 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 Stockholders
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 Stockholders
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 Stockholder 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 Stockholders 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;
52
<PAGE>
provided, however, that if any Stockholder 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 Stockholder 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.
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.
53
<PAGE>
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 Stockholders 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 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 March 15, 1998, provided that the
right to terminate this Agreement under this Section 13.1(b) shall not be
available to either party (with the Stockholders 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 Stockholders 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 Stockholders 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
Section 7.22, Article 12 and Article 13; and
54
<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
Stockholders, 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
Stockholders.
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 Stockholder (as a group) each represents and warrants to the other that
except as set forth in this Section 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.
In addition, CCC will pay all fees and expenses relating to obtaining licenses,
permits, surety bonds, insurance, transfer applications, business credit reports
and the related qualifications for Newco, the other subsidiaries newly formed by
CCC to effect the Group Merger Transaction and the Surviving Group Companies,
including the Surviving Corporation, up to an aggregate amount of $100,000.
55
<PAGE>
Any such fees and expenses of the Surviving Group Companies in excess of
$100,000 shall be split between CCC on the one hand and the stockholders of the
Group Companies on the other. Except with respect to FMI Corporation and the
part of the fee to Neil McCarthy referred to below, the Stockholders (and not
the Company) have paid and will pay the fees, expenses and disbursements of the
Stockholders, 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 Stockholders on the
other. In addition, it is understood and agreed that CCC shall be solely
responsible to pay to FMI Corporation a fee equal to 3% of the Base Merger
Consideration plus the Contingent Merger Consideration paid pursuant to this
Agreement and Neil McCarthy professional fees equal to $250,000, and the parties
set forth on SCHEDULE 13.7 hereof shall be solely respon sible to pay Neil
McCarthy an amount previously agreed to by the parties for professional fees. At
the elec tion of the Stockholders, any of the foregoing fees contemplated under
this SECTION 13.7 payable by them will be paid by CCC or the Company and not the
Stockholders, 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 Group 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
Linda L. Griggs, Esquire
1800 M Street, NW
Washington, D.C. 20036
(Telefax: 202/467-7176)
56
<PAGE>
If to any Stockholder to:
Stephen J. Gubin
Wilson Electric Co., Inc.
15475 Greenway-Hayden Loop
Suite B3
Scottsdale, AZ 85260
(Telefax: 602/443-6761)
with a required copy to:
Seymour Sacks, Esquire
Sacks Tierney P.A.
2929 North Central Avenue
Fourteenth Floor
Phoenix, AZ 85012-2742
(Telefax: 602/279-2027)
to other stockholders:
Gordon and Kathleen Jensen Family Trust
c/o Gordon E. Jensen and/or Kathleen Jensen, Trustees
Wilson Electric Co., Inc.
1545 Greenway-Hayden Loop
Suite B3
Scottsdale, AZ 85260
(Telefax: 602/443-6748)
Wilson Electric Company, Inc.
Profit Sharing Trust
Wes McClure
Steve Grosvenor
(Telefax: 602/443-6761)
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
57
<PAGE>
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. Except as set forth in
Section 7.11, 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, stockholder,
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 GROUP REPRESENTATIVE AND STOCKHOLDER REPRESENTATIVE. (a) Each of
the Stockholders hereby appoints William P. Love, Jr. 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 calculation of the Merger
Consideration (the "Group Representative"). Each Stockholder understands that
--------------------
the Group Representative will represent the stockholders of the Surviving Group
Companies. Each Stockholder further agrees that (i), in the case of a dispute
regarding the base merger consideration paid by CCC pursuant to the Group
Company Agreements (the "Total Base Merger Consideration"), the approval of the
-------------------------------
former stockholders of the Group Companies which received a majority of the
Total Base Merger Consideration, and (ii), in the case of a dispute regarding
the contingent merger consideration to be paid by CCC pursuant to the Group
Company Agreements (the "Total Contingent Merger Consideration"), the approval
-------------------------------------
of the former stockholders of the Group Companies which would be entitled to
receive a majority of the Total Contingent Merger Consideration (the required
vote pursuant to (i) and (ii) above is referred to as the "Approval of the Group
---------------------
Company Stockholders"), the Group Representative shall have the power to take
- --------------------
any and all actions which the Group Representative believes are necessary or
appropriate or in the best interests of all of the stockholders of the Group
Companies for and on behalf of such stockholders, as fully as if they were
acting on their own behalf, including without limitation, consenting to, and
settling any and all claims, disputes or controversies arising with regard to
the calculation of the Merger Consideration. CCC and the Surviving Group
Companies shall have the right to rely on any actions taken or omitted to be
taken by the Group Representative as being the act or omission of the
Stockholders, without the need for any inquiry, and any such actions or
omissions shall be binding upon the Stockholders. In addition, the stockholders
of the Group Companies shall have the right to change the identity of the Group
Representative upon the Approval of the Group Company Stockholders, and shall
deliver to CCC and the Surviving Group Companies prompt written notice of any
such change of identity, which upon receipt by CCC and the Surviving Group
Companies will effect said change. Except to the extent prohibited by law, the
Stockholders agree to hold the Group Representative free and harmless from and
indemnify the Group 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.
(b) Each of the Stockholders hereby appoints Stephen J. Gubin 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"), other than those contained in Section
--------------
13.14(a) above. Each Stockholder further agrees that upon the vote of the
Stockholders holding a majority of the stock of the Company immediately
preceding the Closing (the "Stockholder Approval") the Representative shall have
--------------------
the power to take any and all actions which the Representative believes are
58
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necessary or appropriate or in the best interests of the Stockholders, as fully
as if the Stockholders were acting on their own behalf, including without
limitation, consenting to, and settling any and all claims, disputes or
controversies arising hereunder, 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 or
omitted to be taken by the Representative as being the act or omission of the
Stockholders, without the need for any inquiry, and any such actions or
omissions shall be binding upon the Stockholders. The Stockholders shall have
the right to change the identity of the Representative upon Stockholder 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 Stockholders 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 STOCKHOLDERS. The execution of this
Agreement by all of the Stockholders shall constitute unanimous written consent
of all of the stockholders of the Company approving the Plan of Merger within
the meaning of the State Corporate Laws.
[Execution Page Following]
59
<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
CCC 8 ACQUISITION CO.
By: /s/ F. Traynor Beck
----------------------------------
F. Traynor Beck
WILSON ELECTRIC CO., INC.
By: /s/ Stephen J. Gubin
---------------------------------
Stephen J. Gubin
President
STOCKHOLDERS:
/s/ Stephen J. Gubin
----------------------------------------
Stephen J. Gubin
/s/ Gordon E. Jensen
----------------------------------------
Gordon and/or Kathleen Jensen, Trustees of
Gordon and Kathleen Jenson Family Trust
/s/ Wes McClure
----------------------------------------
Wes McClure
/s/ Steve Grosvenor
----------------------------------------
Steve Grosvenor
/s/ Stephen J. Gubin
----------------------------------------
As Trustee of the Wilson Electric Co., Inc.
Profit Sharing Plan
/s/ Gordon & Jensen
----------------------------------------
As Trustee of the Wilson Electric Co., Inc.
Profit Sharing Plan
60
<PAGE>
Index of Defined Terms
----------------------
<TABLE>
<CAPTION>
Section
-------
<S> <C>
1933 Act......................................................................................... 2.2(a)
Accounts Receivable.............................................................................. 5.12
Actual Adjusted EBIT............................................................................. 3.1(a)
Actual Closing Net Worth......................................................................... 3.1(b)
Actual 1997 Adjusted EBIT........................................................................ 3.1(b)
Actual Merger Consideration Adjustment........................................................... 3.1(c)
Affiliate........................................................................................ 5.31
Agreement........................................................................................ 7.10(c)
Approval of the Group Company Stockholders....................................................... 13.14
Audited Financials............................................................................... 5.10
Balance Sheet Date............................................................................... 5.10
Base Merger Consideration........................................................................ 2.2(a)
CCC.............................................................................................. INTRO
CCC Charter Documents............................................................................ 6.1
CCC Common Stock................................................................................. 2.1(c)
CCC Indemnified Parties.......................................................................... 10.1
CCC Indemnified Party............................................................................ 10.1
CCC Prospectus................................................................................... 5.30
CCC's knowledge.................................................................................. 6
CCC's Accountant................................................................................. 2.3(a)(i)
Certificates..................................................................................... 2.4(b)
Charter Documents................................................................................ 5.1
Claim Notice..................................................................................... 10.4(a)
Claims........................................................................................... 10.4
Closing.......................................................................................... 4.1
Closing Balance Sheet............................................................................ 7.20
Closing Date..................................................................................... 4.1
Closing Financial Certificate.................................................................... 8.8
COBRA............................................................................................ 5.22(e)
Code............................................................................................. Recitals
Company.......................................................................................... 7.10(c)
Company 1........................................................................................ Recitals
Company 2........................................................................................ Recitals
Company 3........................................................................................ Recitals
Company 4........................................................................................ Recitals
Company 5........................................................................................ Recitals
Company 6........................................................................................ Recitals
Company Common Stock............................................................................. Recitals
Company Financial Statements..................................................................... 5.10
Company Hazardous Materials Activities........................................................... 5.27(b)
Company's knowledge.............................................................................. 5
Company's 1997 Adjusted EBIT..................................................................... 2.2(b)
Company's Closing Net Worth...................................................................... 2.2(b)
Constituent Corporations......................................................................... Recitals
Contingent Merger Consideration.................................................................. 2.3(a)
controlled group................................................................................. 5.22
</TABLE>
n
<PAGE>
<TABLE>
<S> <C>
Conversion Indemnitee............................................................................ 7.22
Damages.......................................................................................... 10.1(a)
DOJ.............................................................................................. 7.5(d)
Earn Out EBIT Notice............................................................................. 2.3(a)(i)
Earn Out Period.................................................................................. 2.3(f)
Earn Out Period Average Price.................................................................... 2.3(c)
Earn Out Range................................................................................... 2.3(a)(iii)
Earn Out Threshold............................................................................... 2.3(a)(ii)
Earnings before Interest and Taxes............................................................... 2.2(b)
Earnings before Interest and Taxes of the Surviving Group Companies.............................. 2.3(a)(i)
EBIT Increase.................................................................................... 2.2(d)
Effective Time................................................................................... 4.2
Environmental Permits............................................................................ 5.27(c)
Equipment........................................................................................ 5.33
ERISA............................................................................................ 5.22
ESOP............................................................................................. 5.22(j)
Financial Adjustment Notice...................................................................... 3.1(b)
Financial Certificates........................................................................... 7.20
FTC.............................................................................................. 7.5(d)
GAAP............................................................................................. 2.2(b)
golden parachute................................................................................. 5.22
Group 1997 Adjusted EBIT......................................................................... 2.2(b)
Group 1997 Adjusted EBIT Target.................................................................. 2.2(b)
Group Actual Earn Out EBIT....................................................................... 2.3(a)(i)
Group Closing Net Worth.......................................................................... 2.2(b)
Group Companies.................................................................................. Recitals
Group Company.................................................................................... Recitals
Group Company Agreements......................................................................... Recitals
group health plans............................................................................... 5.22(e)
Group Merger Transaction......................................................................... Recitals
Group Net Worth Target........................................................................... 2.2(b)
Group Representative............................................................................. 13.14
Hazardous Material............................................................................... 5.27(a)
Holding Company.................................................................................. 7.21
Indemnification Threshold........................................................................ 10.3
Indemnified Party................................................................................ 10.4(a)
Indemnifying Party............................................................................... 10.4(a)
Intellectual Property............................................................................ 5.17(a)
Interim Balance Sheet............................................................................ 5.10
Interim Financials............................................................................... 5.10
Interim Period Average........................................................................... 2.2(a)
Inventory........................................................................................ 5.33
knowledge of CCC................................................................................. 6
knowledge of Newco............................................................................... 6
knowledge of the Company......................................................................... 5
Laws............................................................................................. 5.15(c)(iii)
leased Real Property............................................................................. 5.15(d)
liabilities...................................................................................... 5.11(d)
Lien............................................................................................. 5.4
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Material Adverse Effect.......................................................................... 5.1
Material Contracts............................................................................... 5.18(a)
Maximum Earn Out Amount.......................................................................... 2.3(a)(i)
Maximum Earn Out Threshold....................................................................... 2.3(a)(i)
Merger........................................................................................... Recitals
Merger Consideration............................................................................. 2.4(a)
Merger Consideration Adjustment.................................................................. 3.1(b)
Merger Documents................................................................................. 4.2
Merger Price..................................................................................... 2.2(a)
multiemployer pension plan....................................................................... 5.22
Net Worth........................................................................................ 2.2(b)
New Accounting Firm.............................................................................. 2.3(b)
Newco............................................................................................ Recitals
Newco's knowledge................................................................................ 6
Other Group Companies............................................................................ Recitals
PBGC............................................................................................. 5.22
Pending Claims................................................................................... 10.3(c)(ii)
Permits.......................................................................................... 5.14
Permitted Encumbrances........................................................................... 5.15(c)(i)
Plan of Merger................................................................................... 1.1
Plans............................................................................................ 5.22
Pledged Assets................................................................................... 3.2(a)
Post-Closing Audit............................................................................... 3.1(b)
Prime Rate....................................................................................... 2.3(b)
Profit Sharing Plan.............................................................................. 5.22(j)
Proposed Numbers................................................................................. 3.1(c)
Qualified Plans.................................................................................. 5.22
Real Property.................................................................................... 5.15(a)
Registration Statement........................................................................... 6.9
Related Party Agreements......................................................................... 5.18(a)
Release Date..................................................................................... 3.2(c)
reportable events................................................................................ 5.22(c)
Representative................................................................................... 13.14(a)
Required Consents................................................................................ 8.4
Revised Earn Out EBIT............................................................................ 2.3(b)
Revised Numbers.................................................................................. 3.1(c)
Securities Act................................................................................... 7.10(c)
Specified Percentage............................................................................. 2.3(a)(iii)
State Corporate Laws............................................................................. 1.2
Stockholder...................................................................................... Recitals
Stockholder Approval............................................................................. 13.14(b)
Stockholder Indemnified Parties.................................................................. 10.2
Stockholder Indemnified Party.................................................................... 10.2
Structures....................................................................................... 5.15(c)(ii)
Supplemental Financial Certificate............................................................... 7.20
Surviving Corporation............................................................................ 1.1
Tax.............................................................................................. 5.24(c)(i)
Tax Return....................................................................................... 5.24(c)(ii)
tax-free reorganization.......................................................................... Recitals
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Territory........................................................................................ 11.1(a)
Third Party Claim................................................................................ 10.4(b)(i)
Title Commitment................................................................................. 7.3
Title Policy..................................................................................... 7.3
Total Base Merger Consideration.................................................................. 13.14
Total Contingent Merger Consideration............................................................ 13.14
UCC.............................................................................................. 5.33
Year-End Net Worth............................................................................... 5.9
</TABLE>
iv
